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Daily Missive

What Went Wrong With Capitalism, Part Two

Loading ...Addison Wiggin

May 30, 2024 • 5 minute, 43 second read


What Went Wrong With Capitalism, Part Two

“When I read things like the foundations of capitalism are shattering, I’m like, maybe we need that. Maybe we need some time where we’re all walking around with a donkey with pots clanging on the sides.”

– Louis C. K.


[Special Reminder: In case you missed our recent announcement, The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge here. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.]

May 30, 2024 – It wasn’t my intention to send you Bill’s follow-up to yesterday’s missive, but this one’s even better. It’s also worth a read. Enjoy. ~~ Addison

CONTINUED BELOW…




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CONTINUED…

Gaming the System

Bill Bonner, Bonner Private Research

Capitalism benefits no one in particular and everyone in general. Overall, things get better. Politics benefits specific groups—the elites— at the expense of everyone else. Overall, things get worse.

See that? That’s sh*t.
And this… this is Shinola.
— The Jerk

We are reporting on a remarkable essay in the weekend Financial Times. In it, Ruchir Sharma explained what’s really ailing capitalism — too much government.

As we saw yesterday, the ‘government’ — along with thought leaders in the press, politicians, academic economists, think tanks, the Deep State and Wall Street — have solved every problem that came our way… from the falling dominoes of Southeast Asia to the poverty and discrimination of Watts. But all this problem solving has left us with a much larger problem, $35 trillion worth of national debt.

How will they solve that one? At stake is the entire world economy… the dollar… U.S. prosperity… and the Primary Trend — the whole shebang.

Here’s a brief resume of what we learned yesterday.

Approximately 96% of the U.S. economy was ‘capitalist’ in 1930. That is, people went about their business, as best they could, offering goods and services to each other. Then, the government (including state, local, and regulatory agencies) grew so much that only about half of the economy is now still free to do what it wants.

The rest is dictated by government budgets and regulations. As we’ve seen, almost all of this spending is squandered… on bombs, bailouts, and bamboozles. Beyond that, the whole economy is twisted into grotesque shapes by another arm of the government, the Fed.

We saw that the much-criticized ‘small government era’ of the Tea Party Republicans… and the ‘deregulation’ following Ronald Reagan… never happened. Government spending and regulation increased steadily.

Military spending (funding the empire) and domestic spending (social programs) and welfare for rich and poor alike — all increased.

And it continues. Joe Biden has just given away $7.7 billion to voters who hadn’t paid their student debt. Donald Trump, meanwhile, is said to be offering tax cuts in exchange for campaign contributions. The Fiscal Times:

Trump Woos Wealthy Donors With Promises of Huge Tax Cuts

Who’s going to pay for Biden’s student loan forgiveness or Trump’s tax cuts?

You are, of course. That’s how politics works.

Capitalism benefits no one in particular… and everyone in general. Overall, things get better.

Politics benefits specific groups — the elites — at the expense of everyone else. Overall, things get worse.

Grosso modo, the more capitalism you have… the freer people are to get what they want honestly. The more politics you have, the more people ‘game the system,’ working out deals with politicians, and using the power of government for their personal wealth or aggrandizement.

It’s either one or the other. Capitalism or politics. Sh*t or Shinola. The idea that there is a happy balance of the two… or that adding more sh*t to the Shinola makes it even shinier… is just nonsense.

Large enterprises with lobbyists… and clerks… could manage Washington’s regulations and take advantage of its many bailouts, subsidies and other opportunities.

They grew bigger.

But big businesses represent past growth. Small businesses are the hope of the future. And with the weight of government on their backs, small companies can barely crawl, let alone sprint.

The rate of growth in productivity has been cut in half since the 1960s. At the top, big companies dominate major industries. At the bottom are the ‘zombies’ — companies that can’t even pay the interest on their debt. Weak and unproductive… like government itself, they waste valuable resources. In between, is a stagnant pool of mid-sized companies struggling to innovate and to survive in a hostile environment of laws, regulations, taxes, inflation and debt.

