A Casino for Lunatics

An economy fueled by cheap credit and warped by false promises

(Source: Getty Images)

Bill Bonner, reckoning today from San Martin, Argentina...

An advertisement appears on the side of our email. It offers us – in Spanish – ‘fashionable clothes for fat women.’  

This appears to be a case of logarithmic disorder. The computer coding that was supposed to identify fat mujeres, seems to have stumbled onto a thin hombre.

Another ad served up to us often shows a picture of two gay guys, holding hands. It offers “Insurance Programs for Every Lifestyle.” Another logarithm out of tune. The lifestyle it had in mind was not ours. 

The promise of the internet was that it could connect an individual more efficiently with what he wants and needs. But we neither want nor need a plus-size summer dress. The ad for an insurance policy that will pay off to a gay ‘partner’ missed its mark too.    

But the glories of the internet/metaverse age were always overrated… and over-funded. Too much cheap credit created a monstrously weird and dysfunctional economy, with wealth destroying companies supposedly worth billions, and debt up the gazoo.

“Information” – ubiquitous and free – was supposed to make real savings unnecessary. Growth was supposed to accelerate… leading to untold happiness and prosperity beyond our wildest dreams.

Instead, we got Tik-tok, Shibu-ina, NFTs, de-platforming, uber-eats, and a generation of illiterates. But at least now, we don’t have to think… we just have to see what’s ‘trending on Facebook.’ LOL! As for the much-awaited growth, it never showed up. Instead, GDP rates fell and are averaging only about half of those of the pre-internet days.

And now, that monstrosity of an economy, created by the Fed’s absurd interest rates, is in trouble.

A Casino for Lunatics

The Dow sold off nearly 1,000 points on Friday. This morning’s futures point to more losses today. The proximate cause, according to the press: the Fed’s long-lost, but now found, desire for more normal interest rates.  

But the Fed is ‘hoist on its own petarde,’ so to speak. It pushed interest rates down to ultra-low levels… kept them there for way too long… funded the governments jackass gimmie/stimmie programs… and now finds – what a surprise! – prices are rising.

Jerome Powell, Fed jefe, tried to ignore it, tried to dismiss it, and tried to excuse it; but there was no doubt where inflation came from.  

The artificially low interest rates twisted and disfigured the entire economy.  Investors became credit-crazed gamblers. Businessmen became short-sighted profiteers. Households rushed to refinance their homes… again and again, trading up each time. And the feds used the cheap money to support the fantasies, caprices, and skullduggeries of the whole elite class. Sex change operations for active-duty soldiers… a $1,000 a month of guaranteed income to young, unmarried mothers in Baltimore… $30+ trillion in capital gains to the rich – what else could you want!

Wall Street was turned into a casino for lunatics, where people borrowed at below zero real interest rates, to bid up prices on loss-making companies, using money that didn’t exist.

We remind readers that when a company loses money, it makes the whole world poorer. And America’s Silicon Valley losers destroyed more real wealth than any group of companies in history. Zillow, Uber, Airbnb, WeWork, Snap, Pinterest, Peloton, Dropbox, Amazon – the losses were staggering. Even the companies that were profitable were absorbing and destroying capital far beyond what they were actually worth. Capital was so cheap that billions of dollars were invested in companies that – though ‘profitable’ – could never actually repay the money needed to get there.

It was like borrowing a million dollars – without paying any real interest – and using the money to set up a high-tech lemonade stand. Your customers can sit in special booths and play video games… they can use ultra-high speed broadband to check their email. They can use your 15 unisex bathrooms and showers to clean themselves up… and use your state of the art conference room for business. You pay an interest rate on the million dollars (in real terms) of MINUS 5%. Then, you sell one glass of lemonade and announce that you are profitable. But the “profits” bear no relationship to the money that has gone into the enterprise. You are ‘profitable’ but you are still destroying wealth, not creating more of it.

But now, inflation is making life difficult for the Fed. Energy, resources, labor – everything is getting more expensive. And from the looks of producer prices (which will be passed on to consumers) ‘double-digit’ inflation will be here soon.

Bounce Less

So, it’s ‘inflate or die’ time. Either the Fed continues to let the cheap money pervert the economy… or its monstrosity must die.  

Wait… here comes another ad:

“Bounce less with a better sports bra.” Whatever jiggle it was meant to alleviate is not a concern for us.

And over on our telephone, some rascals seem to have planted a virus. About 5 times a day it warns us that it is going to reveal our “porn history” unless we do something. We’re still waiting.  

After all, if we’re going to look at porno, we’re not going to do it on a telephone… we’ll want a big screen!

Regards,

Bill Bonner