Editor’s Note: Regular readers know about the corruptive power of the Deep State… and in today’s essay, Bill Bonner, Doug Casey’s long-time friend and colleague, shows why the Deep State will lead to the collapse of the American Empire.
Bill says two things—which the American people have already been warned about—are to blame for our unstoppable slide downward…
Read on to see if you agree.
We wait for the world to fall apart.
The Dow is still more than 1,000 points below its high; so we presume the primary trend is down. Treasury yields—on the 10-year note—are near 3%… twice what they were two years ago. So we presume the primary trend for bond prices is down, too.
If we’re right, we are at the beginning of a long slide… down, down, down… into chaos, destitution, and destruction.
Our working hypothesis is that General Eisenhower was right. There were two big temptations to the American Republic of the 1950s; subsequent generations gave in to both of them.
They spent their children’s and grandchildren’s money. Now, the country has a government debt of $21 trillion. That’s up from $288 billion when Ike left the White House.
And they allowed the “unwarranted influence” of the “military/industrial complex” to grow into a monster. No president, no matter how good his intentions, can stop it.
A corollary to our major hypothesis is that the rise of the Deep State (the military/industrial/social welfare/security/prison/medical care/education/bureaucrat/crony complex) was funded by the Fed’s fake-money system.
Now, investors, businesses, households, and the feds themselves have all been “faked out” by a fraudulent money system. None of them can survive a cutback in credit.
For nearly 30 years, central banks have backstopped markets and flooded the world with liquidity.
But last week, the Fed turned the screws a little further. It now targets a 2% Fed Funds Rate, up from 1.75% today, and claims to be on the path of “normalization.”
And the European Central Bank (ECB) made it official, too; it hasn’t quite begun tightening, but it’s got its toolbox open. And command of the ECB work crew is set to change hands next year anyway, passing on to a German engineer.
The German psyche has been scarred by its awful experience in the last century. Even though today’s Germans didn’t live through it themselves, the entire country seems to have a race memory of it.
Still preparing for hard times, the household savings rate in Germany is at least three times higher than in the sans souci U.S.
Germany’s 20th century apocalypse, too, can be described in Eisenhower’s terms—too much debt (arising from World War I)… and too much influence in the hands of the military/industrial complex.
Debt led to hyperinflation. But the damage done by Germany’s hyperinflation of the early ’20s led to far more than just wiped-out mortgages and billion-dollar cigars.
It discredited the traditional elite of the country—its institutions, its culture, and its politics. Germany had the world’s finest artists, composers, and philosophers. Its writers, engineers, and scientists were second to none.
Even in the early ’30s, Germans could still look to the East—to the madness, purges, and famines of Russia—and say to themselves: “Ah, that couldn’t happen here; we are so much more civilized.”
But by then, civilization was on the run, from the Rhine all the way to Siberia. And in Germany, the old elite was being chased out of leading posts in academia, the military, and the government.
Ruined by hyperinflation and chaos—and hounded by extremists—thousands emigrated from Germany to England and America. Those left yielded to mob spirits and rabble-rousing upstarts—communists, anarchists, and national socialists—who fought it out in the streets.
The national socialists—the Nazis—won. Even though it was prohibited by the Versailles Treaty, they quickly began building up the military/industrial complex.
Then, as Madeleine Albright phrased it, “What good is it having such a powerful military if you can’t put it to use?”
As it transpired, Germany attacked the Soviet Union. By then, the average Russkie may have hated Stalin, but he rallied to defend Mother Russia.
By the end of World War II, eight million Germans would be dead, with millions more condemned to die in prisoner-of-war camps or from starvation.
By 1945, Germany had been bombed so thoroughly that nothing much was left of its once-impressive industrial capacity.
Its farms had been starved of investment (the money went to the military) for the previous 10 years. And the country had been cut in half, with foreign troops ruling over every aspect of life.
And today, 73 years later… there are still foreign troops garrisoned on German soil… and the Germans still fear letting the money system get out of control.
They’re right to be wary of runaway money. It turns honest wage-earners into paupers, while the speculators get rich.
Worse, it gives the meddlers a source of almost unlimited financing. Then, there’s no telling what mischief they will get up to. Revolution? War? Or simply a complete economic collapse?
News also came last week that the inflation rate in Venezuela has reached 24,600%. In other words, if you bought a pack of cigarettes for $5 last June, you could expect to pay $1,230 for the same pack today.
When the money goes, everything seems to go with it. The economy, government, order, morality, right and wrong—all sink into a greasy stew where you don’t know which parts are edible and which are poisonous.
This year’s rise in oil prices was supposed to give Venezuela a little break. Oil is the country’s biggest asset and its major export. And the state-owned oil giant PDVSA was supposed to rescue the nation.
But it is too late.
The vernacular—the vast web of thoughts and deals that make up everyday life for everyday people—has been so corrupted and distorted that it can’t react normally. Venezuela can no longer take advantage of opportunities or respond to crises. The New York Times reports:
Desperate oil workers and criminals are also stripping the oil company of vital equipment, vehicles, pumps and copper wiring, carrying off whatever they can to make money. The double drain—of people and hardware—is further crippling a company that has been teetering for years yet remains the country’s most important source of income.
Wages could not keep up with inflation. The NYT highlights the case of a typical rig worker who stayed on the job for the entire month of May, yet earned only enough to buy one chicken.
No longer able to feed their children, workers walk off the job. Or drive off.
Trucks disappear. So do wrenches and copper pipes. Even with a higher oil price, income falls for the company… the state… and the remaining employees.
What’s a man to do?
Leave! Venezuelans are rushing the borders to escape, often taking little more than the clothes on their backs with them.
But wait… Americans are civilized people with full employment, a solid dollar, and a military that is bringing order to a troubled world. What possible significance could Germany 1920–1945 or Venezuela 1999–? have for us?
And Eisenhower was just an old worrywart, wasn’t he?
Tags: economic collapse,