Fuji Bomb

The feds’ deficits are clearly a mistake But it will take many years for the harm to show up. The consequences, such as they are, will likely fall on our children and grandchildren, not on ourselves.

Mt Fuji looms over the skyline of Tokyo in Japan. Source: Getty Images

Wednesday, July 16^th, 2025

Bill Bonner, from Youghal, Ireland

‘Sire...worse than a crime, you have committed an error.’

--Charles Maurice de Talleyrand-Périgord

A crime is whatever the feds say it is. Often not what you think it oughta be.

But an error is different. It is a left turn when you should have turned right. It is forgetting your wife’s birthday. It is a budget deficit, when you should have been running a surplus.

In the Big, Bad, Budget Abomination for example, there are two huge errors.

The obvious one: they could have increased the deficit...or decreased it. They chose more spending, not less... even more money they don’t have on programs they don’t need. And they are doing it on such a large scale — with $2 trillion deficits — it is sure to blow up the entire US financial system.

We all know you can’t spend more than you make for long. But some people delude themselves with the fantasy that we’ll ‘grow our way’ out of the debt trap. As we’ve seen, in the light of federal policies, such growth is less and less likely. Deportations will lower the supply of labor. Fortune:

The U.S. may see more than 500,000 people emigrate from the country as a result of President Donald Trump’s aggressive deportation campaign, according to a recent report from the American Enterprise Institute….could likely result in a hit to the U.S. labor force that would shrink the country’s gross domestic product, new data shows.

And deficits will gobble up the supply of capital. Seeking Alpha:

As government spending increases, the less productive public sector absorbs more labor and resources, starving the more productive private sector of these critical inputs.

The predominant view is that while the feds’ deficits are clearly a mistake, it will take many years for the harm to show up. So, the consequences, such as they are, will likely fall on our children and grandchildren, not on ourselves.

And since none of us knows the future...why worry about something that may or may not actually happen sometime in the distant tomorrow?

Yes, of course, the iceberg is dead ahead. But maybe AI will figure out how to avoid it.

And yet, the danger grows closer. CBS News:

Inflation rose in June...for the second month in a row.

Whether this marks the beginning of large price increases or not, we don’t know. But it might be a good idea to keep an eye on the lifeboats, just in case.

Other Debt Crisis Deniers look to Japan for comfort. Except for the fact that their economy is shrinking (along with their population) a Fuji of debt — the biggest pile in the world — hasn’t seemed to bother them.

But wait. Even there, the error is becoming more apparent. The Mainichi:

Yield on 10-yr Japan gov't bond hits 1.595%, highest since Oct. 2008…at the time of the global financial crisis caused by the collapse of U.S. securities firm Lehman Brothers Holdings Inc.

The Japanese can do math.

At 250% of GDP, even a small increase in interest rates has a devastating effect on government finances. The government must borrow to cover the interest payments, which widens the deficit...increases the debt...and raises the interest cost — whereupon the error flashes like a funeral parlor with a neon welcome light.

Back in the US, the Republicans’ spendfest goes on and the errors multiply. Not only are they spending too much, they are claiming to spend too little. After all, if huge deficits don’t really matter, why try to save money on medical care for those who need it?

The Hill:

GOP lawmakers are warning that slashing spending on Medicaid and food assistance will cost the party seats in the midterms — threatening their razor-thin House majority — by kicking millions of Americans off safety-net programs.

The poor lawmakers had to decide. Which error, which sin, which mistake to make. Being fair about it, they make them all.

Regards,

Bill Bonner

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Research Note, by Dan Denning

The hits just keep on coming for MP Materials [MP]. As I told readers last week (Silver Ignites), the US government (through the Department of Defense) announced a $400 million investment in the company, making Uncle Sam the largest shareholder in the only US company with a working rare earths mine. The deal is designed to break China’s stranglehold on rare earth elements, especially the production of magnets containing said elements which are used in a variety of critical weapons systems and platforms. Yesterday, MP announced that tech giant Apple will join it in a $500 million partnership to recycle rare earth magnets at a facility in Texas called Independence. Rare earth magnets are also used in smartphones, computers, tablets, and wearable devices.