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

Despite being the subject of status quo ridicule, gold is still the king of financial assets. Wall Street’s reflexive scorn of gold is due to the fact that gold exposes Keynesians as frauds and sometimes thieves, and threatens the premise of the existence of an entire category of academics and professionals, from Ivy League academics to mom-and-pop retail investment advisors.

If a 5,000-year old rock performs just as well as a traditional 60/40 stock-bond portfolio, a lot of people are wasting their time and money.

When you measure much of the financial world in gold, many of the supposed winners lose their luster. All you needed was an honest yardstick.

This year’s Liberation Day selloff, which really started with the launch of Chinese AI Deepseek, is similar to the market meltdown amid the LTCM collapse.

However, the AI bubble is moving a bit faster, as Timmer’s data shows a gap in valuation that doesn’t match the price action of the 1990s.

If things play out similarly from here, 2026 could mark a multi-year peak for markets as a slowdown in AI spending starts to appear and stocks sell off.

Amid the latest tariff tantrum, it’s also earnings season again. The big banks have fared well, with sizeable earnings beats so far.

The king of the Wall Street TBTF banks, JPMorgan Chase, led the way.

Quarterly profits topped $14.4 billion, up 12 percent from the third quarter of 2024. Revenues hit $46.4 billion, up 9%.

The bank did disclose a $170 million loss, following the bankruptcy of Tricolor. The company is a lender in the subprime automotive space.

Compared to JPMorgan’s size, this is but a trifling rounding error, and by no means should investors see it as a sign that marginal borrowers are facing trouble.

Meanwhile, JPMorgan executives reiterated that consumers remain generally “resilient” and mostly on time with credit card payments.

Gold’s breakout is only Stage One — the prelude. It will continue until the lights go out on the existing order — until the system itself is deliberately imploded. For those who missed it, I went into detail as to how I forsee the revaluations working in my recent piece ‘The Relentless Revaluation of Gold’. In this regard, gold’s rapid rise should be seen as the lighting of the fuse; what follows is the detonation that brings down the buildings. Whether the trigger is a cyber crisis as the Polish Central Banker insinuated, a global conflict, hyperinflation, or all of the above, the mechanism is already armed.

Stage Two will emerge in the ashes of that financial cataclysm and it will be the unveiling of a new financial architecture — built around blockchain and digital currencies, with gold restored at its core as the international monetary anchor for settling contracts. As such, every asset, every liability, every illusion of value will have to be revalued against it — forcing a reckoning with decades of debt, debasement, and deceit.