08/16/11 Poitou, France – As expected, investors were worn out by last week’s wild ride. This week, they need to slow down. Take a rest. Try to figure out what is going on.
After taking about 10 minutes over the weekend to think about it, everyone seems to have decided that all is well.
The Dow rose a healthy 213 points yesterday. Gold went up $17.
Investors are still bullish. The press is bullish. Warren Buffett is bullish.
What are the odds that all this bullishness will pay off? About zero, in our opinion. Not that stocks might not go up for a while. But they’re not likely to go up far enough or for long enough to make owners much money.
Why? You know why, Dear Reader. Because the debt is still there. And it’s getting bigger.
Debt weighs down a household…or an entire economy. With gross US government debt equal to 100% of GDP you can’t expect a thriving economy. All you can expect is a Japan-like, slumpy, zombie economy. Shoppers still walk around. People still go to work. But nothing much happens.
Remember, Rogoff and Reinhart predict that when you get over 90% debt-to-GDP, the economy slows down by about 1%. Instead of 3% long term growth, we get 2%.
That’s the optimistic way to look at it. More likely, debt will weigh on the economy…causing the feds to intervene. They launch more stimulus measures…and transfer more of the economy over to the control of the federal government. This, too, will slow the real economy down.
Then, more desperate than ever, the feds will panic. They will print money – a lot of it. Then, all Hell will break loose.
But wait…that’s still a long way in the future.
Besides, we have a feeling that there’s something else going on too. For example, there’s the Empire…stumbling into every trap the gods set for it. Half the federal budget is related to the imperial agenda. In a way, this puts the US in a marvelous position. It could save itself easily. It could balance the budget in a single stroke.
As you know, we have renounced all political involvement here at The Daily Reckoning. We are smirking observers…not earnest world-improvers, nor even willing participants in the political process.
And if, by some accident, we were suddenly elected president we would immediately demand a recount!
But what a great thing it would be to be president of the USA today! Such a great opportunity…
Oh…it makes our aorta bulge and our head hurt to think of it…
…we would go on TV…nationwide…Prime Time…and, with gravity in our voice and mischief in our heart…announce:
My fellow citizens. We are faced with a choice. Either we continue with our program of trying to police the entire world. Or we give it up. If we continue, we will go broke. And our armies will be destroyed…along with our economy and our currency. If we stop now, we can save our currency…our economy…and our way of life.
Which will it be? Guns or butter? A respectable nation…or an empire with a death wish? I know which I will choose.
Effective immediately, as Commander-in-Chief, I am ordering all US troops stationed overseas to come home. We will defend our nation to the death, but we will no longer meddle in other countries’ affairs. We will be a decent nation, a good nation; we will no longer be a great empire. Most Americans never wanted it anyway.
I am also submitting a balanced budget for next year. You will see in it that I am closing all foreign bases and eliminating all military spending that is not directly related to our real national defense.
That alone would spare the USA the misery of its inevitable comeuppance. But if we were president…why not go further? How could we resist?
It is not our place to give advice to anyone. If the US government wants our advice, it will have to at least send us invitations to fancy parties and let us go through the ‘diplomatic passport’ line in airports.
Yes, it’s true, had it asked our advice about the Great Reckoning, the US could have saved itself trillions of dollars…and now the economy might already be in a genuine recovery, instead of staggering towards bigger and bigger problems.
But the phone never rang. Our feelings were hurt.
Still, civic minded as we are, we can’t help but offer a little counsel – at no expense – to our leaders.
First, let’s look at the problem we are becoming: Japan!
Yes, dear reader, as incredible as it seems…we were right 10 years ago. Very long term DR sufferers will recall that we so often warned about “following in Japan’s footsteps” that readers got sick of hearing about it. We had to promise never to mention it again.
But now we’re breaking our promise. Yes, we were 10 years too early. Yes, we didn’t expect the biggest bubble in human history. Yes, we were probably wrong about all sorts of things…but here we are…following in Japan’s footsteps!
Why? Because we have a sick, debt-disabled economy…and because the feds won’t let it die. In Japan, they’ve kept it alive for 20 years…consuming the savings of an entire generation in order to keep it on life-support.
And now the US is on life support too – with deficits equal to 10% of GDP…as far as the eye can see. Ben Bernanke has already pledged to keep the key lending rate at zero for the next 2 years…so the IV drip will continue…just as it has in Japan.
So, welcome to a Japan-like zombie economy. But at least Japan didn’t have to pay for military zombies stationed all over the world too!
Okay, those are the facts on the ground, as we see them…
So, let’s go back to POTUS. The decider. The chief exec. And let’s imagine that he were we…or we were he…or some such thing….
And we were on TV… We had just announced that we had saved the Republic…by cutting off the Empire. And then, how could we help ourselves…?
But wait. There’s more.
My fellow Americans, I don’t know about you, but I’m tired of supporting all these zombies. Why are there so many zombies? Because there’s so much meat for them…
You wanted change…I’ll give you change…
Here’s how to get rid of zombies. I’m proposing to scrap the entire tax code. From now on, Americans will pay 10% of their income…no deductions…no nonsense. You’ll fill out your tax return on a postcard.
Serfs in the Dark Ages were only required to work one day in 10 for their lords and masters. You shouldn’t have to do more.
The federal government will have to get by on that. That’s all. I’m proposing a Balanced Budget Amendment…with a permanent 10% tax rate. No ifs. No buts. No zombies.
You all know what a 10% flat tax will do? It will make the US the most dynamic economy in the world.
And what about all the debt? Simple. We’re raising interest rates. Yep. To 5%. It will drive all these deadbeats into bankruptcy. The debt will disappear…almost overnight. So will a lot of these big, zombie banks.
