The US Economy’s Bread and Circuses

When it comes to the US Economy, there aren’t so many questions. Nobody doubts the full faith and credit of the US government. Not yet anyway. And nobody doubts the Fed will backstop America’s public debt…by printing as much money as it needs to.

Trouble is, the thing they count on to save them from having to ask questions comes with a whole bag of question marks too. When the Fed starts printing again, investors will begin to wonder how long it can continue…before all Hell breaks loose.

We don’t have an opinion on it. And we don’t need one. That’s a question, as the judges say, that’s not ripe for a decision.

So let’s move on…

And here’s another question. What gives? Bread…or circuses? Social Security, Medicare, and other domestic spending. Or, the military circuses abroad? In order to bring federal deficits under control…and avoid the bankruptcy of the country…something has to go.

You’d think the military spending would give way. Who really cares what happens in Iraq? Or the South China Sea?

But here we have another unstoppable force running into another immoveable object. And we’ll make a prediction. Neither will give way. Neither the bread nor the circuses. The super committee will not be willing to battle it out with the voters…nor with the military contractors. And if it did, it would get no support from the president…or Congress.

Social Spending Cuts in the US Economy

Polls show more than 75% of Americans oppose any cuts to Social Security or Medicaid. Since it takes only a majority of voters to decide an election, the chances of any candidate winning on a “cut social spending” platform is nil.

Cutting Military Spending in the US Economy

But don’t expect any candidate to win on a “cut the military” platform either. The social services may have the votes, but the military has the money. That’s why major Republican candidates are trying to out-hawk each other with preposterous claims and absurd proposals. They’re all Teddy Roosevelt mixed with Thomas Friedman…blowhards and dimwits, almost every one of them.

Small wonder. The campaign contributors demand it. The lobbyists insist on it. And the voters deserve it.

But won’t the bond vigilantes stop them from borrowing a trillion dollars + a year? Won’t the dollar’s guardian angels prevent them from printing money to cover America’s deficits?

Oh, dear reader. How long have you been reading these chronicles? If you’ve been reading for a while you know that the gods — and Mr. Market too — are fun loving, mischief-makers. What kind of a trap could they set that didn’t let their prey get in it? What kind of a flim-flam could they play if their mark always showed good judgment?

US Economy Budget Cuts

The Super Committee is considering budget cuts of between $330 and $400 billion per year over the next 10 years (you can bet that any cuts they come up with will be heavily loaded on the backend of the 10-year period). First, those sums are peanuts. The feds will probably run deficits in excess of a trillion a year even if they make those cuts. Second, the cuts are not from current levels of spending but from projected levels…higher levels, that is. And those projections are worthless. They systematically underestimate expenses and overestimate revenues. Third, they ain’t gonna happen anyway.

This will leave the feds in need of lots of money. But with so many question marks in the Eurozone, investors think they can sleep easy at night by moving their money to America. All things considered, the dollar and the US bond market looks like the best games in town. This makes it easy for the feds to continue borrowing at low rates…continue going into debt…and keep their bread and circus program going almost indefinitely.

The end of this phase may be many years ahead. Japan has been at it for 20 years. The US economy could pile up debt for another 10 years. But when the end comes…it will be something to see!


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.

Leave a Reply

Be the First to Comment!

Notify of
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to