Week 17 of the Quarantine

SAN MARTIN, ARGENTINA — We read the news… and we’re staggered. Are you sitting down, Dear Reader?

This is from the Congressional Budget Office’s budget review for June 2020:

The federal budget deficit in June 2020 was $863 billion, compared with a deficit of $8 billion in the same month last year, CBO estimates. That increase stems from the economic disruption caused by the 2020 coronavirus pandemic and from the federal government’s response to it, including actions by the Administration and the enactment of four pieces of legislation.

Let’s see… In June, the feds spent nearly five TIMES as much as they received in revenues — $242 billion in tax receipts versus $1,105 billion (that’s billion with a capital T) in outlays.

In other words, the deficit for a single month under the “conservative” Trump was greater than the deficit for the entire last year of the “liberal” Obama.

According to the CBO, the deficit for the first nine months of the fiscal year is going to be $2.7 trillion… or $2 trillion more than the deficit for the same period last year.

Nothing to Worry About

What do you make of it, Dear Reader?

A fluke? We owe it to ourselves? It will go away when the V-shaped recovery happens?

And what of this?

While the federal government is directly or indirectly responsible for about half the economy… and the CBO reports the most catastrophic budget numbers in U.S. history… the stock market goes up!

The Dow rose 177 points yesterday. And the Nasdaq hit a new record high.

What do investors know that we don’t? That more money-printing is on the way? That it will push up stock prices even higher? That we should stop being such a worrywart and get with the program?

Deep Analysis

Apparently. Got a money problem? The solution is easy: Just print up some money. That’s what the geniuses all say.

Here’s a deep “analysis” from Yahoo Finance:

Sending people money works, and the economy is slowing down again.

At the end of the month, the U.S. economy faces a critical juncture.

Enhanced unemployment insurance that puts an additional $600 in the pockets of those out of work each week is set to expire. These payments, combined with a $1,200 check for those making less than $75,000 with an additional $500 for each child, were a key part of the first round of stimulus passed in March.

A package that has helped the economy through one of its darkest periods in modern history.

Does it occur to Yahoo that there might be more to the story?

The analyst goes on to tell us that giving people money “supports consumer demand.” That’s about as deep as it gets.

Where does the money come from? What wealth does it really represent? Is taking it away from the people who earn it and giving to people who don’t really making us all richer?

Politicians and economists are paid not to think too hard. But you’d expect a financial analyst/journalist/markets reporter to show a little more curiosity about it.

The Federal Reserve has been providing fake money for the last 50 years. Has it made us richer?

Keep reading…

Arc of Empires

But we’re not complaining about our brethren in the writing business… We are all lost souls, adrift on a sea of ignorance, superstition and stupidity.

Instead, with some pushback from our dear readers, we continue to explore what might be called “The Fate of Empires.”

In short, they are like dazzling 4th of July fireworks… They shoot high, explode in a grand display of shock and awe, and then fall to the ground as burned out cinders.

This has nothing to do with “better” or “worse.” We might prefer that old age not come so fast. Or that gravity lighten up.

Likewise, we might like for the freedom, glory and wealth stages of the U.S. empire to drag on a little longer.

But there are cycles… and iron laws… And there’s stuff that happens that we can do nothing about. The arc of empires is one of them.

Wednesday, we tracked Lord Byron’s description of the trajectory of empires… from freedom… to glory… to wealth.

We saw wealth peaking out in 1999… as the “vice” of counterfeit money did its evil work, undermining Main Street while making Wall Street more flush than ever.

Disbelief

Since then, the cream of U.S. industry — the 30 Dow companies — is off by 65% from what it was at the end of the last century, as measured in old, pre-1971, gold-backed dollars.

Using 1970 — a half century ago — as a baseline, a student now needs to put in at least four times as much time on the job to pay his college tuition. And a typical worker needs to work about twelve times as long to buy an ounce of gold… and six times as long to buy the 30 Dow stocks.

Our mouth drops open in disbelief. A lot of things are cheaper — imports from China… wheat… oil — especially when measured in “time prices” (the amount of time you need to work to buy them).

But over the last half a century — your editor’s entire adult life — real wealth has slipped through most Americans’ hands like the rivers of Babylon. They splashed around in it… enjoyed the warm glow of its big screens and double-wide trailers… but it moved on without them.

And this has happened during what should have been the richest, fastest-growing, most dynamic and innovative period of all time.

Big Questions

For most people, time is not just money; it is their main capital asset. And measured against gold, housing, education, medical care… or even a new set of wheels — most Americans are poorer today than they were half a century ago. They now have to exchange more of their time to buy these things.

Who… what… is to blame? There is probably more than a single suspect — including the great, ineluctable arc of empires itself.

But if we were a deep analyst from Yahoo, we’d be looking for fingerprints…

How come GDP growth fell, even as the Federal Reserve stimulated demand with trillions in fake money?

…How come America’s wealth phase seemed to roll over after 1971, when the fake money replaced the real, gold-backed dollar?

…If you can get away with a $863 billion deficit — in a single month… why not a $1 trillion deficit… or $2 trillion?

…If you can fill the gap between income and expenses by borrowing and printing money, why does any government ever go broke?

…And what happened to all those empires/countries/city-states/private enterprises/households in the past who tried it?

Did they prosper?

More to come…

Regards,

Bill

• This article was originally published by Bonner & Partners. You can learn more about Bill and Bill Bonner’s Diary right here.