As a republic matures, it slides down-market…

The rails are silently greased by the cronies and grifters who control policy measures for their own benefit…while the rabble rallies to campaign slogans and admires TV idols.

The media — dependent on the mass of consumers for ad sales — sinks, too…stooping as low as possible to scoop up as many eyeballs, clicks, and cat videos as it can.

This drags down public discussion to a level scarcely better than the simian hoots and howls of wraslin’ fans.

There is no time or place for real thinking. There is no market for careful, nuanced reflection.

Nobody has the time, training, or information for serious study; and who would care anyway?

 

Mission accomplished

Here at the Diary, we make a feeble attempt at serious thinking from time to time.

Sometimes right, sometimes wrong, and always in doubt…we are suspicious of all facts and ideas — even the ones we make up ourselves.

As for those other jackasses, we presume — a priori — that they are idiotic.

Thus did the news of an economic ‘breakout’ reach us on Friday…more like a jingo than a fact. Second-quarter GDP growth printed at more than 4%.

The news was greeted with great jubilation, at least in the White House. It was a ‘mission accomplished’ moment for President Trump, who may actually believe his policies are paying off.

The two important pieces of the Trump policy puzzle are the tax cut, which was supposed to give American entrepreneurs the capital they needed to expand…and the trade war, which was supposed to bring good-paying jobs back to America and lower the trade deficit.

We will mention, in passing, deregulation, too.

Draining the swamp of freeloaders and busybodies really would help put business feet on more solid, drier land.

But deregulating a late-stage, degenerate empire is almost impossible. It is simply too infested with powerful insiders, who get their jobs, incomes, awards, and status from the feds’ diddles.

Also, other big Trump initiatives — the trade war and a fatter Pentagon budget — will add more opportunities for these win-lose bossy-pants.

Already, there is a long line of US lobbyists beseeching the White House to spare their industries, to make exceptions for their clients…or to stick it to their competitors, at home or abroad.

On balance, Team Trump is probably adding more to the swamp than it is eliminating.

 

Phony war

As for the substance of the trade war, there is none. It is a phony war against a phony enemy.

The trade-weighted average tariff between the world’s three biggest economies — Europe, the US, and China — is less than 2%.

Completely eliminating tariffs wouldn’t amount to a hill of beans. Besides, so far, the Trump administration has added to tariffs, not reduced them.

The tax cut, too, cuts both ways. Had the feds cut spending rather than taxes, this would have left the private sector with more resources to work with (notably, credit).

But cutting taxes without cutting spending leaves the feds still taking the same swill from the trough while returning more to the taxpayers. How do they do that?

By borrowing more.

US federal debt increased by more than $1 trillion over the last 12 months. And it’s set to increase by a lot more.

If you’re going to borrow, you need someone with money to lend. And where does the money come from? It is either real savings…or it is made-up, ersatz, phony-baloney savings invented by the central bank.

Real savings are limited and few (savings rates are near record lows). And the Fed says it is no longer providing fake savings; not only that, it is raising…ever so delicately…interest rates.

Whatever short-term lift you could get from cutting taxes, in other words, will come at a heavy, long-term price.

 

$9 trillion gone

The feds will be forced to borrow more and more money at higher and higher rates. Most likely, this will drive rates up further…and knock down both the economy and asset prices.

Martin Feldstein, writing in The Wall Street Journal, describes what will happen next:

‘It’s too late to avoid an asset bubble: Equity prices already have risen far above the historical trend. The price/earnings ratio of the S&P 500 is now more than 50% higher than the all-time average, sitting at a level reached only three times in the past century. Commercial real estate prices also are extremely high by historical standards.

‘The inevitable return of these asset prices to their historical norms is likely to cause a sharp decline in household wealth and in the rate of investment in commercial real estate. If the P/E ratio returns to its historical average, the fall in share prices will amount to a $9 trillion loss across all US households.’

Then, of course, having caused a calamity, the feds will get to work anew — making it worse.

Stay tuned…

 

Regards,
Bill Bonner