GUALFIN, ARGENTINA – Stocks are chugging along, with the Dow nudging back to nearly 26,000.
But the economy seems to be giving way beneath them. Economist Gary Shilling:
The recessionary indicators are numerous. Tighter monetary policy by the Federal Reserve that the central bank now worries it may have overdone. The near-inversion in the Treasury yield curve. The swoon in stocks at the end of last year. Weaker housing activity. Soft consumer spending. The tiny 20,000 increase in February payrolls, compared to the 223,000 monthly average gain last year. Then there are the effects of the deteriorating European economies and decelerating growth in China as well as President Donald Trump’s ongoing trade war with that country.
Recession ahead? Surely. But when?
We’ll wait to find out, along with everyone else. And then, we will find out something else – that President Trump’s budget projections are pure fantasy.
POTUS’ budget comes in at $4.7 trillion. A $750 billion increase to the military and $8.6 billion for The Wall. It also presumes a 3% annual growth rate in GDP, with no recession. Neither of those things will happen.
A half century ago, both Democrats and Republicans rolled along in good order, on the firm footing of mostly balanced budgets. They had little choice. If not, federal borrowing would drive up interest rates – “crowding out” private borrowers – and force a general correction.
Then, in order to avoid reckoning with the results of over-spending on the war in Vietnam and the Great Society, the Nixon administration switched tracks. It changed the money system.
The new dollar, not limited by gold-backing, gave the financial engineers more to work with. They could add cash and credit almost at will. Consumer price inflation went to 10%.
The whole system would have crashed by now had Paul “Casey Jones” Volcker not stuck his head out the window, seen the dangerous curve coming, and slammed on the brakes.
Volcker raised the federal funds rate to an all-time high of 20% in 1980, thus whipping inflation before it got too out of hand.
But rather than learn their lesson, Volcker was replaced by Alan “Bubbles” Greenspan… and both Republicans and Democrats climbed aboard the DebtBall Express. “Deficits don’t matter,” they said.
And now, the runaway train gathers speed. The federal deficit was $587 billion in Obama’s last year. Mr. Trump’s budget increases it to $1 trillion.
Yesterday, we were wondering who pays this unpayable debt… along with what stops an unstoppable force and what moves an unmovable object – the subject fascinates philosophers.
But it bores the public. Debt? There are so many more interesting things – walls, Russian meddling, Michael Cohen, the China trade.
The Donald’s sans souci budget would add $4 trillion to the nation’s debt over the next four years; not until 2030 would it deliver a balanced budget, and that assumes good economic times for the next 11 years.
Our own estimate is that, by then, the U.S. will have federal debt totaling around $40 trillion. But who pays? Who cares?
Eventually, someone cares. And someone pays. That’s why a little foreign travel may be instructive. Here in Argentina, it is obvious who pays – the common householder, through inflation. His money loses its value like day-old bread.
The inflation rate here in Argentina has gone up to over 50% per year. As we reported yesterday, life is still pleasant… especially if you have dollars that you can exchange at 44-to-1 for pesos.
“Yes, it is good for foreigners,” our lawyer commented. “But a lot of people here are in bad trouble. The price of electricity is up 300%. The price of gasoline has more than doubled in the last year. Farmers can’t make ends meet.”
This morning, driving through a small town, we saw a long line of people in front of a bank. They were getting cash – so they can spend it. Nobody wants to leave money in the bank.
Living with inflation is an indispensable skill in Argentina; in America, too, it might prove more useful than a degree in economics. Never has there been a DebtBall Express that failed to run off the rails. This will be no exception.
But wait, can nothing be done to prevent the coming train wreck? Is there no Volcker who can take the controls? Why can’t debt just be “written off”?
Tomorrow… let’s take a trip to Canada… and see what happened there.
Editor’s Note: As Bill has said in the past, Facebook is the “noxious fruit of the fake economy.” As Jeff Brown, Bill’s go-to tech expert, shows below, the social media giant might be getting a little more noxious. Read on to see Facebook’s latest move, and discover the real motivations behind “Facebook Coin.”
By Jeff Brown, Editor, The Near Future Report
The news is out… social media giant Facebook plans to launch its own cryptocurrency during the first half of this year.
Facebook is talking with several digital asset exchanges about listing Facebook Coin when it goes live.
Early intel suggests that Facebook is creating a stablecoin – a cryptocurrency that is pegged to an existing asset… Most likely the U.S. dollar.
Presumably, Facebook users would be able to use the digital currency to purchase items across the Facebook platforms.
With over 2.5 billion users already, Facebook Coin will certainly gain immediate adoption… Creating a multibillion-dollar business for Facebook overnight, thanks to transaction fees.
But that’s not what this is about…
Simply put, Facebook is trying to save its own skin.
As you know, Facebook is under immense regulatory scrutiny right now. You’ll recall that Facebook CEO Mark Zuckerberg was hauled before Congress last year to testify about how his company handles user data, among other topics. Politicians like Elizabeth Warren are now openly calling for Facebook to be broken up under antitrust grounds.
Zuckerberg knows Facebook may need to make a major concession in the future to keep the feds from breaking up his business.
And what better way to pacify technologically illiterate government bureaucrats than to “share” profits with users… And the easiest way for Facebook to do that is with its own currency. Think about what a powerful concession it would be if FB were to give its consumers a few Facebook Coins a month for “contributing” to its platforms.
That’s what this is all about. The mainstream press will run stories that skim the surface but make no mistake about it: Facebook is keeping itself several steps ahead of the regulators with this move.
