The whole system functions on this new credit - The Daily Reckoning

The whole system functions on this new credit

Jan 15, 2015

- By Bill Bonner

Bill Bonner
Rancho Santana, Nicaragua

Dear Diary,

We promised to return to more traditional subjects. Money, that is. And so we do.

Dow down 186 yesterday. We repeat our guess: it will probably take a real crisis in the stock market to bring the Fed back into the QE market-pumping business. Then, we'll see the real fireworks of a bubble market.

In the meantime, money changes hands in a world with economists, central banks, newspapers and TV. What people believe about it, and what they see and hear, affects what they think of the money in their pockets and what they do with it.

We have now noticed how far the post-1971 credit machine has reached - into to even the editorial meeting of a scurrilous Parisian satire rag. Muslims, radicalized by the Pentagon's credit-funded wars in the Mideast, murdered French cartoonists. Previously, it was hard to give away a subscription to Charlie Hebdo. Now, people line up at kiosks to buy it...and single issues are offered on e-Bay for $2,000.

--- Advertisement ---
Revealing A High-Potential Stock Around The 15th Of This Month...

Every month around the 15th, we have been revealing one rare high-potential stock that could give you amazing returns over time.

Investors who invested in these companies have managed to get returns like 217% in 3 Years & 11 Months, 250% in 2 Years 1 month, and many more.

These little-known, high-potential companies over time have the potential to surge and deliver double and even triple digit returns thereby becoming every investor's favorite.

So we strongly recommend that you act now so that you too could make the most by investing in these rare companies.

Click here to know more...

Our head spins.

We read our mail. Many readers are skeptical. Are we blaming all the world's ills and evils on the monetary system? No, we answer...not all of them. But today's money ills? Yes...almost all are the fruit of the big credit bubble.

We have no useful or advice regarding most of the world's malaises. There will always be murderers and fanatics. There will always be booms and busts. There will always be stupidity, corruption and Democrats. Bad music. Bad wine. Bad architecture. Once we get started on the world's woes, we hardly know where to stop.

As for most of what goes on on Planet Earth - or even in our own household -- we know little...and understand even less. But we've been watching, studying and analyzing the world's money system for these many years. That too will never be completely understood by the mind of man, but there are parts of it that come into the outline of an island through the fog....that we can, barely, make out.

Our job is to tell you what we see. And what we see is a looming disaster. The money system created after 1971...the system in which money itself became a foggy concept, and the dollar became an I.O.U.-something from someone we don't a fraud. The dollar is not real money. It represents no real work, savings, or wealth. It can be fabricated at will by civil servants. As many as they want.

'Capital' is counterfeit too- it often has no real resources behind it. It is nothing more than pieces of green paper, or worse - only the ghost of electrons passing through space.

And what about the saver? He must think himself a fool. For all his self discipline...his forbearance...his willingness to forgo immediate satisfaction in return for greater returns later...what does he get? Nothing.

That, too, is the product of the credit bubble. Honest workers, savers and investors are regarded as chumps. Workers earn less than they did before the crisis of '08 began. And there are fewer of them. Sixteen million adults have been added to the US population over the last 5 years. The number of jobs, meanwhile, has fallen by 2 million.

And yet, the unbacked paper dollar -- the foundation of our entire world economy - is rising in price. Can you believe it? These new dollars creep through the entire structure of the material world like kudzu along an Alabama highway. And now they strangle everything.

But we are rambling, raving, and ranting, aren't we?

No...we are coming up to an important insight...and we are staggered by it.

Hardly anything has happened in the last 30 or 40 years that wasn't in some way perverted...or at least this strange new system. You bought a house? You enjoyed the credit offered by this new money. Why was the house available at its price? Because the whole system functioned on this new credit. And where did you get the money to buy it? Didn't that too come from the credit-financed economy?

Or should we talk politics? We once worked alongside Grover Norquist (a long time ago) trying to contain the growth the government. We first sued the government on behalf of children, claiming that it was unconstitutional to bind young people to debt they had neither incurred nor enjoyed. That suit was thrown out. Then, we tried to pass a Constitutional Amendment requiring balanced Federal budgets. That came close to passage, but when Ronald Reagan was elected President our supporters melted away. An amendment was no longer necessary, they believed; they had their man in the White House. When that failed, Grover came up with 'The Pledge.' Aspiring members of Congress signed a promise. They would not vote for more taxes. Grover believed that if tax revenue could be denied to it, the government could be contained. But he had not reckoned on the credit bubble; it boosted incomes and capital gains, raising tax revenues for the feds. And it made it possible for the feds to borrow at low rates, thereby making tax increases less important. Neither Barack Obama nor George W. Bush had to raise taxes to pay for their wars in the Mideast; they could borrow the money!

Easy money has made over the whole world economy in its own image. What a sight it is!

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

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

Of Lata Mangeshkar, Demonetisation and the Modi Govt December 18, 2018
Vivek ruminates on one of his favourite topics, as he discovers an interesting detail about demonetisation, in an answer to a question raised in the Lok Sabha.
More Fear Creeping into the Market December 18, 2018
2018 has been a much different scenario. This year, volatility has spiked with a higher average. Asset classes, stocks... oil...even cryptos are all falling.
10 Economic and Political Lessons from BJP's 5:0 Washout December 12, 2018
The voter has voted. And some sheen is clearly come off brand Modi.
Dr Urjit Patel, Have You Ever Heard of Shakti Kapoor and Dance Dance? December 11, 2018
Patel sacrificed himself for the RBI to tell the world that all is not well when it comes to the institutional independence of India's central bank.

Equitymaster requests your view! Post a comment on "The whole system functions on this new credit". Click here!

1 Responses to "The whole system functions on this new credit"


Jan 15, 2015

RBI cuts rates. Paul Krugman effect in India, even before he landing here. Will RBI be more accommodative after Krugman's visit?

Equitymaster requests your view! Post a comment on "The whole system functions on this new credit". Click here!