"A Head-On Collision"
By Bill Bonner
SAN MARTIN, ARGENTINA – "Last week ended with a game of chicken. A new “CARES” boondoggle is in the works. One side wants to keep the price tag below $2 trillion. The other is aiming for more than that. Neither side wants to be blamed for not coming through with the loot. But neither wants to hand the other a political victory.
On the one hand, the Democrats would like to stall… and see the stock market and the economy go up in smoke before the election. But they don’t want to be caught with a can of gasoline and a pack of matches. The Republicans, on the other hand, are desperate to keep the myth of a recovery alive… but can’t be seen giving in to Nancy Pelosi and Chuck Schumer. And no matter who chickens out first, a head-on collision is inevitable.
More Damage: Last week, we were exploring the sellout by the geriatric elite. Now comfortable in their sixties and seventies… their fortunes, their careers, their reputations, their marriages, and their families – all made… and in the shade. But they all now depend on fake money and fake interest rates. Their salaries and pensions… their portfolios… their pet programs… their medical expenses – the money has to come from somewhere.
This year, taxes only brought the U.S. government half the money it needed. What to do for the rest? It has to be printed… counterfeited… faked… conjured up with Black Magic and Voodoo Economics. But the more fake money the feds put out… the more damage it does. Already, the fake-money system has cut GDP growth rates in half since the 1970s – despite more engineers, more patents, more new technology, and more money than ever before. It has added debt… cut output… and increased costs throughout the system.
And while the old, educated, and rich have done well – thanks to the way the system skews wealth to the top – millions of lives have already been dented… bent… and banged up… by the disappearance of high-wage manufacturing jobs… by the decay of the old, goods-producing cities… by the shift of $30 trillion to Wall Street and the rich… by depressing interest rates and cheating savers… by the COVID-19 Shutdown… and the gutting of the whole hospitality and leisure sector…
Biggest Crash: But on the horizon is the biggest crash of all. Like a freight train loaded with debt… the U.S. is about to get slammed by $237 trillion worth of “unfunded liabilities.” The boomer elite did not merely look out for itself in the past and the present… It promised itself pension and medical benefits, literally, from now until Kingdom Come.
There are 76 million boomers. None is eager to get to the grave. But every one of them hopes to get there before his Social Security/Obamacare benefits run out. Many believe it’s a sure thing… They think there is a “trust fund” with money tucked away to pay for their care. But there is no “trust fund,” no savings, no pot of money anywhere. Here’s what former Federal Reserve chairman Alan Greenspan had to say about it: "The term Social Security “Trust Fund” is nonsense… It is a mandatory outlay and there is a 0% chance that outlay will not get made. When the fund runs out, there is no chance anything will change. The U.S. has committed to pensions it cannot pay…"
Greenspan is right. There is another head-on collision coming, much more serious than the Democrat-Republican game of chicken. There is zero chance that the payments won’t be made. But there is also zero chance that the funds will be there to make them.
Unpayable Liabilities: Immovable object meets irresistible force. The current estimate of unfunded liabilities – made by professor Laurence Kotlikoff of Boston University – is around $210 trillion. Add that to the $27 trillion official “national debt” and you get $237 trillion.
Who’s going to pay that? Well… no one… and everyone. Politically, it must be paid… or the party in power will be removed by boomer voters. But, financially, it can’t be paid, not without some hocus pocus from the Federal Reserve (which will make the payments much less valuable). And no, the system cannot be “reformed” and “saved.” Politically, entitlements are immovable. Mathematically, they are unpayable.
Result: a head-on collision. U.S. entitlements are “a tragedy we see coming,” says JPMorgan Chase CEO Jamie Dimon. So much of the economy now depends on money from the government that if the amounts forthcoming were reduced, consumer spending would go down… and the U.S. economy would crash.
Bigger Bailout: That is also why another CARES Act is becoming more urgent. The big GDP bounce we saw in the third quarter, which commentators took as evidence of a recovery, was a fraud. It was almost completely paid for with the Fed’s phony money. And now, that money is petering out. And so is the recovery. What else can the geezers do, but print more of it? And what will happen as they print more and more money, trying to keep the train on the rails?
There are only a few more weeks before the election. Our guess is that Ol’ Casey Jones – now recuperating in Walter Reed Hospital, and soon back on the job in the White House – and the whole team of Republican lawmakers, will be so desperate to announce another big bailout… and another beautiful stock market boom… that they will welcome a much bigger bailout than they first proposed. That is, they will chicken out… avoid a crash now… and set up a bigger one later. We’ll see."
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