The 35-Year Bull Market in Bonds Comes to an End

The 35-Year Bull Market in Bonds Comes to an End

Walking home last night, we got caught in a mob.

‘Not my president,’ said the signs, along with more lurid and confrontational messages.

There were thousands of demonstrators marching from Pennsylvania station to Baltimore’s Inner Harbor.

They’re a little late,’ said a voice next to us. ‘It’s a good thing you’re not wearing your “Make America Great Again” hat.

A new political order

Meanwhile, the newspapers, commentators and analysts have spent the last three days scrambling to explain something that never happened.

The ‘Trump Revolution’ now has the Establishment ‘shaking with fear and dread,’ they say.

But there was no revolution. And there is no ‘fear and dread.’ Instead, Trump’s transition team is filling up with the usual suspects — hacks, has-beens, and Beltway insiders.

Bloomberg, too, tells us that the Ancient Regime is lining up behind Trump…and looking forward to trillions of dollars’ worth of new spending:

Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said President-elect Donald Trump’s commitment to infrastructure and reforming government and taxes will be good for economic growth.

“The election results in the U.S. show democracy at work,” Blankfein told employees in a voicemail message, according to a transcript obtained Thursday by Bloomberg. “It also means change, which isn’t necessarily a bad thing.”

Yesterday’s Wall Street Journal proclaimed a new political order. Is it so? Or is there just a new group of foxes in the henhouse?

You’ll recall that Italian economist Vilfredo Pareto described how a ‘Deep State’ develops.

There are always some wily ‘political’ people in a society. Over time, these ‘foxes’ figure out how to take control of the government and use it for their own purposes.

Sometimes they have social or cultural agendas, forcing people to worship their gods or fly their colours.

But, usually, they don’t care about transgender bathrooms…or walls along the Rio Grande…or even about abortion rights.

Will the juice get cut off?

What they care about is money. Your money. And power…the power they get from you, too. They want rules, regulations, licenses, laws — to boss you around.

Does the ‘new political order’ change anything for this Parasitocracy?

Will the zombies get less of your money? Will the cronies lose their sweet deals? Will the FDA or the SEC or the ATF or the Bankers Association for Finance and Trade (AFT)…or even the Feather Committee…will any part of the bureaucracy close its doors and turn off its lights?

More importantly, will the juice get cut off to the Deep State?

The insiders depend on under-priced credit…and the fake money supplied by the Fed and the banking system. It funds their wars…their bureaucracies…their phony-baloney programs…their claptrap universities…their prison industry, and their overpriced medical care.

Their favourite sector — Wall Street — controls the flow of this juice, making sure most of it goes to them. That’s why financial industry profits rose from around 10% of all corporate profits in 1970 to nearly 40% in 2007.

But it is not just the Establishment that depends on fake money. So do investors…households…and honest businesses. They have all been suborned by it.

Now, they are so twisted and bent by debt, they can’t stand up straight.

Deflation…then inflation

Take away the fake money and you will have a real revolution. Which is why Mr Donald J Trump will go to Washington not to bury the Deep State, but to save it. He will not cut off the fake money; he will offer more of it.

In a nutshell, the problem in 2008 was too much debt.

The feds reacted to that crisis by stiffing savers and making debt easier and cheaper than ever. That was never going to work.

And now, corporate debt has grown $3 trillion since the crisis began. The US government has added $7.6 trillion to its debt. And households owe $1.2 trillion more, too…not including mortgage debt.

US consumer debt rose twice as fast over the last 12 months as consumer spending…and infinitely faster than earnings, which, in the red states and counties, were flat.

And now, the whole perverse system holds its breath. The economy slows. Wages for 95% of the population are stagnant. A recession is coming, probably in 2017.

Will the new president allow real change…a real correction? Will bad debts be liquidated? Will stock market prices be cut in half? Will the fake money be thrown out, forcing the Deep State to downsize?

Nah… Instead, Mr Trump has already signalled a switch to fiscal stimulus. Big spending. Deficits. Walls. Roads. Boondoggles. The fake cash will flow. The debt (mostly government debt) will rise.

And this time, the cash will go into the consumer economy…with rising prices not far behind.

A few years ago (we can’t remember when), we predicted the nation’s itinerary: Tokyo…then Buenos Aires; deflation…then inflation. We will go broke slowly…then suddenly.

It looks as though we will soon see rising inflation and the end of the 35-year bull market in bonds.

Keep your seat belts fastened and your eyes open. And brush up on your Spanish.


Bill Bonner,
For Markets and Money, Australia

From the Archives…

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Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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1 Comment on "The 35-Year Bull Market in Bonds Comes to an End"

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Infrastructure spending takes funds. Where will those funds come from?

The political climate no longer seems conducive to more QE or Helicopter money (and how could Trump spin either of those to the public)?

Without Central Banks cover, how would/could the U.S. afford higher interest costs on newly issued debt?

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