And by the way, by executive order I’m hanging George W. Bush, Dick Cheney, Joe Biden, Alan Greenspan, Paul Krugman and Thomas L. Friedman.
Some of them for war crimes. The others…well…just because the world will be a better place without them.
Thanks for listening.
Regards,
Bill Bonner,
for The Daily Reckoning
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 The Daily Reckoning. Dice 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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And I’ll drink to that!!!!!!!!
“….. by executive order I’m hanging George W. Bush, Dick Cheney, Joe Biden, Alan Greenspan, Paul Krugman and Thomas L. Friedman.”
You wouldn’t have to hang George W. Bush or Dick Cheney. Just turn ‘em over to the World Court at the Hague. Let them handle it.
… self hating American ppl; ok, you lived too good, waaay too long.
You deserve IT.
Quite tired of permanent (negative) rumblings on this site – good bye and regards.
Life is way better than whatever you describe here.
Thurber:
the Euros would let ‘em go – just like the Lockerbie bomber…
I suspect most of your readers would be delighted to go along with a presidential philosophy such as yours, Bill. However, if the generals didn’t expedite you and your party’s exit from office, most assuredly the ‘defense’ industry would.
Cheers
You forgot the abolishment of fiat money!
By what authority can you force someone to pay 10% taxes when they paid none before? Fairness?
“By what authority can you force someone to pay 10% taxes when they paid none before?”
By the authority of Amendment XVI to the US Constitution, sillyhead.
Nice speech, Mr. President. The military industrial complex, along with the Wall Street boys, will arrange for your unfortunate demise within 72 hours.
if history teach us anything… It have been very easy to save good old USSR. And obviously just for everyone. Not just for the elite. But Titanic have been staing on its curs…
Russia is now better off then even, so ll be America…
Well said, Bill. However, don’t let anger consume you – avoid it completely. Otherwise, they win.
Get in behind Ron Paul in whatever manner you deem worthy and beneficial – he may be our only hope.
Nice work, Bill.
Spot-on analysis. Bravo!
Spot-on analysis. Bravo, sir!
I’ve been reading the DR since ’02, and I have to hand it to Bill: he’s been absolutely correct regarding the big picture. The details may have fluctuated from time to time, in ways BB did not predict, but his overarching view of things has come to pass. Gold has shot to the stratosphere, and stocks have been a bad bet, while the U.S. economy totters Japanward.
Iraq. Bill. Terr
Does it mean armageddon? It is touchy? Zombies are well establised with tons of paper money in inventory. Easy?
Bonner’s world would certainly make mandated gasoline MPG regulations un-necessary. Market forces would turn all those SUVs into playground equipment overnight, and the auto industry would immediately set-out to retool for a post trade deficit world. Many might discover they like the new USA better than the old one.
Ricky,Ricky,Ricky.
“Debt weighs down a household…or an entire economy.”
don’t investors make money off of debt?
Bring the troops home, get rid of the zombies, peg the Dollar to Gold, remove Fractional Reserve Banking – ideal world
Paul Krugman, Joe Biden, and Thomas L. Friedman? Aren’t they a major source of comic relief for our times?
Japan doesn’t owe anything to foreigners…the US owes trillions…a big difference
Asking for a revolution?
No more imperial army = no more cheap energy
No more cheap energy = a new american way of life
Cheap energy = cheap corn = cheap proteins and most importantly cheap sugar (high fructose corn syrup)
Unless the american way of life changes (bye bye meat, sugar and car addictions), the plan to drop the imperial army is doomed.
“Effective immediately, as Commander-in-Chief, I am ordering all US troops stationed overseas to come home.”
Next day, the Saudi Arabian puppet show will collapse – Good By to cheap oil …
Run, Bill, run!
Hanging would be too good for those guys. Give ‘em to those whose lives they wrecked and let justice be done.
Yes, puppet regimes all over the world would collapse if the world’s bully went away. But greed and self-interest would take over, new leaders elected and the cheap oil would flow again. How much food can grow in that desert?
“Serfs in the Dark Ages were only required to work one day in 10 for their lords and masters. You shouldn’t have to do more.”
Serfs?!? Um…yeah. I thought we were supposed to be living in the Land of the Free, not in the Old World. Doesn’t that imply that we should ABOLISH the income tax completely???
with respect bill, i submit, as president you would be doing whatever the real powers that be want you to do.and i am sure you know who they are.
You don’t the empire to buy oil. The people who own it will still want to sell it.
In the case of KSA, oil is just about the only thing they got. If they don’t sell oil, they can’t eat. So even the super-Wahabbi government that replaces the monarchy will still sell oil on the world market.
Only the princes partying on the Riviera have much to fear from that outcome, so the West can bring its troops home and relax already.
The positives of such a low tax rate and reduced regulations and reduced debt would counter the negatives of the defaults and eventually the negatives would fade away and we could be the Happy Republic again.
What we’re going to get the way things are is all the negatives WITHOUT anything positive.
We’re busy reaping the whirlwind right now, gentlemen. Hold on tight!
Why spare Geithner and Bernnake from the hangman’s noose!
I love you Bill, you’re the Best!
Right on Bill, and ‘Why spare Geithner and Bernnake from the hangman’s noose!’ along with Frank, Dodd, Pelosi, Reid, etc.
We could have a National Day of Reckoning, ha ha! A party outside the WH, bring the kids, hotdogs, strike up the band. Don’t foget the fireworks! Oh wait, did we think that out loud?
I sure will be glad when the dust finally settles over this sh!t!