Gold News

Stumbling Towards The Final Act

Another milestone passed...

NOW HERE'S a scary development, writes Bill Bonner in his Daily Reckoning.

Look at this report from The Fiscal Times:

For the first time since the Great Depression, households are receiving more income from the government than they are paying the government in taxes. The combination of more cash from various programs, called transfer payments, and lower taxes has been a double-barreled boost to consumers' buying power, while also blowing a hole in the deficit. The 1930s offer a cautionary tale: The only other time government income support exceeded taxes paid was from 1931 to 1936. That trend reversed in 1936, after a recovery was underway, and the economy fell back into a second leg of recession during 1937 and 1938.

Yes, dear reader...now we will give you a quote:

"Those who count on the feds for their daily bread will soon go hungry."

Who said that?

We did!

On Wednesday we saw that the feds' QE2 program was a failure. Just like QE1. And TALF. And TARP. Worldwide, the authorities committed about $20 trillion to fight the correction. And what has it bought? It bailed out Wall Street. It made more millionaires. It drove up stock prices – to a new post-crisis record yesterday. But it didn't really lead to a genuine recovery or a real increase the nation's wealth.

And we've got news for the "post crisis" folks. This crisis is still going on. Now, we discover that not only is there no real recovery...the phony recovery is so distorting the political/economic picture that no real recovery is even possible.

Seventy-nine percent of household income growth since 2007 has come from government transfer payments. People earn less real money. They have less real money to spend. Their major assets – their houses – are going down in value.

And now they depend on the feds for more than half their income growth. Who's going to vote for less government spending now?

In all of history, there are very few examples where centralized economic planning has produced even plausibly positive results. They can mess up an economy; there's plenty of evidence of that. All their meddling, controlling, twisting – from Diocletian to Robespierre to Lenin to Nixon – every market regulation is a curse...every financial lifeline has a hangman's noose on the end of it.

The only counter examples we can think of are those on the Pharaonic model...where wise Pharaoh stored up grain during the fat years and released it to the people when times got tough.

How often did that happen? The only example we have is from the Old Testament. Is it fact? Or fiction?

A wise government today could imitate Pharaoh. But none has. Instead of storing up grain for the lean years, governments run budget deficits year in and year out...through good times and bad times. Then, when the pickins are slim, they run even bigger deficits to "stimulate" a recovery.

This pattern has been in place...almost universally and with few exceptions...since the new money system was put in place in 1971. You remember that fateful day? When Richard Nixon interrupted Bonanza to tell the world he was doing two impossibly stupid things at once – imposing wage/price controls...and taking gold out of the international monetary system.

We are still suffering the consequences...still lumbering, stumbling, clumsily padding our way to the final act.

And now look at Pharaoh. The masses depend on him. And he's handing out bread. But wait...it's phony, ersatz grain. No kidding. Yes, the feds print up money...as if it were real. They give it to the banking system, claiming that it "stimulates" the economy. Then, the banks give it back to the feds...so they can distribute it to the masses. Of course, anyone could see right through it. Everyone knows it is fraudulent.

And so, the price of gold goes up...

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Bill Bonner has co-authored a number of New York Times Bestsellers including Financial Reckoning Day, Empire of Debt and Mobs, Markets and Messiahs. In his own opinion, Bill's most recent title, A Modest Theory of Civilization: Win-Win or Lose, is his best work yet. Bill also founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group have exposed and predicted some of the world's biggest shifts since that time, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and more recently the election of President Trump.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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