Money makes the world go around
It makes the world go ’round.

– “Money,” Cabaret

RANCHO SANTANA, NICARAGUA – We started out last week with the best of intentions.

We were going to take a rest and spend time recalling what we have learned so far.

The idea was to bring new readers into the conversation. And for the benefit of longtime readers (if there are still any left)… to get our bearings.

But the spectacle of President Trump proposing to defund up to 80 claptrap government programs was just too alluring – such low-hanging fruit, we had to stop and enjoy it.

Clever Scoundrels

We’re sure now: Mr. Trump’s program will not “drain the swamp” or “make America great again.”

But it still may be fun.

And we’re still not sure about Trump himself. Is he shrewdly calculating – creating diversions (the border wall… the “skinny budget”… the travel ban… Obama spying on him) – to push through some clever reforms amid the chaos?

Or is he a complete dumbhead jackass… blundering helplessly… wasting our most precious resources (time and energy) on fights without real meaning?

Who knows…

But today (before getting down to work), we applaud the Deep State – the “shadow government” that runs the country no matter who sits in the Oval Office or which party controls Congress.

What a clever bunch of scoundrels.

First, they back Jeb and Hillary, and then (on election night!), they move swiftly behind Donald J. Trump.

It looks like the fix was in all along. Hillary was a proven friend of Wall Street and the military. “The Donald”… it turned out… was an even bigger friend.

The rest – at least from the Deep State’s point of view – is all noise.

Conspiracy Thinking?

And then, the pièce de résistance: After the election, Mr. Trump tweets that the “Deep State” was spying on him.

Well… of course it was. The Deep State spies on everyone. That’s what it does.

But the president makes it sound like a narrow partisan issue. It’s as though the Deep State spied on him particularly because he, a Republican, threatened it.

The Democrat-leaning mainstream press took the bait in just the way you’d expect. “There is no Deep State,” they say. Donald is just a “conspiracy nut.”

Here’s CNN’s Tim Naftali:

[White House Press Secretary Sean] Spicer’s encouragement of public delusions of the existence of a super-secret, unelected “Deep State” supposedly intent upon sabotaging the new president was poisonous… But the “Deep State” concept is nonsense, a product of Soviet Cold War propaganda, domestic leftist and right-wing conspiracy thinking…

Could the Deep State ask for a better outcome?

It has a better grip on power and money than ever before. And the very idea of its existence is being discredited. It’s just a right-wing fantasy!

Makers and Takers

Truth is hard to come by in public affairs. Even a little bit of it is rare. And a little bit of it is all we have.

But we go with what we’ve got…

There are two groups of people in an economy: those who work, save, and invest honestly and create wealth… and those who try to take it from them.

The makers… and the takers.

The makers do win-win deals with one another. One exchanges a day’s worth of labor. Another trades $50 of savings. Both learn. Both come out ahead.

The takers have a variety of business models, too. Some are freelance, sticking up liquor stores or stealing credit cards. But most ply their trades legally, using the government to crack heads as necessary.

They nest in the feds’ “feel good” programs, like the Environmental Protection Agency (EPA) and the Securities and Exchange Commission (SEC).

They burrow into the Defense Department, too. And they particularly like the dark corners of the spook organizations – where they get power over people by spying on them… knowing their secrets… and threatening harmful disclosures, harassment, and lies.

But there are many more people in the Deep State than just the spooks; the swamp is full of them.

Some use regulations to take others’ wealth. Some use legislation. Others use the feds’ fake-money system.

Many of these – probably even the majority – are not even aware they are participating in a fraudulent conveyance.

They go to the best universities. They can talk about the Fed’s “dynamic stochastic model.” Or they simply invest alongside the great genius from the plains, Warren Buffett.

They think they are making money because they are smart. But they are not adding wealth; they are just taking it from the ordinary working stiffs who earned it… with the hidden help of the feds’ fake-money system.

(Your editor speaks with some authority on this. In 1979, he stumbled into the business of offering alternative investment ideas. He is a man of modest talents. Yet his business has grown immodestly – far faster than GDP – and now has offices in 11 countries with hundreds of analysts and researchers.

