CPA Gone Mad Issue 9: January 30, 2017
“Fake Money” Has Created the Wealth and Stock Market Rise in the US
I’ve been writing about how government debt is too high, cannot continue, and created the asset bubbles that exist today. But do you know the US is the only country that can print money with no consequences?
The wealth we’ve experienced during my lifetime and the stock market rise (with the Dow Jones Industrial Average just exceeding 20,000) is due to the US dollar being the world’s reserve currency.
Being the world’s reserve currency basically means that all other countries must convert their currency to US dollars before exchanging in trade with one another. This creates almost unlimited demand for US dollars, giving the US an advantage that no other country has. We are the only country that can continually print money in order to create wealth.
Wealth should be created by increased production in the economy. Not by a country’s ability to print money. If the US were to ever lose its status of having the US dollar as the world’s reserve currency this would have extreme consequences to mainstream America. Inflation would soar making us all much poorer because the money we own was not created by real economic production.
This week I’m trying something different. I didn’t see anything exciting to write about in the mainstream news so I’m sharing two great articles from Bill Bonner’s Diary, which I read daily. They focus on this “fake” money concern and how government intervention is win-lose (they win, we lose).
I also encourage you to read today’s issue of Daily Wealth. It discusses why the stock market could march much, much higher before crashing. Remember, the difference between what is shared below from Bill Bonner’s Diary and written in Daily Wealth is only timing. Steve Sjuggerud believes the market could soar in the short-term and Bill Bonner believes it’s going to crash in the near-term.
We don’t know the timing of either. We can only understand why both are likely to occur.
That’s why I’m invested in stocks I plan to hold for the long-term, protected for a crash, and holding cash to buy the deals that become available after a crash and am ignoring the timing noise in between.
Please let me know your thoughts on these articles and if you enjoy hearing someone else’s perspective at feedback@coast2coastfinancial.com.
To your health, wealth, and personal freedom.
Chad A. Walker, CPA, MBA
Stocks Atop a Greased Pole
JANUARY 26, 2017 BILL BONNER, CHAIRMAN, BONNER & PARTNERS
http://bonnerandpartners.com/stocks-atop-a-greased-pole/
MIAMI – How about that?
The Dow punched through the 20,000 mark yesterday.
It could go much higher. Or lower. We’re not sure which – maybe both. But our guess is that it won’t stay where it is for long.
Too uncomfortable. Like sitting on top of a greased pole.
Besides, the wind is picking up.
Boom or Bust?
“I think there will be a… boom for a while,” says Yale’s Robert Shiller.
U.S. stock prices look high, he admits, “but they are not yet super high. In 2000, the price-earnings ratio [for the S&P 500, which looks at the average of the past 10 years of earnings relative to share prices] was over 45, and we may see a repeat of that.”
Today, the ratio is about 25. Over the last 130 years, it has been higher only three times – in 1929, 1999, and 2007 – all of which preceded major stock market crashes.
Remember, too, that investors still have the Fed working for them.
Its projected short-term interest rate hikes are trivial – just one-quarter of a percentage point a quarter.
The Fed dares not raise rates faster, lest it appear to be trying to undermine the new leader of all the Americans (whose name we will not even mention out of fear of inflaming the already hot passions that run through our dear readership).
The Wall Street Journal reports that a survey of central bankers showed 80% of them are planning to buy more stocks.
Equities may be overpriced to you. But if you could print all the money you wanted, the price would be irrelevant.
Sobering Tale
On the other hand…
“Budget Plans Set Stage for GOP Battle,” reads a headline in yesterday’s Journal.
Republicans may control Congress, but who has control over Republicans?
We’re going to find out. If that person whose name we can’t mention can bully, bribe, and browbeat them into lining up behind him, it will be a major achievement.
Quick action on tax cuts and spending increases should keep the animals’ spirits high.
As Shiller points out, there’s still room at the top, but the pole is slippery. And a lot could go wrong.
If Congress and the White House get caught up in a budget brawl, for example… and promised tax cuts and infrastructure spending fail to materialize… stocks could crash.
“Once things go wrong, I fear that things could turn very bad for the markets,” Shiller continued, talking to The Telegraph newspaper in London.
“What happened after 1929 is a sobering tale. American attitudes changed abruptly.”
Real Trade Problem
We’ve been so fascinated by the [name omitted] phenomenon that we’ve hardly thought about the stock market.
So this is probably a good time to go back to the basics.
No one can tell you what direction stocks will take, only what direction they should take.
The value of America’s businesses should rise or fall with its real economy.
If that person we can’t talk about could make America great again – by returning economic growth rates to what they were in the 1950s and 1960s, when the economy really was great – stocks’ values should rise. (Unless, of course, they were overpriced to begin with.)
“[You Know Who’s] Real Trade Problem Is Money,” reads another Wall Street Journal headline. We were startled: It is the first time we’ve seen such an admission in the mainstream press.
It’s fake money that causes our trade imbalances, not the Chinese or the Mexicans or bad trade deals or the lack of trade barriers.
The U.S. can print all the money it likes to pay for its imports. Never does it have to settle up in gold.
And we’re pleased to see John D. Mueller, from the Ethics and Public Policy Center, finally say so:
Mr. [the fellow to whom Melania, alas, is wed]’s economic and trade policies will fail unless he finds a solution to the dilemma – the inherent incompatibility, in a reserve-currency country, of domestic policy with the international monetary order.
We don’t know what Mr. Mueller is talking about, either. But we think he agrees with us. He continues:
A gold… standard prevents the financing of budget deficits through the monetary system.
That’s the point: Real money (gold) represents real resources, which are always limited.
