Not much was revealed in the markets yesterday. Everything went up. The Dow rose 38 points. The price of oil rose above $100. And gold rose too - up $3.
More evidence came in, showing that housing is weak. But no more evidence was needed.
Want to make some easy money? Buy a house! Get a DEEP discount on a distressed sale. Then mortgage the house for 30 years at a fixed rate. As big a mortgage as you can get.
The house will probably become even cheaper...but some time between today and 2041 your mortgage is sure to turn into a gift. The feds are trying to undermine the value of the dollar. Sooner or later, they'll succeed...even beyond their wildest hopes.
Yesterday, the politicians debated proposals to stave off national bankruptcy - see below. All that was revealed was more evidence America is governed by fools and knaves; there too, no more evidence was needed.
But we have a proposal. A brave, bold proposal that will solve America's dollar crisis and protect the integrity of America's public finances in a single stroke.
To put it in perspective. We begin with a news item.
Robert Gates, America's top military man, says the US will "lose influence" if budget cuts are made.
We suspect Mr. Gates is 'talking his book.' That is, he's got a book the size of War & Peace with the names of people and companies that benefit from Pentagon spending. Cutting back would certainly be a bad thing from their perspective.
But would it be bad from the taxpayers' point of view?
We will take the question in two parts. First, we wonder what, specifically, does America's 'influence' do for it? We spend billions on garrisons in various remote and inconsequential parts of the world. We send troops to fight various 'wars' for no particular reason other than they are available to us. Presumably, we 'influence' people in direct proportion that we are able to give them money or spend money protecting them from rival groups.
But what good is this 'influence?' No explanation has ever been offered.
America's empire has always been a catastrophe from a financial point of view. The business of empire is essentially a protection racket. The empire establishes its pax...and demands tribute in return. It makes war often...to extend its market share and loot the losers.
The US has never got the hang of it. It tortures a few people. It murders one or two. It invades. It occupies. It spends. But where is the payoff?
Some analysts claim that the imperial objective has always been the same - to keep the oil flowing at low prices. America's civilization, such as it is, depends on it. But wait. Japan, Germany, and every other country on earth gets to buy oil too - on exactly the same terms. The US provides protection. But it gets no advantage from it.
Influence, schminfluence. This is a bad business model. The sooner the US abandons it, the better.
Now to the other part. Not only is 'influence' worthless...it can be maintained only so long as the US doesn't go broke. That was bin Laden's insight; he realized that he could reduce America's influence by suckering it into spending money it didn't have on a war it couldn't win. He was right. If the US continues spending at the present rate, it will be soon out of business.
You can do the math yourself. Add a few more $1.5 trillion deficits to the national debt. In 5 years you add debt equal to 50% of GDP. Add that to the existing debt and round off at $20 trillion. Now figure an interest rate of 5%. Presto! You've wiped out two thirds of tax receipts on interest alone.
Even Members of Congress can see this train wreck coming. They're talking about throwing some switches to move some of this debt to another track. Here's the latest from The Wall Street Journal:
WASHINGTON - White House and congressional officials said Tuesday that they were moving closer to a budget deal that would make a "down payment" of more than $1 trillion in cuts to federal deficits over the next decade.
But Vice President Joe Biden said he told Republicans that they would have to back down from their position that the deal avoid tax increases.
"I made it clear today...revenues have to be in the deal," Mr. Biden said after a Capitol meeting with congressional leaders trying to negotiate a deficit-reduction agreement. Members of both parties say such a deal is needed to win support for an increase in the federal- debt ceiling.
House Majority Leader Eric Cantor (R., Va.), a member of the bipartisan group, agreed that more than $1 trillion in cuts were within reach, but he said he remained at odds with the White House on taxes.
"This House will not support tax hikes," Mr. Cantor told reporters after the meeting.
Hey, how do you like that? Talk. Talk. Talk. The feds claim to be getting serious about cutting spending, right?
But one trillion over 10 years? How serious is that? When you are running trillion-dollar plus deficits EVERY YEAR? If deficits were to continue at the rate of the last three years, this proposal would mean additional debt of only $14 trillion rather than $15 trillion.
Serious? Not at all.
And the most likely way the feds will finance these huge deficits will be with some version of "QE" - that is, by printing money. Which is why a 30-year, fixed-rate mortgage may be the best investment you can make.
And back to our proposal...
Switch to the euro! The US should abandon the dollar and take up the euro as its currency.
Sounds crazy? Un-American? But think of the advantages.
First, the euro is more colorful. It's more fun to look at and use.
Second, the euro is worth more than the dollar; you don't have to carry around so much currency.
Third, when you travel to Europe, you won't have to convert your money.
Fourth, Europe is the world's largest economic unit. Having a currency in common with it will make it easier for the US to trade.
Fifth, the Fed doesn't control the value of the euro. Instead, it is controlled by European bankers who, generally, are made of sterner stuff than Bernanke et al.
Sixth, European bankers will not readily print euros just to help the US continue its program of reckless spending.
Seventh, unable to fiddle its own currency, and inflate away its debts, the US will have to cut spending.
Eighth, the whiners, chiselers and something-for-nothing crowd in the US can moan all they want; Jean Claude Trichet won't give a damn.
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- China Will Rule the Business World While America Finds Itself Heavily in Debt
- The American Empire Depended on Trade…and the Dollar
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- America’s Decline as a Great Empire
- The US ‘Fiscal Cliff’: Three Feet to the Bottom
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.