YOUGHAL, IRELAND – When you’ve got a chainsaw, you cut down a tree.

And when you’ve got control of monetary and fiscal policy… you go to work on an economy.

In both cases, you leave them in pieces.

Knuckleheaded Experiment

The difference between the next crash and the last two is that this time, the feds have less room to maneuver. At the end of an expansion cycle, like the one America has had for almost ten years, the federal government should be running a surplus.

That’s the whole idea of countercyclical fiscal policy. When the economy is hot, you’re supposed to be cool, with budget surpluses. When the economy cools off, you then heat it up with more spending.

But currently, the U.S. government is conducting a pro-cyclical fiscal experiment.

It’s late in the expansion cycle, but it’s already borrowing heavily, with annual deficits already programmed to reach $2 trillion by 2028. And that’s without a crash or a recession.

Good luck with that.

Meanwhile, over at the Fed, another knuckleheaded experiment is going on. It has left real rates (adjusted for inflation) below zero for nearly a decade, even though a recovery, such as it was, began in 2009.

This, too, is unprecedented… and almost surely disastrous.

That, of course, is what we’re waiting to find out.

But what we’ve been looking at lately is how the dots connect, in a straight line – from Bad Guy Theory… to the Deep State… to the Empire… thence to bankruptcy, chaos, and catastrophe.

Deep State Puppets

As we pointed out on Tuesday, an empire is not just a bigger government. It is a different animal, as different from a small, local democracy as a pussy cat from a sabre-toothed tiger.

In a small government, citizens can run the show. They know what is going on, and have a say in what happens next.

In a global Deep State Empire, on the other hand, citizens play largely symbolic roles. They vote, but their votes don’t really matter. They voice their opinions, but no one really cares what they think.

They have their representatives in Washington, but these officials, too, are largely ornamental. They talk, but they don’t say anything. They vote on laws, but only after they’re told which laws to pass.

They debate… but are careful not to discuss any of the things that really matter.

The federal government is going broke. The welfare state can’t be cut back (too many retiring voters). The warfare state won’t be cut back (too many powerful cronies). Together, they will bankrupt the nation. But in Congress, the subject never even comes up.

The U.S. now runs a worldwide empire – at huge expense. One of the hidden costs: the federal government itself.

It is supposed to be a government of, by, and for the people. But for all the many reasons we’ve described in these pages, an empire doesn’t work that way.

It is by, for, and of the insiders who control it. This is a big change; you’d think the people’s representatives might want to discuss it.

Congress and the federal government have practically become puppets of the Deep State… but who’s going to say so?

The real power now is in the hands of an elite… people who “work the system” for their own benefit.

This is The Swamp that Donald Trump campaigned against. The inside deals… the bribes… the sweet sinecures… and the greasy campaign contributions.

Honest Elite

Of course, there is no country without an elite. In every one of them, from the Roman Empire… to the Soviet Union… to the court of King Louis XVI, the elite call the shots, more or less.

And there is no reason why their decisions should be worse than those of the great mob of citizens.

In fact, they are often better. An honest elite is supposed to use its superior judgement, its better education… and its intelligence and expertise… to help the masses make better decisions.

With calm words and reason, the wisest citizens, for example, are supposed to head off lynch mobs and popular delusions.

They’re expected to make sure the sewage treatment plant doesn’t drain directly into the town water supply… and keep the traffic lights coordinated.

The elite invent things… they are artists, poets, and entertainers… They launch new businesses, write books, and win Nobel Prizes.

They are the vanguard of civilization… exploring, guiding, and experimenting… setting fashions and standards… building schools and insane asylums… and dragging the bulk of mankind forward.

But as the scale of a society grows, the elite get farther and farther ahead. Their interests and those of the rest of the people diverge. They live in different zip codes – on the two coasts, for example, not in the Heartland.

They work in finance, communications, technology, and government… not in Main Street industries such as manufacturing, farming, and retailing. They get richer… while 90% of the population loses ground financially.

Then… the powerful federal falcon no longer pays any attention to the voting falconer. And why should it?