Squeezing the Turnips
Real money imposes a limit on what the government and its cronies can get away with – including trade deficits, claptrap wars, zombie programs, crony deals, and Deep State sinecures.
Even Mr. “T” (rhymes with chump) is no alchemist. So, under a gold-standard system, he would be limited by how much money is available to him.
He could only spend what he could squeeze out of his population of turnips. And if he put the squeeze on too hard – by upping taxes – they might revolt.
That problem was solved, finally, in 1971, when President Nixon ended direct convertibility of dollars to gold.
Since then, fake money – unbacked by gold – has run wild.
The insiders have privileged access to it. The feds and Wall Street borrow it at rates less than half of what you would pay on your mortgage.
They get richer and richer… and the turnips don’t know what happened to them.
But let’s not get lost in detail. What makes an economy great?
We’ve developed a simple way to analyze it. Then you can judge for yourself whether you think a certain Barnum-like fellow from Queens… and his “America First” policies… will do the trick.
More tomorrow… without fail. With malice toward none. And charity for all.
Regards,
Bill
How to Make America Great Again
JANUARY 27, 2017 BILL BONNER, CHAIRMAN, BONNER & PARTNERS
http://bonnerandpartners.com/how-to-make-america-great-again/
MIAMI – How do we know if new programs will make the economy better… or worse?
Here’s a simple formula:
W = rv (w-w – w-l)
That is, wealth is equal to the real value of win-win exchanges minus the loss from win-lose exchanges.
Yes, dear reader, it’s as simple as that. Like a whittler working on a piece of wood, we’ve shaved so much off, there is nothing left of it… except the essential heartwood.
And now we can use it to see how Trump’s changes will affect the economy.
We’re down here in the southern tip of Florida showing a group of eager colleagues from Brazil how we do business.
“I’ve been reading your Diary,” said one. “But I’ve noticed you seem to make a lot of your readers mad.
“Is that really a good idea? Aren’t you driving away potential customers?”
“Uh… who knows?” we replied, taking the high road. “The Diary is free. But readers pay in something more important than money: time. We try to make it worth their time by looking at what might go wrong.”
Unlimited Funding
What could go wrong?
Our bubbly stew of observations over the last few weeks has cooled and congealed into an extended hypothesis:
- The fake-money system was set up by the feds in 1971… Even free-market economist Milton Friedman was in favor of it.
- It turned out to be the best thing that ever happened to Friedman’s nemesis: Big Government. It provided almost unlimited funding to the insiders. They used it to build a “Deep State” – an unholy alliance of money and power, a “shadow government” that runs the country no matter who you vote for.
- These insiders used the fake-money system to transfer trillions of dollars from the mostly middle-class Main Street economy to themselves and their cronies.
- And now they control the government and its money.
- Donald J. Trump says he aims to “drain the swamp.” Perhaps he is sincere. If so, he has a hard row to hoe.
- Bear markets in stocks or bonds are both overdue. And after the longest expansion since the ’30s, a recession must be headed our way, too.
- Even if these things don’t happen, the swamp critters could still prevail.
The new president did take a step in the right direction when he pulled out of the Trans-Pacific Partnership (TPP) trade deal.
He took another step when he suspended further implementation of Obamacare. According to a report in The Wall Street Journal, he has frozen any measure that would “burden individuals, families, and insurers.”
Draining the swamp is shorthand for eliminating those burdens. It is the only way to Make America Great Again, at least economically.
Today, we hear that he is planning to cut funding to the UN. Another good move.
If the power and wealth of average Americans is to increase, the power and wealth of the swamp critters must decrease.
Wealth Formula
You’ll recall: There are only two ways to get what you want.
Your first option is to make a win-win deal with others, where you give something in exchange for something you want.
You have a cow. Your neighbor has a chicken. You give milk. Your neighbor gives you eggs.
“Capitalism” is just an elaboration of that exchange. And all government policies – QE, Dodd-Frank, trade tariffs, tax rates… everything – can be measured by it.
Do they make these win-win exchanges easier… or harder?
The other way to get what you want is to take it without giving anything in return. You shoot your neighbor’s cow and roast it for dinner. The neighbor complains; you shoot him, too.
That is a win-lose deal. You win. He loses.
Perverse Incentives
Win-lose deals do not create wealth; they merely transfer it.
The math is easy…
A win is a plus. A lose is a minus. A plus added to a minus equals zero (1 + -1 = 0). The world’s wealth doesn’t increase. It can’t. Because the gain came at someone else’s expense.
Of course, there are transaction costs and perverse incentives involved.
The neighbor, fearing you may kill his cow, doesn’t bother to raise it. Or he may erect a high wall to keep you away from his livestock. Or he may kill his cow, just to avoid having it stolen from him. Or kill you.
All of these things destroy wealth because people get less of what they really want.
To be continued… including some pretty nasty win-lose deals…
Regards,
Bill
In 1978, Bill Bonner founded what is now the largest underground research network on the planet.
Bill also co-wrote two New York Times bestselling books, Financial Reckoning Day and Empire of Debt, In his latest book, Hormegeddon, Bill describes what happens when you get too much of a good thing in the sphere of public policy, economics and business.
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It’s like having a super-wealthy uncle share his best ideas, insights and wisdom about business, relationships, investments, trends, developments, ideas and more.
Just like Bill’s new book, Hormegeddon, this new newsletter, The Bill Bonner Letter, could only be written by a man with his wealth, accomplishments, and experience. Someone who has started businesses all over the world… who has employed thousands of employees… who has made investments on 5 continents… who owns hundreds of thousands of acres of land… who travels well over 100,000 air miles every year… who has acquired more than two dozen businesses… launched over 1,000 products… and sees a dozen different business deals cross his desk every single week.
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