Editor’s Note: Bill is away with family and unable to pen his daily Diary. Below, we share an essay originally published in August of last year. In the French countryside, Bill tells his then-14-month-old grandson a bedtime story. But the typical Mother Goose tales won’t do, so Bill picks another fantasy…
OUZILLY, FRANCE — We are explaining our money system to our grandson, James, now 14 months old…
His mother tries to get him to go to bed at 9 p.m. But the little boy’s internal clock is still on Baltimore time; it tells him it is much too early to go to sleep.
Grandpa takes over, drawing out the monetary system like a general spreading a map on a field table. “Here is the enemy,” he says gravely. “They have us completely surrounded. We’re doomed.”
James grumbles. He squirms. He has a sunny, optimistic temperament. But we think our explanations are sinking in.
He seems to understand…
…that money is not wealth; it just measures and represents wealth, like the claim ticket on a car in a parking garage.
…that our post-1971 money system is based on fake money that represents no wealth and measures badly.
…that this new money enters the economy as credit… and that the credit industry (Wall Street) has privileged access to it. The working man still has to earn his money, selling his work, by the hour. But Wall Street – and elite borrowers connected to the Establishment – get it without breaking a sweat or watching the clock.
…that a disproportionate share of this new money is concentrated in and around the credit industry – pushing up asset prices, raising salaries and bonuses in the financial sector, and making the rich (those who own financial assets) much richer.
…that this flood of credit helped the middle class raise its living standards, even as earnings stagnated. But it also raised debt levels throughout the economy.
…and that it allowed the average American family to spend American money that Americans never earned and buy products Americans never made… Instead, Walmart’s shelves were stocked with goods “Made in China.” The middle class lost income as factories, jobs, and earnings moved overseas. Debt stayed at home.
“Okay so far?” we asked James as his eyeballs rolled backward and his breathing slowed.
But one thing must still puzzle him. How did the new dollar actually retard growth?
Maybe it didn’t make people richer… After all, how can you expect to make people better off by giving them fake money?
But how did it make them worse off?
The Ultimate Absurdity
We began with an attack en masse across a broad, philosophical front:
“As you sow, so shall ye reap,” we said. “And when you put a lot of fake money into a society, you end up with a fake economy.”
Just look at Argentina in 2001… or Zimbabwe in 2006… or Venezuela now…
Prices go wild as people try to figure out what the money is really worth. But the economy shrinks.
It was the same way in Germany during the Weimar hyperinflation. People stopped producing. You might have a billion marks in your pocket, but you couldn’t find a bar of soap for sale.
“But wait… I know what you’re thinking…” we imagined James pushing back. “Those are all hyperinflation stories. We don’t have that now. Instead, we have much less inflation… Prices are almost stable.”
Yes… for now. The inflation is in the asset sector… and in credit itself… not in consumer items. But the phenomenon is much the same.
Fake money is giving grossly distorted information to everyone. In Manhattan, we are told that an ordinary apartment is worth $2 million. But in Geneva – where interest rates have turned negative – we are told that $2 million is worth nothing… You will have to pay one of the banks to take it off your hands.
Without honest money, real savings, and true interest rates, businesses and investors have nothing to guide them. They are lost in the woods. Few want to do the hard work, and take the risks, of long-term, capital-heavy ventures. Instead, the focus shifts to speculation, gambling… and playing the game for short-term profits.
What’s more, artificially low interest rates provide fatal misinformation. They tell the world that we have an infinite supply of resources – time, money, energy, and know-how.
Then, without its back to the wall of scarcity, with no need to make careful choices, capitalism becomes reckless and irresponsible with its most valuable resource – capital itself. It is destroyed, wasted, misallocated, and malinvested. Growth rates fall and the world becomes poorer.
And now, in Japan, there is talk of the ultimate absurdity… Look carefully because we believe this straw may have “final” etched on it in tiny letters.
Japan is said to be considering a perpetual bond issued at negative interest rates.
“How does that work?” we can hear James asking.
“Well, it’s very simple. You give your money to the government. And then you pay the government every year, forever, for taking it from you.”
James is startled awake. He is disturbed.
“What kind of a world have I been born into…?” he seems to ask.
A Special Announcement
Hi, my name is Amber Lee Mason. I’m the Managing Partner of Bonner & Partners…
I usually stay behind the scenes… But we recently formed a partnership I think you might be interested in.
It’s with a friend and colleague of mine – Jeff Clark. I’ve worked with Jeff for more than 10 years now. He’s one of the nicest guys I know… and he also happens to be an extraordinary trader.
Over the years, he’s recommended more than 300 winning trades… and helped thousands of readers make big percentage returns, safely.
That’s why I agreed to publish his new project…
You see, Jeff has been working on something new… something big.
It has to do with a system he developed to trade during four specific times during the year. In fact, the next profit window is coming up in the next few weeks, which is why I wanted to send you this quick alert.
He’s been working on it for more than five years now… And testing it with his own money for the past 12 months.
Over that time, he’s traded with the system 41 times; 37 of the trades were profitable, with average gains of almost 50%.
And the average time in the trades was less than two days.
For example, Jeff placed a trade on Sonic (SONC) last fall. In less than 18 hours, he made 400% gains.
