Ripped Off by Your Own Money

In our recent meeting in Baltimore with former Fed chief Alan Greenspan, the wily old fox tossed a grenade.

The discussion had arrived at the biggest topic in finance: WWDD?

What would Donald do?

Then the bomb exploded: ‘Tax cut? A tax hike is more like it…’

Divided readers

Mr Greenspan was explaining why President Trump’s program won’t work.  No tax cut, no Main Street boom.

[Paid-up subscribers of Bill’s monthly publication, The Bill Bonner Letter, can access the full Q&A with Greenspan here.]

Readers ask why we are suddenly writing so much about politics generally…and Donald J. Trump specifically.

We’ve been writing a daily column since the Clinton years. But rarely did we focus on government. And only twice have we gotten so much negative feedback from readers.

The first time was at the end of the 1990s when readers did not appreciate our view of the dotcom boom.

‘It’s a fantasy,’ we said.

Then, after President George W. Bush invaded Iraq, they thought it was unpatriotic of us to say that it was most likely going to be a disaster.

It turned out to be an even bigger disaster than we had imagined.

Now President Trump has divided readers — one from another and us from many of them, too.

Unprecedented power

‘Now, you need to pay attention to politics,’ says Ray Dalio, the manager of the world’s largest hedge fund.

Understanding politics is now crucial to making investment decisions.

Never before have we had a president with so much power (given to him by gutless courts and congresses over the last five decades). And never before have we had a president so ready to use it.

President Trump’s economic plan centres on cutting taxes and regulation while boosting government spending on infrastructure. The combination is supposed to double GDP growth rates, taking them back to where they were when America really was great.

If this seems likely to you, you may want to keep your money in dollar-based assets and profit from the boom you see coming.

If not, sell your stocks and bonds. They’ve had a marvellous 35-year run; time to get out.

As to the regulations, we have no doubt our new president is on the right track. Regulations are win-lose deals. They impose restrictions, costs and requirements that get in the way of voluntary win-win deals.

Remember, there’s no magic or mystery to our formula: S = rv (w-w – w-l).

The net satisfaction in a society equals the real value of the win-win deals minus the cost of the win-lose deals.

To make it super simple: The fewer deals in which someone is forced to do something he doesn’t want to do (win-lose), the better off we all are.

Three winners

The biggest win-lose deals in America fit into three major categories with three major winners – all of them swamp critters:

  1. The military-industrial-security complex at a rate of about $1 trillion a year, including the estimated $7 trillion bill for the Iraq debacle.

  2. The Wall Street-Fed complex, with its control of the fake-money system.

  3. The medical-pharmaceutical-zombie complex.

To ‘drain the swamp’, Mr Trump must take them on. Not just symbolically…not individually by calling out single companies and persons…and not by tweet.

Instead, he has to slash their budgets, clip their crony deals and curb their power. He will have to limit their ‘wins’ so that the average American feels his burden lightening and his yoke loosening.

And he can’t do it using any of the Fed’s trickery.

It is no use cutting taxes if government spending isn’t also cut. And there’s no use pretending to ‘stimulate’ growth by lowering borrowing costs. It won’t work.

Central banks in the US, Japan and Europe have been at it for years, including the last seven years of near-zero interest rates. We’ve seen what happens. The rich get richer; the poor and middle classes lose ground.

Ultra-low interest rates mislead people. This causes misallocations of capital…and mistakes.

The losers, in the real Main Street economy, stoop under the burden. The winners are flush as the funny-money funds Wall Street, the empire…and the welfare state.

Toxic excess

The best thing about this fake-money system — at least from the insiders’ point of view — is that the masses don’t know what is going on.

Not one person in 10,000 understands how he is ripped off by his own money.

And who knows how much military spending is enough?

‘You can’t be too safe,’ people say to one another.


Everything is subject to the law of declining marginal utility. The more you have of something, the less each additional increment is worth to you.

And as we explored in our book, Hormegeddon: How Too Much of a Good Thing Leads to Disaster, the excess often becomes toxic.

One dessert is great. By the time you’ve eaten your fifth, you’re ready to throw up. Excess military spending is worse — it leads to meddling and reckless adventurism.

As President Eisenhower warned in his farewell address, eventually, the military you pay to protect you becomes a danger — to you.

Muddling into pointless wars and destabilising foreign governments makes you less safe. And by the time you figure it out, and try to bring the spooks and soldiers under control, it’s too late.

They have the guns, after all.

More about the medical-pharmaceutical-zombie complex…tomorrow.


Bill Bonner,
For Markets and Money, Australia

From the Archives

Why You Should Focus on Crude Oil’s Younger Sister
By Jason Stevenson | 8 February, 2017

Gold Price Set to Hit US$1,260 per Ounce
By Jason Stevenson | 7 February, 2017


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 Money.

Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money