The emergence of crony capitalism

May 27, 2015

- By Bill Bonner

Bill Bonner
London, England

Dear Diary,

America's 2nd Greatest Generation, cont'd

Our beef with our own generation is not that it failed, but that it succeeded too well. It took control of government and used like an ape uses a rock - to crack open a nut.

But we'll come back to that in a minute...

First, we note that the Dow dropped 190 points yesterday. It seems to be heading below 18,000. We'll wait to find out.

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Yesterday, we were interviewed by a London based magazine and a TV station. Both asked if we were 'pessimistic.'

"Of course not," we replied. "We expect today's financial system to fall apart in a terrible crash and depression. But we're looking forward to it."

This was not exactly the answer they were looking for. And there's not enough time in an interview why this view makes any sense at all. The audience must have thought we had lost our mind.

We also had a meeting with our old friend Marc Faber yesterday. He helped make sense of our 'pessimism.'

"The whole system is corrupt," he said. "The government. The banks. The central banks. Big business."

People always use their wealth and power to try to protect themselves. Sometimes they use it to take wealth and power away from others too. That's corruption. Of course, that's what government was designed for - to allow one group to rob another. If the elite could take no advantage from it, why would they bother with government at all?

As things developed, we baby boomers took over in the '80s. We have been in charge ever since. Over the last 35 years, we've corrupted the economy, the markets and the government itself.

Of course, by the '70s, some of the dirty work was already done: the Nixon Administration had ditched honest money. Now the coast was clear. We could use this new credit-based money to pervert the whole shebang.

The US government used to be limited. That was the whole point of the constitution, to restrict the feds' power. And much of the restraint was financial. Money itself was limited to "only gold and silver." And Congress was supposed to not only declare war when it put troops in the field, but also raise the money to pay for them.

But now, the constitution is in a musty drawer somewhere; not even the Supreme Court justices can find it. And the new money, along with sans-souci attitude to debt, changed everything. Now they feds can get away with anything, including murder, if they put the right spin on it. Pretend to be fighting terrorists, drugs, cancer, racism, global warming, lack of consumer demand, or tobacco use and nobody asks questions

The Reagan administration talked about balanced budgets and fiscal conservatism. But within months of arriving in Washington, the Republicans rolled over. Since then, they've scarcely ever met a zombie they didn't like - especially if he had a gun in his hands. Wars overseas. Wars at home. Every fight cost money and every one was a loser. But not for everyone.

And now capitalism is no more - not in the 50 states. Now we have cronyism, in which businesses angle for favors from the feds. Why the switch? It is more profitable.

Another old friend, Jim Davidson, described the payoff:

    The Sunlight Foundation reports on research it undertook between 2007 and 2012, tracking 200 of America's most politically active corporations: "After examining 14 million records, including data on campaign contributions, lobbying expenditures, federal budget allocations and spending, we found that, on average, for every dollar spent on influencing politics, the nation's most politically active corporations received $760 from the government. The $4.4 trillion total represents two-thirds of the $6.5 trillion that individual taxpayers paid into the federal treasury."
"That translates to a 75,900% rate of return," says Jim.

Real capitalism means taking real risks...working hard...getting lucky...and discovering the future. Cronyism is safer and surer. It favors old, established businesses, the ones that can afford expensive lobbyists. It doesn't lead to wealth creation or progress, but it is easier for politicians and central planners to work with. They know where the money is! And they can plan for the past; it's the future they have trouble with.

But wait... we came to praise our fellow boomers, not to bury them in scorn.

Have we nothing nice to say about our own generation?

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

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