This Is When the US Government Goes Broke

Dear Diary,

First, we check in with the markets.

What’s new?

Not much. The Dow crossed the 17,000 mark yesterday.

Janet Yellen is supposed to address the world today from Jackson Hole, Wyoming. It is hard to imagine that she will say anything surprising…or even meaningful. Commentators all over the planet are waiting to analyse each word…hoping for a hint of what is coming.

They want to know when we will be leaving this wacky world of price fixing by central banks. They want to know when we will get back to more normal interest rates and a more neutral monetary policy.

We think we have the answer already: Only when we have no other choice.

The world’s largest economy, and its capital markets, depend on cheap credit. Take it away, and asset prices will collapse…and the economy will go into a recession/depression.

Yellen can’t allow that. It goes against all her training, her convictions, and her most treasured delusions. She will fight the inevitable downturn with more liquidity and more free credit…until the whole shebang blows up.

Then, and only then, will things go back to normal…

Going for broke

The Congressional Budget Office (CBO) issued a report last month. Hardly anyone even noticed it. But its news was shocking…

Turns out, the US will go broke 20 years sooner than projected. Not in 2050 as previously forecast, but in 2030 – just 15 years from now.

Fifteen years is a long time. Anything can happen. But our job is to look ahead. And when we take a peek at Social Security’s finances, we’re glad we’re not counting on it to fund our old age.

The CBO says Washington’s deficit has increased 400% in the last six years. It is now $15 trillion short of the amount required to fulfil its commitments over the next 75 years.

So, what does this mean?

As it also turns out, we were sitting at our window at the Mount Juliet Hotel, in County Kilkenny, Ireland — looking down at the north-flowing river beside it when we were suddenly overcome with an insight so profound we had to grip the arm of our chair with one arm to steady ourselves…and reach for our glass of Jameson with the other.

Government is widely seen as ‘a force for good’. Republicans often think it is only a force for good overseas…particularly when it is invading another country.

Democrats often think it is a force for good at home as well as abroad. At least Hillary Clinton thinks so. There is little doubt it has done her a lot of good. She’s spent almost her entire life on the government payroll — never having to provide a marketable product or render a real service to anyone.

Historically, as well as intrinsically, government has been a means for some people to control and exploit other people — as slaves, soldiers or taxpayers.

But compared to historical standards, government now seems almost benign…as though it really is concerned with the welfare of the people it ruled.

After all, isn’t Social Security a good thing?

Doesn’t it prove that government is now civilized…and that we should all get behind Hillary and other well-intentioned politicians so they can do a better job of helping us?

Civilization and wealth

Stop! We’re feeling a little sick.

But not so sick as to forget the point: How come government seems more benign now than it did in the past?

Has it finally abandoned the brute force of Genghis Khan’s army or the naked aggression of the Third Crusade?

Social Security appears to offer no particular advantage to the ruling elite (except helping them to remain the ruling elite by getting re-elected). And aren’t the governments of the richest, and most civilized societies, also the most civilized?

Glad you asked those questions. Because we have a good answer: Civilization goes hand in hand with wealth; the more civilized a nation, the richer it is. Wealth goes hand in hand with power; the wealthier a society is the more lethal it is (because it can afford more firepower and more advanced weapons).

In other words, it is not military success that breeds civilization; it is the other way around.

What does this have to do with Social Security and the stock market?

We’ll try to remember…and have an answer for you tomorrow.


Bill Bonner
For Markets and Money

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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.

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