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– Milton Friedman
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May 29, 2024 – When looking at the markets, politics or economics, our go to question is usually “what could go wrong?”
Today, our partner-in-crime on Empire of Debt, Bill Bonner asks a similar question, but with a twist. Enjoy ~~ Addison
CONTINUED BELOW…
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What Went Wrong With Capitalism
Bill Bonner, Bonner Private Research
After driving up above 40,000, the Dow closed yesterday at 38,852.
Where will it go from here?
We don’t know. No one does.
Our bet is that the Primary Trend has reversed… from bull to bear… greed to fear… up to down.
Assets, in other words, are likely to be cheaper — in real terms — than they are now.
And when major turning points are hit… the market usually does not revisit its highs (or lows) until the see-saw has completed its stroke in the opposite direction. From major high… to major low — a roundtrip that can take decades; the Dow is not likely to hit a genuine new high — inflation adjusted — until it bounces off a genuine new low.
Currently, adjusting the Dow for inflation would put a new high around 44,000 or 45,000.
In gold terms, the most recent high, recorded in the fall of 2021, had the Dow worth 20 ounces of gold. Returning to that high would mean a Dow of 46,000 today. Anything is possible, but we don’t expect it — not anytime soon.
Mr. Market can do whatever he wants.
Still, it’s best for us to think that he’s following the pattern of the past. Otherwise, we’re totally lost… And even if we turn out to be wrong, it’s still probably best to stick with the program. You might miss a little upside, but you will more likely dodge a lot of downside….including the Big Loss that we want to avoid.
Soft Slush
Meanwhile… we turn to the Financial Times, the “pink paper.” It is always fun to read, reliably wrong on just about everything. Its columnists are often pompous or silly. Their opinions are sometimes pathetically shallow. And the paper’s point of view is anchored in ‘dirigisme,’ the soft slush of central planning, which Friedrich Hayek showed, convincingly, doesn’t work.
But the FT is the newspaper you find in government offices, think tanks, embassies and corporate headquarters all over the planet. Its chief economic commentator, Martin Wolf, is widely regarded as one of the world’s most important thinkers. He was called ‘the world’s preeminent financial journalist’ by Lawrence Summers. Even Paul Krugman had nice things to say about him.
Which makes us wonder about how much thinking actually goes on in the world.
What we expect from the FT is educated, smart drivel. But, this past weekend brought a shock. An essay in the paper, written by Rushir Sharma of Rockefeller International, was amazingly sharp and clear. (His analysis of what is going on in the U.S. economy agrees with our own.)
Sharma’s blade slices so deeply into FT positions (going back decades) that we wondered if Mr. Wolf had actually read it before putting it in the paper. Maybe he’s on vacation? But there it was, improbably, on the cover of the STYLE section… with a misleading title. Still, it is amazing they ran it at all.
Too Much Government
“What went wrong with capitalism,” is the headline. FT regular readers must have perked up… like hounds sniffing a rabbit’s scent. They expected the usual claptrap about how the rich got richer and the climate got hotter thanks to the unrelenting greed of capitalists. This critique would inevitably be followed by earnest recommendations, that the government should do this… or do that… to correct the problems.
How disappointed they must have been. Sharma explains that the real problem is that governments have done far too much already. Sharma:
“The era of small government [which allegedly took place after the Reagan Revolution] never happened. Government has been expanding for nearly a century in virtually all measurable respects, as a spender, borrower and regulator.”
And remember how ‘deregulation’ followed the Reagan administration and was to blame for the financial crisis of 2008? Only, deregulation never happened either. Sharma:
“During the past three decades, the bureaucracy eliminated a total of just 20 rules, while adding new ones at an almost metronomic pace of about 3,000 a year, under both parties.”
As government expanded, it provided ‘socialism’ for the rich, poor and everyone in between. Sharma:
“This is a campaign to inoculate an entire society against economic downturns. Although still widely criticized as the land of the Reaganite capital, America is displacing Europe as the society least tolerant of financial distress for anyone, up to and including the super-rich.”
Growth, recession… war… Republicans… Democrats — through good times and bad, the fat years and the lean ones — the feds kept solving more and more problems. Poverty? The threat of communism? Terrorism? Wrong pronouns? Germs? The China trade? Interest rates too high? Jobs? Chips?
Nearly every day for the last century, politicians and bureaucrats have been at work — often into the late hours of night — solving the many problems that afflict our species. It’s amazing that there are any problems left.
So diligent and determined were they to get the job done that they consistently spent more than their tax revenues. Between 1980 and the end of 2019, deficits averaged 4% of GDP in recessions and 3% in recoveries.
So, you see, the problem is not a failure of capitalism at all, but the inevitable overreaching of government and the elites that control it. And now, they’ve given us a new problem to solve — a $35 trillion debt… and an almost guaranteed debt crisis, dead ahead. ~~ Bill Bonner
So it goes,
Addison Wiggin,
The Wiggin Sessions
P.S. Tomorrow, we’ll change tenses… from what went wrong to what could go wrong and explore why.
(How did we get here? An alternative view of the financial, economic, and political history of the United States from Demise of the Dollar through Financial Reckoning Day and on to Empire of Debt — all three books are available in their third post-pandemic editions.)
(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites:Bookshop.org; Books-A-Million; or Target.)
Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com