The masses have no idea what is going on… how the game is played… or how they are being ripped off.

As the scale increases, gradually and then suddenly, a big gap opens between the “leaders” and the “people”… between public policy and private consequences… and between real news and “fake news.”

The elite insiders – in business, government, academia, religion, and media… left and right… whether it is the centralized government of Louis XVI or the post-World War I USA… Republican or Democrat – become parasites.

In her confirmation hearing, CIA Director Gina Haspel used a well-worn phrase, promising to “speak truth to power.”

Thinking people – if any were in the room – must have fallen off their chairs guffawing. Whatever Ms. Haspel or the other toadies, sharpies, and jackasses in the Deep State will say… it won’t be “truth to power.”

They are power. And they will say whatever BS suits the occasion.

Stay tuned for more on how the Deep State Empire really works… and why it damns America to Hell.

Regards,

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Bill

MARKET INSIGHT: WHY AMERICANS NEED TO WATCH ITALY

By Dan Denning, Coauthor, The Bill Bonner Letter

Yesterday, Joe Withrow showed you that Italian stocks are falling fast. This is in response to the political turmoil you’ve likely been reading about in the news.

In short, Italy is on the verge of causing another 2012-style sovereign debt crisis. Only this time, it could mean a deeper political crisis for the European Union itself.

And at the heart of that crisis is the euro. That’s what makes the Italian story relevant for investors worldwide… including here in America.

Consider this…

In the recent Italian elections, the anti-establishment Five-Star Movement and the League (which the popular press describes as anti-immigrant) finally got together.

Both parties have made noise about reclaiming Italy’s monetary sovereignty. In other words, either having control of their own interest rates or getting out of the euro.

They haven’t done anything formal yet. But the suggestion that Italy could leave the euro will weaken the euro. That means you’re going to see a much stronger dollar this summer. We’re already starting to see it.

Chart

The situation in Italy would also have implications for gold. Gold was trying to get above $1,400.00 an ounce. That probably won’t happen now. Because this Italian development should see the euro decline against the dollar, and that’s bearish for gold. But safe-haven buying should help keep gold from declining too much (in dollar terms).

I mention all of this because it’s not always obvious how something that happens in a politically dysfunctional country thousands of miles away can affect your investments. But it can.

And if the Italian crisis continues to escalate, we could see a second euro crisis like we saw in Greece in 2012. The same thing that happened then could happen again.

Capital would flow back to safe havens and liquid assets. In the past, that usually meant U.S. government bonds and big-cap stocks.

That’s why the rise in U.S. rates is worth noting now. If capital was fleeing the eurozone, U.S. rates ought to be falling. They’re not.

That means there’s no crisis yet. But stay tuned.

Remember, a crisis always starts at the fringe and works its way back to the middle. Even the subprime mortgage crisis started with non-bank mortgage lenders before making its way back to the heart of the system.

If Italy becomes the latest crisis at the fringes of the world’s financial system, it WILL make it back to the U.S.

Time will tell if that happens.

But, to restate, at least in the short term, I would expect to see a stronger dollar, a lower gold price, and a weaker euro.

-Dan Denning

P.S. On Sunday, Italy’s President Sergio Mattarella bowed to pressure from the bond market and essentially vetoed the formation of a new anti-euro government. News reports say the key issue was the appointment of a confirmed euro-sceptic, 81-year old Paolo Savona, as economics minister.

Savona has drawn up a plan, which he calls a Plan B for leaving the euro currency. Mattarella told Italians that any such plan should be openly discussed with the voters before an election, and that the resulting rise in Italian bond yields (relative to German yields) would make Italy’s public debt problem even worse than it already is.

In other words, the bond vigilantes, the Germans, and the European Union are calling the shots in Italy, not the Italian voters.

This is why the power to control money is so important to the people who have it. It’s a political power, too. It’s more powerful than the ballot itself.

In the meantime, Italians may have to go back to the polls this summer. If they turn out in even greater numbers for the Five Star Movement and the League, then the crisis in Italy – a founding member of the European Union, and the third-largest economy in Europe – will be back with even more force. Stay tuned.

