Fads and Fashions of the Financial World

The feds are now squandering so much of the nation’s output that it has become very difficult for anyone to get ahead. That’s why they have gotten zero real wage increases in the last half a century.

Thursday, December 5^th, 2024

Bill Bonner, writing today from Baltimore, Maryland

The most entertaining thing to watch in the next administration will be this:

How the nearly immovable, blockish ballast in Trump’s Big Spending brain collides with the almost-unstoppable energy of the expense cutting dynamic duo — Musk/Ramaswamy.

Here’s the latest from Fox:

As reckless spending has become the norm, government has grown out of control and our national debt has skyrocketed to more than $36 trillion, it’s clear that Washington has all but given up on fiscal responsibility and the American Dream. We need dramatic change in Washington to bring America back to the path of fiscal sanity, and President Trump’s decision to name Elon Musk and Vivek Ramaswamy shows there are still patriots devoted to protecting the American Dream by reigning in big government. 

Unfortunately, Donald Trump isn’t one of them.

The only reforms that will help the pick-up driving, MAGA cap-wearing crowd — not to mention the entire middle class of Americans — are those that cut back the reach of the federal government. The feds are now squandering so much of the nation’s output that it has become very difficult for a working man (or woman!) to get ahead. That’s why they have gotten zero real wage increases in the last half a century.

David Stockman has already prepared a list of easy spending cuts — some $400 billion of ‘fat’ that wouldn’t be missed — except by the insiders who got it!

But to get to the $2 trillion annual target (the amount of expected deficits in the years ahead) Musk and Ramaswamy are going to have to go deeper…down into after the excess ‘muscle’ of the Empire (the Pentagon, the firepower industry, foreign aid... etc.) and the extravagant transfers to the domestic population (Social Security, medical coverage and many other ‘benefits’.)

Cutting the ‘fat’ should be easy. It won’t be. We tried it 50 years (as the young director of the National Taxpayers Union) ago... when its lobbyists and supporters were much less entrenched and powerful. Couldn’t be done. Even during the Reagan Administration, the parasites and swindlers increased their take.

Cutting back the Empire... and reducing the ‘transfers’... will be even harder. And Trump pledged to protect both of them.

We suppose Musk and Ramaswamy are aware of this. But the most prominent markers of success in life are money and power. The dynamic duo have plenty of money. What they seek now — Ramaswamy, directly, by entering the presidential race in 2023... Musk by teaming up with Trump — is power.

Ultimately, power is status. Just look at the obituaries. They tell us that the deceased was ‘president’ of this... or ‘director’ of that. Maybe even that he served as a state senator. Money is rarely even mentioned.

Besides, money is always suspect. Where did it come from? Luck? Chicanery? Donald Trump himself probably would have gone broke 30 years ago had it not been for the subsidy of the Fed’s ultra-low interest rates.

But looking at how Ramaswamy and Musk made their money... may give us more insight into how they mean to get power and what they will do with it.

Ramaswamy is a very smart guy. Harvard. Yale. He had made millions, he says, before he got out of Yale Law School. And then he founded, started up, innovated, sold, financed, and merged a whole series of companies in the pharma field... and built his more than $900 million fortune.

Success! But is this an example of real capitalism... providing real products to real people at a profit? Or is it an example of what a hustler can do in the world of mispriced credit and the Wall Street casino?

Ramaswamy’s most promising product was a drug for Alzheimer’s disease called intepirdine. He raised hundreds of millions to market the drug and got himself on the cover of Forbes in 2015. Trouble was, intepirdine didn’t work and was abandoned. The company that produced it went out of business.

But though his investors took big losses, Ramaswamy got at least some of his money out before the collapse. He then went on to a further series of peripatetic wheeling and dealing that brought further gains and glory.

We’ve met dozens of young men (rarely women, who seem more sensible) in New York, Paris and London who were inspired by the Ramaswamy model. They are not really interested in the long, hard struggle to serve customers in a competitive business world. They want success — fast. They want to create a ‘startup’... get millions in funding from early-stage investment capital geniuses... sell out to bigger fish in the Wall Street piranha tank, who will then lay-off their shares to slobbering investors looking for the ‘next Nvidia.’

We wondered: for all his brains and energy, and all the money raised and spent, has Ramaswamy’s oeuvre yielded a net gain to the world... or a net loss? Our limited research did not give an answer.

We posed the same question to AI Pilot about Elon Musk. The question was simple enough. Take the resources (money, time, etc) consumed by Mr. Musk’s ventures in space, in the ground, on the roads, in the wonderworld of AI itself... and then match it up against total real profits; is the result negative (meaning, a loss for mankind) or is it positive?

After several attempts to get AI to add it up, we gave up. In dollars and cents, we don’t know what is the net of Musk’s many activities. It is probably negative, simply because so many of his enterprises are still in the ‘start up’ phase. And in the real world, if you could collapse the EV subsidies and tax credits, the government contracts... AI hyper-jive, the luck of being in the room when PayPal was created... and in the game when the Fed was pushing down interest rates... his net contribution is almost certainly far less than zero.

Ramaswamy called him a ‘circus monkey.’ But Musk is an imaginative, colorful, dynamic entrepreneur. He tries so many things, tossing out so many ideas... the world would be less rich without him.

Still, neither of them actually made money in the old-fashioned Mainstreet way — by working in an industry for an entire career, learning it and improving it. Instead, they are creatures of Silicon Valley and Wall Street... the go-go world of start-ups, funding rounds, and promotional tours.

Both are celebrity entrepreneurs... relying on the fads and fashions of the financial world... on easy money... and the goodwill of government.

Our guess: Musk and Ramaswamy will both be swinging from the trees in the DC swamp... amusing, distracting, but ultimately fruitless.

Regards,

Bill Bonner