Just recently, he started sharing these ideas with readers of his Delta Report. Here’s what we’ve heard so far…
Nice job on the GES Trade! I made 100% return in less than 24 hours. That’s an amazing ROI! Really looking forward to the “formal” roll-out of [your] trade model. Seems like it works extremely well in “Beta”! Thanks again for your outstanding work.
Thanks Jeff! Just closed out the GES earnings trade for a 100% gain in one day!! I wasn’t able to get into TOL, but I also did well with your URBN recommendation. Thank you so much, look forward to more of these!
Great work on the [system’s] recommendations this week. I made over 60% each on TOL and GES in less than 24 hours. That’s amazing. The algorithm is working a high percentage of the time.
Love the [system’s] trades. Quick double on GES. Unfortunately, TOL moved away just as I placed the order and I didn’t chase it. But your algo seems to be great!! Keep it up!
Jeff is putting the final touches on a full report describing his system and how to use it. (I know he’s working hard on it because he just asked me to extend his deadline.)
We’re going to release it next week.
We want to get it out there before the next “profit window” opens up in the next couple of weeks.
That’s why I’m writing you today. I want to make sure you’re ready to take advantage of it. I don’t want you to miss it in the hustle and bustle.
I’ll be in touch soon with more details…
All the best,
P.S. It’s not for sure, but right now, the tentative release date is June 7. Keep an eye out.
Market Insight: Oil Is Back Below $50 a Barrel
BY CHRIS LOWE, EDITOR AT LARGE, Bonner & partners
Oil investors are getting hosed again…
As you can see from today’s chart, oil is once again trading under $50 a barrel.
There are two factors holding down oil prices.
The first is supply driven.
Investors are skeptical that production cuts from the OPEC oil cartel will offset U.S. shale oil production.
The second is weak demand.
In particular, investors are no longer confident that President Trump will be able to push through plans to splurge on an energy-intensive infrastructure buildout.
– Chris Lowe
Quants Are Nothing New
Quantitative analysts (known as “quants”) rely on algorithms and statistical models to find profitable trades. The mainstream media treat them as the latest buzz, but they’ve actually been with us for years.
Not All ETF Families Are Equal
Most ETFs (exchange-traded funds) are from the firms iShares or Vanguard. Similar ETFs from each should have similar returns. So why is one firm outperforming the other?
How to Beat the Market Starting Today
Beating the market average is difficult but not impossible. One of Bill’s most trusted analysts, Chris Mayer, shares two investing rules you can use today to jump-start your gains.
In today’s mailbag, more readers offer condolences in response to Bill’s personal letter…
You have my deepest sympathies on the passing of your mother. I hope you can at least look on this sad time as an opportunity to be thoroughly examined by the physicians at Johns Hopkins. People who value their freedoms need people like you to continue enlightening and deprogramming as many of the masses as possible for at least the next twenty years.
– Frank W.
Even when expected, the loss of one’s mother is always a shock. Your writing style makes me feel like I know your family as if they were my own. I extend my deepest sympathies to you and yours.
– Sam L.
I am a longtime reader of all things Bonner, beginning with your earliest musings in The Daily Reckoning, written from the tight confines of your first workspace in Paris with Addison. Most of my favorite Reckonings are those in which you shared stories of life at the chateau and your family, including those insights and witticisms of your mother’s you shared with readers.
I got to feeling I knew your family – just a little. And your insights informed some of my own family relationships and our interactions, for the better I believe. Thank you for that. My deepest sympathies to you and your family in this difficult time.
– Theron M.
Meanwhile, readers weigh in on Bill’s recent essay, “Mexicans and Chinese Aren’t ‘Stealing Our Jobs.’”
As a former homebuilder who has quit that business for less stressful work, I can tell you exactly why there are 36% more people working in the residential construction business than there were 25 years ago, even though the same number of houses are being constructed.
The answer is quite simply that houses these days are at least 36% larger, and perhaps even 50% larger than the houses of 25 years ago.
The extra space and size, along with more expansive furnishings and accoutrements, still require the same unit of labor to produce each unit of the home in terms of square footage. Hence, more people to build the same number of homes. Advances in technology have made only small improvements in productivity (e.g. nail guns vs. hammer, some prefab components vs. all stick built)
– Ed Z.
A very interesting article about the lack of company startups in the U.S. There is another aspect, although not just in America, that I have noticed deteriorating since the ‘60s. The quality of management seems to be declining. The first sign of this situation being prevalent used to be staff turnover levels rising, but today this indicator has lost its impact because so many people now hang on to whatever jobs they have no matter what. Perhaps you could find more reliable information on this.
– James J.
I like your perspective on America’s declining production levels. As you note, increased regulation or increased “protection” is the cause. I tend to describe some of these things using my own version of plain terms.
All governments are protection rackets. It’s the business they are in. They don’t have anything else to sell. Governments constantly sell the idea that without their protection we would perish. In the end, the more protection we agree to the less freedom we possess. And then we’re nothing but merchandise…
– Mike R.
In Case You Missed It…
Our colleagues at Casey Research just uncovered something important…
A week after Trump’s election, a federal judge passed a little-known legal ruling. This law is primed to set off the biggest military spending spree since World War II.
And for the first time, a handful of small-cap defense stocks are on the cusp of receiving a trillion-dollar wealth transfer. Learn more here.