Tell government officials and central bankers they can manufacture credit without negative consequences to the officials or central bankers and wonder of wonders, they’ll manufacture money. Such has been US economic policy since Nixon closed the gold window in 1971. The question is whether the negatives have been eliminated or merely delayed. SLL and Bill Bonner believe the latter. From Bonner at bonnerandpartners.com:
BALTIMORE, MARYLAND – When the money goes, everything goes. Last week brought more evidence.
America’s late, crony capitalist empire is sinking into corruption, incompetence, and debt.
But first, a bold prediction…
You’ll recall that we predicted that the Federal Reserve would never “normalize” interest rates. Well, the Fed never even came close. And now it’s once again doing all it can to inflate the nation’s money system.
Last week, we learned that it would add about half a trillion new dollars over the next four weeks. Funding the short-term lending markets with that kind of cash suggests to us that other lenders – big banks – don’t want to put their own money at risk. Clearly, the Fed is desperately trying to stop something from happening. What it is, exactly, we don’t know.
Meanwhile, another of our predictions was confirmed last week: the Trump team announced a major trade deal with the Chinese. In other words, it did not go “Full Retard” yesterday, as scheduled, with additional tariffs.
Trump has an election to win. The trade war may have brought smiles to his base of supporters a year ago. Now, it threatens to cost him votes. He had to settle… on almost any terms.
And the main term he settled on was the Chinese pledge to buy a huge amount of U.S. farm exports in 2020.
We’ve seen the number reported as $50 billion and $40 billion. According to Mr. Trump, that was a victory equal to the Battle of Midway.
Our prediction (in which we have 100% confidence): it won’t happen. The Chinese will not buy $50 billion worth of American wheat, corn and other farm-belt output. Or $40 billion. Most likely, they won’t even buy half that much.
The most they’ve ever bought in a single year was $26 billion. And that was before they hated us. Buying $50 billion would force the Chinese to dump the trade deals they just worked out with Brazil and Argentina… and bid against the EU, Mexico, and Japan for higher-priced U.S. output.
Not going to happen. And even if it did happen, it wouldn’t make any difference. Every bushel of wheat bought by the Chinese is simply not bought by Canada or Japan. Rearranging the world’s trade deals is a zero sum game, in other words.
This trade deal, whatever it turns out to be, is just one of many symptoms of creeping degeneracy. There is no reason for the federal government to butt into trade. It’s none of its business how much wheat the Chinese buy.
But last week, on display were more examples of how the system and its major institutions have been corrupted. The Deep State gets deeper:
The FBI, for example, is supposed to make sure the laws of the land are respected. But the Horowitz Report tells us that the agency turned itself into a clandestine arm of the Democratic Party, lying to the courts and the public in order to tag Trump team hanger-on Carter Page as a Russian spy.
And more recently, Hillary Clinton tried to expand the balderdash by claiming that Tulsi Gabbard was a “Russian asset.”
Ms. Gabbard is the only candidate with any real knowledge of the War in Afghanistan; she was sent there as a soldier. She knows it’s a scam.
Which brings us to the Washington Post’s “Afghanistan Papers.” They came out last week, too. And there, too, we see the military arm of the Deep State clumsily bumbling along with no idea of where it was going… and misleading the public every step of the way.
Deep State PR
The Afghanistan war was a war the feds never intended to win; they had no idea what winning would mean, and no plan to achieve it.
Yet, Bush (who started it), Obama (who approved the dopey “surge”), and Trump (who sent even more soldiers) all let young Americans kill and get killed… and spent $2 trillion… only to transfer more wealth and power to the Deep State and its crony contractors, such as Erik Prince (also in the news last week).
The Inspector General’s report further reveals that the media – which is supposed to be speaking “truth to power,” was actually blabbing like a PR agency for the Deep State. It merely passed along the lies.
Whether it was the “Russia stole the election” fantasy or the “fighting terrorism in Afghanistan” propaganda, the press was complicit. And for credibility, it paid “retired” generals and incompetent security officials to repeat the claptrap.
Death Ship of Debt
But, here at the Diary, we follow the money. That is where the corruption began, we believe… and where it becomes more and more costly. And while the nation’s attention was distracted by the Impeachment Show, the financial Dark Death Ship of Debt drew closer.
The Fed pledged to pump as much as half a trillion more in funny money into the markets. Not over the next year, but over the next four weeks.
The Financial Times wondered what it meant:
One striking aspect of 2019 is that it marks the fastest pace of central bank easing since the financial crisis. This support has crushed government bond yields and cushioned the blow of contracting global manufacturing activity, faltering business confidence and falling capital investment.
But we’ve read this chapter before. A friend from Argentina put it in perspective:
It’s kind of amusing to see the U.S. doing the same things we’ve been doing in Argentina. Here it is a cyclical thing. In order to get elected, the politicians make promises. Then, in order to keep the promises, they have to print money. And, of course, they do all kinds of dopey things, too – you know, price fixing, exchange controls, trade barriers, corrupt contracts. And then we can’t pay our debts. We default. Inflation goes up.
Americans squawk when mortgage rates go over 5%. But in Argentina, you can’t get a mortgage at all. If you buy property, you pay cash. And I mean cash. You go to settlement with a paper bag full of money.
We’re used to it in Argentina. People know they can’t trust the government or its money. Americans have a lot to learn…
The laws of nature apply to the Northern Hemisphere as well as below the equator. And if there were any trick that would save a nation from the effects of overspending, corruption and “printing” money to cover its debts, the gauchos would have discovered it long ago.
More to come…