POITOU, FRANCE – Here at the Diary, we walk on the sunny side of the street, even at night.
So today, we look at the bright side of bad news.
Accidental Healthcare
For example, last week we saw what a disaster the Nicolás Maduro government has made of Venezuela.
Consumer prices may be rising at a million percent per year… which must be hard to measure, because there are so few consumer items to buy. The shelves are nearly empty.
But did this ill wind blow no one good? Of course not.
Venezuela’s accidental healthcare initiative is a stunning success. As reported in Newsweek, last year, the average person in the country lost 24 pounds. That was after he shed 19 pounds the year before.
This weight-loss program is extremely effective. But we caution Venezuela’s ruling elite to take a glance at our book, Hormegeddon.
In it, we demonstrate how the law of diminishing returns can apply to almost any aspect of society: politics, the economy, finance, etc. Push a good thing too far, we wrote, and the returns not only diminish, they reverse.
[Subscribers to The Bill Bonner Letter are invited to read a free electronic version of Hormegeddon here.]
Hormegeddon explains why Maduro may not want to take things too far. It’s one thing to lose a little weight. It’s quite another to starve to death.
Radical weight loss is something Americans can look forward to. We don’t know how long it will take to get there, but Venezuela shows us what a determined government can do.
When bad politics takes over a good economy, it is just a matter of time until the shelves are empty and the fat comes off.
Huge Cost
You, dear reader, may point out that this weight-loss program comes at a huge cost.
Government policies in Caracas have put 90% of the population on the poor side of the poverty line. And, of course, those are the people who lost weight. But the good news is… they are also the people who probably needed to lose a few pounds.
In America, too, a nationwide financial catastrophe would have its upside.
The richest one percent has notoriously captured most of the income and wealth gains of the 21st century. On the income ledger, it had about 17% of national income going into the century. Now, it has about 20%.
And on the balance sheet, household wealth was larded by some $60 trillion since 1999 – overwhelmingly going to the wealthy (who own stocks, bonds, and real estate).
Of that $60 trillion added since the dawn of the millennium, a disproportionate share has gone into the pockets of the wealthiest. Now, the “One Percent” owns about 40% of the entire stock market wealth of the country.
Does “inequality” bother you? More good news: You don’t have to worry about it… We will soon get “disaster relief.” Which is to say, the coming crash will take care of it.
That’s the upside of the downside. Wrongs get righted. The mighty are brought low. The meek are lifted up.
The rich in America were the unwitting, but very willing, recipients of the feds’ stolen goods. In the coming crisis, the poor may lose weight… but the rich will lose their ill-gotten gains.
One of the subtle scams of the fake-money system is the way it steals wealth from people without them realizing it.
The poor feel like failures. The rich think they are geniuses. Both are duped by their own money system.
The feds put in fake money. As Joe Withrow showed recently, the Fed has pumped more than $4 trillion – money created from nothing – into the system since 2008. This added nearly $20 trillion to stock market prices alone.
But real wages and salaries remained the same.
If you had financial assets, in other words, you got rich. But there are still only 24 hours in a day; so if you had only your time to sell, you got nothing.
Hell in a Handcart
The One Percent of Caracas has bank accounts in Miami. As Venezuela goes to hell in a handcart, the rich are protected.
But America’s rich are stuck. Their wealth is in dollars… and in inflated U.S. stocks, bonds, and real estate. They won’t escape.
Which brings us to more good news: Donald Trump’s trade war. Of course, it is absurd and disastrous from an economic point of view.
Here’s Harvard professor and conservative economist Robert Barro in The Wall Street Journal:
The underlying mercantilist view – that there is no downside to cutting off imports because our benefits from international trade arise only from what we sell – is, frankly, ridiculous.
Living without foreign-produced goods hurts Americans more than our trading partners. And the calculations only get worse when one factors in the inevitable retaliation. Foreign countries have already begun restricting U.S. exports. They are also entering into free-trade arrangements that exclude the U.S. It is hard to complain about Japan expanding trade with other Asian countries or the European Union, but this expansion comes partly at the expense of U.S. exports.
There must be an upside. But where?
It is right there in front of us. The trade war – if pursued – is likely to bring the high-flying One Percent down to earth… and wreck the entire capital structure.
The entire $60 trillion that was gained in the 21st century could get whacked.
Most to Lose
Wealth is relative. While everyone will end up poorer from a trade war, those who would lose the most are those who have the most to lose. What came so easily will go away just as easily.
Remember, “money” is just a way of keeping score. Long-time Diary readers may remember this idea from our parking ticket explanation.
The rich grew rich “on paper”… They had more of a claim against the cars, houses, factories, land, furniture, and time of others – everything we regard as real wealth.
Which is why most people might actually prefer a trade war. Even though it would make the country poorer as a whole, it would hit the rich harder than the poor, leaving the latter relatively less poor.
That is also why we argued that a real, serious trade war was unlikely. The One Percent stole its wealth fair and square. It won’t want to give it up.
And it is among this One Percent that you’ll find both the Deep State and The Donald himself. When they realized what was at stake, we expected a clever insider would have a word with the president and clue him in.
But now, we’re not so sure. Mistakes are made. Accidents happen, even those with surprising upsides. Trump is now threatening $500 billion worth of Chinese imports. The Chinese are vowing retaliation.
Mr. Barro continues:
At first I thought the president’s rhetoric about trade restrictions wouldn’t be translated into major action. But it is now clear that he, reinforced particularly by Commerce Secretary Wilbur Ross, is committed to a trade war. This policy constitutes a serious depression risk, analogous to that from the Smoot-Hawley Tariff of the 1930s. […]
Mr. Trump doesn’t deserve to be impeached for his myriad instances of political incorrectness, but he may deserve to be impeached for his trade war.
Our advice to the One Percent: Get out while the getting is good… Turn some of your “paper” assets into real assets while you still can.
Regards,
Bill
Category: Market updates