Delinquent Democrats

The media and the Democratic party fear that American voters are fools. They're horrified that they may vote for Donald J. Trump; he may act like an autocrat! Our beloved democracy may soon be history

Monday, April 15th, 20204

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

Last week, we left you on the edge of your seat. 

The saving grace of democracy was that it could — after exhausting all other possibilities — rise to meet the challenges ahead of it. We’ll soon find out if that is true. 

Dead ahead is the ‘most predictable crisis ever’ — a debt crisis. Can modern, western democracies avoid it? Probably not. But let’s keep an open mind. 

Martin Wolf, writing in the Financial Times says that “for all its faults, democracy is still better than autocracy.” After all, you can fool some of the people all of the time and all of the people some of the time, but you can’t fool all of the people all of the time.  

But what we are about to discover is what happens to a modern democracy when it has, essentially, given the same credit card to millions of people.  Then, he who limits his spending feels like a fool... and they all go broke. 

Voters are Fools

The mainstream media and the Democratic party fear that American voters are fools. They are horrified that they may vote for Donald J. Trump; he may act like an autocrat! Our beloved democracy may soon be history, they lament. 

And yet, a strong and intelligent autocrat... such as Lee Kwan Yew in Singapore (who died in 2015) ... or perhaps even Vladimir Putin in Russia... might be better able to deal with a debt disaster. With no need to please special interests or pay attention to pollsters, he could take the sort of forceful action needed to prevent it. He could simply cut spending... cover his ears... and let ‘the people’ howl.  

A benevolent autocrat, firmly in charge, can take the long view. A democratically elected politician, on the other hand, can look no further than the next election. 

Here’s a parallel.  A good farm owner has a different perspective than a good farm renter. An owner wants to preserve the value of his property... so that he can eventually sell it or give it to his heirs. He’s careful to plant trees... and let his trees mature. He builds up the soil and prevents erosion. He changes the oil in his tractors and fixes the roofs of his farm buildings.  

The renter may not. He cannot look at the long-term capital value of the farm. All he cares about is how much the farm will produce now... and how much he can make from it. Maintenance is an expense that he tries to keep at a minimum. Typically, he looks no further ahead than the term of his lease or his own career. 

Deciders are Renters

In a democracy, the deciders are renters. One party runs the government, but only for a while, realizing that it may be booted out in the next election. It takes advantage of its opportunity — by spending as much money as possible, fully aware that the consequences will be someone else’s problem. A farm owner will try to avoid putting his farm in debt, for example; but not a Member of Congress. The former gains by not spending money; the latter’s ticket to re-election is to spend as much as possible — rewarding his voters, his supporters, his campaign contributors and all of the powers-that-be upon whom he depends. 

That – and $34 trillion, rising at the rate of nearly $5 billion per day -- is what brings us to the aforementioned “most predictable crisis ever.”  

Democracies don’t do a very good job of avoiding avoidable disasters. Abraham Lincoln didn’t allow the Confederate States to go in peace. Nor did he negotiate peacefully to get them back. Instead, he attacked Virginia. As many as one million people died in the war. Both sides were democracies. 

Both Hitler and Mussolini found their political footing in elections... and then dismantled their democratic systems. But what good is a political system that can be so easily undone?  

And after Hitler shed his democratic ectoplasm, he committed an unprecedented number of war crimes. But it was the democratically-elected haberdasher from Missouri, Harry Truman, who dropped not one, but two atomic bombs on civilian targets – arguably, the biggest single war crime in history. And today, in Gaza, both parties to the butchery are products of elections.  

History is full of leaders who did stupid and barbarous things, whether they were elected or not. But what it takes to protect a nation is not doing them.   And when it comes to a debt crisis, an autocrat may be better suited to say ‘no’ than an elected leader.  A monarch, an emperor, or an autocrat may feel more like an owner than a renter. He has less of a need to please the mob or bend to the latest fads; he can do what needs to be done to protect the long-term value of his realm.  

Pills and Stimmies

In a late, degenerate democracy of the US genre, each party, each official, each special interest group tries to get as much as possible out of the system, as soon as possible, with little regard for the long-term consequence.  

First, politicians do not see things when it pays to be blind. And in America today, they gain nothing by pointing out that the country is going broke. It’s a downer. It suggests that the free stuff is coming to an end.  

Even if they see the problem clearly, the deciders are likely to keep their mouths shut. Everybody wants more, not less. The voters want more pills and stimmies. Lobbyists want contracts, tax breaks and special privileges. Campaign donors want to see their pet projects fully funded... and everybody wants to see his enemies smote. Who wants to see the budget balanced? Nobody. 

And then, suppose you are the rare politician who takes time out from the usual fundraising and blah,blah-ing... who is clever enough to spot the crisis and brave enough to do something about it. What can you do? 

Not much.  

You can cast your vote in Congress. Like Ron Paul, you can explain the danger and tell your colleagues how they could avoid it. 

But who cares? 

Most likely, in the years ahead, democracy will show itself unable to stop the coming debt disaster. Then, chaos and crisis will rock the country and its political system.  What will come out of it?  We’ll find out.    

Regards, 

Bill Bonner 

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Market Note, by Dan Denning

Americans are running higher balances on their credit cards than ever, according to a report published last week by the Philadelphia Federal Reserve. More people are making just the minimum monthly payment on their credit cards. And the percentage of accounts that are 30-, 60--, and 90-days past due is at its highest level in the last ten years.

That got us to wondering what the price action is like for the major credit card companies. Take a look at the five-year chart of Visa (V) below. It made an all-time

high at $290/share in March. It’s trading above its short-term moving average. And the gap between its short- and long-term moving averages is as wide as it’s been in five years.