The One War the Deep State Can't Afford to Lose

Editor's note: The "Deep State" is a protection racket – one you pay for whether you want it or not.

And in today's Masters Series essay – originally published in the January issue of The Bill Bonner Letter – Bill Bonner explains why the latest ongoing war is different from and more dangerous than every previous war we've seen...

The One War the Deep State Can't Afford to Lose
By Bill Bonner, chairman, Bonner & Partners

"Those who would give up essential liberty to purchase a little temporary safety," wrote Benjamin Franklin, "deserve neither liberty nor safety."

I don't know how to judge what they deserve. But, based on past experience, I can take guesses about what they will get.

We noted in a previous segment that most Deep State wars are meant to be lost. For example, no one – except perhaps for naïve new hires – ever expects to win the War on Drugs.

The War on Terror looks like a setup, too. In their new book, Chasing Ghosts: The Policing of Terrorism, John Mueller of Ohio State and the Cato Institute and Mark Stewart of Australia's Newcastle University tell us that U.S. intelligence agencies have counted up to 5,000 trained operatives working inside the U.S. Yet, only one person has ever been caught and convicted of aiding and abetting the enemy, and he was only providing financial aid to an outlawed group. No evidence was presented that he intended the money to be used for violent purposes.

The War on Terror must seem like a flop from the Deep State's point of view as well. Not only has it failed to stop terrorism, it has failed to get it started! Even after 14 years of intervention and trillions spent to stimulate attacks, an American's risk of being killed by a terrorist is still only one in 4 million.

Since 2001, 40 U.S. citizens have been murdered by people who were – arguably – "Muslim terrorists." In that same period, 450,000 were killed in the U.S. in other acts of violence perpetrated by Lutherans, Jews, Rosicrucians, atheists, Mormons, Seventh-day Adventists, Baptists, Buddhists, Zoroastrians, Stoics, artists, plumbers, postal employees – you name it!

The War on Poverty is also a flop. No serious economist – which leaves out most of them – thinks poverty can be conquered by spending more money on programs that encourage dependence. Yet, the War on Poverty continues.

After 51 years and $22 trillion, the anti-poverty warriors still put on their helmets and go into battle every day. Do they expect to win this war? Of course not. "You get what you pay for," said Milton Friedman. Paying people to be poor was bound to find some takers.

There are more people – 10 million more – living in poverty than there were when the war began. Included in this number are many of the aforementioned jobless. Neither the War on Poverty nor the War on the Credit Cycle has done them much good. There are more of these people than ever before. And they are all now dependent on the Deep State.

In addition, the War on Poverty supports not only an army of poor people but also a whole industry of experts, educators, lawyers, sociologists, managers, researchers, and community organizers (Barack Obama!) – some in the public sector, some in the private sector. All these people now look to the Deep State, the only real winner, for their daily bread.

Politicians may come and go. Red states may turn blue, or vice versa. But the flow of money and power – from the people who earn it to the Deep State and its clients – continues.

And what hath the 44-year-old War on Drugs wrought? People gave up their liberty... yet they got no protection from drugs. It is not hard to see why the war was doomed. It was a fight against markets; in the end, markets always win.

The more the drug warriors interdict the flow of illegal drugs – if that is what they are really trying to do – the higher the price of the drugs becomes. The higher prices lure in more entrepreneurs, give rise to more innovation, and inevitably result in greater abundance, more choice, and lower prices for drug users.

That is what seems to have happened in the War on Terrorism, too. While the money and energy spent on the war seem to have had little impact in the U.S., they nevertheless seem to have increased demand for terrorists overseas. Under pressure from U.S. bombs, drones, and assassinations, the more civilized strains of extremism seem to have evolved into more violent and more dynamic cultures, as more and more Muslims are radicalized by anti-terror interventions.

This is what also happened when the U.S. tried to protect Americans from alcohol in 1920. After Prohibition went into effect, the price of liquor went up and profit margins widened for the alcohol sellers.

With more and more money at stake... and outlawed by the government... alcohol became more outlawed itself... and its leading entrepreneurs became more ruthless in pursuit of market share.

The War on Alcohol cost the feds some $200 billion, in today's money. But it was money down the drain. People reported that it was easier to get a drink during Prohibition than it was after it was repealed. And Al Capone reportedly earned $60 million a year from his bootleg and speakeasy operations.

Here is a comparison of some of the wars I've mentioned:

• Alcohol: Includes lost tax revenue and enforcement costs. Expenses adjusted to 2014 dollars.

• Drugs: Costs for enforcing the War on Drugs. It is estimated the U.S. now spends more than $50 billion annually fighting drugs.

• Terrorists: The amount includes the costs of the wars in Iraq and Afghanistan as well as the new fight against ISIS, according to the National Priorities Project.

• Poverty: The amount the government has spent on anti-poverty programs – this does NOT include Social Security or Medicare.

• Global Warming: $165 billion in government spending. The Small Business Administration estimates compliance with global warming regulations costs the U.S. economy $1.8 trillion per year.

• The Credit Cycle: We measured this as the expansion of the Federal Reserve's balance sheet. According to the Federal Reserve, assets have swelled to more than $4 trillion since 1990.

The War on the Credit Cycle has the now-familiar markers of the Deep State's wars. The enemy is hard to identify. The cost is huge and open-ended. Large amounts of money are transferred to Deep State operatives and clients. And the war cannot be won.

You can twist, pound, and bend markets. But you can never escape them. And suppressing the credit cycle, too – like trying to suppress drugs, alcohol, or poverty – is bound to have unpleasant consequences.

But the fight against the credit cycle is different from the others. This is one the Deep State doesn't want to lose.

Like so much of the economy, it has become dependent on cheap credit for its growth and funding. Losing the war against drugs or terror actually benefits the insiders. Losing the war against the credit cycle does not.

Regards,

Bill Bonner

Editor's note: Bill believes a disturbing event will soon lead to a sudden collapse in our credit system. To learn how it will unfold – and what you can do to protect yourself – click here.