With the Golden Formula As Empires Crumble
by Bill Bonner: Makers,
Takers and the Transfer of Wealth
the concrete cracked
the glass broke
Not that there
was anything special about yesterday. This happens every day.
In the markets,
the Dow fell 54 points. Gold rose to a new record of $1,587.
stocks on rallies; buy gold on dips.
That has been
our advice for the last 11 years. Dont we have anything to
add? Havent we discovered any new tricks? Isnt it time
to try a different strategy?
with the formula. Its a formula that doesnt work very
often. But when it does
its, well, golden.
work very often because empires and their money dont fall
apart very often. Usually, you can trust Caesar and coin to stay
put. More or less. But now, Caesars money is phony. And it
has allowed the empire to grow in absurd and grotesque ways
its center of gravity no longer rests on a solid foundation. The
whole thing tilts to the left
and appears close to toppling
the papers, Republicans and Democrats work feverishly to set things
right. The Republicans want spending cuts, but no new taxes. The
Democrats want higher taxes
but few spending cuts.
get their act together sooner or later, say the journalists. If
not, it will be like committing suicide, says a source
in The Financial Times.
If so, wed
like to offer a sharp razor. Our reading of history shows that governments
dont stop borrowing and spending until they have to. And the
sooner they have to that is, the sooner the markets tell
the politicians to Drop Dead the better off they
But that is
not likely to happen. Congress has raised the debt ceiling 93 times
in the last 94 years. Our guess is that it will strike a deal and
do so again. That way, Congress, the White House and the vast bureaucracy
can get back to doing what they do best wrecking the economy.
the markets will call a halt. But that is probably well in the future.
someone who shares our views. CNBC has the story:
A US default
isnt a matter of if but when, David
Murrin, chief investment officer at Emergent Asset Management,
inevitable that the US will default its essentially
an empire which is overextended and in decline and that
its financial system will go with it, he said.
In his book
Breaking the Code of History, Murrin argues that the
balance of power has shifted away from the West, with America
as the superpower, towards the East, led by China.
the US cannot afford to compete with the rise of Eastern powers.
very simple, its (Americas) empire system, its financial
system is in decline, weve seen very little growth for over
a decade apart from financial engineering and leveraging, which
ultimately caused the debt crisis of 2008, Murrin said.
only similar example is Britain. It was once an empire and when
it lost its power over (the Suez Canal crisis of 1956) it had
a large amount of loans outstanding to the Empire, and America
owned most of that, Murrin said. That was the power
America had over Britain and it ended the pound, but their values
were very similar in terms of global geo-politics and the world
didnt really change that much.
wondering where to look in this environment, Murrin said one thing
is clear: You probably shouldnt own dollar-denominated
Yes, dear reader,
that noise you hear. It is an empire crumbling. The American Empire.
The Anglo-Saxon Empire. The European Imperial Hegemony that has
been in place at least since the invention of the steam engine.
democratic social welfare model which took root in North
America, Australia and other colonies throughout the globe
is putting in a giant, multi-decade top. Birthrates are low. GDP
growth is low. Job creation is low. Debt is high. Its money corrupted
by the paper-based dollar, the whole system has degenerated
decayed. Now, it is dominated by frauds, incompetents and parasites.
Richebächer used to call it late, degenerate capitalism.
We call it Zombiedom!
Hold onto your
We left you
yesterday just as we were describing how the US slipped into corruption
and degradation. It was nothing personal, we were about to say.
It was nobodys fault in particular. Thats just what
We were also
musing on Bastille Day on why monarchy was not such
a bad system of government, after all. At least, Louis 16th was
less sensitive to mob pressure; he didnt have to keep his
eye on the opinion polls. He could do things that were necessary,
even when they were unpopular.
As a government
matures, more and more people find ways to game the system. This
is true of all forms of government, not just democracy. People always
want to get ahead in the easiest, surest way possible. Often, its
easier to steal money than to earn it. In a monarchy, people court
favors and privileges from the ruling class, just as they do in
any other system. They win battles, procure women, keep secrets
or tell them, they dont rebel
or they do, they are useful
troublesome. They connive. They plot. They flatter. They use their
elbows and their brains. They do what they have to do to gain an
they grease the legislature to get special laws limiting competition
and titles. Why do you think
Wall Street is the single largest contributor to Congressional campaign
coffers? Because it has a lot at stake. And who would have thought
100 years ago that the president of the United States
needed a well-paid assistant in charge of African-American Media?
Does he also have an assistant in charge of Irish-American Media?
And who covers the Yiddish press for him?
a little niche
a bit of spare change for almost
As time goes
on, the number of leeches, parasites, and blood-suckers multiplies.
You see it at the local level as at the national one. If you want
to build a house in Anne Arundel Co., Maryland, for example, you
have to be prepared to pay thousands of dollars in bribes. Engineers,
clerks, administrators, environmental protectors a whole
gauntlet of zombies stands between you and finally breaking ground.
at the dump, we noticed a large group of men in clean white shirts
and hard hats wandering around. They seemed to have notebooks in
their hands and stopped from time to time to write something down.
Who were they?
Surely they were on the government payroll somewhere, somehow; they
were probably making sure that the county dump was run according
the latest standards of Zombiedom.
But it is not
just government that is corroded. The private sector especially
those parts of it that are most closely connected to government
gets twisted too. Education in America is a government industry
even though there are plenty of private schools and universities.
At the university level, it is almost impossible to exist without
doing Washingtons bidding. Students are supported by grants
and loans coming from the government. And universities depend
on government research and other projects for a major part of their
Plus, the universities
are no different from any other advanced, degenerate system. As
they age, they too are full of their own tweedy leeches. Americans
came to believe that their children would do better in life if they
had a university education. This proposition was so little challenged
that it led to almost a complete lack of price resistance. The more
people paid, the better they liked it; presumably, because they
were sending their children to the best universities.
Families mortgaged their houses in an effort to pay for their childrens
Now, of course,
the nation is saturated with university graduates who are largely
illiterate and incompetent. People are beginning to realize that
a college diploma is as bad an investment as a house. The Financial
in the US has soared in recent decades while
median incomes have stagnated
In the past decade, tuition
rates at public universities have risen 5.6% a year above inflation
the past 60 years, says Jim ONeill, head of the Thiel
Foundation, owning a house became part of the American Dream.
People were told: buy a house, dont worry about the
price; youll earn it all back later. Now its
the same thing with college.
In the curious
way that Zombiedom takes over, the idea that a university degree
would pay off was not entirely an illusion. As society became zombified,
the value of phony professionalism grew. Degrees and qualifications
are important in organizations that dont actually produce
anything. An active, profit-oriented entrepreneur will not particularly
care if a person has a degree or not; he wants a producer. But universities,
the health care industry, many large corporations, and the government
itself are not output oriented. Usually, no one knows if they do
anything useful or not. So, how can they select or advance employees
except by reference to degrees and qualifications?
The cost of
a university education, as a percentage of disposable household
income, has risen from about 18% in 1985 to nearly 35% today. But
did a college degree really pay off? Guess how much more a university
graduate earns today
in real terms
than, say, a college
graduate in 1985.
with permission from the Daily
Bonner is the author, with Addison Wiggin, of Financial
Reckoning Day: Surviving the Soft Depression of The 21st
The New Empire of Debt: The Rise Of An Epic Financial Crisis
and the co-author with Lila Rajiva of Mobs,
Messiahs and Markets (Wiley, 2007). His
latest book is Dice
Have No Memory.
Since 1999, Bill has been a daily contributor and the driving force
behind The Daily Reckoning.
© 2011 Daily Reckoning
Best of Bill Bonner