POITOU, FRANCE – Sound the alarm. Take your money off the table. Pack your socks and your passport. There’s going to be trouble.

The Washington Post reports: “Steven Mnuchin, Trump’s treasury secretary, is hurtling toward his first fiasco.”

Republicans have majorities in both houses of Congress. Yet they cannot do the one thing they all agreed they should do and they all promised to do. And if they don’t do it, the country will go broke.

“Crumbling health bill dents McConnell image as top tactician,” says the Associated Press.

“How Trump and Republicans failed on their health-care bill,” explains the Post.

“Republicans’ health-care split goes all the way to the party’s soul,” declares another Post headline.

Rejoicing or whining, the media is all over the story. But the more important dots are buried deeper.

Guns and Butter

Democrats, from the time of FDR, wanted a welfare state. They got it. Cost? About $2.5 trillion per year.

And since Reagan and the rise of the neo-cons, the Republicans wanted a warfare state. They got that, too. At a cost – all in – of nearly $1 trillion per year.

Between the two, that’s nearly 90% of the entire federal budget…

The “guns versus butter” debate goes way back. Lyndon Johnson was warned that the country could afford a war on poverty or a war in Vietnam, but not both at the same time. The big Texan paid no attention.

Debts and dollars piled up – many of them in the Bank of France via its branch offices in Southeast Asia.

Jacques Rueff was former French President Charles de Gaulle’s finance chief back then. And Rueff was no fool. It was he who had put the French economy back on its feet after World War II.

In the 1940s, France had been defeated, divided in two, and then run by military administrators. The Third Republic fell. Food was rationed. Other consumer goods – from nylon stockings to Renault cabriolets – disappeared.

Then important sectors of the economy – banking, insurance, airlines, autos, steel, cement – were nationalized under the heavy influence of socialists and communists in the après-guerre government. Inflation was out of control, as the French feds put in a welfare-state system under the guidance of economist Jean Monnet.

Rueff sorted this out in two key moves. He devalued the franc, making it convertible to gold. And he balanced the government’s budget. Honest money and honest finances did the trick. The French economy boomed for the next 30 years.

Printing Dollars

In the late 1960s, however, Rueff was confronted with a challenge – America’s “guns and butter” fiscal program.

The U.S. was kiting its expenses by printing dollars… many of which were stacking up in the Bank of France.

What to do?

Rueff advised de Gaulle to take dollars forthwith to the U.S. Treasury and exchange them for gold. He knew that even rich Americans couldn’t afford a warfare state and a welfare state at the same time.

He was right.

Gold could be bought for $37 an ounce on the open market on the last day of 1970. A decade later, it was $589 an ounce. Today, it stands at $1,243.

Had you done nothing other than put your money in gold when the U.S. went off the gold standard, you would have multiplied your capital 33 times.

By contrast, the Dow has gone up 26 times in the same period… not including dividends.

Broken Promise

But back in 1971, few people noticed the change in America’s money.

It was then – under the administration of Richard Nixon and ill-advised by economist Milton Friedman – the U.S “closed the gold window” at the Treasury, reneging on the solemn promise to convert foreigners’ dollars to gold at a rate of $35 per ounce.

Thereafter, the dollar could not be redeemed for gold at a fixed, statutory rate. And thereafter, there was no obvious limit to how much butter or how many guns the feds could afford.

This fake money is what has fueled the growth of the two big projects of the Deep State: imperial wars overseas and runaway welfare expenses at home.

But even fake money runs into limits. One of those is coming up fast. From the Post:

Mnuchin is hurtling toward his first fiasco, unable to get Congress, let alone his colleagues in the Trump administration, on board with a strategy to raise the federal limit on governmental borrowing. […]

Unlike other issues facing the Trump administration – such as passing a health-care bill and overhauling the tax code – raising the debt limit comes with a hard deadline of late September, according to Mnuchin. Failure to do so could lead the U.S. government to miss paying its obligations, causing what analysts would consider a historic, market-rattling default on U.S. government debt.

“We’re going to get the debt ceiling right,” Mnuchin said in an interview Monday. “I don’t think there is any question that the debt ceiling will be raised. I don’t think there is anybody who intends to put the government’s ability to pay its bills at risk.”

He’s right. Republicans and Democrats will come together to raise the debt ceiling. Both know they are beholden to the Deep State. And both know that the Deep State runs on fake money and debt. In the end, they will raise the debt ceiling.

But there is many a slip ’twixt cup and lip, as Shakespeare put it.

The Senators who found it so hard to repeal Obamacare will find it even more disagreeable to raise the debt ceiling. They will want concessions.

