PARIS – We’re having breakfast on the Île Saint-Louis in Paris… the first stop on a long trip.
First, it will take us to Normandy, then via the ferry to Ireland… thence to Argentina, Germany, and Bermuda… before returning to Ireland next month.
We’d rather stay in one place… and watch the world go around us.
And what a show!
Now, a new book by journalist Bob Woodward tells us that the White House chief of staff referred to America’s executive branch as “crazytown.”
Staffers say the president is hopelessly beyond his depth and is an “idiot”… The president says his attorney general is “mentally retarded.”
We don’t know.
But we’re sure our attorney general has one of the finest legal minds since King Solomon… and that the White House is running like a well-oiled machine.
Okay, maybe there are a few loose belts and rusty nuts, and maybe it needs some brake fluid, but that doesn’t stop it from getting the job done.
And its Numero Uno is far from being an “idiot.” Some of his off-the-cuff speeches, for example, are so complex that it would take a linguistic genius to parse them.
Besides, who cares? Even a moron could make a good POTUS – if he had common sense, good humor, and humility.
And as for “crazytown,” you ain’t seen nuthin’ yet.
The big story we’re following, by the way – which will dominate the money world for the next 10 to 20 years – is how the U.S. goes broke.
Our guess: first, with a whimper… and then a bang. Today, we look at the whimper.
The U.S. was already on the road to ruin long before the 2016 presidential election…
George W. Bush abandoned fiscal conservatism in favor of activism, war, and deficits. Barack Obama continued the program. And the Fed misled the entire world with phony price signals – putting the real cost of money at less than zero.
There was some hope that The Great Disrupter, Donald J. Trump – with his army of fed-up patriots – would drain the swamp and change the course of history. But the general quickly revealed that 1) he had no idea where the real battle was taking place… and 2) he wanted no part of it anyway.
Instead, with its tax cut, defense-spending hike, and dozens of petty distractions, the Trump administration squandered what might have been the last chance of squaring things up.
Even if the Trump team is thrown out of office in the next general election, the replacements are not likely to be any more eager to take on the Deep State than their predecessors.
That leaves debt to run wild… with no plausible way of stopping it. The cronies want more money. The zombies (including 10,000 new retirees each day over the next 20 years) want more money. The feds and their Deep State managers want more money, too.
Who’s to stop them?
And here’s what will happen…
First, the whimper. The fake-dollar/EZ-money system has enabled borrowing on a scale never seen before. Student debt… Household debt… Corporate debt… Government debt… Worldwide debt of more than $250 trillion.
Remember, it’s the financial sector – central banks and lenders – that creates debt. But it’s the Main Street economy that has to pay it back. Traditionally, it can only support debt of about 1.5 times GDP.
With a global GDP of $90 trillion, that leaves $115 trillion as “excess” – beyond what the economy can support. And that’s why a debt crisis is inevitable.
The crisis of 2008–2009 was a warning. It was a “debt crisis,” caused by too many people who owed too much money they couldn’t pay.
Many businesses and households depended on borrowing just to stay afloat. And all of a sudden, the value of the collateral – houses, mainly – dropped, and the lending stopped.
Out of money and out of luck, Lehman Brothers crashed on September 15, 2008. More than 5 million houses were foreclosed in the resulting crunch.
This should have sent banks, families, and businesses – and the federal government, too – scurrying for safety. It was a time to “rebuild balance sheets,” save money, cast debt out like the devil, and vow to have nothing more to do with it.
By now, 10 years later, the whole system should have less debt… and strong finances in every sector.
But what ho! The Fed cut interest rates so deeply that it didn’t make any sense to save. So instead of rebuilding their balance sheets… consumers, businesses, and governments went even deeper into debt.
U.S. corporations owed about $6 trillion in 2007. Now, the total is about $9 trillion.
Household debt was about $12 trillion in 2007. It’s now headed for $14 trillion.
The federal government owed $10 trillion when Bush left office in 2009. U.S. debt is now $21 trillion… and will probably hit $40 trillion 10 years from now.
And look at emerging markets. From Bloomberg:
Total emerging-market borrowing increased from $21 trillion (or 145 percent of GDP) in 2007 to $63 trillion (210 percent of GDP) in 2017. Borrowings by non-financial corporations and households have jumped. Since 2007, the foreign-currency debt – in dollars, euros, and yen – of these countries doubled to around $9 trillion. China, India, Indonesia, Malaysia, South Africa, Mexico, Chile, Brazil, and some Eastern European countries have foreign-currency debt between 20 percent and 50 percent of GDP.
In all, EM borrowers need to repay or refinance around $1.5 trillion in debt in 2019 and again in 2020. Many are not earning enough to meet these commitments.
Under the benign sun of worldwide EZ money sans fin, even the Argentines were able to get themselves into trouble once again.
It is now barely one year into the 100-year maturity of the remarkable bonds Argentina sold last year. Already, lenders are regretting buying them.
Argentina is in crisis. President Mauricio Macri says it will be the “last crisis” for the nation. He’s talking to voters who have had enough of crises.
But it is easier to get into a crisis than it is to get out of one.
Argentina is in one now. America will be in one sooner or later.
Then, prices will collapse. Jobs will disappear. Almost overnight, $10 trillion or more of wealth “on paper” will disappear from the U.S.
“Help us,” consumers will whimper. “Lower interest rates,” businesses will plead. “I’m not loving this,” the president will add.
And then, the whimper will turn into a bang… and Crazytown, here we come!
