Subprime Democracy

Raise your glass to the hard-working people
Let’s drink to the uncounted heads
Let’s think of the wavering millions
Who need leading but get gamblers instead

Spare a thought for the stay-at-home voter
His empty eyes gaze at strange beauty shows
And a parade of the gray-suited grafters
A choice of cancer or polio

—Salt of the Earth, Rolling Stones

We have said goodbye to 2024. Now, let us try to dope out the new year. But first, a yellow warning light appears. Breitbart:

Credit Card Defaults Spike to Highest Level Since Aftermath of 2008 Financial Crisis

Credit card lenders wrote off $46 billion in delinquent loan balances in the first three quarters of 2024, a 50 percent increase from the same period last year. These forms of write-offs are viewed as a highly monitored measure of loan distress. This is the highest level since 2010, according to industry data gathered by BankRegData. Mark Zandi, the head of Moody’s Analytics, said, “High-income households are fine, but the bottom third of US consumers are tapped out. Their savings rate right now is zero.”

What? Isn’t this the world’s greatest economy? Aren’t stocks near all-time peaks… and unemployment near all-time lows?

How could the working class be falling behind on its credit card payments?

All around us — except for the mainstream press, which is generally wrong about everything — upbeat commentary and popular euphoria invite optimism.. After all, Trump is soon back in the White House. Pete Hegseth is going to make our military more lethal than ever. ‘Border Czar’ Tom Homan is going to deport the rapists and killers back to Central America. Scott Bessent — a billionaire hedge fund manager — is sure to keep the economy humming along. And two of the world’s most clever billionaires — Musk and Ramaswamy — are going to make the feds more ‘efficient,’ thereby eliminating a $2 trillion annual deficit.

And yet, something is clearly going wrong.

While billionaires get richer, the uncounted heads… the wavering millions… are getting poorer. And what a coincidence; the rich also dominate Wall Street, the banking industry, the press, both political parties and the federal government.

We weren’t born yesterday. The feds produce nothing. So, every penny of federal spending (over $6 trillion in 2024) must come from The People. And every penny must go to other people… the people favored by the controlling elites. It is not surprising that they favor themselves.

Nothing new about this. But in the US, rascality seems to be entering a more flagrant phase… in which the outgoing president pardons his own son (after making an election promise not to do so)… and the incoming president rewards his powerful supporters with the top federal jobs.

In the beginning of a democratic republic, yes, politicians still pinched their secretary’s derrieres and skimmed money from public budgets. But at least they kept it quiet… and were generally ashamed when it came out.

Those old limits — both written and customary — kept those in power from taking too much from those not-in-power. Even kings and queens learned not to squeeze their subjects too hard, lest their own heads be put onto the chopping blocks. As Voltaire remarked, ‘the best form of government is a monarchy… with an occasional beheading.’

In a democracy, public executions of politicians are regrettably rare. As a deterrent, losing an election is not nearly as effective as losing a head. Besides, the system is so rigged up in favor of the ruling class that rarely do members of Congress lose their seats. In the most recent example, 96% of those up for election won another term, even though Congress has only a 15% approval rating. The voters have figured it out. Why bother to boot a scoundrel out of office, when another ‘grey suited grafter’ will just take his place?

We must now be arriving at some near-end stage of the democratic progress. The Constitution is ignored… deficits don’t matter… and the degenerates have become greedy and ruthless. Debt and inflation increase and real output goes down.

Federal appointees are no longer chosen on the basis of their competence, but on the degree of loyalty to the chief executive. That is, they are not expected to uphold the principles of the founders, but to find ways around the restraints in order to fulfill the Maximum Ruler’s agenda, whatever it is.

In a better system, a real leader… or a savvy monarch… would tell the people the truth — that the US is headed for bankruptcy. He would get out the chainsaw and hack away at federal spending until receipts equaled expenses.

But to everything there is a season. A time to be born and a time to die. We are somewhere in between. Too old to rock and roll; too young to die. America is not ready for a Milei-style revolution. Not ready for an American perestroika. Not ready for the chainsaw.

Instead, it chooses the gambler. He’ll want to keep the grift going for as long as possible, accumulating as much wealth and power as possible… while pushing the inevitable calamity as far as he can into the future.

