BALTIMORE – Let’s see… U.S. corporate earnings have been going down for three quarters in a row.

The median household income is lower than it was 10 years ago.

And now JPMorgan Chase has increased its estimated risk of a recession to about one in three.

These things might make sober investors wonder: Is this a good time to pay some of the highest prices in history for U.S. stocks?

Apparently, they don’t think about it…

Grotesque Mutants

Yesterday, U.S. stocks rose again, after the Fed announced that it would go easy on “normalizing” interest rates.

The Dow rose 156 points, putting it in positive territory for 2016.

Hooray! Investors – at least those who passively track the index – are even for the year. And with more central bank fixes, maybe they’ll be able to keep their heads above water for the rest of 2016. Good luck with that!

You may recall our prediction: The Fed will NEVER return to a “normal” interest rate.

Why not?

Many Wall Street analysts say the Fed’s move to bring interest rates to a more normal level – after seven years of ZIRP (zero-interest-rate policy) – was “too early.”

We think it was too late. The Fed has already distorted too much for too long.

Its EZ money policies have created a hothouse of speculation, mistakes, and misallocation of resources.

The financial plants that grew up in that environment – grotesque mutants that require huge doses of liquidity – cannot survive a change of seasons.

But these plants are big. And powerful.

Washington… the health care industry… housing… Wall Street… They control the U.S. government, the bureaucracy, and major economic sectors – notably the $1 trillion-a-year security industry.

What they need – what the entire economy needs – is a correction. Excess debt must be purged. That’s what credit cycles, bankruptcies, and depressions are for.

“Normal” includes corrections. But the feds can’t let it happen.

They’ve staked their careers – and their fortunes – on the myth that they can tame the credit cycle… and prevent serious setbacks. They’re not going to give up now and admit defeat. They’re not going to let their major crony friends –or their campaign contributors – go broke.

Freaky Finances

Yes, the feds created this freakish financial world. They cannot fix it because they want it to stay broken. So what if it doesn’t make the typical family better off? It makes THEM – the feds and their cronies in the Deep State – better off. And that’s what really matters.

In these Diary entries, we have shown how the system has become “extractive” rather than productive.

In a normal, healthy economy, people work, save, invest, and build real wealth one dollar at a time. But today’s dollar is different. And the economy is different, too. It runs on credit, not real savings, and builds debt – not wealth.

Instead of encouraging savings – which is what you need to make progress – it penalizes thrift. Over the past 10 years, U.S. savers have lost nearly $8 trillion, extracted from them by the Fed’s ZIRP.

While savers were punished, borrowers were rewarded.

Since 1980, the U.S. economy has added about $50 trillion in excess debt – above and beyond the real output that can comfortably sustain it.

This $50 trillion came not from honest work and saving. Instead, it was conjured up by banks – out of thin air.

And now, the productive Main Street economy must pay interest… and principle… on that debt – effectively extracting real wealth from the real economy and sending it to Wall Street and other favored industries.

The scam is so elegant that not one person in 1,000 understands how it works. We’ve been studying it for years, and we’re still in awe. But the result is obvious: Honest working people struggle to stay in the same place, as real wealth goes to the elite.

Scammy Policies

The plain people may not understand it, but they don’t like it. And they count on Donald J. Trump to do something about it.

Alas, even the best swindle runs into trouble. The debt burden crushes the life out of the real economy. Productive sectors sink into the mud. Manufacturing disappears. Business slows. Trade slows. Borrowing slows.

And soon, the feds are paying people to borrow! As Chris Lowe reported in Wednesday’s Market Insight, about one-third of developed country government debt – worth roughly $7 trillion – is now trading at negative yields.

And then, even more elegance…

With the world economy slowing down, central banks adapt to the world they created.


With more scammy policies.

“Global risks bring Fed into line… ,” reads a headline in yesterday’s Financial Times

The Federal Reserve has scaled back its forecasts for lifting interest rates this year, coming closer into line with market expectations for two quarter-point rises as it flagged up risks to the U.S. outlook from global, financial, and economic developments.

