Permanent Ruin

War, inflation and the familiar path to the graveyard of empires...

(Source: Getty Images)

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

Making life more interesting for cynical observers of politics and markets, Robert F. Kennedy, Jr. is running for president. He is the first threat to the bi-partisan empire agenda in more than half a century.

How serious this challenge is remains to be seen. But judging from the efforts to discredit him, the elite are taking no chances.

First, we set the stage. Here’s the Committee for the Responsible Federal Budget:

The Deficit Was $2.1 Trillion Over Past Year

…up 50 percent from the $1.4 trillion deficit in Fiscal Year (FY) 2022 and more than twice as large as the deficit prior to the beginning of the pandemic.

The 12-month rolling deficit is also $170 billion higher than it was last month, thanks to a $236 billion deficit in May of 2023, compared to $66 billion last May. Compared to a year ago, total nominal spending is up 11 percent to $6.6 trillion and revenue is down 6 percent to $4.5 trillion.

As a share of the economy, deficits have totaled 8.1 percent of Gross Domestic Product (GDP) over the past year, over three times the historical average of 2.5 percent and three percentage points higher than 2019.

War and Inflation

At least half of that deficit comes from something that does Americans no apparent good – the US empire. RFK, Jr, proposes to trim it back.  

He is “nuts,” says HotAir. He’s an “eccentric,” says SLATE. “Lunacy,” says the Daily Beast. “Wacky conspiracy theories,” says Cleveland Magazine.

Here’s Robert Reich, a former Secretary of Labor…a cretin who is reliably wrong about everything:

Were it not for his illustrious name, Robert F. Kennedy Jr. would be just another crackpot in the growing number of bottom-feeding right-wing fringe politicians seeking high office.

Even his own family says Kennedy is “tragically wrong”…according to Politico 

We have no doubt that RFK, Jr. is wrong about a lot of things, but we also doubt that he is wrong about everything…and perhaps not about the most obvious threat the US faces. And since we have a soft spot for diehards, lost causes, and underdogs…we will look closer.

“Inflation,” wrote Hemingway, “is the first panacea of a mismanaged government.  War is the second. Both bring a temporary prosperity. Both bring a more permanent ruin.”

We’re not sure Hemingway had them in the right order. Sometimes war leads inflation. Sometimes it is the other way around. But the two tend to go together, like rats and plague, until a country is laid low.  

Far Flung Claptrap

Not that we are making a prediction. We’re just adding two plus two. And the expense of maintaining a far flung empire… along with the delusional claptrap that accompanies a degenerate empire (sanctions, wars, trade barriers, prohibitions, tariffs) may be more than we can afford.  

When attacked in a real war, a nation’s people rally to buy ‘war bonds’ to support their ‘boys in uniform.’ But few people want to pay real money so the military can attack some godforsaken country in a ‘war of choice.’ Few people willingly fatten Raytheon’s  profit margins. And who really wants to pay good money to kill Syrians, Iraqis, Iranians, Serbians, Somalis, etc? Some do. But not many.

That is why empires cannot be financed by taxation alone; people won’t want to pay for them. Like almost all government programs, ‘wars of choice’ are a racket, meant to enrich and empower the few at the expense of the many. Elites readily turn to inflation to finance them.    

Then, both inflation…and the empire itself…take on lives of their own.

Stay tuned.

Regards,

Bill Bonner

Joel’s Note: Even as the size and cost of the federal government balloons to record historic levels… many voters are keen to see the beast grow even larger.

Yes, you read that correctly.

A recent poll by the folks at the Pew Research Center found that about half (49%) of Americans say they want a bigger federal government providing more (ahem…) “services.” The same survey found that more than half (52%) of Americans thought the government should be “doing more” to solve problems, whatever that means. And more than four in ten (43%) of respondents said they also wanted a larger military, while only 17% said they would like to see the size of the military reduced. (38% reckon it’s “just about right.”)

How to pay for all all these guns ‘n’ butter programs? Tax the rich, of course! (And the companies they’ve built.) About two-thirds of Americans (65%) say that tax rates on large businesses and corporations should be raised. A somewhat similar share (61%) support raising tax rates on household incomes over $400,000.

Whether it’s on warfare or welfare… it’s so easy to spend other people’s money. But as we’ve pointed out in this space before, even if the federal government could somehow “eat the rich,” taxing every billionaire from sea to shining sea 100% of their wealth… the windfall wouldn’t be enough to cover a fraction of the government’s outgoing expenses. The money’s gotta come from somewhere else.

Where does that leave the big spenders in D.C.? Cutting back and trimming porky programs? Unlikely. Here’s Tom Dyson, outlining the situation to BPR members in last week’s research note…

Here at Bonner Private Research, our thesis is simple. They inflated a gigantic debt bubble by suppressing interest rates, printing money and cajoling investors to speculate. There were many ramifications to this crazy experiment. But the biggest, most important one – from my perspective as a macro investment strategist – is that the U.S. government developed a terrible spending addiction and went way too far into debt. 

Now the U.S. government’s only reasonable way out is to default on its debts by watering down the value of the loans creditors hold through a process economists sometimes call “financial repression.” Put simply, financial repression means the government will coerce its creditors into holding its debt, and then it will try to pay a negative interest rate on that debt, chipping away -3% or -5% a year, until its debt burden has shrunk to more manageable levels.

The only other alternative is some kind of chaotic collapse of the system. I just don’t consider that likely at this stage, although there may be some mini-panics along the way that help rationalize the money printing. (The markets are fragile, so you can never rule out some unexpected event triggering a chaotic collapse, even if the authorities would rather manage the decline in an orderly fashion.)

Otherwise, debasement and negative interest rates is the only way. The Feds will gradually erode the dollar’s purchasing power through inflation while they keep interest rates below the rate of inflation… and they’ll do it carefully and deceitfully so creditors don’t get spooked and bolt. 

Right now, Tom’s set the BPR investment strategy to “maximum safety mode.” The idea being to preserve capital and spending power as the government comes after the value of your savings. Find out more about the BPR investment strategy here…