The Intrinsic Value of Fartcoin

There is a time for everything, a time for peace and a time for war, and a time when politics takes command and civilization marches backward, when people feel the eternal verities no longer apply.

Friday, January 10^th, 2024

Bill Bonner writing from Youghal, Ireland

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A kiss is still a kiss…and a bubble is still a bubble…

Picking fights with other people is still not a good idea…

Spending more than you can afford still leads to bankruptcy…

And people who say they are going to stop taking so many drugs…or drinking so much…or spending so much, etc. etc. still don’t always follow through.

As expected, Elon Musk has already given up on his stated aim of shaving $2 trillion off the US budget. Huff Post:

Elon Musk Walks Back Vow to Find $2 Trillion In Wasteful Spending

Republican budget guru Elon Musk admitted Wednesday that his vision of $2 trillion in spending cuts is not very realistic. The billionaire entrepreneur and President-elect Donald Trump consigliere said in an interview on his website X with Mark Penn, a Democratic pollster turned marketing executive, that the $2 trillion figure was merely aspirational. 

Which just goes to show how serious the commitment was. Musk’s original estimate was 100% too high…off by a trillion dollars. It was just election fluff. Balancing the budget was never a real goal…but merely an ‘aspirational’ goal. Musk says he’d be happy with a $1 trillion cut.

Our forecast: He won’t get anywhere near it.

But wait. Even if Musk/Ramaswamy subtract $1 trillion…the Trump team will probably add a trillion. So, what do we have? Net?

Nothing. The debt still rises to $40 trillion next year…and $50 trillion by 2030. And the US still goes broke.

There is a time for everything…a time for peace and a time for war…and a time when politics takes command and civilization marches backward… …when people feel the eternal verities no longer apply and they can do whatever they can get away with.

Then, they turn to ‘aspirations’…

New tech will liberate them from the old restraints…new government will give them a fresh start…a new system…a new idea…a new Maximum Leader…a new Great Helmsman…

He’ll unleash the frackers in the US…and turn the drillers loose on the Greenland Ice Shelf (said to have 100 billion barrels of oil)…and he’ll cut taxes in the US…reduce prices for US ships transiting the Panama Canal…and bring good jobs back to the US (by imposing tariffs on foreign-made goods).

So you see…no need to tackle the hard job of reducing spending….not when there are so many aspirations in the air.

And wouldn’t it be beautiful to have Canada as part of the US…with all that maple syrup and so many Christmas trees?

What? You say we already have plenty of maple syrup and Christmas trees?

Well...don’t be so negative!

We’ll let you know when God reveals His plans to us. In the meantime, we take our guesses. And we don’t see any reason to guess that spending more than you can afford, year after year, will end any differently now from the many times it has been tried before…

Or that today’s bubble in leading tech (AI) stocks will turn out differently than past tech bubbles…in ’29, ’66, and ’99. Recall those grim days in March 2000, when the leading stocks fell 30% in less than three weeks.

But what we face today is much more dangerous than the bubble of 2000. Back then, the US had $5.5 trillion in debt. The debt level actually went down between 1999 and 2000. The Fed could come to the rescue. Its fed funds rate was over 6% in 1999. It promptly cut back to just 1%.

This time, federal debt is more than six times as much. And it’s increasing by about $7 billion every working day. A 500-basis point cut in the Fed’s key rate today would open the gates of Hell. Because inflation is now on everyone’s computer screen.

The value of the US 10-year bond, the basic brick of the whole world’s capital edifice, would dissolve. Yields would soar. Debt couldn’t be refinanced. Payments would be missed. Companies would go out of business. Fartcoin would go back to where it belongs – at zero.

Yesterday, Dan told us that our markets probably couldn’t stand a 5% yield – which we are rapidly approaching. What would happen if a 10% yield, last spotted in the 1980s and believed to be extinct – suddenly reappeared?

We don’t know, but we expect to find out. We’ll find out too what happens when you don’t fulfill the aspirations of the people who elect you.

Stay tuned.

Bill Bonner

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Source: Congressional Budget Office projection of NIPA figures

Research Note, by Dan Denning

Negative federal saving!

That’s a term you’ll find in a December report from the Congressional Budget Office. But what does it mean?

It means that government deficits reduce the total savings of the entire country. Over time, regular deficit spending makes the nation’s economy poorer, despite any ‘money multiplier’ effects of transfer payments, subsidies, or defense spending. What’s more, government spending increases inflation, further reducing the value of private savings.

The ‘net’ effect, according to the CBO, is $21.4 trillion in negative savings over the next ten years (the figure in the bottom right corner of the table above). If the projections are right, you’re looking a total federal debt o $57.5 trillion by 2034.

The CBO’s figures are taken from the National Income and Product Accounts (NIPA). Those were the accounts our old mentor Dr. Kurt Richebacher used to have physically mailed to him in Cannes, back in the early 2000s, before they were easily available on the Internet. Dr. Richebacher would call me at my desk in Paris, barking about the latest NIPA figures.

The projections are driven by mandatory growth rates in federal spending and current trends. To reverse those trends, you need a lot less spending or a lot more growth (or both). CBO could be wrong (projecting trends ten years out is a bit of a fool’s game). But it’s going to take something extraordinary to reverse the Primary Political Trend.

You could probably pump all the oil in Greenland or in the Gulf of America and the deficit would still go up. That’s even if you create a new national oil company and pump all the oil profits back into the US Treasury.

As Dr. Kurt used to say...this is an outrage. But it's also a fact. No amount of optimism is going to change it. Later today, I’ll share with paying subscribers how we’re preparing for it in 2025…and what to expect next.

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