In today’s issue:
- Something wicked this way comes
- Cuts are the only way out of this fiscal mess
- The people won’t vote for austerity without a crisis
In France, the voters turned against Macron’s ruling coalition. In Germany, they turned against the centrist Social Democrats and Christian Democrats in favor of more extreme alternatives.
Anatol Lieven: Europe’s center is not holding
The collapse of the government in France and the ruling coalition in Germany spells continued crises
In America, too, voters selected the ‘insurgent’ Donald Trump over the media-approved Kamala Harris.
Something wicked this way comes?
Executive Summary:
All the world’s major nations — China, Japan, the US, France, Britain and Germany — are facing a debt crisis. Too much spending. Not enough revenue. And now, there’s about $330 trillion of debt worldwide… much of which will never be paid.
Responsible governments try to cut back. But they can’t. The primary beneficiaries — the rich — undermine them. And then, the victims — who have come to depend on handouts — abandon them.
The trend — towards more debt, bigger government, and more inflation — continues until a ‘bad thing’ happens, effectively cutting off the money.
In France, the voters turned away from the center and moved towards the right and left, each one offering more radical solutions.
In Germany, too, the ‘right-wing’ Alternative for Deutschland and the ‘left-wing’ Sahra Wagenknecht Alliance have greatly weakened the more mainstream parties.
And, of course, Donald Trump’s Republican Party is not at all like the old conservative, centrist Republican Party of Robert Taft and Ronald Reagan. It is now a ‘populist’ party combining elements of dollar-store nationalism with old-fashioned sticky-fingered socialism.
The ‘bad thing’ we think these election results foretell is that post-WWII mainstream models — welfare states in Europe/a welfare-warfare state in the US — are running out of juice.
There was something fraudulent about them from the very beginning. In the welfare states, the promise was that by supporting the ruling elites, the voter would get more out of the system than he could by his own honest, cooperative efforts. This seemed to be true as long as populations were growing and technology and trade increased productivity. Richer, younger generations could afford to support their parents in grand style. Pensions, real estate values, medical coverage — all went up. But it was fake. Government was just redistributing wealth, not creating it.
And then, birth rates declined. And the benefits of the Industrial Revolution — which converted heat energy into useful kinetic energy — reached declining marginal utility (meaning… you get a big bump in productivity with your first tractor… not so much with the 10th).
Young people now struggle to match their parents’ wealth, not to surpass it. And though the internet, Facebook, Google and AI promised more wealth, in terms of useful bill-paying GDP, they delivered little. This left voters with a big gap between what they had come to expect from their governments and what they will actually get. Austerity was not what they had bargained for.
The American warfare state, meanwhile, had its own scams. It pretended that the US was in imminent danger from foreign and domestic enemies… and that it could only protect itself by transferring huge amounts of money to the firepower industry. Rather than a modest ‘defense’ budget, it insisted on ‘full spectrum dominance,’ that would allow it to meddle in whatever conflicts, wherever and whenever it wanted.
In addition to the costs of projecting armed force worldwide, the US too has an extensive welfare state at home to support. As in Europe, at current levels of expenditure, it is unsustainable.
In order to avoid financial catastrophe, the feds need to cut about $2 trillion from the annual budget. That is the goal of the new DOGE headed by Musk and Ramaswamy. But to get there, they need to cut back on both the warfare state and the welfare state — on military muscle as well as civilian fat.
It is certainly possible to do so; Milei shows us that. For the warfare state, it would mean only redirecting military spending towards protecting the homeland rather than romping all over the globe. And for the welfare state, the feds could simply subject beneficiaries to means testing, reducing support for people who don’t really need it.
Theoretically, it wouldn’t be difficult to bring the budget into balance and avoid a fiscal disaster. But can it be done without a ‘bad thing’ — war, depression, hyperinflation, revolution or a natural disaster — happening first? Can it be done before the people become desperate?
Regards,
Bill Bonner
Contributing Editor, Fortune & Freedom
PS From Nick Hubble: While the legacy financial system is falling apart slowly, something new and better is emerging to replace it. And you can stake your claim in it today.
Capital at risk.
