How America gave in to its two deadliest temptations

Bill Bonner’s Diary

Maria’s Note: Maria Bonaventura here, managing editor of the Diary. Bill is unable to pen his daily essay. So today, we share an excerpt from his latest book, A Modest Theory of Civilization: Win-Win or Lose.

Bill turns to a long-forgotten warning from General “Ike” Eisenhower – and the two big temptations the former president identified for the American Republic…


How America Gave in to Its Two Deadliest Temptations

By Bill Bonner, Chairman, Bonner & Partners

Bill Bonner

The heyday of the American republic was the interwar period between Korea and Vietnam. The economy was booming. The U.S. had the biggest trade surplus… the strongest manufacturing sector… the strongest currency… and the highest salaries in the world. New York was the world’s most dynamic city. California was its Shangri-La. And the debt from World War II was being paid down.

In the arts, too, America was on top of the world. Motion pictures were the leading artform; Hollywood dominated the industry. As for the plastic arts, nobody did it better than the auto designers of Detroit who, with their sparkling glass and dazzling chrome, created the finest works of art of the century.

Elected in 1952, Dwight Eisenhower ended the Korean War, balanced the budget, reduced U.S. debt as a percentage of GDP by 16%, and reduced government spending as a percentage of GDP from 20% to 18% (not even Ronald Reagan was able to do that). He cut defense spending by nearly 30%. The Dow doubled, and personal incomes rose 35%.

Eisenhower also resisted the temptation to throw his weight around overseas. When Israel invaded Egypt in 1956, with the United Kingdom and France eagerly joining in, he refused to take part. But Eisenhower teamed up with the Soviet Union and threatened to sell British bonds if the UK failed to withdraw. He was no saint. But the hallmarks of his two terms were peace and prosperity, with relatively fewer win-lose deals imposed by the feds.

We should mention that Eisenhower was also ably served at the Fed by William McChesney Martin. Martin was a Latin scholar from Yale, who joined the brokerage firm A.G. Edwards after graduation and made full partner two years later. He gave such a good showing of himself that he was elected to head the New York Stock Exchange at age 31. Then, when World War II broke out, he was drafted and served as a private.

McChesney Martin had a simple and modest idea of his mission as chair of the Fed. He sought neither full employment, nor Dow 30,000, nor 2% consumer price inflation. He neither appeased nor sucked up, neither to Democrats nor Republicans.

Today’s Fed model – based on “dynamic stochastics” – would have been Greek to him… or perhaps merely ridiculous claptrap. Negative real interest rates… quantitative easing… and a $4.4 trillion Fed balance sheet – all would have been regarded like a quack hair-growing elixir – with faint hope and much suspicion.

As we’ve mentioned in earlier pages, the 1950s Fed chief saw his role as simply to “take the punchbowl away” when the party got out of control or to “lean into the wind” when the seas got choppy.

That is to say, McChesney Martin sought to loosen the money when the economy was lagging and tighten monetary policy when the economy was running hot. (Richard Nixon blamed McChesney Martin’s “tight money” policies for his loss in the 1960 U.S. presidential election.)

Looking over our shoulders, back to when we were still riding a two-wheeler, whatever Eisenhower and McChesney Martin were doing, it seemed to work. GDP rose from $281 billion in 1950 to $540 billion in 1960. The rich got richer. The poor got richer, too. Jobs were plentiful. And an ordinary man with an ordinary job could support an ordinary family in a perfectly ordinary way.

So, you’d think that if you were serious about making America great again, you’d want to emulate Ike Eisenhower rather than George W. Bush or Barack Obama.

You’d want to end wars, not start them. You’d want to balance the federal budget, not run some of the biggest deficits in history. You’d reduce federal spending and cut the Pentagon budget, not increase them. You’d want less government, not more. And less debt, too, not more of it. That is, you’d want to do the exact opposite of the Bush and Obama administrations.

But when we look out on the comic splendor of the USA today, we see neither Dwight Eisenhower reincarnated in the White House nor William McChesney Martin redux at the Fed. Instead, what we see is another thing Eisenhower warned us against on January 17, 1961:

As we peer into society’s future, we – you and I, and our government – must avoid the impulse to live only for today, plundering for our own ease and convenience the precious resources of tomorrow.

We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow.

What is today’s nearly $22 trillion national debt? It is exactly what Eisenhower urged us to avoid – plundering the future… and mortgaging the precious assets of our grandchildren. But the old general didn’t stop there. He also saw the Deep State taking shape:

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted.

Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

Why did George W. Bush make up the “weapons of mass destruction” fantasy and attack Iraq, after he had promised voters a more “humble” foreign policy? Why did Barack Obama continue the Middle East military misadventures, even after he had pledged to end them? How come Donald J. Trump – who repeatedly criticized America’s losing wars in the Middle East and promised a new, “America First” foreign policy – got fully on board with the entire Bush/Obama program?

