Democrats and the Trump administration are near an agreement for Congress to act this week on a deal as large as $500 billion putting more funding into a tapped-out small business aid program and providing money for coronavirus testing and overwhelmed hospitals.
Yes, Dear Reader, it’s capitalism on the way up… and cronyism on the way down. You can tell where we are just by looking out the window.
Capitalism built the U.S. People worked hard. Took risks. Made money. Lost money. Investors… managers… day laborers… all got richer, together. And now that the wealthy have their piles, they count on their friends, the feds, to protect them.
The middle classes, for their part, are happy with that, too… as long as the checks keep coming.
They don’t know it — and probably never will — but in the new crony economy, the rich can still make profits… but now the middle classes will take the losses!
America’s Turning Point
The turning point was probably around 1999. Then, the tree was magnificent… tall… broad… spreading its limbs from sea to shining sea. But the leaves had already turned yellow and were beginning to slide off the branches.
No longer young and vigorous, squirrels, bugs, worms — chiselers, lifelong bureaucrats, scoundrels, scalawags, swamp critters, Deep Staters, and all manner of parasites — had made their nests in it.
One got a job, one got a grant, one got a subsidy, one got a bailout, another a tariff protection…
Then, after 2000, three things fell upon it like a woodsman’s axe.
First, the George “Dubya” Bush administration ginned up its war against terror/Iraq. The cost so far: over $6 trillion, according to recent estimates.
Did the U.S. have $6 trillion to spare? Of course not. Nor did it have an unlimited budget of common sense.
The U.S. could have deported itself gracefully in its advancing age, as a civilized member of a community of nations. Instead, it decided to throw its weight around and reject the traditions that had made it great.
Second, the Obama administration chopped at its roots.
Confronted with the crisis of ’08-’09, it could have let old-fashioned capitalism do its magic… separating fools from their money, taking out bad managers and bad investments.
The hedge fund manager, up on the 25th floor, might have toted his losses… contemplated his disgrace, and reviewed his options. Capitalism would have politely opened the window for him.
But cronyism sends him a check. Bailing out the good, the bad, and the ugly, the Obama team added $10 trillion worth of debt to the government ledger.
It allowed the Federal Reserve to bail out the cronies with $3.6 trillion in fake money and fragilized the entire economy with ultra-low lending rates.
The stock market recovered… and the rich got much richer… but it was an almost mortal blow to the capitalist system.
The essence of capitalism is upside… AND downside. Losses as well as profits.
The upside was great for the first 200 years… but by the 21st century, it was the downside that people feared. And they would let their children and grandchildren pay any price to avoid it.
Third, the unkindest cut of all…
Mr. Trump had promised to Make America Great Again. But what was the context? Voters took it as a promise.
Then, early in 2020, a fierce wind — the COVID-19 virus — began to blow. In a matter of weeks, the remaining leaves had blown away. And now, the naked branches… corrupt and bent by cronyism… are exposed for all to see…
There is scarcely a sign of true capitalism anywhere.
Swamp Gets Deeper
This year’s deficit is likely to be over $3.8 trillion — more than ever before.
U.S. debt is headed to $30 trillion, not by the end of the decade as projected, but by the end of 2025.
And the swamp grows deeper.
Who did you think would get all that Corona-stimulus money? Slimy swamp critters, of course — those with lobbyists to make deals and lawyers to work the angles.
On Thursday, The Wall Street Journal pointed the finger at Ruth’s Chris Steak House:
Ruth’s Hospitality Group Inc., a company with more than 5,000 workers, received $20 million in forgivable loans on April 7, according to a securities filing. That is four days after the Small Business Administration opened the application window on its $350 billion Payroll Protection Program.
On Saturday, Bloomberg was on the story too:
More than a dozen publicly traded companies with revenue of more than $100 million, including Shake Shack Inc., Potbelly Corp. and a Tex-Mex restaurant chain with more than 10,000 employees, received loans through a massive relief program aimed at small businesses.
With a $349 billion lending package for small business owners now exhausted, a review of regulatory filings shows that restaurant chains and companies in industries ranging from mining to manufacturing to cruise travel received large amounts, while much smaller businesses like neighborhood eateries and hair salons were locked out.
(This morning there’s a report that Shake Shack is giving back its $10 million…)
The Feds’ Magic Well
Meanwhile, U.S. airlines have declared bankruptcy 66 times since 2000.
And between 2017 and 2019, the chief executives of just four major “travel” companies — Ed Bastian of Delta, Doug Parker of American Airlines, Oscar Munoz of United, and Arnold David of Carnival Cruise Lines – have pocketed $150 million in compensation.
The largest six airlines spent nearly 100% of their free cash flow buying back their own shares (thus rewarding shareholders and helping executives to hit bonus targets) and other forms of investor/management payouts.
In a capitalist world, these companies would simply go broke again. Stockholders and managers would head for the window ledges. But the planes… the knowledge… the assets… would all still be there… and move to “stronger” hands.
But in the crony economy of today, the feds will draw from some magic well of finance to make sure that nobody takes a loss — no matter how well deserved it may be.
The coronavirus relief tab so far is estimated at $6.5 trillion… with another $500 billion on the way for American businesses…
Whee!
Regards,
Bill
• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.