Wow! Stocks flew up yesterday.
The Dow was up more than 350 points — or more than 2%.
What’s behind it?
Is it the beginning of a real comeback?
Is the market telling us that Janet Yellen was right after all?
Maybe the economy really is stronger than we think. At the start of the year, it looked as though the stock market was signalling trouble ahead.
Over the last 50 years, every time US stocks have gone down by 15% or more, there was about a 60% chance of recession.
We thought we saw recession coming anyway; the stock market seemed to confirm it.
But who knows?
We’ll wait to find out.
The Chosen People
In the meantime, we take a look at the rise of the Deep State…the ‘shadow government’ that really calls the shots.
After China’s leader Deng Xiaoping announced that to get rich was ‘glorious’…the Berlin Wall fell…and political scientist Francis Fukuyama proclaimed the ‘end of history’, Americans naively believed that the world was evolving in the same direction — toward us.
We were the Chosen People…the exceptional country…the nation the rest of the world looked up to, aspired to be, and couldn’t live without.
For example, we had little doubt that it was just a matter of time before China — in the relentless grip of globalized capitalism…and infested with graduates from Wharton and Harvard Business School — would surely become more like the US.
Soon, the Chinese would be watching inane TV shows, too. There would be eight-lane highways connecting major cities…and billboards advertising ambulance-chasing shyster lawyers.
There would be McMansions…bought with 110% loan-to-value mortgages…and Chicken McNuggets on every street corner.
Auto loans, student loans, and payday loans wouldn’t be far behind. And corporate chiefs would brazenly manipulate the market to give themselves undeserved bonuses…using unreal money borrowed at unreal rates from unscrupulous bankers.
The Chinese would certainly soon develop a confident Fourth Estate too — a free press that would dig the dirt on the politicians and bureaucrats…and then quietly sweep it back under the carpet.
The flame under the pot of liberty was burning in China as in America. It would be only a matter of time before it bubbled up into elections…with fatuous candidates, pledging more and more of other peoples’ money…until the voters were completely cooked.
But what a shock! Instead of the Chinese becoming more like us, we’re becoming more like them.
And here, we focus on the one critical aspect: they have the Communist Party running the show. We have the Deep State in command.
People always want to get wealth and power in the easiest possible way.
The gunsmoke of the American and French Revolutions obscured this brutal reality. They showed that you really can fool most of the people most of the time.
Just convince the plain people that they can play a role in government. Not only will they stand in line at polling stations before dawn…as they did in Virginia yesterday during the Super Tuesday presidential primaries.
They’ll support wars and pay more tax — believing it is for their own good!
Germany’s first chancellor, Otto von Bismarck, explained how to keep the little people in line: promise to take care of them from cradle to grave.
You tax them…then give back some of their tax money in the form of social welfare programs.
A New Power
Until the 19th century, the main source of wealth was land.
In Europe, it was owned by a few rich ‘rentiers’ and farmed by many poor farmers. But after the farmers got the vote, the big landowners found themselves at a political disadvantage.
They didn’t have enough votes to protect their wealth at the ballot box. And they didn’t have enough wealth to protect it the back corridors and smoke-filled rooms behind them.
A new power and new wealth was rising in cities and factories. ‘Unearned wealth’ or unfair ‘rents’ couldn’t keep up. It got a bad reputation. The new thing was ‘free enterprise’. And it was making society rich.
This was a different kind of wealth. It came from work, skill, and investment. You had to earn it.
The new rich were adding new wealth. They weren’t just taking wealth away from the labouring masses. The old rich — rattling around in their big, unheated piles, with holes in their sweaters and zeros in their bank accounts — added nothing.
The landowners lost power. Gradually, the big estates — many of which could be traced to larcenies and conquests from the medieval era — were broken up and taxed away.
And for a while — when it was fresh and new — democracy seemed to work. The ‘dead hand’ of the past fell away. The old rentiers were left behind.
But government was still in business. Smart people soon discovered how to use it…
…and a new class of rentier arose…
More to come.
For The Daily Reckoning, Australia
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