We’re Living in a Deep State Empire

You may be wondering what our discussion last week of ‘Bad Guy’ Theory had to do with our beat…money.

We wondered, too.

We used the Memorial Day holiday to figure it out. So let us begin by peeking into the future:

Stocks collapse (expected, by us, before the end of the year)…

Recession sets in (to begin in early 2019)…

The feds panic (also early 2019)…

Sound familiar?

That is what happened in 2000…and again in 2008.

What makes the next time different is that the feds now have much less room to manoeuvre.

Federal debt has more than doubled since 2008, from $9 trillion to over $21 trillion. And the Fed has only 175 basis points to cut, down from 475 in 2007.

So when the next crisis comes…the feds will find themselves a day late and a dollar short. It will be too late to hike interest rates; they will want to cut rates, but will have few to cut.

And with an $800 billion deficit already, they will lack the dollars needed to stimulate the economy. Borrowing more money would only drive interest rates higher, stifling a recovery.

With neither monetary nor fiscal stimulus available, what are they to do?

Deep State edifice

You didn’t ask, but we’ll tell you anyway.

Because the line that leads to the next crisis…then to bankruptcy, hyperdeflation…and hyperinflation…and probably a military coup d’état…runs through ‘Bad Guy’ Theory (BGT), too.

BGT is the Portland cement of the Deep State edifice. It holds the thing together…making sense of a trillion dollars a year spent telling foreigners what to do. No bad guys, no need to spend so much money. At least, that’s the idea.

What really happens is the Empire creates its own bad guys. Currently, more than two dozen countries are on the sanction list.

Some we ‘sanction’ because we don’t like their policies. Some we sanction because they don’t knuckle under and go along with our sanctions on others.

In some, we try to engineer a regime change. In others, we just try to contain the violence, misery, and chaos caused by our previous efforts at regime change. Still, others we just push and shove because we can get away with it.

All this costs money. And it is money the feds want, but don’t have. So, they borrow.

That — in addition to supporting zombies and cronies at home — is why we have an $800 billion deficit even without a recession.

Empire agenda

Why bother? Should America even be an empire? Do Americans really want it? Are they willing to pay for it?

The questions were never asked. Congress never debated it. And when they are given the opportunity, the voters reject it.

George W Bush promised a more ‘modest’ foreign policy. Barack Obama said he’d withdraw from foreign wars and close Guantanamo. Donald Trump said the wars were a ‘disaster’; he proposed an ‘America First’ policy instead.

But no president can stand against the Deep State and its empire agenda. There’s too much money and power at stake. Look for yourself.

Just take a drive around Northern Virginia. You’ll see bright, new office towers…expensive shops…and luxury houses everywhere.

Where did the money come from?

Oh, Dear Reader, don’t pretend to be so naïve. Northern Virginia has just one industry — military/ defence contracting…and just one customer — the Deep State Empire.

Empire deciders

This brings us to another topic we discussed recently: the power of scale.

Scale changes everything. A nuclear bomb is not just a big firecracker. Dying is not like going to sleep for a long time.

And empires are not just big countries. They have different agendas. Different finances. And different ‘deciders’.

In a small town or even a small country, democracy can work tolerably well.

People know what’s going on. They know where their money is spent. They can have sensible ideas and opinions about what to do.

But not one voter in 1,000 knew that US troops were active in Niger when news broke that US soldiers had been killed there in October 2017 (Congress didn’t know, either).

Almost no one even knew where Niger was, what language they speak there, or what gods they worship.

And who has any idea whether a billion-dollar weapons system or computer spying software needs to be upgraded? What citizen can figure out when Obamacare will go broke?

Today, when a sparrow falls from a tree anywhere in the world, there’s a good chance that the Pentagon or the CIA pushed it.

‘We had to neutralise the threat,’ the military spokesman will claim. ‘Our credibility was at stake,’ the pols will add. ‘The damned bird was a terrorist,’ the spooks will allege.

The voters have no way of knowing. They trust their generals and their experts. They give the wheel to the insiders and sit in the back seat.

How can they know where they’re going? How can they know that they’ve been betrayed by their own elite?

And who can count the cost? When the Fed can create money at will…and lend it out at less than the inflation rate…who can imagine that they are headed for a brick wall?

As always…more to come…

Regards,

Bill Bonner


Markets & Money is unlike any other finance newsletter. Our mission is to look at the world of investments and finance in a sceptical and contrarian way. Our editorial team looks beyond the headlines and obvious explanations to bring you what we think is really moving the market. More importantly, we’re trying to show you where the next big opportunities and where the big risks are that you might not be aware of. In Markets & Money you’ll read about the state of the Australian housing market, the future of the commodity boom, China’s rise to an economic superpower, the fate of the US dollar, and of course a whole lot more.


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