A Different Kind of Dumb, Part Two

The patterns of Megapolitics suggest that this sort of excess spending and meddling in the affairs of others will grease the skids for the decline of of the US empire.

Friday, April 26th, 2024

Bill Bonner, reckoning today from Dublin, Ireland... 

First up: the GDP came in at half what was supposed to be... and inflation was hotter than expected. Bloomberg reports: 

US Economy Slows and Inflation Jumps, Damping Soft-Landing Hopes 

First-quarter core inflation measure accelerates to 3.7% rate. Gross domestic product increased at a 1.6% annualized rate, below all economists’ forecasts, the government’s initial estimate showed. The economy’s main growth engine — personal spending — rose at a slower-than-forecast 2.5% pace. A wider trade deficit subtracted the most from growth since 2022.  

And here we see the inflate or die trap clearly. The Fed wants to cut rates. Banks want lower rates. Wall Street wants lower rates. The US government desperately needs lower rates. 

But inflation is looking over the Fed’s shoulder. At 3.7%, it’s nearly twice the Fed’s target. So, a cut would likely cost the Fed its remaining credibility... signal higher levels of inflation in the future... and might send the bond market into a tizzy, making it even harder for the feds to roll over their $34 trillion in debt and fund trillions more in new deficits. 

The US growth rate is barely a third of Russia’s GDP growth. But if the Fed cuts rates to try to boost GDP, it risks bringing on higher levels of inflation and a collapse of the bond market... forcing it to ‘print’ more money to cover the feds’ deficits. 

Death of the Bubble

If it doesn’t cut rates, it risks a recession/depression of unknowable severity... and the death of the bubble economy that its ultra-low interest rates, 2009-2021, created. 

Inflate or die. Our high confidence guess is that it will die a little... doing nothing until the pain of a dying bubble becomes unbearable. 

In earlier editions of this commentary, we’ve seen that climbing down the debt mountain, more or less safely, is possible. Jamaica did it. Greece seems to be doing it. Argentina has begun to do it.  

But you only do it by cutting spending... sharply. Emphatically. Enough to run a surplus that you use to reduce your debt.  

As Javier Milei puts it: a balanced budget is “non-negotiable.”  

Which makes the $95 billion in ‘foreign aid’ — to people who don’t need it (Israel)... can’t achieve anything with it (the Ukraine)... or have no real use for it (Taiwan) — even more out-of-line.  

George Will claims that opposing the ‘foreign aid’ package is “ignoble.” Others say that it ‘promotes US security.’ Still others believe it will help ‘protect democracy,’ somehow.  

Whether those things are true or not... we have no idea. They are not the sort of claims that can be fact checked.  

Wages of Debt

The contrary point of view is that the wages of this spending will be starkly negative. Americans will be blamed for the slaughter of the innocents in Gaza. In the Ukraine, Americans will be blamed by some for not giving the Ukrainians enough firepower to win... and by others for promoting a losing war with hundreds of thousands of casualties. And in Asia, America will cut itself off from friendly trade with the most innovative and productive economy on the planet. Instead of gaining the benefits of win-win trade with China, the US will reap the bitter costs of win-lose rivalry. 

Whichever point of view you choose, what is indisputable is that in the US as in Argentina ‘no hay dinero’ (there is no money). So, the $95 billion will have to be borrowed. US debt will increase... and the Primary Trend towards lower real asset prices, higher interest rates, higher levels of inflation, and spreading poverty will be enhanced. 

The patterns of Megapolitics also suggest — but leave much room for interpretation and argument — that this sort of excess spending and meddling in the affairs of others will grease the skids for the decline of the US empire. Fish gotta swim.  Birds gotta fly.  And empires gotta decline.  As if guided by an invisible hand, the feds do what they have to do... when they have to do it…wrecking America’s financial position, undermining its moral position, and ultimately destroying its position as the world's leading hegemon. 

But Monday we’ll look back at Francis Fukuyama... the reprise of history... and what might replace the Post-WWII order. The humans in it will be every bit as dumb as those who run things today. But maybe... a different kind of dumb. 

Stay tuned.  

Regards, 

Bill Bonner