YOUGHAL, IRELAND – As expected, the Dow bounced back yesterday.

The index was up 400 points. But this morning opened with another downdraft.

Maybe the bubble and the pin have found each other. Maybe they haven’t. TBD…

Fall Guy

Also as expected, the president of the United States is setting the Fed up to be the fall guy for when the crash does come.

The “King of Debt” has more to fear from a big sell-off than anyone. His personal fortune was built on low interest rates. As real estate prices in New York doubled in real terms over the last 20 years, developers like Trump used cheap, borrowed money to leverage that gain.

The Donald’s political career was also built on EZ money.

If the feds had not used fake money and fake interest rates to rip off the common man, the masses wouldn’t have lost faith in their elite Democrat and Republican leaders.

The fix was in. Americans didn’t know how (and still don’t). But they sensed that something was deeply wrong, and they hoped a blunt, bold outsider would set things straight.

So they turned away from the center… and turned to someone they believed to be “self-made”… who looked and sounded like a very common man himself.

Thus, they made one of the biggest beneficiaries of the rigged system – Mr. Donald J. Trump – their champion. Mr. Trump may have made himself into the man he is. But the Fed deserves some thanks for putting him in the White House.

Serpent’s Tongue

And now, sharper than a serpent’s tongue, the ingrate turns on his biggest benefactor. The Wall Street Journal reports:

While the Fed is supposed to be independent “in theory,” Trump suggested that he wouldn’t keep quiet and let the central bank wreck the economy.

He said the Fed was supposed to be independent “in theory,” but…

“To me, the Fed is the biggest risk, because I think interest rates are being raised too quickly.”

Asked what would push him to try and remove Powell, Trump refused to answer with specifics.

Mr. Trump demurred when asked under what circumstances he’d remove Mr. Powell. “I don’t know,” he said.

“I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates.”

Mr. Trump said it was “too early to tell, but maybe” if he regrets nominating Mr. Powell.

Pressed about what he believes is the biggest threat to the U.S. economy, Trump replied: “The Fed” adding that every time he tries to do something great, they spoil the party.

“Every time we do something great, he raises the interest rates,” Mr. Trump said, adding that Mr. Powell “almost looks like he’s happy raising interest rates.” The president declined to elaborate, and a spokeswoman for the Fed declined to comment.

Notably, Trump also referred to the economy as “my economy” and complained that he couldn’t be expected to compete with Obama, who benefited from near-zero rates during his entire tenure in office.

The president’s caustic comments about Mr. Powell came as Mr. Trump repeatedly described the economy in personal terms. He referred to economic gains during his time in office as “my numbers,” saying, “I have a hot economy going.”

He described his push for growth as a competition with former President Obama’s record, saying that increases under his Democratic predecessor were skewed because of low interest rates.

Citing the rate increases, Mr. Trump said, “How the hell do you compete with that? And Obama – remember this, it’s very important – Obama had zero interest,” the president said.

Yes, taking shape is a delicious – though devilish – comedy…

Mr. Trump is right. The Fed will be largely to blame for the coming crisis. He’s right, too, in that “his” economy and “his” numbers might look a whole lot better if the Fed wasn’t trying to raise rates.

And he’s also right that another tax cut might heat up “his” economy even more, just like more military spending would make “his” numbers look even better.

Too bad it’s all a gigantic fraud.

You can get a rush by cutting taxes (without lowering government spending)… and by spending money you don’t have on things you don’t need… and lending money nobody ever earned or saved at artificially low rates to people who can’t pay it back…

…but you can’t build a stronger economy that way.

Freedom or Slavery

But we’ll return to those dots next week.

Today, let’s complete our look at the new threats coming from new technology. Earlier this week, we made the case that the Information Revolution was a big, fat flop. Personal computers and the internet gave us more information faster, but it did absolutely nothing to speed up real economic growth rates.

And yesterday, we wondered about Big Data companies like Google and Facebook. Do they shift the balance of power towards freedom or towards slavery?