Why? How? Unbeknownst to him, he had the wind of the feds’ fake money at his back. The more it blew asset prices to dangerous and unrealistic highs, the more people wanted to know how to get in on it.)

Poverty Effect

And here we pause to explore how the Fed’s “wealth effect” actually works.

The hypothesis behind boosting stock and bond prices with ultra-low interest rates is that it will cause financial asset holders to feel wealthier and rush out and spend.

With enough university training, an economist might find this idea fetching. But a philosopher… or simply a man with his head screwed on right… sees immediately that it is total nonsense.

If you increase asset prices by lowering interest rates – producing a “wealth effect” – you must also produce a “poverty effect” by lowering, proportionately, everything else.

Imagine the fellow who needs to save enough to supplement his retirement by $10,000 a year. At an interest rate of 10%, he would need $100,000 in savings. But at an interest rate of 1%, he’d have to save $1 million… which would take him 100 years!

And during this time, he would be taking money out of the consumer economy, offsetting the spending spree happening on the rich side.

That’s why eight years of near-zero interest rates have produced such anemic economic growth. The rich get richer. Relatively speaking, families without stock and bond portfolios get poorer.

Based on the Dow, the rich guy’s stocks went up 20 times over the past 35 years. The poor guy’s wages went nowhere. And GDP rose only six times.

In other words, the people who owned stocks saw their assets increase three times faster than the real wealth of the economy. Now they can buy more of the poor man’s stuff, including his most important asset: his time.

The system didn’t make the economy richer. It has simply shifted wealth from the middle class to the rich. It is not a “wealth effect.” It is simply larceny.

Yes… money makes the world go around. And today’s fake money gives it a special spin – corrupting and misleading the whole economy.

The takers love it.

Now over to our editor at large, Chris Lowe, for today’s Market Insight.





Market Insight


Chris Lowe

The U.S. isn’t the only place where stock prices are soaring. The whole world is in rally mode…

Today’s chart is of the FTSE All-World Index.

It tracks a broad range of stocks in the U.S. along with 46 other developed and emerging markets.


As you can see, the index has broken above its 2015 peak to reach an all-time high.

Chris Lowe

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Last week, Bill continued to divide readers’ opinions with his Diary titled “Fed Hikes, Markets Yawn.” So which is he? A broken record or a breath of fresh air?

You are a broken record. Anytime one is so sure about something, one is wrong as it will never work out like one thinks.

Is the government doing the wrong thing? Usually, yes. They really don’t know what the impact will be, how it will play out, but at least give a person a chance. It may surprise you, but you – like everyone else (especially in the finance newsletter business) – know very little. No real knowledge, just opinions, beliefs, etc., based on background and experiences.

One only has real knowledge, at times, in physics and engineering. If one cannot write an equation describing that area, one does not understand it. It’s all just talk.

You like to bash the defense and aerospace industry. But you should see how hard the worker bees function there trying to meet very difficult requirements. They’re trying to provide the best equipment for our troops, as they have to fight the war.

– Ronald M.

I have been reading your weekly articles for two years and I love all your humor along with your fresh and honest banter concerning everything. Please don’t change a thing!

I’m turning 65 on Easter Sunday, and I’m tired of all the same ole B.S. I’ve read for all these years. In 1974, when I was in college, the national debt was about $475 billion, and our economics professor wanted to hear our ideas about how our generation was going to pay it back. Needless to say, the class got a little heated about why he thought our generation was responsible for the payback when we didn’t spend the money.

Fast forward to our current growing debt, and it seems like… well… let’s just print as much as we want… no one cares, and nothing is going to happen when we do it!

Thanks for your keen wit, vast knowledge, and worldly view of things.

– Bob R.

In Case You Missed It…

Chris Mayer – the only analyst that Bill Bonner follows with his own family trust money – is hosting a free webinar this Thursday where he will reveal a secret usually guarded by the world’s best stock pickers.

However, you don’t have to wait until Thursday to take action. That’s because Chris is releasing free training videos every day leading up to his webinar. You can register for Chris’ free webinar and gain access to the first training video right here.