Tuesday, September 1st, 2026
Bill Bonner, from Poitou, France
‘Governments defending prices against fundamentals always lose. The only variable is how much they spend before conceding.’
—Stanley Druckenmiller
“The real problem,” we began gravely, “is that they no longer work, financially.”
It was at a dinner party on Saturday. Our companion, a slender and attractive journalist from Paris, had explained to us the predicament facing French voters:
“The next election promises to be a horrible mess. It’s either extreme right or extreme left. Either way, a lot of French people are packing their bags.”
We gave her our hypothesis...
That in Europe as in America, governments are running out of money. In the Old World they favored spending on social programs. In the New World, the military got the thick envelopes. Both promised voters more than they could afford; they spent too much and delivered too little. And now, with lower birth rates, higher interest payments, and much more debt, enlightened, post-war governments are beginning to look more and more like monumental Ponzi schemes.
They were the most successful Ponzis in history. In the half-a-century following the end of the war, the money gushed in from their booming economies and growing populations. Early on, citizens got more out of government than they put in. But now, there are fewer baby-strollers on the streets and tax revenues come, not in a flood, but in a trickle.
Western governments used to be able to fill budget gaps by borrowing money. But now, the debt is gargantuan...interest payments are surpassing national ‘defense’ costs...and interest rates are going up.
In other terms, the feds inflated almost everything — especially their own budgets. In effect, they created a massive, unreal ‘bubble.’ And now, markets are letting the air out.
As we saw yesterday, most of this deflation is invisible. People see rising prices...rising markets...and even rising pay checks. But beneath the increasing numbers, real values ebb away. The New York Times:
As inflation eats up wage gains, workers fall behind
The plain people don’t have to understand it. They feel it. Real economics may not be taught in America’s universities, but it is learned fast in the supermarket. And the voters want solutions. But the ‘moderates’ have no solutions; they caused the problem...and now, they are the problem. So, voters turn their heads...to the fringe.
“Here in France, the choice may be between Mélenchon and Le Pen,” our source continued.
Politico Europe:
Far-left firebrand Mélenchon gaining ground in French presidential race, poll shows
Survey shows battle of political extremes becoming increasingly likely.
Mélenchon, the socialist, has a unique proposal for dealing with France’s debt. Just take the bonds, he says, and ‘throw them in the fire.’ This actually may be the most honest solution. They will never be paid; might as well admit it.
And on the ‘right,’ Marine Le Pen is no fiscal conservative either. She pledges to reduce the retirement age to 62; that is, she proposes to right the ship of state by drilling another hole in the hull.
The situation is little different in America. The mainstream candidates offer ‘more of the same.’ But ‘more of the same’ is not attractive when your boat is sinking. And right now, Americans’ feet are getting wet. They cannot control events abroad...nor control their own spending at home.
So, they turn to the ‘democratic socialists’ — who promise more giveaways. Or, they look to the Trumpified Republicans...who promise to lace up their steel-toed boots and kick butts from Greenland to Ouagadougou. Neither party even hints at addressing the real problem.
That problem is very easy to understand. The National Review explained it:
It’s the debt, stupid.
A heavily indebted debtor is not well-advised to be seen to play games with his creditors, and that was what Treasury Secretary Scott Bessent was widely perceived to have done a couple weeks ago.
Having inflated the whole economy with false interest rates, bailouts, ‘put’ options and fake money, policymakers face the familiar choice. Continue to inflate...or let markets give the bubble a dignified burial, now.
But rather than even acknowledge the problem, poor Bessent got up to the usual tricks. They didn’t work. Bessent’s nonsense merely confirmed the very thing he meant to deny — that the US is headed into a debt crisis. Gold rose. The dollar fell. And Bitcoin surged.
Inflate or die? Inflation it will be. Prepare for a wild ride with financial legerdemain, chaos, phony numbers, fake money, undeserved poverty, unmerited wealth...
...finally ending in deflation and death.
Hang on!
Regards,
Bill Bonner
I don't think governments are running out of money. They are running out of the ability/credibility to convince economic actors the money is a store of value.
How many would look at this:
"Just take the bonds, he says, and ‘throw them in the fire.’ This actually may be the most honest solution. They will never be paid; might as well admit it."
And say, "but we can't! That would be dishonest."
So no we won't do that. Instead we'll just keep borrowing, and staple the bill due to our grandchildren's foreheads.