Don’t get me wrong, I’m not a fan of Facebook’s business practices. But that doesn’t change the fact that Facebook is one of the best businesses in history… and it’s still growing… And that’s not going to change for a while.
Lifetime bureaucrats like Elizabeth Warren will continue to howl about breaking up Big Tech companies like Facebook. And the mainstream press will continue to run with those stories as far as they can… But it’s not going to happen.
In fact, I would argue, that big governments prefer to have single, large depositories of extensive information on its citizens… what better way to “keep tabs” on everyone?
But that’s a story for another day.
For now, just know the real motivation behind Facebook Coin. It’s a good magic trick. It’s the sleight of hand that distracts the viewer while something else is going on behind the scenes.
– Jeff Brown
P.S. Facebook may be the first tech company to issue its own cryptocurrency. But it won’t be the last. I believe another tech behemoth is on the verge of releasing its own digital coin, an Amazon-coin. That’s right, I suspect Amazon will announce its own cryptocurrency this year. It could happen any day now.
Smart investors stand to profit if they position themselves before that announcement. And no, I’m not talking about buying Amazon stock or any cryptocurrency. There’s a “back door” to profit from this trend. Click here.
The Lure of Facebook
It’s been a year since the Cambridge Analytica scandal. And the social media giant Facebook is still facing new allegations. But as Jeff Brown mentioned, the lure of Facebook hasn’t suffered. In fact, the number of users is growing…
The Country Is Changing. Should the Elite Change, Too?
As Bill has said, the rich are the new pariahs. And with the latest U.S. college-admissions scandal, where bribes were paid in exchange for acceptance letters, the elite are on the table. Employers may start taking a second look at a resume of a Yale or Stanford grad, wondering whether he’s the real deal, or just a rich kid. But perhaps this scandal is raising a bigger question… the country is changing, should the elite follow suit?
This Is the Next Space Race
Two of the world’s great superpowers are in an all-out race for global dominance of one type of technology… And Bill’s go-to tech expert, Jeff Brown, reveals the next big trend you won’t hear from the mainstream media. One that’s already pervasive in our everyday lives… and one that most investors are overlooking…
Well, after reading your mailbag from “readers,” I see they don’t know how to read. (Except the Democrats from the Cortez district that get bought and paid for each election). Just like POTUS nowadays! Well, that’s nothing new, either. Just the fact that it’s legal to cheat right out in the open now. My point… how did we get so dumb… and lazy?
Well, I guess instead of breaking up a big bank like normal people, we are going to break up our last great industry in tech. Give them cheap food, gas, and a little distraction (anger), and it’s like herding sheep to slaughter. God help us.
– Brad W.
Another very interesting email, thanks. Also, I like how you print the comments from people who agree and disagree with you.
– Peter S.
Hi, Bill. I thought your article “Capitalism Didn’t Fail America. We Failed Capitalism” was possibly supporting an idea about “modern capitalism.” Starting with premises like, “if the owners want to pay a CEO even 1,000 times what they pay their median worker, it’s none of our business”… Well, it is our business – the morality of a working capitalist society.
We may go back to sometime in the 1970s, maybe earlier, when executive salaries started an escalation that was staggering. It played like an excited auctioneer, bidding up executive salaries (and for decades to follow). The game was rigged and we never looked back. Look, too, at Wall Street’s method for raising capital – invest big and get a 50% premium (options, warrants, etc.). Sometimes, wait a bit, then dump them on investors at your discretion and media hype.
It’s the morality of capitalism that has failed. Now, we have executives that fail to perform and are still rewarded for their services. That’s what Wall Street and corporations have a stranglehold on. Power corrupts from the top down. The value of that compensation had to be paid by someone… Guess who?
– Paul K.
Capitalism and socialism always fail separately. Together, they balance one another.
– Diary Reader
If capitalism encourages people to seek for more, then it is the elite (who call the shots) and their insatiable greed for more and more and paying less and less that is responsible for the system’s malfunction, by preventing the middle and lower classes from sharing in its benefits. (The so called trickle-down effect of Reagan’s.)
– Orestes V.
Mr. Bonner, I enjoy your emails. I’m curious about the costs you’ve incurred to establish your life in South America. I know that’s personal and really none of our business, but I think you are typically so candid about most things that it would be fascinating to have some greater insights into the realities of the course you’ve chosen to follow.
By the way… the mailbag is hysterical… and disturbing. I am genuinely perplexed as to how anyone who follows you could be so anti-capitalist and ignorant of history as so many of them appear to be. Keep up the good work. And in your seeking, remember to seek wisdom. I’ve been a Bonner subscriber for over a decade.
– David S.
The story of your ride up the pass and the unexpected meeting with Faustina was both inspiring and depressing. I admire the hell out of Faustina! That tough old lady puts these wannabe “survivalists” who run around in military camouflage, toting AR-15s to shame! No Navy Seal or Army Ranger can hold a candle to her fortitude and survival skills! They should bow down and worship at her feet! That’s the inspirational part.
The depressing part comes at the very end when your ranch foreman informed you that he would be unable to find men to rebuild the road over the pass because today’s youngsters are too accustomed to welfare, motorcycles, and television. I put myself in the “old veterans” category, since I grew up on a farm, working hard from age 7 to the present, and must shake my head in pity at the Generation Xers, millennials, and their marshmallow-soft, addicted-to-smartphones-and-junk-food kids. When the inevitable collapse comes, the American population will be decimated. There are very few Faustinas to be found, here.
– Dale A.
I am glad you are not en route to Paris. What a zoo over there. May you be safe amidst unusual and unsafe people who have compromising agendas. Be safe!
– Dale S.
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