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MAILBAG

In the mailbag, “Bad Guy” Theory and the price of empires remain popular topics…

I’ve been following your missives on Bad Guy Theory. Methinks you weren’t very fair with your condemnation of Israel’s defense of its borders. You blithely recounted many negatives that were misleading and biased, while failing to accurately report all the facts of the situation. I assume you were trying to make a point. But by egregiously defaming Israel’s conduct, your illustration lost any credence with me. Consider yourself taken to the woodshed on this one. ’Nuff said.

On another note, however, I enjoyed your article about “scale.” Your examples were great, making the comparisons between “large” and “small” much more profound than one might realize. Looking forward to a follow-up on the scale of empires.

– D.L.

I look forward to the daily delivery of the Diary. Always thought-provoking and entertaining. I have particularly enjoyed the “Bad Guy” theory, and believe empires/countries need “Bad Guys” for a variety of reasons, not the least of which is to confer wealth on the Deep State.

History shows us that this is how countries interact with each other. Wars and conflicts are part of the fabric of government and society. Peace is an unstable state that quickly reverts to “normal,” which is wars and conflicts. So any country is a good guy to its inhabitants, with the “others” as the bad guys. It is a necessary way to distract the hoi polloi from the problems at home while rewarding their cronies, etc.

– Fred L.

Brother Bill, another interesting article. However, the Deep State will exist as long as voters support out-and-out crooks that put a “for sale” sign on their backs. My favorite pro rassler, as we say in the South, Big Dusty Rhodes used to say (in public, if you will), “The family in the White House is selling us out in broad daylight,” and his people love him for it.

Michael Cohen has collected close to $4 million selling access. How much of that went into Trump’s pocket?

Kushner extorted a bailout loan from Qatar. He also arranged half a billion in loans from lenders meeting with him in his White House office.

China invests $500 million in a Trump project. China also gives Trump’s daughter trademarks worth millions. And like magic, our policy re ZTE is turned on its head.

Trump has put millions in his pocket playing golf at Trump properties; he doubled the fees at Mar-A-Lago after the election.

And of course, the First Lady’s said in her lawsuit that the article hurt her “once-in-a-lifetime opportunity to cash in on the presidency…”

Need anything else be said about these people? Say any of this in a Red State, and you better have a very good bodyguard.

– Richard P.

On the military front, I was asked to speak to a class of young students about two years ago on Memorial Day. My father and two of his brothers fought in World War II. Luckily, all came home. I did my service between the Korean conflict and Vietnam. The closest I came to combat was the Berlin crisis in 1959 and ’60.

What I decided to say to those young people was something that cuts to the heart of the military empire and our nation-building agenda. I said, “If I were President, the most difficult thing I would have to do would be to send ‘one’ young person into harm’s way. And my worst nightmare would be to meet a military plane at Edwards Air Force Base carrying the bodies of those I sent into battle.”

I had the opportunity to visit the D-Day beaches in Normandy a couple of years ago, and I spent about an hour at the large U.S. military cemetery. I walked through the white crosses, stopping and putting my hand on a cross and reading the name of the soldier, where he was from, and his age. I found that about 90% of them were 18 to 19 years old. Looking back in history several thousand years at all the wars that have been fought, the question I keep asking myself is, “What the hell are we fighting over?”

– James B.

Meanwhile, one Dear Reader is in favor of Bill purchasing a new Irish manor

Yes, please purchase that estate… by all means. Can I live there? My people are from the Kingdom of Kerry, Mayo, and Clare. America is over… I want out of here before the blood flows even more.

– Thomas G.

IN CASE YOU MISSED IT…

America is facing a health crisis of epic proportions. Earlier this year, President Trump declared it a “national emergency.”

Chris Mayer, one of Bill’s top analysts, recently identified one tiny company fighting to avert this crisis. That mission is so important that Chris believes investors have the chance to make 100 times their money in the years ahead. Details here.

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