We will spend “whatever it takes,” said George W. Bush of the New Orleans dry-out campaign. But where would "whatever it takes" come from? The federal deficit hit a record of $412 billion last year. Republicans were delighted to report that the deficit was to fall this year to $331 billion, but along comes a rainy day and the nation is now spending another $2 billion per day it doesn’t have to help clean up the mess.
It is an ill wind that blows no one good. There is no doubt that the storm was bad for the citizens of the Big Easy and American households generally; as well as the federal budget, the U.S. dollar and the American economy. But it is good for the empire. Now we have another "front" at home, and another reason to spend money.
Fish gotta swim… Birds gotta fly…
If you can figure out the nature of the thing itself, you can figure out what it will do.
Financial bubbles, and teenaged drunk driving are self-correcting. They go on for a while. And then they run into a tree…so do empires.
What we think we’re watching — and here we refer to the very big picture — is the natural correction of the American empire. Nature abhors a vacuum, but she detests a monopoly. Only one empire was still standing after the collapse of the Soviet Union. The U.S. pax dollarium filled the vacuum created by the end of the Cold War with a monopoly: The world’s only super-power, spending more on its military than all the rest of the world combined.
As empires expand, the costs of administration and policing expand, too. Soon, there are troops and bureaucrats strung out like Christmas lights. Even healthy empires eventually have trouble paying the electric bill. But the American empire has the distinction of being the most incompetent empire that ever existed. It conquers, but it cannot bring itself to collect tribute from its vassal states. Instead, it spends money in a vain effort to turn them into images of itself — capitalistic democracies.
The United States ran out of money a long time ago. Its citizens took up the ‘white man’s burden’ from the British, but never saw the need for self-sacrifice to carry it. They save no money. While the Chinese save up to 40% of GDP, savings rates in the homeland are near 1%. Having no ready money of its own — America’s imperial economy has come to depend on the kindness of strangers in strange places, who are willing to lend it money. Curiously, the imperialists borrow from China, a communist country, to pay for their wars to make the world safe for democracy.
What Americans need is a recession; it would cool their desire for spending and debt. But what the imperial economy needs is another reason to spend more, and go further into debt. A new campaign! A new war! More bread…more circuses!
• The imperial government needs to spend more, because other sectors of the economy either cannot or will not. Businesses are not investing. They are not hiring. They are not expanding. China builds 20,000 new manufacturing facilities every year; almost none are built in the United States.
Consumers want to spend more, but they can’t. They don’t have any money. The interest on America’s $36 trillion worth of private and public debt must come to about $1.8 trillion per year. After making mortgage and tax payments, and filling up the SUV, American households have very little left over. That leaves only the government. Yes, the Feds already spend about $1 billion per day that they don’t have. But the foreigners are still ready to lend on the full faith and credit of the world’s only true empire. Only the government can expand spending. Only the government can push the imperial economy forward…and the empire itself closer to the brink.
• Ooh la la… the price of gasoline has risen to over $7 per gallon in parts of England and the continent. Protests are mounting. Lines are said to be forming at stations.
Usually, an ounce of gold buys about 15 barrels of oil. But with the run-up in oil prices, it now takes two ounces of gold to buy 15 barrels. Gold hit a new high for this cycle; December contracts traded for $463.30 on Friday. Why is gold lagging oil? Because inflation is not the problem…not yet, anyway.
• Used cars are a bargain, says the Chicago Tribune. The automakers are so keen to get rid of new models; the used ones they turn in are plentiful and cheap.
Likewise, it has become so easy to buy a house that rental units are relatively inexpensive. Our advice: get a used car, rent a house, and buy gold.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.
