From Bill Bonner at acting-man.com:
Socialism is for Simpletons
RHINEBECK, New York – We spent the weekend up north… where people put “Feel the Bern” bumper stickers on their Subarus. In a tavern in Rhinebeck – where we are writing – the “socialist” slap seems to have lost its sting. There is a reverential portrait of FDR near the bar.
“He’s the only candidate who makes any sense to me,” said a local. “You can’t trust Hillary. And the Republicans are all nuts.”
He seems to make a lot of sense… provided your horizon ends roughly at the edge of your plate.
He’s right. You can’t trust Hillary. The Republicans may all be nuts. And socialism “makes sense”… in a simpleton kind of way. Most voters want more stuff. Sanders offers to take stuff from other people and give it to them. That “makes sense,” doesn’t it?
Too bad. Because as Maggie Thatcher pointed out, you soon run out of other people’s money. But the voters of Dutchess County don’t seem to be concerned. Back to the markets…
Japan Drops the Big One
“Thank Goodness That’s Over,” proclaimed Barron’s on Friday, as the Dow added nearly 400 points. But is the bear market really over? What sent the Dow soaring was a surprise rate cut – this time by the Bank of Japan. This left short-term rates in Japan at negative 0.1%.
As we covered in the December issue of our monthly publication, The Bill Bonner Letter, in addition to the War on Poverty, the War on Drugs, and the War on Terror, there’s also a War on the Credit Cycle. It is a war to prevent a correction in the credit market. Credit has been increasing for the last 33 years – largely thanks to the feds’ undying support.
Before the link between the dollar and gold was severed, credit was rationed by a market. When savings are abundant and borrowers are few, supply and demand dynamics caused the price of credit to fall. This lowered the cost of capital, discouraged saving, and allowed businesses to undertake projects that, at higher interest rates, would not have been possible.
Thus stimulated, economic activity increased… businesses expanded… wages rose… spending increased… corporate profits, and the stock market, usually went up… and interest rates rose as more and more borrowers competed for fewer and fewer available savings.
Higher rates pinched off the credit expansion and encouraged people to save more money. Stocks, now competing with higher yields in the bond market and on bank deposits, went down again. That is how the credit cycle is supposed to work. It naturally corrects – in both directions.
To continue reading: The War on the Credit Cycle Has Only Just Begun...
