Why does it feel like everything is broken? 

The Federal Reserve can’t seem to get inflation under control. 

Congress can’t get spending under control. 

And if the Fed or Congress actually did get inflation and spending under control – by undoing two decades of excessively loose monetary policy and balancing the budget for the first time since the Clinton administration – the economy would go into convulsions. 

Our fearless leaders have been mismanaging things for so long that we’ve become addicted to bad policy… and quitting it cold turkey would be about as pleasant as a heroin addict detoxing. 

You know our views at The Freeport Society: Chronic budget deficits and excessive government debts aren’t just bad policy… they’re morally wrong. 

When we hear high-minded calls for “rights of the unborn,” we would take that to include the right to be born without trillions of dollars of debt racked up by the parents and grandparents. 

Yet leaving the country in sound fiscal health for the next generation doesn’t look to be a priority for either Joe Biden or Donald Trump. No… these two have done more to create the mess we’re in than any other two people alive today. 

Our Freeport friend Bill Bonner of Bonner Private Research has a good take on this… 

It turns out, Bill writes, that the era of small government that was celebrated in the 1980s and ’90s was mostly a myth… a catchy campaign slogan designed to get votes and not much more. And, he says, the two geriatric clowns running for president this year offer only slightly different doses of the same bad-policy heroin we’ve become addicted to. 

Read on, and enjoy!

And, Bill, thank you for your kind permission to share this essay.

To life, liberty, and the pursuit of wealth,

Charles Sizemore

P.S. If you like what you read below and want to read more from Bill, visit here.

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What Went Wrong With Capitalism

By Bill Bonner, Bonner Private Research

After driving up above 40,000 on May 17, the Dow closed at 38,798 on Friday. 

Where will it go from here? 

We don’t know. No one does. 

Our bet is that the Primary Trend has reversed… from bull to bear… greed to fear… up to down.

Assets, in other words, are likely to be cheaper — in real terms — than they are now.

And when major turning points are hit… the market usually does not revisit its highs (or lows) until the seesaw has completed its stroke in the opposite direction. From major high… to major low — a round trip that can take decades. The Dow Jones Industrial Average is not likely to hit a genuine new high — inflation adjusted — until it bounces off a genuine new low. 

Currently, adjusting the Dow for inflation would put a new high around 44,000 or 45,000.  

In gold terms, the most recent high, recorded in the fall of 2021, had the Dow worth 20 ounces of gold. Returning to that high would mean a Dow of 46,000 today. Anything is possible. But we don’t expect it. Not anytime soon. 

Mr. Market can do whatever he wants. Still, it’s best for us to think that he’s following the pattern of the past. Otherwise, we’re totally lost…  

And even if we turn out to be wrong, it’s still probably best to stick with the program.  You might miss a little upside, but you will more likely dodge a lot of downside…. including the Big Loss that we want to avoid. 

Soft Slush

Meanwhile… we turn to the Financial Times (FT), the “pink paper.” 

It’s always fun to read, reliably wrong on just about everything. 

Its columnists are often pompous or silly. Their opinions are sometimes pathetically shallow. 

And the paper’s point of view is anchored in “dirigisme,” the soft slush of central planning, which Friedrich Hayek showed, convincingly, doesn’t work. 

But the FT is the newspaper you find in government offices, think tanks, embassies, and corporate headquarters all over the planet. Its chief economic commentator, Martin Wolf, is widely regarded as one of the world’s most important thinkers. Lawrence Summers called him “the world’s preeminent financial journalist.” Even Paul Krugman had nice things to say about him.  

Which makes us wonder about how much thinking actually goes on in the world.  

What we expect from the FT is educated, smart drivel. But, this past weekend brought a shock. 

An essay in the paper, written by Ruchir Sharma of Rockefeller International, was amazingly sharp and clear. (His analysis of what is going on in the U.S. economy agrees with our own.) 

Sharma’s blade slices so deeply into FT positions (going back decades) that we wondered if Mr. Wolf had actually read it before putting it in the paper. Maybe he’s on vacation? 

But there it was, improbably, on the cover of the STYLE section… with a misleading title. Still, it is amazing they ran it at all.  

Too Much Government

“What Went Wrong With Capitalism” is the headline. FT regular readers must have perked up… like hounds sniffing a rabbit’s scent. 

They expected the usual claptrap about how the rich got richer and the climate got hotter thanks to the unrelenting greed of capitalists. This critique would inevitably be followed by earnest recommendations that the government should do this… or do that… to correct the problems.  

How disappointed they must have been. 

Sharma explains that the real problem is that governments have done far too much already. Sharma: 

The era of small government [which allegedly took place after the Reagan Revolution] never happened. Government has been expanding for nearly a century in virtually all measurable respects, as a spender, borrower, and regulator. 

And remember how “deregulation” followed the Reagan administration and was to blame for the financial crisis of 2008? 

Only, deregulation never happened either. Sharma: 

During the past three decades, the bureaucracy eliminated a total of just 20 rules, while adding new ones at an almost metronomic pace of about 3,000 a year, under both parties.

As government expanded, it provided “socialism” for the rich, poor, and everyone in between. Sharma:  

This is a campaign to inoculate an entire society against economic downturns. Although still widely criticized as the land of the Reaganite capital, America is displacing Europe as the society least tolerant of financial distress for anyone, up to and including the super-rich.

Growth… recession… war… Republicans… Democrats — through good times and bad, the fat years and the lean ones — the feds kept solving more and more problems. 

Poverty? 

The threat of communism? 

Terrorism? 

Wrong pronouns? 

Germs? 

The China trade? 

Interest rates too high? 

Jobs? 

Chips?  

Nearly every day for the last century, politicians and bureaucrats have been at work — often into the late hours of the night — solving the many problems that afflict our species. It’s amazing that there are any problems left. 

So diligent and determined were they to get the job done that they consistently spent more than their tax revenues. Between 1980 and the end of 2019, deficits averaged 4% of GDP in recessions and 3% in recoveries. 

So, you see, the problem is not a failure of capitalism at all, but the inevitable overreaching of government and the elites who control it. 

And now, they’ve given us a new problem to solve — a $35 trillion debt… and an almost guaranteed debt crisis, dead ahead.  

Stay tuned for more on what actually went wrong with capitalism,  

Regards, 

Bill Bonner

Bonner Private Research