See how it works?

Central banks destroy the real economy with cheap money and extractive policies. Then, as the economy slumps, they need to bring their policies in line with the slumping economy. They need to swear off raising rates back to normal.

And since their policies can never produce real prosperity, they can never produce an economy that can support normal interest rates.


Forget it.

Eventually, normal will make a comeback. But not because the Fed wants it. Instead, the markets will normalize – brutally ­– over the Fed’s dead body…

… Which is just the way we’d like it.



Bill Bonner

Further Reading: That $50 trillion of excess debt sloshing around in the U.S. economy like a noose around Washington’s neck. And it could drag the country – and you and your loved ones – down further than most folks dare to imagine.

It’s a disturbing story that can only be told by Bill. He shares it all – including his personal tips for how to avoid the worst of it – in this online presentation. Watch it here now.

Market Insight


Mr. Market saw the Fed’s more dovish tone on rates coming…

The U.S. Dollar Index tracks the exchange value of the buck versus a basket of six major trading partner currencies.

And as you can see, it has been falling since last December.

All else equal, the dollar tends to strengthen versus other currencies as U.S. interest rates rise.

That’s because investors earn more income on their U.S. bonds and bank deposits.

Conversely, lower rates – or even the anticipation of lower rates – tend to weaken the currency.

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More insights from readers today on the state of U.S. politics…

Thanks for a rational and entertaining description of the present situation.

My fear is not that Trump might be elected, but that a large fraction of the population is neither rational nor knowledgeable about what is wrong. The similarity to Germany when Hitler came to power is too close to be ignored.

The angry brought Hitler to power and the psychopaths did his bidding until everyone was destroyed. Trump is focusing the same forces. God help the U.S. because we are now at the mercy of the ignorant and irrational.

– Edward S.

It isn’t just Trump that has me shaking my head during this election season. I am pondering how the world’s richest, most dynamic, most powerful and technologically advanced nation has, out of a population of 350 million, come up with this half dozen candidates for its leader.

You would think that such a position would attract, and demand, the finest intellects, philosophers, business or military leaders, all well-rounded, well spoken, insightful and respectful. Is it the job that scares off credible applicants, or is it that the Deep State doesn’t want anyone with too much insight or critical thinking?

– Gary M.

Wouldn’t it be to the chagrin of everyone if Trump picked Bernie Sanders as his running mate? Now that would make for some real fireworks…

– Levi J.

What a coincidence. Just few days ago received letter from the Republican National Committee saying how desperately they needed more money. Told friend they probably wanted money to fight Trump.

– Virginia W.

A Trump presidency would bring legislation by domination… and would result in foreign and domestic stagnation.

– James B.

But not everyone is thinking about the elections…

Thank you for your daily mail, it’s the first thing I read when I open my emails.

Humor is the clearest sign of a well-developed intellect and it’s wonderful to savor it in your writing.

My father who passed away would have loved your opinions, he believed in finance grounded on sound and tested methods. Your writing has helped steady my beating heart and stick to gold investments while making a good profit year to date…

If we can keep laughing at all this madness, we can get through it safely. Keep up the good work inspiring us all.

– Michael E.

I agree with the advice from Mr. Ford. Take a 15-minute walk and think about your place in this world.

As you point out, it is only necessary to do this if you believe this world is all there is. The trajectory is set. How you feel as you move through it seems to be what matters…. to voters, the public, as you would prescribe.

Now, think of how fortunate you are to have achieved this perspective and to have the majority of the world gain access to it in minutes… truly amazing. Man is man. No more, no less. Enjoy the ride. It just takes the proper perspective. The good news is… breathing in again is still in the picture.

– Chris B.

What are you doing to take your mind off the political circus in Washington?

Write to Bill and the team at [email protected].

In Case You Missed It…

The publisher at Agora Financial took to the streets of Baltimore to demonstrate how easy his newest investment strategy is.

In this entertaining video, he shows two people with absolutely no investing experience how to make $127 in the market in less than three minutes.

Watch it here.