But wait… Wall Street got rich. The 1% got richer than ever. Surely all that ‘financialization’ and ‘inequality’ was capitalism’s fault, right? No, it wasn’t. Again, the feds are to blame. Sharma:

The spring from which capital flowed was governments and central banks. Including debt and equity, the size of financial markets grew from slightly larger than the global economy [world GDP] in 1980 to almost four times larger today…The driving force behind runaway financialization of capitalism was easy money flowing from the government.

Yes, it was the rotten money that ruined the barrel.

But what now? Sharma:

“Their [U.S. policymakers] overconfidence needs to be contained before it does more damage. Capitalism is still the best hope for human progress, but only if it has enough room to work.”

But there’s more to the story, isn’t there? It’s not just a matter of “overconfidence,” is it? The public may prefer Shinola, but neither Biden nor Trump really sparkle, do they? ~~ Bill Bonner

So it goes,

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Addison Wiggin,
The Wiggin Sessions

P.S. Bill promises to address those questions tomorrow at Bonner Private Research. Tomorrow, at Grey Swan, we’ll check in on Javier Milei’s progress in Argentina with the intrepid global traveler, Joel Bowman.

(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


The Ghost of Bastiat

October 6, 2025 • Addison Wiggin

By then the receipts on my desk had arranged themselves into a sort of chorus. I heard, faintly, another refrain—one from Kentucky. In the first days of the shutdown, Senator Rand Paul stood alone among Republicans and voted against his party’s stopgap, telling interviewers that the numbers “don’t add up” and that he would not sign on to another year that piles $2 trillion onto the debt.

That, I realized, is what the tariff story shares with the broader budget theater: the habit of calling a tax something else, of shifting burdens into the fog and then celebrating the silhouette as victory. Even the vote tally made the point: he was the only Republican “no,” a lonely arithmetic lesson in a crowded room.

The Ghost of Bastiat
The Dollar’s Long Goodbye

October 6, 2025 • Addison Wiggin

Senator Rand Paul, (R. KY), who was the sole Republican to vote against a continuing resolution, seems to care about the actual finances of the government. “I would never vote for a bill that added $2 trillion in national debt,” Paul said in various interviews over the weekend.

The $2 trillion he’s referring to is the lesser of two proposals made by the national parties… and would accrue during this next fiscal year.

Oy.

We liked what Liz Wolfe at Reason wrote on Friday, so we’ll repeat it here: “One of the dirty little secrets of every shutdown is that everything remains mostly fine. Private markets could easily replace many federal functions.”

It’s a strange kind of confidence — one where Wall Street soars while Washington goes dark.

The Dollar’s Long Goodbye
A Vote For The Yen Carry Trade

October 6, 2025 • Addison Wiggin

The Liberal Democratic Party victory has sent Japanese stocks soaring, as party President Sanae Takaichi – now set to become Japan’s first female Prime Minister – is a proponent of stimulus spending, and a China hawk. The electoral win is a vote to keep the yen carry trade alive… and well.

The “yen carry trade” is a currency trading strategy. By borrowing Japanese yen at low interest rates and investing in higher-yielding assets, investors have profited from the interest rate differential. Yen carry trades have played a huge role in global liquidity for decades.

Frankly, we’re disappointed — not because of the carry trade but because the crowd got this one so wrong!

A Vote For The Yen Carry Trade
Beware: The Permanent Underclass

October 3, 2025 • Addison Wiggin

Back in the Global Financial Crisis (2008), we recall mass layoffs were driving desperation.

Today, unemployment is relatively low, if climbing.

Affordability is much more of an issue. Food, rent, healthcare, and childcare are all rising faster than wages. Households aren’t jobless; they’re stretched. Job “quits” are at crisis-level lows.

In addition to the top 10% of earners, consumer spending is still strong. Not necessarily because of prosperity, but because households are taking extra shifts, hustling gigs, working late into the night, and using credit cards. The trends hold up demand but hollow out savings.

It’s the quiet form of financial repression. In an era of fiscal dominance, savers see easy returns clipped, workers stretch hours just to stay even, and wealth slips upward into assets while daily life grows harder to afford.

Beware: The Permanent Underclass