What Went Wrong

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Thursday, October 1st, 2026

Bill Bonner, from Ardmore, Ireland

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This is the story that economic historians will tell…to explain ‘what went wrong.’

Democrats vs. Republicans...good guys vs. bad guys...red vs. blue...Iran vs. the US...Orioles vs. Yankees — if only it were so simple, with the sheep on one side and the wolves on the other!

But it’s the deeper patterns that count. The Primary Trend...the rise and fall of empires...the Deep State...the debasement of the dollar...and the approaching senility of American democracy.

As outlined in these posts, ‘western’ governments are becoming desperate. They’re no longer able to spend...or to inflate...with the old jolly sans soucis of that glorious period of falling interest rates, 1980 - 2020. So, taxpayers are wondering — what exactly are they getting for their money?

Four wars in the Middle East, for example. And what is there to show for it? Higher gas prices! And trillions spent to protect people against the inevitable challenges of life — illness, unemployment, old age, etc. But if it is just an insurance program, couldn’t they get a better deal from a solvent, private insurer...who couldn’t change the terms when it suited him?

As Milton Friedman pointed out, the real cost of government is the amount it spends...not the tax rate. Republican governments have applauded tax cuts, while the overall cost of government still rose. The federal government alone collects about 17% of GDP in tax receipts. But it spends about 23%. The difference is added, year after year, to the nation’s tab.

Now the feds have so much debt that creditors are wary of lending more. As the debt pile continues to grow...the cost of it goes up even faster (with rising interest rates).

Austria, Belgium, Germany, Denmark — all spend about 50% of GDP. France is nearly 60%. The US total looks like a bargain; including state and local spending, the total comes to only 37% of GDP. But look carefully. Add in the costs of medical care and university education, which are included in the European totals, and the total goes well over half of GDP. We notice too that when you add up all the tax bills — business, personal, state and local — they often come to more than 50% of income.

With these high levels of spending have come high levels of debt. And with higher interest rates have come much higher costs of carrying it. But instead of cutting back on spending and deficits, simply lean harder on the two things that have gotten them where they are.

Here’s the UK, promising more social services. Al Jazeera:

‘New path’: UK’s Burnham promises huge expansion of public services

UK prime minister tells his first Labour Party conference ‘fundamental rethink’ needed to set Britain on right course.

The Trump team, meanwhile, offers to beef up the military. Time:

How National Security Became Central to Trump’s D.C. Construction Projects

President Donald Trump announced Sunday that his proposed “triumphal arch”—which is planned for Memorial Circle near the Virginia end of Arlington Memorial Bridge in Washington, D.C.—will serve as a military complex with drones, ammunition storage, and sniper facilities.

Those are the two choices. Guns or Butter. Mr. Trump doesn’t bother to disguise the deal. Re-elect Republicans and voters will get both -- a $5,000 check from an over-drawn account…and a big new Pentagon of $1.5 trillion.

But the real trouble is right in front of us — money. The feds can promise more ‘defense’ than we need...and more ‘social’ spending than we can afford. But they can’t deliver. They’re out of money. And paying bills with fake money no longer works as it once did. Because rising interest rates add new debits just as fast as the feds can add new credits.

Already, the pin has been pulled. By 2030, the grenade will blow up. Rising rates will push the total interest charge up to around $3 trillion. That’s when all Hell breaks loose (if not before).

Because it will take almost all America’s savings just to keep up. This will mean one of two things: either interest rates will have to go up much higher to attract new savings...or, the US will have to go back to the printing press.

Inflate or Die?

Either way, you’re going to want a black arm band and some lilies.

Regards,

Bill Bonner