By Joe Withrow, Head of Research, Bonner & Partners
As Bill mentioned, Argentina is in crisis… again.
The country’s currency, the peso, is in free-fall.
That’s the story of today’s chart, which tracks Argentina’s peso against the U.S. dollar from January 2018 through today.
As you can see, the peso has fallen 53% against the dollar so far this year. With one peso worth slightly more than two-and-a-half cents ($0.026), the value of the Argentine currency is at an all-time low relative to the greenback.
The collapse comes as years of budget-busting government spending are taking their toll on the economy.
In fact, Argentina’s monetary base – the total amount of pesos in circulation – grew by 30% in 2017 alone as the government “printed” pesos to finance deficit spending.
– Joe Withrow
Why Tech Prefers Tyranny
Technology was supposed to make our lives easier and freer. But now, Big Tech firms like Facebook and Google monitor and catalog human behavior in order to “nudge” us in the “right” direction. If that sounds authoritarian… it’s because it is.
And read also…
Dan Denning: Walk Away from Big Tech… Now
For more than a year, Bill’s right-hand man and coauthor on The Bill Bonner Letter, Dan Denning, has been raising the alarm on the threat Big Tech poses to your freedoms and wealth. Now, Dan is urging readers: Walk away… right now.
Argentina Turns to the IMF
As Bill wrote above, Argentina is in the midst of another currency crisis. With interest rates already at 60%, what else can the Argentines do to shore up their currency? President Macri has an idea: a $50 billion debt load.
In the mailbag, Bill’s Labor Day Diary, “The Absurdity of a ‘Living Wage’,” has readers talking…
Since we live in a make-believe world anyway, we should not let reality restrict our imagination. I have long maintained that the minimum wage should be set at $8,989 trillion for everybody. This would eliminate envy among people, yet enable Americans to live well and save enough to buy up China in two months and the world in half a year… and to cover the Earth in a layer of gold five meters thick in two years. Americans would donate so much money to churches that God would give them eternal life in return.
As a result, America could indulge in school shootouts twice a day instead of just once a week, kill its president every fortnight, and engage in international wars where everybody else would be wiped out. In short, a substantial raise in the minimum wage would go a long way toward Making America Great Again.
– Laszlo G.
Happy Laborious Day! The liberals who started this whole “living wage” argument don’t understand Economics 101. They fail to see that Bretton Woods and going off the gold standard created the mess we’re in today. The long-term decline in the value and purchasing power of the dollar has left the majority of the population poor. Raising the minimum wage won’t solve the problem; it will make it worse.
A wealthy gentleman who is building a new smart-home said it well to me last week, “When the dung hits the fan, I’ll be able to hire quality help for half of what I’m currently paying. Maybe even as little as food on the table.” And he’s exactly right. Keep up the good work.
– Steve B.
Hello, Bill. In this case, I must disagree with you, because the coming world of robots will bring half of all the people with simpler jobs to an unemployed status for a long duration. It’s no problem to have a limit for better incomes to avoid paying living wages to them. And it is also no problem to finance the living wage with under 1% of a tax on all movements at the bourses of this world. This will not meet the poorest people of the world.
And on the other hand, you would have a lot easier and less administration on government’s side, and the people would have the free choice to work for additional money in a job, when they are able to get one, or to do only charity jobs to help society. Think about this a little bit.
– Johannes M.
Oh Bill, I think you have a very right idea here! You’re just a little too low… Give yourself an even million, and let the sports heroes have their million, too… and anyone who can flimflam (I mean entrepreneurs) their way up to $1 million per year. The burger-flippers at $30,000, and ratably, everyone in between.
But after that $1 million, there needs to be a 100% tax back to the bank to balance it out. It’s skewed at the bottom, but we can fix the bottom (3 million people making $30,000 per year only costs $90 billion). Fix the skew at the top, or let it skew after the hospitals, public works, military, and education are paid for! Genius!
– Barbara A.
Sir, you are full of “BS.” The only conclusion I can come to is you don’t care about what is happening. The point of a living wage is that no one should have a full-time job without benefits that pays less than the known level of poverty in the country. If we apply the above criteria to your comments, we have 92% of the problems fixed!
Yes, I know the problem is caused by the poor. 1) If they did not accept these jobs, there would be no “problem.” 2) If they invested, they would have the income they need. I do not agree with some people who say they have a “right” to be poor. This argument is how I am victimized, because the person who makes that choice often does things that cost me.
– Hewitt M.
Bill, I think that was a good start! How about the value of the Hollywood artists/actors and professional sports people? I think if we go according to value added to the country, it would be fair to include them in the $30,000 bracket… and, of course, to treat men and women equally! And while we are setting wages, we may want to try our hand at commodity price equalization… That would be the next logical move.
Keep up the great work! I always enjoy your commentary as it makes sense on all levels!
– Robert P.
Bill is on the most serious issue in the economy. Why is one man’s/woman’s hour worth a thousand times more than the next one’s? Are we not paid from the same pool of national wealth? Those taking home an obscene amount of money have not brought it from some other planet. Even if they did, here on Earth, they should be restricted to non-damaging of the environment with their yachts, airplanes, and bush-trampling Hummers…
What about job distribution for everyone who is capable of work? Reject the work and risk going hungry. Just a thought or two.
– Joe L.
Thank you for my Labor Day laugh, Bill! I completely lost it when you said that prostitutes should make the same amount of money as CEOs and hedge fund managers. Keep on keepin’ on!
– Dale A.
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