Hello, Fellow Navigator.

The world is a mess, but if you want to know why, you have to understand the incentives for the people pulling the levers.

There’s a revolving door between government and industry. Ex-generals and Department of Defense officials get consulting gigs with defense contractors… ex-Securities and Exchange Commission auditors get cushy jobs as compliance officers on Wall Street… ex-Food and Drug Administration officials get jobs in Big Pharma…

I share Henry David Thoreau’s belief that the “government is best which governs least.”  But that’s not our reality. There’s plenty of governing going on. It’s just that the regulators become puppets controlled by the big-money industries they purport to regulate, creating a world in which the rules are written by and for those with the power to influence them. 

You and I are the poor suckers that actually have to follow the rules… and then pay the hefty bill when the bad incentive structure leads to bad outcomes.

It’s called regulatory capture, and it’s a theme we cover regularly at The Freeport Society. So, you’ll want to read my friend Bill Bonner’s take on it below!

Thank you for your kind permission to reprint this essay, Bill. As always, if you’d like to read more from Bill, click this special link for Freeport readers, https://www.bonnerprivateresearch.com/freeport. 

To life, liberty, and the pursuit of wealth.

Charles Sizemore.

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Proud to be an American

The case we are making is that major U.S. institutions have been captured and corrupted by the special interests who run them. This is not something bizarre or unusual; it happens… when you let it. 

This was the warning famously given by President Eisenhower when he left office: beware the “military-industrial complex.” After WWII, the military industrial complex flexed its muscles and used its money to gain control of Congress. War is always popular, when you’re on the winning side. So, it was easy to stir up fear and get bigger budgets.

And now, America’s military industrial complex has been compromised. Too much money…and too much power…has left it too fat, too rich… too self-absorbed… too bureaucratic and backward-facing… And probably incapable of winning a real war.

But the military is not the only one.

Tails, You Lose

Recently, we looked at the Federal Reserve Wall Street complex – how it gained control over the nation’s money… and how it uses interest rates and money printing to enrich itself. In effect, it makes hay when the sun shines. Then, when the clouds roll over… it puts the inevitable losses onto the public. Heads, I win. Tails, you lose.

The whole scam came into focus when the Fed let it be known that it will continue to promote inflation. Rather than squeeze it out by holding rates at reasonable levels (the real rate on the Fed’s key loans is only about 1%), it announced that it would make credit cheaper.

Associated Press was on the story:

WASHINGTON (AP) — Federal Reserve officials signaled Wednesday that they still expect to cut their key interest rate three times in 2024, fueling a rally on Wall Street, despite signs that inflation remained elevated at the start of the year.

The only plausible reason for cutting rates anytime soon – with inflation still on the loose, stocks near record highs, and the Fed’s key rate barely positive – is that it benefits the people who control the Fed and the financial system. That is, the big banks and investment firms on Wall Street.

In the case of the banks, the higher rates of the last three years have left them with more than $600 billion (according to Moody’s) in losses on their core Treasury bond holdings.

As for Wall Street, it is not only among the largest holders of stocks and bonds… it is also their leading purveyor. The Street makes its money by selling financial assets, not by buying them.  

Owning stocks is not normally very attractive to the common people. They have no way of knowing which business is a good one… and which is not. They have neither the time nor the expertise to study balance sheets and amortization schedules. In more honest times, they put their money into a bank… earned a respectable interest on it… and let the BSDs in the financial industry take their chances in the stock market.

Fake Dollar, Easy Money

Then, along came the fake dollar (no gold in it)… and along came the Greenspan Put (he promised investors they wouldn’t lose money)… and Bernanke’s big Wall Street bailout of 2009-2022… and the average guy came to believe he could make money by just “being in the market,” say, with a low-cost ETF.  

And then the patsy saw the fabulous success of the stock market, generally – from 950 to 38,000 in 24 years… and the incredible success of the latest tech stocks, with Nvidia Corp. (NVDA) going from $4 to $940 in just 10 years.

Naturally, he wanted in.

And, of course, as long as the Fed was actively promoting the stock market, stocks rose. Even so, the increase was always more than it appeared. In terms of gold, it takes about 19 ounces of gold to buy the leading 30 Dow stocks today… and it took 18 ounces to buy them (the 30 Dow stocks of the period) in 1929. All investors really earned were the dividends… and often, the top stocks don’t pay dividends.

Still, with the Fed pumping up financial assets, everyday was payday on Wall Street… and the rich got much richer.  

David Stockman:

Since 1989, for example, the net worth of the top 0.1% has soared from $1.8 trillion to just under $20 trillion. That’s a gain of $138 million per household. 

By contrast, the aggregate net worth of the bottom 50% or 66 million households has risen from $0.7 trillion to $3.6 trillion. That’s a gain of just $44,000 per household.

Accordingly, the top 0.1% gained 3,100X more net worth each than the bottom half of America’s households. 

And then, just to show how deep in the lobbyists’ pockets they have members of Congress, the House passed – sight unseen – at 3am!… another lollapalooza of spending – $1.2 trillion for this and that.

The Senate rubber stamped it the next day. More than 1,000 pages of boondoggle and payoffs, nobody bothered to read it.  

Politico:

Senate sends $1.2T funding package to Biden, thwarting partial shutdown

A colossal $1.2 trillion spending package is finally off to President Joe Biden’s desk, with Congress concluding a tumultuous government funding cycle and skirting a shutdown after midnight.

There you have it. The stupid party and the evil party working together like dealers and addicts. More money for weapons. More money for Wall Street. Bigger deficits. More debt. Higher stock prices. 

MarketWatch: 

U.S. stocks shot up nearly 30% in 5 months.

Makes us proud.

Regards,

Bill Bonner

P.S. Thanks again, Bill. If you want to read more from Bill, go to https://www.bonnerprivateresearch.com/freeport. Speaking of empire killers, you’ll want to watch my video on the ultimate empire killer in our very own United States. I’ll send the link tomorrow via email. Watch out for it.