Bill Bonner on Economic Depression, Hyperinflation and the Rapidly Declining U.S. Empire
The Daily Bell is pleased to present this exclusive interview with Bill Bonner (left).
Introduction: Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning.
Daily Bell: Thank you for sitting down with us. You've built a tremendous company.
Bill Bonner: Thank you.
Daily Bell: So tell us how you began in this area and did you dream of running a hard money empire as a child?
Bill Bonner: I would have been a pretty mixed up child if I dreamed of such a thing. But I have to admit even as a child, I was fundamentally, genetically, naturally, programmed to be an entrepreneur. Never liked anybody telling me what to do, I never felt that I fit into any organization, never had any desire to join Goldman Sachs and work my way up or anything and so I had lots of ideas of what I was going to do. I had studied English Literature and thought I wanted to be a journalist. One of my first assignments was as a foreign correspondent for a rock-and-roll magazine which went broke right after I joined it and then I realized I was going to have to figure something else out. So after that it was just a long combination of errors, mistakes and accidents that lead me to where I am today.
Daily Bell: So what got you moving in this direction?
Bill Bonner: Well that's a good question. It was a combination of things. I actually started with a publication called International Living because I was drawn to the idea of globalizing one's self for a long, long time. In fact I started when I was in college, I went to the Sobart in France as a student. I liked France quite a bit at the time, I liked Paris, liked the life, the cultural life, the intellectual life and so on. International Living was a success but I couldn't figure out how to go beyond International Living without going into financial areas, so I was forced into finance because the financial area is a much bigger area for publishing and it suited my talent in a way because you tend to do well in investing if you kind of have a contrarian attitude. And I do.
If you buy what everybody else is buying, then you are buying something that is fully priced, and if you buy what nobody else is buying, in fact you have to buy something that nobody else wants and that tends to go up. So that suited my basic contrarian nature and we started with Hulbert's Financial Digest. Nobody will probably remember that but Hulbert is still in business and writes for Forbes. I believe that Hulbert's Financial Digest is still around and we started that back in 1979.
One thing led to another, and we found financial publishing on the margin, fringe publishing, this quirky newsletter business, is often lucrative. That's our business, our business is in that niche, that niche of developing informational tools and digging deep.
You know, the idea of the mainstream press is to keep it very superficial because they know the audience really doesn't want to dig into these things. But in the marginal newsletter business, people do want to dig in and we want to dig in and find out what things mean. What's going to happen in the economy for example is the big, big question. So that's how I got into economics.
Daily Bell: When did you decide that the Keynesians were wrong and Adam Smith had a better idea?
Bill Bonner: Oh about 20 years ago. I never liked the Keynesians; they are manipulators. The free market economists – the original economist Adam Smith and Adam Ferguson – were not manipulators. They called themselves moral philosophers. Adam Ferguson studied colonies of bees and he compared them to humans from a philosophical and moral point of view.
This way of looking at economics is to look at it as part of the natural world and that still is the way I look at economics as if trying to observe and trying to figure out the rules that govern the natural world. And those rules, in my opinion don't change very much from generation to generation. The circumstances change but the rules tend to work in the same way.
The Keynesians don't seem to look at it philosophically. They seem to think they are mechanics or doctors, or they think that they are something that they are not. They think that economics is not the observation of nature, but meddling with it, you know, turning it around and trying to make it work the way you want it to work. Keynes figured he could manipulate the business cycle by changing the way government operated. This is just to me a fundamentally flawed idea. In fact, the business cycle exists in nature for a reason just like life cycles. Think about what would happen if everyone lived forever, the world would come to a stop. It's just a crazy idea.
So to me the Keynesian idea is not only flawed mechanistically, it's flawed in a moral way. It's description of the way things work is untrue. Economies don't work by manipulation; they work according to natural laws and natural rhythms. But the Keynesian economist, in fact any modern economist, will say we gotta do this, we gotta do that, we need more stimulus, less stimulus; stimulus has to be directed toward, for example the consumer, not towards the government, not fiscal, monetary, blah, blah, blah.
Blah, blah, blah is what it is because it's fundamentally based on the idea that you can manipulate any economy, that you can change the outcome of things by turning screws and twisting knobs, when in fact, what we are looking at is something very different. What we are looking at is something that is the life cycle of an economy, the economy growing or in this case a credit bubble, growing and growing, popping and deflating. You can't stop it, by the way. You have to let it deflate.
Daily Bell: Good points. You said you were introduced to the Austrian school and free market economics in general some 20 years ago. But we've heard it was earlier than that.
