"The Rhapsodia de la Pampa"
Trillion dollar deficits, looming war,
appalling politics and the road to Buenos Aires...
by Bill Bonner
Baltimore, Maryland - "A long-held guess here at BPR is that the US would eventually follow Argentina on the road to ruin…with high levels of corruption and inflation. Amid all the noise and to-do of 2023, it was hard to follow the tune. But in the deep background, the tango beat grew stronger.
Stocks hit a high note; wars and massacres continued; US politics degenerated into buffoonery; inflation eased off. Over the course of the last two administrations, 2017-2024, US debt increased from $19.9 trillion to $33.9 trillion – or at the rate of $2 trillion per year.
Last October and November set a new debt record – with a deficit of $383 billion for the first two months of the fiscal year, or $2.3 trillion annualized. No attack on the US. No depression. No emergency…not even a bad hair day…and yet, US politicians spent money as if they were Argentines! What to make of it?
Not a Care in the World: The most remarkable thing about it is that no one thinks it is very remarkable at all. Things that we once considered criminal are now respectable. Sins are now considered virtues. Rank stupidity, incompetence, and corruption are now prerequisites for public office. Stocks are near all-time highs, as if investors had not a care in the world. Federal budgets are no longer considered or approved; no attempt is made to get outflow to line up with income. Instead, in a form of budget improv, spending bills are passed…with hardly any real discussion or dissension. Congress is like a car full of drunks speeding down the highway…arguing over what to listen to on the radio.
Even more remarkable, people still lend money to the US government…fully aware that the Fed will begin to re-inflate the currency (inevitably leading to lower dollar values) this year. And believe it or not, there was a time when people thought mass murder and mass destruction were beneath contempt. The UN solemnly outlawed them both. But today, they are respectable features of US foreign policy.
After living through 2023, we wonder: how can 2024 top that? What goofy, malign, and appalling thing will happen this year? Rather than pretend we can know the future, let’s look at what kind of surprises might be worth preparing for.
Default Dominos: First, a stock market crash would be unwelcome. We went into last year recommending cash, fearing that another shoe was bound to drop. Came the 2nd, 3rd, and 4th largest bank failures in history; still, by the end of the year, the shelves were full of loafers and hobnailed boots that had yet to fall. A decent bet: some will hit the ground this year.
The Daily Mail: "US office buildings face $117BN debt time bomb: Mortgages due this year threaten to sink US economy as thousands of workplaces remain empty Billions of dollars in loans on office buildings that are about to come due could play havoc with the US economy after interest rates soared. About $117 billion worth is expected to be due this year and needs to be repaid or refinanced, according to the Mortgage Bankers Association. A big chunk of it is at risk of defaulting and costing banks and developers huge sums, sending some into insolvency.
Yahoo Finance adds: "More big firms are likely to go bust next year amid the “double whammy” of high borrowing costs and pressure on consumer budgets, according to insolvency experts. Administrators and restructuring specialists also warned that high-growth companies such as tech firms could be among those facing financial turbulence. It comes after another year of tough economic conditions resulted in increased business failures during the year.
A second nasty surprise would be this: higher interest rates. In addition to the current deficits – now running about $2 trillion per year – the federal government has trillions more that now need to be refinanced – at much higher interest rates. Large, institutional bond buyers are going to want protection from the obvious crises ahead. Defaults, inflation…or simply higher rates themselves – all are good reasons to demand higher yields.
Strike Three: A third unpleasant surprise: recession. The mainstream media is telling investors that there will be no hard landing, no soft landing…nor any landing at all. Prices will stay aloft…presumably, forever. But the combination of higher interest rates, business failures, and consumers running out of money is likely to finally bring the recession we’ve been waiting for.
And one more thing to worry about – a larger, more dangerous war. War begets war. Sending fighting men into a war zone is dangerous….and pretty soon you might have more fight than you wanted. What, where, when? We don’t know. But supply brings forth demand. The US firepower industry is so large, so rich, and so politically powerful, there is no stopping it. And after seeing so much devastation, wrought by US bombs and missiles, the rest of the world is surely preparing a riposte.
The prominent risks, dear reader, whether in the stock market, the bond market, the economy, or in geopolitics…are on the downside. Any of them, alone or together, would result in a financial crisis, with reduced tax revenues to the government and increased expenses. Deficits would grow larger. Interest rates would go up. Companies would fail. Stocks would crash. And the clamor – probably a panic, to cut interest rates and to begin buying US debt with fake money – would be irresistible.
Inflate or Die. The refrain remains the same. In the coming months, we’ll probably see more low notes than high ones…more dying than inflating. But that will be only a prelude…a warm-up, while the orchestra tunes up…gets the rhythm of a tango…and begins its Rhapsodia de la Pampa."
o
Rhapsodia de la Pampa? No.
Rhapsodia de America!
Full screen recommended.
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