Why did the Trump government run $850 billion deficits… in peacetime, during an economic expansion… anticipating total debt of some $30 trillion to $40 trillion within 10 years? Why was the Fed being run by a disciple of Bush/Obama-era Fed chiefs, Bernanke and Yellen, rather than someone in the McChesney Martin tradition? And why would the Pentagon budget be increased, when it could be cut in half and probably still improve the safety of the Homeland?

Why? Because Donald Trump was such a genius that his methods were nearly divine… mysterious… inscrutable… beyond the comprehension of mere mortals? Did he (and many of our readers) see something we couldn’t? Or did General Eisenhower, who saw more clearly than any of us?

Our working hypothesis in this book is that General Eisenhower was right. He identified two big temptations for the American Republic of the 1950s; subsequent generations gave in to both of them.

They spent their children’s and grandchildren’s money. Now, the country has a national debt of nearly $22 trillion. That’s up from $289 billion ($2.4 trillion in today’s dollars) when Ike left the White House.

And they allowed the “unwarranted influence” of the “military-industrial complex” to grow into a monster. No president, no matter how good his intentions, has been able to stop it.


Maria’s Note: Paid-up readers of The Bonner-Denning Letter can keep reading right here. (Pick up on page 311.)

If you’re not paid-up yet, you can get a full digital copy of Bill’s new book, A Modest Theory of Civilization: Win-Win or Lose, with a subscription to The Bonner-Denning Letter. Find out how to become a subscriber right here.

Like what you’re reading? Send your thoughts to feedback@bonnerandpartners.com.

FEATURED READS

These Are the World’s Most Competitive Economies
The World Economic Forum has been tracking economies around the globe since 1979. It explores factors such as institutions and policies, and defines competitiveness in terms of productivity. Read on for the complete list and explanations of each ranking…

Trade Deal Expected to Not Offer Much Boost to U.S. Economy
Even though a full-on trade war has been temporarily avoided, Reuters polls and experts say the deal will only stave off risk or escalation. Recession odds are still one-in-four, and anticipated growth is slim to none…

MAILBAG

Mixed responses from Dear Readers, after Bill discussed repercussions of the U.S.-China trade deal in his essay, “After All the Sound and Fury”…

I enjoy the read, but I can read gloom and doom anywhere, followed by booking my flight to Moscow. I always regret starting off my day reading the demise of the world as we know it… Let’s use your creative writing talents to keep the average Joe from vomiting their breakfast… Keep up the good work, Bill, and just give us a reason to live from time to time…

– Allan C.

Money is only as good as people allow it to be. As long as people have faith in the system, things will move along smoothly.

It’s all just a matter of believing that the little piece of paper in your hand has value, and you can trade it for tangible goods that you need for your existence. If that faith wanes, then the proverbial “s--t“ will hit the fan!

– Joseph A.

Since we seem to think we should know the inevitable, perhaps Trump does also?

If so, why not try and get spending pointed in the “right” direction and hurry up and get there? Once we hit the reset button, as painful and devastating as that might be, the sooner we can start rebuilding. Just pray for those people who are not yet prepared (as well as you can be for something like this).

– Todd S.

Is faith the key to a good financial system, like Joseph thinks? Should we “hurry up and get there,” as Todd believes? Write us at feedback@bonnerandpartners.com.

IN CASE YOU MISSED IT…

JUST RELEASED: Jeff Brown’s Brand New Micro-Cap Recommendation…

Last night, legendary angel investor, Jeff Brown, released details on a brand-new pick…

The likes of which he’s never recommended to the public before.

It’s a tiny micro-cap, trading for dollars a share…

With the potential to make early investors $128,000 in the coming weeks.

And now, for the first time ever, YOU can be one of the first to invest in it. But you must act before January 24, at 11:59 pm.

image

Bonner & Partners
55 NE 5th Avenue, Delray Beach, FL 33483
www.bonnerandpartners.com

Share FACEBOOK
Tweet TWITTER

This editorial email containing advertisements was sent to phanhoa1821960.trader@blogger.com because you subscribed to this service. To ensure our emails continue reaching your inbox, please add our email address to your address book. To stop receiving these emails, click here.

Bonner & Partners welcomes your feedback and questions. But please note: The law prohibits us from giving personalized advice.

To contact Customer Service, call toll free Domestic/International: 1-800-681-1765, Mon–Fri, 9am–7pm ET, or email us here.

© 2020 Bonner & Partners, LLC. All rights reserved. Any reproduction, copying, or redistribution of our content, in whole or in part, is prohibited without written permission from Bonner & Partners.

Privacy Policy | Terms of Use

No comments:

Post a Comment