Bill Bonner: Early on, after I got out of college, I fell in with some friends who had met Ludwig von Mises in his final days and also Murray Rothbard and a whole collection of American Austrians. At first I was not very drawn to the whole thing. Then over time I realized that the Austrian school of economics was more in line with my whole philosophy, that my personal reluctance to have people telling me what to do coincided with the Austrian school of economics and its emphasis on individual human action. But I'm not a serious economist – I think it is better to be an observer. I try to keep theory and academic economics at a distance.
Daily Bell: How did you come up with Agora? Tell us about the company and its strengths.
Bill Bonner: Well, I didn't come up with the idea of Agora ever. And even though we have been going for 30 years, I feel only recently I have began to understand what it is. As I was saying earlier it is a publishing business but it is a publishing business not like other publishing business and it is focused on a part of the market which is commonly ignored and most people usually want to ignore it because it is not very profitable for most people. What we have managed to do is bring some business discipline to that area and we have lots of little newsletters all over the world and have offices in eight foreign countries.
I would say it is a work in progress. So far we have been successful just by accident. A person would be a fool to claim that his success is due to his own efforts, and in my case Agora succeeded to the extent it has because of a couple things that came along and one of them was the Internet. The Internet transformed our business because it removed the cost side of the ledger, which was a remarkable thing. At first we thought it was going to put us out of business but then we discovered it was going to be much more profitable. So the Internet has enabled us to grow.
Daily Bell: Can you spell out the difference between Agora and say McGraw-Hill?
Bill Bonner: McGraw-Hill is broke! No, that's not true, I was thinking of Business Week, which they want to sell for a dollar. McGraw-Hill is a big mainstream publishing business we are not. I'm comfortable with that. In the investment world, it is the edgy ideas that are the good ones. Nobody makes any money reading the Wall Street Journal and investing in what's popular. They make money on what is not popular and those things are not in the Wall Street Journal. They are in our publications, at least that is our theory and that is what we try to do.
Daily Bell: You just made a very interesting point. Why is Business Week being sold for as little as $1 when in the 20th century it absolutely defined the most powerful business conversation in the world?
Bill Bonner: Well, it's because of the cover that they did back in August 1979, when they proclaimed the "death of equities" at the beginning of the biggest bull market in history. That made it clear that Business Week's people are a bunch of morons when it comes to investments; they are trend followers and they are the last ones to the party. So that is part of it, and so is the Internet – which helped us hurt them because it cut up the market.
Daily Bell: Speaking of troubled assets, you've written that America reminds you of Rome. Can you elaborate?
Bill Bonner: I have used that analogy many times. Addison Wiggin and I wrote a book called the Empire of Debt, in which we drew out the parallels that things follow patterns and nobody can change the course of history. History, markets, love affairs, they all follow patterns which are imprinted into the human genome. These laws, rules, rhythms, patterns govern the way things go. You can tinker with them but you can't fundamentally change the way these things go. People invest; they think they use their reason, but fundamentally they follow what are instincts. They buy and sell at the wrong time. So what we have in America is a country following the rules of an empire.
You know, most people don't appreciate the fact that there is something about America that is not a humble republic. America is an empire, it is clearly an empire, it has 120 military bases around the world, as many as Rome. It dominates militarily most of the world. This is an empire. It has its own imperial characteristics.
Much of the national treasure is used to sustain the empire. Much of the military budget in America is greater than all military budgets in the world. It has a Roman-scale military and it has Roman-scale ambition, which is to dominate the world. However, what it doesn't have is Rome's money. Even though I hesitate to say that, because Rome ran out of money too with the reign of Augustus. America is running out of money and it was a long run.
You could say that America took over the imperial mantel in 1917, when it went to war in Europe. It had no business going to war in Europe and had no stake in the war but it went to war to assert itself as an imperial power. After the war it became the largest and greatest imperial power in the world. It took over that role from England. Since then it rose and rose and got bigger and more powerful and richer and then it became corrupt. Corrupt in the sense that all empires become corrupt and they get used to living beyond their means. It is sometimes called imperial over-reach.
When you become an empire, you began to think in different ways and so Americans think as imperial citizens – otherwise they would have never, ever thought of attacking Iraq. Iraq has no interest whatsoever to America as a country and the Iraqi's were not going to attack America. But as an empire, it figured greatly in the plan for dominating the oil supply from the Mideast.
Switzerland did not consider attacking Iraq. There's nothing on the national agenda to place Swiss troops in Iraq. But it seemed OK for Americans to do so. When you can think as an imperialist, you can believe this sort of thing.
