How does the US empire stay in business?

Jan 14, 2015

- By Bill Bonner

- Bill Bonner
Dear Diary,

Dow down a little yesterday. Gold almost unchanged. And oil keeps slipping. Here's Bloomberg:

    Oil fell below $45 a barrel amid speculation that U.S. stockpiles will increase, exacerbating a global supply glut that's driven prices to the lowest in more than 5 1/2 years.

    Oil slumped almost 50 percent last year, the most since the 2008 financial crisis, as the U.S. pumped at the fastest rate in more than three decades and OPEC resisted calls to cut production. Goldman Sachs Group Inc. said crude needs to drop to $40 a barrel to "re-balance" the market, while Societe Generale SA also reduced its price forecasts.

We're studying the drop in the oil price. Is it an isolated phenomenon...the product of fracking technology, petro politics and other special circumstances? Or is it, too, another feature of the worldwide credit bubble?

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We will write up our conclusion in this month's Bill Bonner letter...but you can probably guess. The more we look, the more we find telltale signs of the credit bubble at every accident and crime scene.

Tomorrow we return to our series on practical investing. Today, let's look further at how the credit bubble has distorted investment markets, perverted the economy, and corrupted our government. They all now depend on something that should never have happened...and can't continue for much longer.

Hardly a day goes by that we don't squint through the glass darkly to try to see what the end of the credit expansion will mean for stocks, bonds, and other investments. Today, we look at what it will mean for the Empire.

Typically, empires succeed by conquest. They take property...women...slaves. The loot is parceled out like a federal budget - with big portions for the honchos and cronies...and lesser portions to the foot soldiers. Since the US is a democracy, of sorts, token amounts must be also paid to the voters; each party bids for votes with the money it intends to steal after it has won the election.

The US is a master at the fraud of modern democratic politics, but it has never got the hang of empire. It conquers foreigners; but it steals only from its own people. Then, its new lackey state becomes a cost center, not a profit center; it loses money on each mission accomplished.

How does this empire stay in business? Credit.

Government is always a protection racket. That is why war is so useful; it is something to protect citizens against. That is also why the relationship between governments and terrorists is symbiotic. They need each other. Terrorists give governments an enemy to protect people against - conveniently, one that can never really win. The terrorists get fame, power, money, and more recruits, thanks to governments' heavy handed 'wars' against them.

The founders of the American republic cautioned against the whole thing. We "do not go forth in search of dragons to slay, "said Adams. Avoid "foreign entanglements" said Washington. Even up to the end of the Eisenhower administration, thoughtful leaders realized that 'the military industrial complex' -- the Pentagon and its war-mongering cronies - posed a much bigger threat to the US than a handful of rabid terrorists.

"War is the health of the state." But it is sickness and a broken leg to the citizenry. In order to prevent it, America's founding fathers erected walls against it in their Constitution. Only Congress can declare war, says the document. And Congress is also supposed to raise the money to pay for it. The founders knew where the real threat lay. The separation of powers and the Bill of Rights were specifically and expressly intended to protect citizens from the biggest threat to their liberties and their safety -- government itself.

But the Constitution and its protections have been largely brushed aside. The power of the president has increased, while Congress has become little more than a group of irrelevant clowns and bickering connivers.

And if the history of empires is predictive, we can expect more of the same -- consolidation of power in the executive branch, more rules and regulations to 'protect' us from evil, more controls, more costs, more spending and more debt.

Money, lives and liberty will be taken without due process of law. Corruption and cronyism will increase, as more and more of the nation's wealth comes up for grabs. The lumpenvoters will grumble and groan as prosperity decreases. They will kvetch and complain as graft and underhanded dealing come to light. But they will fall into place behind the feds when 'war' is in the headlines.

As the Pentagon gets more money, it will favor more costly weapons systems, entrenched tactics, old military technology and a more bureaucratic internal structure. It will become stronger and stronger on paper, but more vulnerable to quick-moving opponents. After fighting so many phony wars for so long, it will be incapable of defending the country in a real war.

How will it end? Two possible ways. Either the US military suffers a crushing defeat. Or the Empire goes broke. Whichever comes first.

Empires, like financial bubbles, always blow themselves up, one way or another.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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