Some will insist on protecting their Northern Virginia cronies’ warfare scam. Others will want to throw a bone to the zombies in the welfare state.

It will be a spectacle worthy of WWE wraslin’. Posturing. Buffoonery. Threats. It’s coming in September, and we can’t wait to see it.

And we offer a prediction: There will be a lot of ale spilled on the floor before the debt ceiling is raised. “Go long vol” is our advice.




P.S. Your editor may be an old fuddy-duddy when it comes to investing; our colleague Jeff Clark is not. Your editor is a very long-term investor; Jeff is a trader, and very different from our Diary‘s “big-picture” view. Jeff believes you can spot short-term trading opportunities by studying the numbers alone.

The insight below is not our usual fare here at the Diary. But it’s a good counterbalance to the public spectacle we discussed above.


Market Insight: This Buy Signal Just Flashed for Gold Stocks

BY JEFF CLARK, EDITOR, Jeff Clark’s Market Minute

bill bonner

After chopping back and forth for the past several months, gold stocks are finally ready to rally. The Bullish Percent Index (BPI) for the gold sector just generated its first buy signal since December.

A BPI illustrates the percentage of stocks in a sector trading with bullish chart patterns. It’s a measure of overbought and oversold conditions. In most cases, a sector is overbought – and subject to a correction – when the BPI rallies above 80 (meaning 80% of the stocks in the sector are trading in bullish technical patterns).

A sector is oversold when the BPI dips below 30. And the BPI generates a buy signal when it turns higher from oversold conditions.

Here’s how the Gold Miners Bullish Percent Index (BPGDM) looks now…

Earlier this month, BPGDM dipped below 30. That’s an oversold condition – indicating that less than 30% of the stocks in the gold sector were trading with bullish technical formations.

But yesterday, BPGDM turned higher from oversold conditions and generated its first gold stock buy signal of 2017. The last buy signal we got from this indicator was back in December. Gold stocks – as measured by the VanEck Vectors Gold Miners Fund (GDX) – rallied 30% in just two months back then. A similar move this time would have GDX rallying above $27 per share by September.

There’s no guarantee, of course, that this BPGDM buy signal will play out the same way. But after chopping around for several months, the gold sector has plenty of energy to fuel a strong rally.

Jeff Clark

P.S. Every trading day, my free Market Minute newsletter tells readers where the action is headed for the day… including which sectors to watch and which to avoid. And it’s easy to join. You can sign up with just one click.

Click right here to subscribe to the Market Minute, and you’ll receive your next issue at 7:30 a.m. ET tomorrow.

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In today’s mailbag, yesterday’s Diary, “The Evil Genius of Obamacare,” has gotten some readers thinking…

When people think someone else is paying for something like Obamacare and other government “benefits” they aren’t very worried about how much it costs. When they have to pay for it themselves, they look for lower costs. If all government “benefit” programs were ended, the cost of government and of the services in question would drop precipitously. But no one wants those to end. Politicians love it, even when they know it will be paid for by future generations by hook or crook. Especially crook.

– Chuck B.

I take some exception as to how Bill stated one of Trump’s priorities: “Build a wall to keep Mexicans out.” I’ve lived all of my 69 years in U.S. cities and towns along the Mexican border and I have Mexican family members and numerous Mexican friends. Many of my Mexican friends and family support strengthening the border for the very reasons that Mr. Trump has stated; however, they won’t openly say so because some of them are in prominent positions and don’t want the backlash.

We who live along the border are well aware that our problem with illegals crossing the border is not with Mexicans, but a host of people from other countries, some of whom have hostile intent and pose a threat to all U.S. citizens including those of Mexican descent.

– Wendell F.

I wonder how many corporations would pass your “zombie” test. For instance, subsidies, tax breaks, and a host of other loopholes support the sugar industry.

– Christine C.

Meanwhile, one reader has a suggestion to help President Trump.

Please offer your services to President Trump and help this country get back on track. By the way, your “office” is simply beautiful. I don’t know how you get any work completed.

– James H.

Editor’s Note: Earlier this year, Bill’s team did send a memo to the White House. It contained a message from Bill warning of a looming crisis. We recently made that memo public. Read it for yourself right here.

In Case You Missed It…

Regular readers know that Bill is openly skeptical about cryptocurrencies. He warns that trading cryptos is more like gambling than investing.

But cryptocurrencies like bitcoin continue to be a popular topic with readers. So if you are curious about trading cryptos, we recommend you start by watching this free training video from cryptocurrency expert Teeka Tiwari.

In today’s free training video, Teeka reveals the name of one of his favorite little-known crypto plays. Watch it here.