‘So you think you can tell,
Heaven from Hell,
Blue skies from pain’
Pink Floyd
Our story so far…
The feds spent too much money. Prices went up. The Fed raised rates. Stocks and bonds went down.
‘Not to worry’, they said; the inflation was ‘transitory’. But months go by, and prices are still going up. Friday’s news from Breitbart:
‘With the February jobs report delayed until next Friday, a lot of focus today was on the Institute for Supply Management’s (ISM) services sector index for February. The ISM index held steady at 55.1, just one-tenth of a point below the January reading and above the consensus estimate.
‘Readings above 50 indicate expansion, while readings below indicate contraction. A reading at 50 exactly indicates levels were unchanged from the prior month.
‘In other words, this was a serious blow to Team Transitory.
‘The subindexes were also uncomfortably hot and point to inflation pressures remaining high. The employment index jumped from 50 to 54, indicating payroll expansion. That suggests we may get a hotter-than-expected payrolls number next week, which would increase pressure on the Federal Reserve to ramp up the pace of its rate hikes to 50 basis points.’
Cluster threats
So, the Fed must continue to raise its key rate until either 1) it gets ahead of inflation and/or 2) something goes seriously wrong.
Note that as long as assets are going up faster than interest rates, people will continue borrowing to speculate. This raises stock prices. But it also increases the money supply (banks create money as it is lent out). As the supply of fast money increases, prices rise (inflation). One way or another, the Fed must bring down the financial markets as well as inflation.
That is why Number 2 is what we’re prepared for here at our headquarters in Argentina; it’s where the risk is. We avoid it by only owning things (stocks, gold…real estate) that we want to hold for a long time, even through a major 10-year bear market.
All of that seems obvious to us.
Less obvious are the bigger, ‘cluster’ threats. Those are:
…the growing, unpayable, ‘national’ debt…
…war, and the decline of the US empire…
… the forced abandonment of traditional energy sources…
…and the destruction of the US economy by excess government spending and regulation…silly, distracting ‘culture wars’…sanctions and tariffs…and inflation.
Regulatory drag
These things pose even more risks to investors. We already have a government with US$31 trillion of debt. The deficit for this year is headed towards US$1.4 trillion. And interest payments of more than US$1 trillion per year are coming soon.
The ‘green transition’ crusade is going to be expensive too. ‘Alternative’ energy costs more than traditional oil and gas. And since energy is an essential component of modern life, at a minimum, standards of living will fall.
Regulations also cost money. Here’s Gilder Guideposts:
‘According to the American Action Forum, quoted in the Wall Street Journal, in two years the Biden administration has imposed 517 “regulatory actions,” with some $318 billion in total costs, worse even than the Obama administration’s $208 billion in costs in its first two years. In his entire term, Trump’s additional regulatory burden came to just $64.7 billion.
‘Federal regulations are gouging at least $2 trillion a year from the U.S. economy, some 8% of U.S. GDP, according to the Competitive Enterprise Institute (CEE). That comes to some $14,684 per family more than is extracted by the federal income tax, the CEE reported.’
And then, there’s the war agenda. It already costs as much as US$1 trillion per year — 4% of GDP — to fund the Pentagon, spy on everyone, everywhere, maintain bases all over the world and meddle in the affairs of foreign nations.
Enemy of the people
Between war, interest on the debt, and regulation, we’re already facing US$4 trillion a year. This is equivalent to spending about 85 cents of every dollar of federal tax income on things that ‘The People’ don’t really want or need…things that will make us all poorer.
Yesterday, we recalled our Bad Guy Theory (BGT). It’s a way of explaining the otherwise incomprehensible tendency for the press and the public to suddenly make an enemy out of people who’ve done them no harm…and to spend trillions of dollars going to war with them.
In 2002, for example, George W Bush’s speechwriter, David Frum — who later went on to greater fame by suggesting that people who didn’t get vaccinated against COVID should be punished — came up with the ‘Axis of Evil’ jingo. The idea wasn’t that Iraq, Iran, and North Korea had actually done anything for which they should be penalised; it was that they were ‘bad guys’. Frum et al think they can tell Heaven from Hell. In their doltish way, they think some people are good; some are bad. You can make a better world, they believe, by eliminating the bad ones.
The US soon invaded Iraq…spent US$2 trillion…killed thousands of people…turned millions into refugees. And now Iraq is arguably a worse guy. But no one talks about Iraq anymore. Now we have a new bad guy, China!
Stay tuned…
Regards,
 |
Bill Bonner,
For The Daily Reckoning Australia
