US Economic Growth Still Dependent On the Government

It is a national holiday in France, today. But your Markets and Money team is on the job anyway. We neither sleep nor rest nor take time to honor any of the world’s bogus holidays. We just reckon.

Bogus holidays?

Well, the storming of the Bastille was hardly cause for celebration. But we’ll come back to that. First, today’s top financial story:

The Dow rose 146 points yesterday; gold rose $14.

Just like the markets. Keep us guessing. Is this a major rally? Or just a feint to the upside? We don’t know. Stocks have been up six days in a row. The shorts have been squeezed…forcing them to buy into a rising market to cover their positions.

And here’s something interesting: “Surprise jump in US trade deficit as imports flood in from China.”

Is this beginning to seem like the sequel: The Bubble is Back II? Not really. The post-bubble trends are firmly in place. The private sector is de-leveraging. Credit is declining and so is private debt. Only the public sector is still adding debt.

Private sector debt is much greater than public sector debt. So when people begin to pay it down, it has a big effect on everything. Jobs disappear. Prices fall. Businesses go broke.

That’s what’s supposed to happen in a correction. That is what is happening now. We see no sign that it is letting up…

Nor is there any sign that the other fundamental trend has peaked out. Wealth and power have packed their bags. They’re moving to the East. Asian economies, broadly speaking, are growing 2 to 3 times faster than the US and Europe.

We have some doubt that the US economy is growing at all. The figures show modest GDP growth. But the figures don’t make a distinction between real growth and hollow, government-goosed activity (such as census taking). One thing is clear, more and more of the economy is being directed, owned and controlled by government. And when the feds are active in an economy, the economy itself loses its vitality. They usually spend money recklessly and invest it foolishly. And why shouldn’t they? Neither their money nor their jobs are on the line.

What’s more, the figures are constantly being revised and updated as new data comes in. A few years from now it may be clear that the US economy has spent the last 6 to 8 quarters in recession.

But back in Asia, there is no doubt there is a boom going on. Growth averages about 7% throughout the region. Incomes are rising. And with so many people in the region, it is already the biggest consumer of a whole variety of products.

Food, for example. While most of the US suffers from a downturn, the farming sector is doing well. Why? Because it has something to sell that Asia wants to buy.

The raw materials producers are also doing well – Canada, Australia and Brazil.

Which brings us to another way China is asserting its new power. It has determined that Moody’s, Fitch and S&P are biased towards the West. Its own rating agency has just announced a new way of looking at the creditworthiness of the world’s governments. In it, the US has been taken down a notch. So have Britain, France and most other western nations. The Telegraph reports:

Dagong Global Credit Rating Co used its first foray into sovereign debt to paint a revolutionary picture of creditworthiness around the world, giving much greater weight to “wealth creating capacity” and foreign reserves than Fitch, Standard & Poor’s, or Moody’s.

The US falls to AA, while Britain and France slither down to AA-. Belgium, Spain, Italy are ranked at A- along with Malaysia.

Meanwhile, China rises to AA+ with Germany, the Netherlands and Canada, reflecting its €2.4 trillion (£2 trillion) reserves and a blistering growth rate of 8pc to 10pc a year.

Dominique Strauss-Kahn, chief of the International Monetary Fund, agreed on Monday that the rising East is a transforming global force. “Asia’s time has come,” he said.”

Yes, Asia’s time has come. But does that mean that the West’s time has gone?


And more thoughts…

Whatever is happening on Wall Street probably doesn’t matter very much. We’re more worried about the zombie invasion. Here’s Ross Douthat in The International Herald Tribune. He is describing the zombification of the USA:

“In case after case, Washington’s web of subsidies and tax breaks effectively takes money from the middle class and hands it out to speculators and have-mores. We subsidize drug companies, oil companies, agribusinesses disguised as ‘family farms’ and ‘clean energy’ firms that aren’t energy efficient at all. We give tax breaks to immensely profitable corporations that don’t need the money and boondoggles that wouldn’t exist without government favoritism. And we do more of it every day…”

Here’s a news item from the Portland press:

“A car full of zombies crashed on I-84 near Portland, Oregon.”

We’re not kidding. We told you the country was being taken over by zombies. Now, we have proof.

When police arrived at the scene, they thought the passengers and driver were dead. Turned out, they were just zombies with minor injuries.

Watch out, dear reader, they shuffle among us.

*** What good did the storming of the Bastille achieve? As far as we can tell it just set in motion a sad story of mob violence, war, and property destruction.

Richard Nixon famously asked Deng Tsaoping what he thought was the impact of the French Revolution. The latter replied that “it is too soon to know.”

A good answer. More accurately, we’ll never really know. One thing leads to another…you never know which thing leads to something good and which to something bad. You’d have to know God’s Own Plan to figure these things out.

When the revolution was over the French had no king. So they welcomed an emperor, Napoleon I. Is that progress, or what?

The Revolution…the Terror…the Directoire…the Empire…the Napoleonic Wars – was the typical Frenchman better off for all the drama and bloodshed? Wouldn’t he have done better to fix his roof and plant cabbages? Most likely.

He began with a monarchy – albeit imperfect. Finally, he had a republic – albeit imperfect. In between, he had various sorts of governments, held together by duct tape and illusions. Did any of them plant a single seed or reap a single pound of grain? Did any of them earn a centime or a sou? Did any of them discover penicillin or the telegraph? Did any of them do a single thing that made a net positive improvement in the lives of the French?

Probably not. But people cannot seem to resist politics. The hope of getting something for nothing is too great. Besides, there’s the excitement of it…the thrill of engagement…the roar of cannons and the smell of the crowd. There’s the feeling of pride and excitement when the ballots are counted or the troops walk by.

Understanding the feds’ reaction to the current crisis is impossible without realizing that people are forever setting out to do mischief to others…and usually to themselves.


Bill Bonner
for Markets and 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 Money.
Bill Bonner

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Much has been said here about China’s ghost cities, its unoccupied urban buildings and empty malls. Today’s DR(US) may help clarify Chinese long-term planning. Here’s Joel Bowman’s latest contribution: “Right now, for example, the weary old world is witnessing the largest human migration in the species’ relatively short history. People are literally marching out of the provinces all around Asia in the hope of finding a better life for themselves in the continent’s swelling mega- cities. According to People’s Daily, China’s official English language publication, the Middle Kingdom’s urbanization level is expected to exceed 50% during the next (12th) “5-year… Read more »
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