Masters Series: Zombie Enrichment
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Editor's note: Bill Bonner – founder of our corporate affiliate Agora Inc. – is a familiar voice to longtime S&A Digest readers.
One of his most significant works is Empire of Debt, which he wrote in 2005. He and co-author Addison Wiggin examine how America's role as a world empire has led it away from "the private virtues of personal liberty, economic freedom, and fiscal restraint."
These days, your income and your standard of living all depend on the financial model of the U.S. Empire. And the only people profiting from it, Bill says, are "zombies" – the people and organizations that draw off the productive part of our economy without contributing anything to it themselves.
That model no longer works. And the empire is coming to an end.
In today's edition of our weekend Masters Series – excerpted from the recently revised and updated version of Empire of Debt – Bill discusses the culture of debt in the United States and where that leaves us today...
Zombie Enrichment
By Bill Bonner, author, Empire of Debt
Had the 2008 correction been allowed to run its course, deleveraging would have wiped out many investors and many companies – especially in the finance sector. Instead, they are still in business... still profiting from the Fed's debt-friendly policies and still recycling much of the cash back to the feds themselves.
The cash goes into the pockets of their friends, clients, supporters – and into their own pockets, too.
Not incidentally, the deepest pockets around are those of the defense department, along with a vast archipelago of supporting industries, lobbyists, hangers-on, consultants, TSA agents, spooks, snoops, and related, dangerous jackasses.
What these people all had in common was the thing that all humans who are neither saints nor mental defectives want: More. Some want more money. Others want more power and status... more health care... more handouts... more this... more that.
But for an imperial war machine, "more" means more foreign entanglements backed by bigger budgets.
Have the feds failed? Were they forced, by budget concerns, to abandon the empire? Not at all. Instead, they have succeeded beyond their wildest dreams.
In the five-year period, about $10 trillion (the exact amount is unknowable) was distributed – in the form of direct bailouts, lower interest rates, guarantees, and deficit spending.
Neither household net worth nor wages rose. So what happened to the money? It went to zombies everywhere – from Wall Street to Skid Row to K Street (where Washington's lobbyists and fixers have their offices).
The feds may have had no idea how to make the economy better for most people. But they knew perfectly well how to make it better for themselves.
History will record that, in the fall of 2013, a debate erupted in the U.S. Congress. Debt was rising at an alarming pace. There was no plausible plan to stop it. With a debt debacle staring them in the face, members of that August body decided it was time to do something.
If nothing were done, the Great Empire would go bust. It already owed more money to more people than any empire before it. And it was adding to this debt at the rate of nearly 50 cents for every dollar in tax revenue.
So much debt made the empire's finances fragile. Interest rates were being held down by the central bank, but low rates wouldn't last forever. The credit cycle hadn't been repealed or made obsolete by new technology.
It was just a matter of time before interest rates rose and the cost of so much debt would become unbearable. Still, with this crowded school bus on the tracks in front of them, on October 16, 2013, the captain and crew of the Cannonball Congress decided to retire for the night and postpone serious discussion of a change in course until the following year.
Empires do not back up. And they shoot anyone who tries to.
All empires – like jackals – feed on the carcasses of their slain enemies. They take. They exploit. They demand taxes and tribute.
But the U.S. Empire of Debt is surely the first to finance itself by borrowing from its own vassal states and its rivals. The U.S. seems to have the whole thing backwards.
It conquered... And then its conquered nations became not sources of tribute and loot, but huge drains on the Treasury. The Iraq War, for example, was advertised as a moneymaker. Commentators and war mongers promised it would more than pay for itself from the oil revenues.
This turned out to not be true. Instead, economist and Nobel Prize-winner Joseph Stiglitz estimated that the total cost of the war – net – would be about $3 trillion, maybe even $5 trillion.
Ouch.
Where was that money going to come from? How was the empire going to pay for this sort of thing?
As revealed earlier, a big part of the imperial finance program consisted of trading paper – U.S. bonds and notes (including dollars) – for goods and services.
It was debt financing – but with an important twist. Foreigners took the U.S. paper and held onto it. This was the key. If they had turned it back to the U.S. Treasury, requesting gold in exchange, the U.S. would long ago have been forced to abandon the paper-for-goods system. Its gold – the bedrock of international finance – would have been called away. Instead, they kept the paper... IOUs they can present to the U.S. at any time they want.
President Nixon solved the gold problem. They can no longer take their dollars to the U.S. Department of the Treasury, taking away gold at a fixed rate. Now they will take what they can get – farms, buildings, factories... whatever is for sale.
Already, the amount of U.S. assets in foreign hands is impressive. According to Stansberry & Associates Investment Research, foreigners now own $25 trillion in U.S. assets. And net foreign ownership of U.S. assets increased from $2.5 trillion in 2006 to $4.2 trillion in 2012.
Editor's note: According to Bill, America's "Empire of Debt" will come to an end. And it could mean colossal changes for our country... and your way of life. But most people will do nothing to protect themselves or their families...
This is not a doomsday survival guide. But to understand why all empires eventually fall – and more important, what to do right before and after the coming fall of the U.S. Empire – this is one of the most important books you will ever read. Learn more about it here.
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