What Goes Around

Dissension, dissatisfaction, and disenchantment among our dear readers...

(Source: Getty Images)

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

Today is a holiday in Ireland. We celebrate the dead saints.

Thank God for our Dear Readers. We learn from them. Especially the critics. We’ve been writing daily since 1998. Sometimes right, sometimes wrong…always in doubt. Generally, reader and writer are of one mind. But once in a while, we are at odds – especially when ‘politics’ are involved.

There have been three major waves of dissension, dissatisfaction, and disenchantment among our readers. Each time, the incoming mail was so emphatic…so riled up and outraged…it made us wonder. Had we let the saints down?

The first came just as we were getting the hang of it. In the late ‘90s, there was a bubble in ‘dot.com’ stocks. Information, it was said, greatly reduced the need for real capital investment. Now available for free on the internet, information was supposed to usher in a period of faster GDP growth and widespread prosperity.  Dot.com stocks themselves, concentrated in the Nasdaq, couldn’t be over-priced, said the True Believers, because they were ‘infinitely valuable.’  

The River of No Returns

There was a lot of loose talk at the time, and a mood of such optimism that it made us suspicious. The Nasdaq shot up 85% in a single year – 1999 – more than any US index ever had. And the Dow, in terms of gold, rose to an all-time high. In 1999, you could trade the 30 Dow stocks for 40 ounces of gold (for reference, in 1980, the ratio was nearly 1 to 1).  

This looked like a bubble to us. And we said so, warning readers to avoid the dot.com stocks, including Amazon.com. Which just shows how you can be right and wrong at the same time. We were right; the dot.com bubble was about to burst.  And we were right to label AMZN the “river of no returns;’ its core retail business never made a decent return on capital. But that didn’t mean it wasn’t a success. The stock soared and made millionaires out of thousands of people!

The surprising thing was that many readers didn’t merely think we were wrong…they acted as though we, by calling into question the dot.com bubble, were committing some kind of sin. They cursed us…telling us what idiots we were…and canceling their subscriptions. And it was a free service back then!

We might be wrong; we often are…but why be so upset about it? Nobody knows the future. We just try to connect the dots and guess about what comes next. But, for many people, the dot.com bubble had become very personal…and very emotional… We still don’t know exactly why, but we have a hypothesis. By 1999, America was at the top of its game. Wall Street boomed. The federal budget was balanced. We were not at war; after the demise of the Soviet Union, we faced no serious enemy.

And yet, the typical American had not had a significant raise for a quarter of a century. The rich, on both coasts, were getting richer and richer. But throughout the ‘heartland,’ men lost good-paying jobs in manufacturing and were now locked in a cycle of despair, drugs, unemployment or low-pay service sector jobs. Something was going wrong.  

And so, when the Information Revolution came…it seemed like a prison door had suddenly been kicked open. What followed was the great escape. Investors gave each other high fives…and bought Webvan…Global Crossing…or pets.com. This was the big breakout they were waiting for!

Avoiding the Big Loss

Alas, the inmates didn’t appreciate it when we told them they would soon have to return to their cells. They reacted bitterly.    

What did it mean? Why get so worked up about a financial forecast?  

Whatever else it signaled, it told us that there might be an even bigger sell-off than we anticipated. In the event, after rising 800% from 1995 to March, 2000, the Nasdaq turned down. Two years later, it was almost back to where it started. By 2004, more than half the dot.coms had disappeared. Fred Wilson, whose venture capital firm funded many of the start-ups, lost 90% of his fortune.

We had urged readers to buy gold and sit out the bear market. The idea was not to make money…but simply not to lose it. Most people make their money from incremental savings and investments built up over the course of their careers. Then, the worst thing that can happen to them financially is to take the Big Loss. After a certain age, it is very hard to recover. Then, as now, our main goal was to avoid the Big Loss.

The next big source of discontent among readers came only a couple years later.  The US invaded Iraq. We thought it was a mistake, and said so.  

In the book of life, the future is always the chapter we haven’t read yet. But life follows patterns. Great nations have their days in the sun. What usually brings the darkness is a combination of over-stretching (war) and overspending (expressed as inflation or default). Americans would do better, we said bluntly, to mind our own business and balance our own budget.

For many readers, this was tantamount to treason. Readers left us by the thousands.  

Here, the ground beneath our feet was less solid. This was not finance or economics we were commenting on. What qualified us to have an opinion?  

But we were connecting the dots. And they were beginning to show how money and power can come together in a disastrous way. It was beginning to look like America had peaked out after 1999…that its elite had been corrupted by unearned wealth and unbridled power…and its common people had been addled by its propaganda media, fake money and (later) stimmie checks.

The Real Cost

The feds said the war against Iraq would cost $75 billion. Here’s the news item from 2003:

WASHINGTON (CNN) -- President Bush gave key lawmakers Monday the administration's first estimate of the cost of war with Iraq -- about $75 billion, according to members of Congress who attended a White House briefing.

This estimate turned out to be about as close to the truth as the ‘weapons of mass destruction’ allegation. We estimated $1 trillion…and people said we were crazy.  But guess what. In 2020, Boston University researchers put the total cost at nearly $2 trillion. And after the 20-year debacle in Afghanistan, Brown University put the final tab for the War on Terror at $8 trillion…with nearly a million people dead.

This was no longer a ‘political’ matter. This was no longer just foreign policy.  With the dead saints hanging their heads in pity, the US was headed down that long, lonely road towards inflation and war – and the biggest loss in history. Spending was needed because it was how the elite got rich. War was needed to justify spending. Money was ‘printed’ to cover the spending.

America did not have $8 trillion lying around. So, grosso modo, it ‘printed’ the extra money. The Treasury issued bonds; the Fed bought them with printed-up money. Not entirely coincidentally, the Fed’s balance sheet (its holding of US bonds) increased from 1999 to 2021 by…about $8 trillion.

As early as 2006, in our book “Empire of Debt,” written with Addison Wiggin, we looked ahead:

At some point, America’s debts will probably be incinerated by inflation.  When the howls from consumers and voters grow loud enough, the Fed will panic.

That is what happened 3 years later.

More to come…

Bill Bonner