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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What President Biden’s new law
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President Biden just signed a new law approving billions of dollars for one small but growing industry, and investors like Bill Gates and Peter Thiel are all over it. This expert just went public with all the details, including which stocks to jump on immediately.

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,

Turn Your Images On

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

– Louis C. K.

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…

>>>>>ADVERTISEMENT<<<<<

What President Biden’s new law
means for investors

CONTINUED…

Gaming the System

Bill Bonner, Bonner Private Research

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.

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.

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

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.

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 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.”

So it goes,

Turn Your Images On

Addison Wiggin,
The Wiggin Sessions

Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com

For 30 years, Japan was the land where interest rates went to die.

The Bank of Japan used yield-curve control to keep long-term rates sedated. Traders joked that shorting Japanese bonds was the “widow-maker trade.”

Not anymore.

On November 20, 2025, everything changed. Quietly, but decisively.

The Bank of Japan finally pulled the plug on decades of easy money. Negative rates were removed. Yield-curve control was abandoned. The policy rate was lifted to a 17-year high.

Suddenly, global markets had to reprice something they had ignored for years.

What happens when the world’s largest creditor nation stops exporting cheap capital and starts pulling it back home?

The answer came fast. Bond yields in Europe and the United States began climbing. The Japanese yen strengthened sharply. Wall Street faltered.

The rate cut narrative is calcifying into gospel: the Fed must cut to save the consumer.

Bankrate reports that 59% of Americans cannot cover a $1,000 emergency without debt or selling something. And yet stocks are roaring, liquidity junkies are celebrating, and the top 10% now account for half of all consumer spending.

Here’s the plot twist: before 2020, consumer confidence faithfully tracked equity markets. After 2020, that relationship broke. As one analyst put it, “The poor don’t hate stocks going up. They just don’t feel it anymore.”

So when the Fed cuts rates in one of the hottest stock markets in history, who exactly benefits? Not the 59%. Not the middle. Certainly not anyone renting and watching shelter inflation devour their paycheck.

Only the late-stage dot-com fever dreams did better in recent memory — back when analysts were valuing companies by the number of mammals breathing inside the office.

For the moment, stocks appear unsinkable, unslappable, and perhaps uninsurable. But this is what generational technology shifts do: they take a kernel of genuine innovation and inflate a decade of growth into a 36-month highlight reel. We’ve seen this movie. It premiered in 1999 and closed with adults crying into their PalmPilots.

And just as the internet continued reshaping the world long after Pets.com curled up and died, AI will keep marching on whether or not today’s multiples survive a stiff breeze. The technology is real. The valuations, however, will eventually need to stop hyperventilating and sit down with a glass of water.

Wheelbarrows are not chickens. A chicken is a biological production unit. A wheelbarrow is a capital good. A wheelbarrow doesn’t produce work. But it CAN be a productivity multiplier.

And that’s how we have to think of all those GPUs the hyperscalers are spending money on. If their thesis is right, trillion in AI and data center spending now, will translate into a massive burst in productivity and new technologies in the next two decades. That is the only justification for the current valuations/multiples at which these stocks trade now.

The American poet William Carlos Williams wrote, “So much depends, upon a red wheelbarrow, glazed with rainwater, beside the white chickens.”

Today the wheelbarrow is Nvidia Green. And so much of the stock market depends on that wheelbarrow being a big enough productivity multiplier to offset $340 trillion in debt.