‘In America, all the restraint, inhibition, and modesty of the Old Republic has been blown away by the prevailing winds of the new empire. In its place has emerged a vainglorious system of conceit, deceit, debt and delusion.’
Empire of Debt,
by Bill Bonner and Addison Wiggin
In our opinion, we have clearly reached a turning point. Trouble is that the authorities may not turn. They need to turn away from money-printing, deficits, and expensive overseas meddling. Typically, the ruling class can’t do it. These things increase their wealth and power; they don’t want to give them up. Instead, they use tricks, disguises, and brute force to keep the racket going…all the way to the disastrous end.
Will this time be different? We’ll see…
A tear in the fabric
In the great boom 2009–22, anything seemed possible. Money grew on trees. And trees all got the Fed’s Miracle-Gro. It could be used to pay for pointless wars…‘investments’ that didn’t pay off…deficits…zombies — you name it.
No more. Inflation changes everything. It raises prices. And higher prices make consumers unhappy…and make voters restless. The ‘social fabric’ wrinkles…then rips.
Here’s the latest from Bloomberg: ‘More Young Adults Are Living Paycheck to Paycheck in the US’:
‘The share of young people who struggle to cover everyday bills jumped from a year ago, while that of seniors living paycheck to paycheck leveled off, according to a report.
‘Almost two-thirds of adult Gen Zs — people who are 26 and younger — were living paycheck to paycheck in March, an 8-percentage-point increase from a year earlier.’
We have previously seen how inflation damages the middle class. The poor have their inflation-adjusted handouts. The rich have their inflation-boosted financial assets. The middle class has neither. All it has is its time — which it sells by the hour.
Inflation depreciates time. Long-term investments aren’t made. Long-term bonds get marked down. And real wages per hour have been falling for the last two years.
Others’ expense
Meanwhile, inflation increases house prices. But a home is not a financial asset. Families can’t ‘cash out’; they have to live somewhere. All they can do is borrow against the ‘equity’. And then they are trapped; they will need low interest rates to refinance — or lose their homes.
In countries with severe inflation, the middle class gets squeezed so hard it vanishes. Venezuela…Argentina…Zimbabwe — as inflation rates go up, the middle class sinks into poverty. That’s why democracy is incompatible with inflation. The many poor are dependent on government handouts; they are easily bamboozled and bribed. And the elite get to be good at it. They become ‘extractive’, that is, they use their skills and power to make themselves rich at others’ expense.
An honest democracy needs a free, informed middle class. It needs a yeoman class — people who own their own farms and houses…who pay the taxes…who are ready to protect the homeland…and vote independently.
So, look what’s happening. Statistica reports: ‘America’s Middle Class Is Shrinking’:
‘While middle class Americans remain the biggest income group by number of people, the same can’t be said of the aggregate income earned by them. From 1970 to 2021, the share of U.S. aggregate income earned by the middle class shrunk massively, from formerly 62 percent to just 42 percent. During the same time, aggregate earnings by high income Americans increased from 29 percent to 50 percent…’
The disappearance of the middle class corresponds with another of the great conceits we can no longer afford: an empire. We wrote a book about it almost two decades ago: Empire of Debt, we called it.
The book, written with Addison Wiggin, was a best-seller. We were right about a number of things. So, the publisher, John Wiley & Sons, has asked for an update.
Our book was written in 2005. Then, US debt was US$13 trillion, 60% of GDP. Today, it’s US$32 trillion, 120% of GDP.
Stumblin’ and bumblin’
One of the features of the Roman Empire was that it destroyed the middle class — the people whose blood, sweat, and taxes had built the empire. It was these people who picked up their fathers’ swords and defended Rome when it seemed ready to fall to Hannibal, for example. It was they who filled the ranks after the disastrous battle of Cannae, 216 BC, in which Rome lost 50,000–70,000 soldiers…and again, after three entire legions were massacred in the Teutoburg Forest in 9AD.
And how did the empire reward them? It brought in thousands of slaves. And soon, the small freeholders couldn’t compete with huge latifundia, farmed by slaves. And then, the government inflated their money and raised taxes. They sold their daughters to keep up. And then, they sold themselves into slavery.
But at least the empire was profitable!
The gist of our book is that though the US has been in the empire racket for more than 100 years, it has never gotten the hang of it. It extends its power…it offers protection to nations who obey, war, and sanctions to those who don’t. The trouble is, it loses the wars…and loses money on the whole enterprise.
The idea of an empire is that you conquer…steal…and then demand tribute. It’s supposed to be at least self-financing…and usually profitable. But the US stumbles and bumbles. It has the expense of conquering…then the expense of governing…and the extra cost of ‘building a democracy’. But where’s the pay-off? Where are the slaves? The booty? The tribute?
What is going on? And what does it mean for America’s middle class?
Tune in tomorrow…
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
