As expected, the Dow bounced back on Thursday.
The index was up 400 points. But on Friday, it opened with another downdraft.
Maybe the bubble and the pin have found each other. Maybe they haven’t. TBD…
Fall guy
Also as expected, the president of the United States is setting the Fed up to be the fall guy for when the crash does come.
The ‘King of Debt’ has more to fear from a big sell-off than anyone. His personal fortune was built on low interest rates. As real estate prices in New York doubled in real terms over the last 20 years, developers like Trump used cheap, borrowed money to leverage that gain.
The Donald’s political career was also built on EZ money.
If the feds had not used fake money and fake interest rates to rip off the common man, the masses wouldn’t have lost faith in their elite Democrat and Republican leaders.
The fix was in. Americans didn’t know how (and still don’t). But they sensed that something was deeply wrong, and they hoped a blunt, bold outsider would set things straight.
So they turned away from the centre…and turned to someone they believed to be ‘self-made’…who looked and sounded like a very common man himself.
Thus, they made one of the biggest beneficiaries of the rigged system — Mr Donald J Trump — their champion. Mr Trump may have made himself into the man he is. But the Fed deserves some thanks for putting him in the White House.
Serpent’s tongue
And now, sharper than a serpent’s tongue, the ingrate turns on his biggest benefactor. The Wall Street Journal reports:
‘While the Fed is supposed to be independent “in theory,” Trump suggested that he wouldn’t keep quiet and let the central bank wreck the economy.
‘He said the Fed was supposed to be independent “in theory,” but…
“‘To me, the Fed is the biggest risk, because I think interest rates are being raised too quickly.”
‘Asked what would push him to try and remove Powell, Trump refused to answer with specifics.
‘Mr Trump demurred when asked under what circumstances he’d remove Mr Powell. “I don’t know,” he said.
‘”I’m just saying this: I’m very unhappy with the Fed because Obama had zero interest rates.”
‘Mr Trump said it was “too early to tell, but maybe” if he regrets nominating Mr Powell.
‘Pressed about what he believes is the biggest threat to the US economy, Trump replied: “The Fed” adding that every time he tries to do something great, they spoil the party.
‘”Every time we do something great, he raises the interest rates,” Mr Trump said, adding that Mr Powell “almost looks like he’s happy raising interest rates.” The president declined to elaborate, and a spokeswoman for the Fed declined to comment.
‘Notably, Trump also referred to the economy as “my economy” and complained that he couldn’t be expected to compete with Obama, who benefited from near-zero rates during his entire tenure in office.
‘The president’s caustic comments about Mr Powell came as Mr Trump repeatedly described the economy in personal terms. He referred to economic gains during his time in office as “my numbers,” saying, “I have a hot economy going.”
‘He described his push for growth as a competition with former President Obama’s record, saying that increases under his Democratic predecessor were skewed because of low interest rates.
‘Citing the rate increases, Mr Trump said, “How the hell do you compete with that? And Obama — remember this, it’s very important — Obama had zero interest,” the president said.’
Yes, taking shape is a delicious — though devilish — comedy…
Mr Trump is right. The Fed will be largely to blame for the coming crisis. He’s right, too, in that ‘his’ economy and ‘his’ numbers might look a whole lot better if the Fed wasn’t trying to raise rates.
And he’s also right that another tax cut might heat up ‘his’ economy even more, just like more military spending would make ‘his’ numbers look even better.
Too bad it’s all a gigantic fraud.
You can get a rush by cutting taxes (without lowering government spending)…and by spending money you don’t have on things you don’t need…and lending money nobody ever earned or saved at artificially low rates to people who can’t pay it back…
…but you can’t build a stronger economy that way.
Freedom or slavery
But we’ll return to those dots next week.
Today, let’s complete our look at the new threats coming from new technology. Earlier this week, we made the case that the Information Revolution was a big, fat flop. Personal computers and the internet gave us more information faster, but it did absolutely nothing to speed up real economic growth rates.
And we wondered about Big Data companies like Google and Facebook. Do they shift the balance of power towards freedom or towards slavery?
We have an office in Beijing. In our line of business, we can’t help but criticise the government there. Governments have economic policies, and they are invariably idiotic.
In America, the stock market is almost sure to blow up sometime in the near future. Mr Trump seems to be setting up the worst possible response — more debt and more spending…making Big Government bigger and the Swamp deeper, etc.
But the Chinese government is even worse.
For years, the Chinese ran an economy that was nearly 50% capital investment. There’s no way you can invest that much money efficiently, effectively, or sensibly. The capital waste — the misallocation of resources — must have been massive.
And now, China has dozens of ghost cities…millions of square feet of unsold apartments and retail space…overcapacity in practically every major industry…and $40 trillion of unpayable debt.
But while we can still freely criticise Mr Trump, criticizing Mr Xi could get our poor China-based partner thrown in prison.
China has a new, tech-based ‘Social Credit’ system.
It’s a Big Data/algorithm-driven system for keeping track of people…and controlling them.
You lose points if you say something ‘negative’ about the economy, for example…or if you’re late with your mortgage payments…or if the facial recognition cameras catch you jaywalking.
Then, based on this score, a person might not be allowed to buy an airline ticket, travel by train, get a mortgage, or even get a credit card.
So you could go to the ATM and you find that it doesn’t work — for you.
Not only does your card not work…no one can tell you why it doesn’t work. You are simply out of luck — and out of money. And, by the way, your access to the internet has been cut off. Your phone, too.
What happened? Did you visit the wrong websites? Did you subscribe to the wrong magazines or join the wrong groups? Did you criticise someone you shouldn’t? Or are you just part of a group — identified by algorithm — that the feds want to suppress?
And what can you do? To whom do you complain?
Are we being paranoid? Well, we hope so.
Erased from the internet
But our Chinese partners told us something even more disturbing. A few years ago, we wrote a book with our son. Called Family Fortunes, it was about how to keep money in the family over more than a single generation.
A Chinese billionaire saw the book. He liked it and had it translated into Chinese. And then he invited us over to give a speech, followed by a cocktail reception, and so forth.
That was last year. We just found out on Friday that this billionaire was arrested…and has now disappeared.
Completely disappeared.
This was a very rich, very powerful man…who was apparently well-connected to the Chinese hierarchy.
But if you go on the internet, you will find no trace of him; he has been erased — scrubbed out of China’s history and present.
He is no more…and apparently, never was. Maybe he’s in a work camp. Maybe he’s dead. Who knows?
And yes, that is the dark power of the Information Revolution. We depend on our laptops, iPhones, credit cards, and a whole range of electronic data — much of it compiled by Big Data companies like Facebook and Google.
Using this data and the vital electronic links that connect us to the rest of the world, the feds can now monitor, manipulate, and control the behaviour of millions of people.
In effect, the new technology — although, so far, useless as far as economic growth and material prosperity are concerned — may finally make slavery profitable again.
That is, it may make it possible to keep huge numbers of people in check, at a very low cost.
You may be able to walk around, work for money, and socialise as if you were free. But you might have to be as docile as a slave: totally submissive to the feds’ rules…unable to voice any discontent over the feds’ policies…and beholden to the feds for your car, house, and every penny you spend — all bought with the feds’ credit.
Regards,
Bill Bonner