We have an office in Beijing. In our line of business, we can’t help but criticize the government there. Governments have economic policies, and they are invariably idiotic.

In America, the stock market is almost sure to blow up sometime in the near future. Mr. Trump seems to be setting up the worst possible response – more debt and more spending… making Big Government bigger and the Swamp deeper, etc.

But the Chinese government is even worse.

For years, the Chinese ran an economy that was nearly 50% capital investment. There’s no way you can invest that much money efficiently, effectively, or sensibly. The capital waste – the misallocation of resources – must have been massive.

And now, China has dozens of ghost cities… millions of square feet of unsold apartments and retail space… overcapacity in practically every major industry… and $40 trillion of unpayable debt.

But while we can still freely criticize Mr. Trump, criticizing Mr. Xi could get our poor China-based partner thrown in prison.

China has a new, tech-based “Social Credit” system.

It’s a Big Data/algorithm-driven system for keeping track of people… and controlling them.

You lose points if you say something “negative” about the economy, for example… or if you’re late with your mortgage payments… or if the facial recognition cameras catch you jaywalking.

Then, based on this score, a person might not be allowed to buy an airline ticket, travel by train, get a mortgage, or even get a credit card.

So you could go to the ATM and you find that it doesn’t work – for you.

Not only does your card not work… no one can tell you why it doesn’t work. You are simply out of luck – and out of money. And, by the way, your access to the internet has been cut off. Your phone, too.

What happened? Did you visit the wrong websites? Did you subscribe to the wrong magazines or join the wrong groups? Did you criticize someone you shouldn’t? Or are you just part of a group – identified by algorithm – that the feds want to suppress?

And what can you do? To whom do you complain?

Are we being paranoid? Well, we hope so.

Erased From the Internet

But our Chinese partners told us something even more disturbing. A few years ago, we wrote a book with our son. Called Family Fortunes, it was about how to keep money in the family over more than a single generation.

A Chinese billionaire saw the book. He liked it and had it translated into Chinese. And then he invited us over to give a speech, followed by a cocktail reception, and so forth.

That was last year. We just found out on Friday that this billionaire was arrested… and has now disappeared.

Completely disappeared.

This was a very rich, very powerful man… who was apparently well-connected to the Chinese hierarchy.

But if you go on the internet, you will find no trace of him; he has been erased – scrubbed out of China’s history and present.

He is no more… and apparently, never was. Maybe he’s in a work camp. Maybe he’s dead. Who knows?

And yes, that is the dark power of the Information Revolution. We depend on our laptops, iPhones, credit cards, and a whole range of electronic data – much of it compiled by Big Data companies like Facebook and Google.

Using this data and the vital electronic links that connect us to the rest of the world, the feds can now monitor, manipulate, and control the behavior of millions of people.

In effect, the new technology – although, so far, useless as far as economic growth and material prosperity are concerned – may finally make slavery profitable again.

That is, it may make it possible to keep huge numbers of people in check, at a very low cost.

You may be able to walk around, work for money, and socialize as if you were free. But you might have to be as docile as a slave: totally submissive to the feds’ rules… unable to voice any discontent over the feds’ policies… and beholden to the feds for your car, house, and every penny you spend – all bought with the feds’ credit.

Have a nice weekend!

Regards,

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Bill

MARKET INSIGHT: WHY ARE CENTRAL BANKS HOARDING GOLD?

By Joe Withrow, Head of Research, Bonner & Partners

Central banks are increasing their yearly gold purchases for the first time in five years…

That’s the story of today’s chart, which maps annual net gold purchases by central banks around the world going back to 2012.

Chart

As you can see, central banks reduced their gold purchases every year from 2014 to 2017. But that trend will end in 2018.

Central banks are on pace to buy 450 tons of gold this year – worth roughly $17.8 billion at today’s price. That’s a 20% increase over 2017, and it’s the first yearly increase in gold-buying since 2013.

So why are central banks buying more gold?

According to the World Gold Council, central banks have picked up their purchases this year to hedge against the rapid depreciation of emerging market currencies… as well as increased geopolitical risk.

