‘One country, two systems,’ says colleague Byron King.
The phrase was used in the 1980s by Deng Xiaoping to describe China’s special relationship with Hong Kong and Macau.
Now, says Byron, it points to a dangerous fault line in America.
There are two systems. One is a fraud…and the other is a rip-off. More below…
Choose your side
Here in Argentina, we live under one of the strictest lockdowns in the world.
Perhaps the Argentines really do believe in the Lockdown Theory…in which you delay deaths of a few by stopping normal life for the many.
Or, maybe the new socialist/fantasist government is eager to destroy the economy completely so it can rebuild it in another form.
We don’t know. But the economic rut on the pampas is getting deeper. And, like the U.S., the Argentine government has only two options: honesty or larceny.
And like the U.S., it will choose the second one.
This, of course, will just make the hole even deeper…perhaps catastrophically deeper (à la Venezuela)…but we will see.
Meanwhile, yesterday, friends from nearby Cafayate got permission from the chief of police to come visit. We’ve been here now for 11 weeks, with the airports closed and no way to get out. Suddenly, a door was open…
‘We chartered a plane to take us down to Buenos Aires,’ one of our American guests explained. ‘And from there, we’ll get a plane to Miami.’
‘The flight to Buenos Aires was almost fully booked…but some seats are opening up. Lots of people are dropping out. They’re watching the news from the U.S. on TV and thinking they would be better off here.’
‘I don’t want to go back, either,’ said a member of the group. ‘I just get so mad when I read the news. It’s just one idiotic thing after another. It’s as if you have to pick sides. And both sides are awful.’
Conservatives versus liberals…New York Times versus Fox News…red states versus blue states…racists versus fascists. Choose your side. Gun up!
Americans are encouraged to square off against each other…while the real enemy steadily advances, unrecognized.
Fraud vs. rip-off
We have two financial systems in America.
Byron King explains that ‘one economic system does work for many people. But the other system has failed people whose numbers now total into the tens of millions. It’s a recipe for disaster.’
One system is a fraud.
In it, the Dow rose 500 points yesterday…and the Nasdaq 100 hit a new high. Altogether, stocks are up 40% from their COVID-19 Crash bottom…and the stock market, compared to GDP, is now at an all-time high.
The other system — in which most people live and work — is a rip-off.
It’s the Main Street economy, which has been deprived of real investment, good jobs, and genuine wealth-building capitalism by order of the feds.
The Atlanta Fed says the U.S. economy has been cut in half. Barry Ritholtz:
The real time GDP running estimate of U.S. economic activity is half of what it was 3 months ago. As of June 1, the Atlanta Fed is nowcasting that economic activity in the United States, as measured in GDP, is minus 52.8%.
Americans are skipping payments on mortgages, auto loans and other bills. Normally, that could mean massive foreclosures, evictions, cars repossessions and people’s credit getting destroyed.
But much of that has been put on pause. Help from Congress and leniency from lenders have kept impending financial disaster at bay for millions of people. But that may not last for long.
If you’ll recall from yesterday, these ‘two systems’ can be measured by looking at the results.
In one system, the 20% at the bottom have lost 25% of their wealth in the last 10 years. In the other, according to the Federal Reserve’s figures, the top 10% are up about 75%.
Here at the Diary, your editor is happy to be on the upper decks. But he knows the silk pillows won’t do him much good if the whole ship goes down.
And what’s this? A fire down below?
The people at the top may be perfectly comfortable with the fraud system; it makes them wealthier. But there is already trouble below deck.
And as the real economy sinks, a lot of people are going to get angry, even if they don’t understand how they’re getting ripped off.
Then, what can the feds do? They’ll try to placate the bottom 90% with the same fake money they used to enrich the top 10%.
That will mean switching a lot of the ‘stimulus’ from Fed-based monetary policy — which goes to Wall Street and the 10%…to fiscal deficits, which end up on Main Street and in the hands of the 90%.
And then, instead of inflating stock, bond, and real estate prices, the fake money will give a lift to consumer prices, too.
However, Dear Readers are reminded that inevitable does not mean immediate. Don’t hold your breath, in other words.
The U.S. dollar is still the world’s go-to money in case of financial instability. And our guess is that a lot of instability is coming.
Other countries have embarked on financial suicide missions similar to the U.S., printing money to cover their deficits.
Many of them — Argentina, in the lead — will blow up their currencies before the U.S. And then, their citizens will seek safety — in the dollar, of course.
Here in Argentina, the printing presses are already running hot…
…and the black market currency traders are already doing a steaming business, taking in pesos by the thousands…and trading them for dollars.
This demand for America’s fake money (in preference to the gauchos’ fake money) is likely to keep the value of the dollar high…despite the feds’ money-printing.
But at some point — your editor is not fool enough to say when — those fake dollars will be revealed to be every bit as worthless as that $20 counterfeit bill that George Floyd tried to use to buy a pack of cigarettes.
And then, the two systems will blow up, too.
Stay tuned…stay alert…