The Economy Will Lose a Few Teeth…

US economy being punched

Guggenheim investment fund’s global chief investment officer Scott Minerd predicts a 40% decline for the Dow…mostly in 2019. He says the US economy is on a ‘collision course with disaster’.

He’s right — at least about the ‘collision course’. It is the smash-up we’ve been exploring this week.

Exactly how and when it will occur, we don’t know.

All we have to go on is the ‘why’…which tells us that you can’t get rich by borrowing money…especially when you’ve already borrowed too much.

Glazed delusions

Candied, glazed delusions are always more popular than the raw, uncooked truth. And the delusion that you can get rich by borrowing more and more money has provided direction, false comfort, and phony growth for the last 30 years.

The fantasy economy it created left the two biggest economies of the world playing a cartoonish game — like characters in comic strips or professional wrestling.

On the one side, dressed in red, white, and blue tights, was the American Dreamer, who — since the ’70s — believed he could get rich by issuing fake money.

Remarkably, his sometimes tag-team partner…sometimes blood-feud enemy…believed it too. The Great Red Hope thought he could get rich by taking America’s fake money in exchange for real products made in his vast new factories.

The Americans spent money they didn’t have. And they were China’s best customer. Fake money went from America to China…and then China lent its earnings back to the US…where it stimulated more borrowing…and more spending!

Then, China built more factories to satisfy the new demand.

Cumulatively, the US trade deficits over the 30 years toted to nearly $20 trillion (in today’s dollars), almost as much as the US debt. And all of it was a debit to the Americans and a credit to the foreigners.

Whole hullabaloo

That was the underlying fraud of the 30-year boom. It was based on bad money, not bad trade deals. Without the fake money, none of it could have happened.

Prior to the 1970s, as soon as US consumers spent more than they could afford, dollars would have piled up overseas, which would then have been presented to the Treasury.

Foreign governments would have asked for gold in exchange for their paper dollars — as promised. This would have reduced the US base money supply…forced up interest rates…and put a stop to the whole hullabaloo.

Without the fake-money system, US households, businesses, and the government could never have gone so deeply into debt. China could never have taken so many US jobs. And the US stock market could never have risen from Dow 1,000 in 1982 to Dow 25,000 in 2017.

And guess what? America’s middle/working classes wouldn’t have felt so betrayed…and most likely wouldn’t have elected Donald J. Trump as their champion.

But now, there he is…adding to the Mideast wars, the war on poor people, and the war on drug users…with a war on trade! 

Hell in a cell

But wait, readers will reply that this is just a negotiating technique…It keeps the ratings up…while putting pressure on China for a ‘better deal’.

In this respect, it’s a little like the manoeuvres leading up to the ‘Hell in a Cell’ wraslin’ extravaganza in June 1998 that we described yesterday. Promoters gin up interest with a long warm-up of phony feuds and ersatz confrontations.

You’ll recall that the match in the Pittsburgh Civic Arena pitted The Undertaker against Mankind. But two years before, the build-up began. Mankind (aka Mick Foley) would appear at Undertaker matches — such as the one at ‘In Your House 8: Beware of Dog’, where he ambushed the Undertaker, costing him the championship title.

Thereafter, the two brawled on stage and off, taking the fight into the stands…and creating the kind of counterfeit conflict that gets the fans eager to see what happens next.

The culmination of this dramatic tension — that is, the cathartic release — was scheduled for the aforementioned match in June 1998.

Fighting in a metal cage, the two stuntmen went at one another, The Undertaker in his familiar black dirge get-up…Mankind with his white shirt hanging down and a tie loosely knotted around his neck. Reaching for an ever-more-intense climax, the fighters climbed on top of the cage to continue the mock combat.

Everything was going according to the script…until…

Well, until it didn’t.

That was when Mankind got tossed off the top of the cage, but didn’t go where he was supposed to go. Instead of hitting the table, which was supposed to cushion the fall, he hit the floor.

And he fell onto it so hard that it knocked him out. It was while thus unconscious that a metal chair — which he and the Undertaker had used to batter each other on top of the cage — fell down, hitting him in the face, knocking out one tooth, breaking another, and dislocating his jaw.

Even phony battles can be dangerous.

Things don’t always go where they’re supposed to go.

More to come…why The Donald’s dust-up with China’s Xi Jinping has the potential to blow up badly; more than losing a few teeth, it could blow up the whole claptrap system of debt financing…

…bankrupting millions of US households and businesses…

…cutting the Dow in half, more or less permanently…

…and forcing the feds into even more lunatic policies…

Stay tuned!

Regards,

Bill Bonner,
For Markets & Money

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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