We spare a thought for the salt of the earth…and hope for the best for the year ahead…

Stay tuned…

Regards,

Bill Bonner

Raise your glass to the hard-working people
Let’s drink to the uncounted heads
Let’s think of the wavering millions
Who need leading but get gamblers instead

Spare a thought for the stay-at-home voter
His empty eyes gaze at strange beauty shows
And a parade of the gray-suited grafters
A choice of cancer or polio

—Salt of the Earth, Rolling Stones

We have said goodbye to 2024. Now, let us try to dope out the new year. But first, a yellow warning light appears. Breitbart:

Credit Card Defaults Spike to Highest Level Since Aftermath of 2008 Financial Crisis

Credit card lenders wrote off $46 billion in delinquent loan balances in the first three quarters of 2024, a 50 percent increase from the same period last year. These forms of write-offs are viewed as a highly monitored measure of loan distress. This is the highest level since 2010, according to industry data gathered by BankRegData. Mark Zandi, the head of Moody’s Analytics, said, “High-income households are fine, but the bottom third of US consumers are tapped out. Their savings rate right now is zero.”

What? Isn’t this the world’s greatest economy? Aren’t stocks near all-time peaks… and unemployment near all-time lows?

How could the working class be falling behind on its credit card payments?

And yet, something is clearly going wrong.

In the beginning of a democratic republic, yes, politicians still pinched their secretary’s derrieres and skimmed money from public budgets. But at least they kept it quiet… and were generally ashamed when it came out.

We spare a thought for the salt of the earth…and hope for the best for the year ahead…

Stay tuned…

Regards,

Bill Bonner

Treasury Secretary Scott Bessent has called stablecoins, including USDC, “a pillar of dollar strength,” estimating a $2 trillion market within five years. U.S. Treasuries back every coin.

Bessent’s formula even suggests that a broader, more efficient market for US dollars will help retain its best use case as the reserve currency of global finance… and, perhaps, help the current administration address the nation’s $37 trillion mountain of debt.

In trying to cancel a man, the establishment accidentally reinforced the dollar, and may add decades to its life as a useful currency.

As we approach the 250th anniversary of the United States, it’s worth recalling that our first Revolution wasn’t waged to destroy an order — it was fought to preserve one.

Political philosopher Russell Kirk called it “a revolution not made but prevented.” The colonists sought not chaos but continuity — the defense of their “chartered rights as Englishmen,” not the birth of an entirely new world. Kirk wrote:

“The American Revolution was a preventive movement, intended to preserve an old constitutional structure. The French Revolution meant the destruction of the fabric of society.”

The difference, Kirk argued, was moral. The American Revolution was rooted in ordered liberty; the French in ideological frenzy. The first produced a Constitution; the second, a guillotine.

Two and a half centuries later, the argument continues — only now, the battlefield is financial. Who controls access to money? Who defines legitimacy? Can a citizen’s ability to transact depend on their politics?

Trump and Powell are no buddies. They’ve been fighting over rate cuts all year—Trump demanding more, Powell holding back. Even after cutting twice, Trump called him “grossly incompetent” and said he’d “love to fire” him. The tension has been building for months.

And Trump now seems ready to install someone who shares his appetite for lower rates and easier money.

Trump has been dropping hints for weeks—saying on November 18, “I think I already know my choice,” and then doubling down last Sunday aboard Air Force One with, “I know who I am going to pick… we’ll be announcing it.”

He was referring to one Kevin Hassett, who—according to a recent Bloomberg report—has emerged as the overwhelming favorite to become the next Fed chair.

Here we sit — investors, analysts, retirees, accountants, even a few masochistic economists — gathered beneath the leafless monetary tree, rehearsing our lines as we wait for Jerome Powell to step onstage and tell us what the future means.

Spoiler: he can’t. But that does not stop us from waiting.

Tomorrow, he is expected to deliver the December rate cut. Polymarket odds sit at 96% for a dainty 25-point cut.

Trump, Navarro and Lutnick pine for 50 points.

And somewhere in the wings smiles Kevin Hassett — at 74% odds this morning, the presumed Powell successor — watching the last few snowflakes fall before his cue arrives.