Yesterday was budget day in the United States. The Bush Administration revealed itself – once again – to be the biggest spending regime of all time. No government ever spent so much. No government ever increased spending so much. No government ever redistributed so much wealth – from the taxpayers to the defense contractors… from renters to home owners… from the middle classes to the financial classes… and (most importantly) from future generations to the folks living right here and right now.
The Bush budget includes about three quarters of a trillion dollars for defense. But defense has little to do with it. Defense against whom? A disorderly bunch of fanatics with explosives around their waists and box-cutters in their hands? The amount of money in the ‘defense’ budget earmarked for these guys is trivial. And rightly so… the danger they represent is trivial. The defense budget can better be described as hundreds of billions of dollars we don’t have, to buy weapons we don’t need, to fight enemies that don’t exist.
The whole spectacle is breathtaking… and, like all public spectacles… absurd.
Nearly half a trillion in debt will be added over the next two years according to the Bush plan. Americans have neither the will, nor the money to ever repay it. They cannot even keep up with the interest payments. So, now the debt feeds on itself.
For one year, the budget includes 624.6 billion dollars for defense. To help put that in perspective, here’s an interesting tidbit: the defense budget is more than the budgets for the Department of Education, Agriculture, Commerce, Energy, HUD, Interior, EPA, Homeland Security, Justice, State, Transportation, Labor, NASA, Engineers, Judiciary, and VETS. COMBINED. And with 63 billion left over.
And yet… people still buy long-term U.S. government debt yielding less than 5%! Go figure.
The whole thing just keeps getting bigger and bigger. It is not just a single bubble… it is a whole cluster of mega-bubbles… in property, in art, in stocks (especially Chinese stocks)… and a Hyper Bubble in worldwide liquidity!
What is going on? Why doesn’t it pop? We have our ‘Crash Alert‘ flag flying from The Daily Reckoning flagpole. But no one even bothers to look up.
We thought about it last night… pausing only for prayer and alcohol. What we were looking for was an answer to the age-old question: Why are so many people so stupid? When we watch TV or read the news, we find views that would make an imbecile blush with embarrassment… numbers that would make a sober man gasp for air.
What bread do these people eat? What air do they breathe? Why are they allowed out in public?
And yet, when we meet them, we discover that they drive cars… they have jobs… they manage their own checkbooks. How is it possible? We have always wondered.
And we think we have found the answer.
The Inverse Square Law: Useful intelligence decreases by the square of the distance from the facts.
If a person issues too many I.O.U.s, lenders catch on quickly and cut him off. When a bank issues too many notes, word gets around. Depositors get jumpy. Then, they take out their money… and the bank fails. This used to happen all the time before the Federal Reserve System was set up.
Likewise, if a country spent more than it could afford, gradually, if not immediately, people holding the nation’s currency would begin to sweat. Then, they would sell the currency for others, or for gold. Interest rates would rise… and the problem would correct itself – either gracefully or calamitously.
But now with this new imperial money, un-backed by anything but faith, people are so far from the facts, they don’t know what to make of it. Can the United States go broke? If it could, how come it hasn’t? None of us has any idea how many dollars walk the earth… nor how much each one should be worth. The banker in Japan… the hotel owner in Paris… the speculator in Madrid – they are all fools.
But do yourself a favor – look up. Incline your head towards the top of our Daily Reckoning mast. There, you will find our ‘Crash Alert’ flag still flying proudly, and singularly. We may not be right about this today or tomorrow… or even for many months. But we will be right about it eventually… and importantly.