"A Disastrous Rout"
America's declining empire, plus Trumps political buoyancy,
more unwinnable wars and avoiding the Fed's shade...
by Bill Bonner
Baltimore, Maryland - "What do we know today that we didn’t know last year at this time? In the markets, 2023 reminded us that there are always surprises. Who would have thought that stocks would mount one of the biggest bull markets ever…while at the same time interest rates were rising more than ever? And who could have foreseen such a big increase in the cost of borrowing without a recession? A recession shoulda happened. Didn’t. But there’s always 2024!
It was also a surprise to us that Donald Trump remained so politically buoyant. It was obvious that the mainstream elite were out to get him. It was also obvious that he was going to be mired in legal battles to keep himself out of jail. What wasn’t so obvious was that he was so useful to so many different groups.
A large part of the electorate see him as their champion…someone who will disrupt a corrupt system. Many Democrats thought he was the only candidate Joe Biden could defeat. And the more cynical elements of the elite saw him as the perfect ‘reform’ candidate – one who would bluff and bluster for the folks in the cheap seats…but leave the ruling class in its skyboxes, unmolested.
Megapolitics: These things were surprises. But none of them change our fundamental outlook. We try to look beneath the market moves and political headlines. What we are looking for is the deep, long-term trends that determine the course of history. ‘Megapolitics’ we call it.
In the markets, we believe that the Primary Trend has changed. Yes, stock prices are near all-time highs, but not when adjusted for inflation. And while there are a lot of flukey and surprising things going on, the Primary Trend reflects a more fundamental movement. From bull to bear…greed to fear…optimism to despair – the Bubble Epoch is over. Or so we believe. Yes, we will still have bubbles…but we can no longer depend on the credit cycle or the Fed to support them.
There are patterns to everything. When you listen to a piece of music, for example, you can anticipate where it is going even though you’ve never heard it before. Stories have beginnings and endings…heroes and villains…moral failings and come-uppances. There are two basic templates for human beings – male and female – and every single one of them follows the same basic sequence…from birth to death, from dust to dust and ashes to ashes. There are no exceptions.
Interest rates follow patterns too. Yields hit an all-time low in July 2020. Since then, yields (and interest rates) are substantially higher, though nowhere near as high as they will probably go, eventually.
Throwing Shade: Putting this in perspective, the interest rate cycle – from major high to major low, and back again – began its last roundtrip about the time we were born. It took rates higher for the first 32 years…and down for the next 40. Why it takes so long, we don’t know…all we know for sure is that interest rates cast a long shadow…and you don’t want to get stuck in the shade.
You may think that this up-cycle in interest rates will end soon, as the Fed begins to cut rates later this year. But down deep, beyond the talking heads and headlines, something has changed. The Fed may cut rates, but the inflation cat is now out of the bag. Additions to the money supply now lead to higher consumer prices, and everyone knows it. And when the Fed resumes its rate-cutting, money-printing fandango, we’ll see inflation begin to rise too. So, it is unlikely that real rates, adjusted for inflation, will see anything like the July 2020 lows again in our lifetimes.
Another ‘megapolitical’ development we are watching is the decline of the US empire. It doesn’t matter what you think or what you want, empires have life cycles too. And it appears to us that the US began the downhill side around 1999. Since then, its wars have been disasters, its GDP growth has been almost cut in half…its politics are a-shamble…and its debt has grown by $28 trillion.
Expensive and Unwinnable: Probably the most remarkable part of this list of failures is the part least often remarked upon – the debt. Who would have imagined that the US – the world’s richest and most powerful nation – couldn’t afford to pay its own way…and had to saddle future generations with trillions of debt?
The decline of an empire can be handled gracefully…or shamefully. Either the empire pulls back willingly. Or it is pushed back. Either it executes a rare and orderly retreat. Or it suffers a disastrous rout. The graceful way to manage it is to cut expenses sharply, balance the budget, abolish the Fed, and bring the troops home, lest they get us involved in another expensive and unwinnable war. Empires, however, are like drug addicts. Yes, that is part of the pattern too. They are corrupt, incompetent, and desperate for their next fix. More to come…"
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