The World Gold Council also suggests that this uptick in central bank gold-buying may be the start of a global shift towards a “multipolar” monetary system.

Currently, the U.S. dollar serves as the reserve currency for the global financial system. But the World Gold Council suggests that may be changing. Gold could retake its place as the cornerstone of global finance.

A first step towards this may be taking place in China.

China’s Belt and Road Initiative – which seeks to connect the economies of Europe with those of Central and East Asia through trillions of dollars of infrastructure spending – will likely create demand for a new reserve currency… But the Chinese renminbi may not be accessible enough to serve this function.

On the other hand, gold is a universally accepted asset with a deep and liquid global market – making it well-suited for international trade. And according to recent data, gold imports to China have increased 700% since 2010.

If the World Gold Council is right about a global shift towards gold, this increase in central bank gold purchases will be a multi-year trend as international demand for gold rises.

– Joe Withrow

FEATURED READS

How Your Data Was Used in a Multimillion-Dollar Fraud Scheme
As Bill wrote above, there is a dark side to technology. According to new reports, millions of users’ data was hijacked and used to pull off a multimillion-dollar ad fraud scheme.

Why You Should Own Fewer Stocks… And Hold Them Forever
Most dear readers are looking for ways to be better investors. In this essay, Chris Mayer, one of Bill’s ace stock pickers, reveals one of the best ways to get rich from stocks: buy fewer of them… then forget you ever did.

The Bounce Imploded
As Bill warned yesterday, don’t buy the dip. Our editor appears to have been on the money. Stocks are off to a rough start this morning, and it could get worse before it gets better.

MAILBAG

In the mailbag, readers consider the failure of technology…

I’m only sending this for the first part about information technology. In the ’90s, I told Ed that you can’t base an economy on information as all of the manufacturing jobs, etc. fled to other countries. Maybe I had something.

– Betty G.

“Teeka Tiwari told us in Bermuda that real techies don’t use Google or Facebook anymore.” With over 600,000 followers on Facebook, and a lot on various other social media channels, too, I can confidently say Teeka knows not of what he speaks. I don’t like social media much, but it is a reality. It is the way we connect nowadays. It is the replacement for letter-writing, telegrams, book groups, penpals, gossip in the piazza, and much more.

I have tried those blockchain alternatives… Mmm… they are full of techies. That’s all that needs be said, really. Young people – normal, non-geeky ones – aren’t there. They are on Instagram, WhatsApp, and Snapchat. Housewives are doing it all on Pinterest, and book groups are now Facebook groups. Those who like to keep things private are on MeWe. If you ever have an hour to spare, I’d be happy to take you on a journey into my world of social media. Maybe it has possibilities for your world, too.

– Andrew

Meanwhile, after Dan Denning shared his most recent findings of overlooked American towns, a Dear Reader writes in with details of his own bolthole…

Dan, if you ever decide to come through Texas (no state income tax, no rural zoning regulations or building permits, moderate weather, a long growing season, and Second Amendment-friendly) on your bolthole road trip, I have a project that may interest you.

My wife and I bought 92 acres, and we’re building an all-concrete, earth-sheltered house on it. Between the energy efficiency and the solar cells we will put on top of the house, we should easily be self-sufficient, if not (yet) completely off the grid.

The house includes a 10,000-gallon water cistern that is fed from a well. The house is tornado-proof, pretty much fireproof, bomb-proof – basically everything-proof. I will attach a photo or two of the construction so far. We’d be happy to show it to you, if you ever get down this way.

– Lee P.

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A Dear Reader shares details of his own self-sufficient bolthole

Editor’s Note: Did you get a chance to read Dan’s most recent report from the American road? Bill Bonner Letter readers can catch up here. And if you’re not yet a subscriber, join Bill and Dan right here.

IN CASE YOU MISSED IT…

The biggest power shift in the last 100 years is happening now. And it’s creating a tipping point in the next generation of energy metals.

If you know where to put your money ahead of time, you could see once-in-a-lifetime gains. To learn how you can take advantage of this megatrend, watch this video.

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