Daily Bell: Where will America end up?
Bill Bonner: Well imagine being a Keynesian economist, and you can imagine turning knobs and twisting screws that you are going to save the empire but it doesn't work that way. There is no empire that survived, none. They all go broke, all bubbles pop, all empires end.
An empire is a political bubble. It is an excessive or extraordinary event in political history. And now we have a bubble called the American empire. The US bubble, you could say, started in 1917. That's a long time ago. Americans are going to give up the thinking of imperial citizens. Good. They are already giving up bubble thinking. They don't want to borrow or spend. This news is just out. They are paying off debt faster than in 1952.
People are paying off their debt, that's what you would expect. You have a big run up in credit, now you have a big run down. The same thing is true for the empire. The empire runs up and then the empire runs down. In the process of running down however, there are massive risks. Some those risks are purely financial. The meddlers, the economists who believe you can change the course of history by being very smart, these guys are running up even more debt, the public debt is running up greatly.
Now this is a big mistake because they don't have any way of paying the public debt and never will be able to pay the public debt. The only way they will get out of the public debt is by inflating it away. So we are talking about big potential crisis. A trip down is always much more dangerous than the trip up. When you are climbing a mountain it is on the trip down where you have your accident.
On this trip down, there could be some big mishaps and falls, some broken legs and broken necks. We are talking about a country that could potentially have the kind of hyperinflation that Argentina had with a rate of a 1,000% per year. Now this wipes out people. In 1923 Germany, inflation wiped out the middle class and was so bad that it's moral stability was shaken. People lost faith in the institutions of Germany. Germany was the world's most developed, most cultured nation with the greatest scientists, philosophers, mathematicians, musicians, composers, and yet this most civilized country became barbaric because of this loss of faith in its institutions including the habits and the customs of the people themselves.
So it's a very, very dangerous time heading down the mountain, and there could be some slips. It is quite possible America will have this kind of hyperinflation; it is quite possible that whole segments, principally the middle class, will be wiped out. All their savings will go down the tubes, they will find themselves jobless, and who knows what else might happen. So, if Americans are able to keep their heads, they will be able to reduce their role in the world and their level of spending in a dignified, graceful way. If not, there will be hell to pay.
Daily Bell: Can you go over some of the subject matter for your three best sellers so our readers have a synopsis?
Bill Bonner: We did the first back in the early 2000s when we saw the recession and wondered if America was going to follow Japan into a Japan like slump. Well it was, but we were five years too early on that. And now we see those things happening as we predicted in that first book. In the second book we explored this whole relationship of empire, how empires work and how they work financially and militarily. Then in the third I was working on the idea of how groups of people actually work. Why do people do these things that seem at some point suicidal? And this is Mobs, Messiahs and Markets. We were trying to understand collective behavior.
Daily Bell: What do you think will be the result of the current economic crisis, depression, hyperinflation or both?
Bill Bonner: Both. We are in a depression. I define it as a big circular break. We have had this big run-up in credit over the last fifty years now we have a break with a change in direction. That is a depression to me because you have normally a period of adjustment and that period of adjustment is at least five years in which people have to do things differently.
Consumers have to stop spending and pay down their debt. That period inevitably entails a decline in GDP output. Which of course, means depression.
You have to let the economy unwind. Otherwise, we end up with a bunch of zombie banks and deadhead corporations getting a lot of money and Wall Street getting propped up and all the things people read about in the paper. Those things do not stimulate the economy. They just cause more speculation and eventually more problems. Because the government has no money to prop up corporations or give Wall Street bonuses, it can only offer debt, and what they call quantitative easing, where they issue debt and then they buy the debt themselves and in this way they get the money supply increased.
Of course what they want to do is cause inflation. They want modest controllable inflation because they believe that is what creates prosperity and growth. They are wrong about every detail, but the results of their monetary inflation with be masked, will be camouflaged, and it won't show up and they will be adding more and more monetary inflation, more money to the system. Consumer prices won't go up very much, at least that is my prediction. They will go up modestly, and down and while they are putting money in, the economy is contracting and people are saving. So they will put more and more money. They are not going to give up. But pretty soon the foreigners will stop buying the bonds and they will have to buy them themselves, which means even more monetary inflation. Well, at some point in the future, we don't know where and when. There are only a few instances in history like this and nothing on this scale, never in the course of history.
So we are just guessing, but what we know logically, and what we have seen in places like Zimbabwe, Argentina and Germany in the twenties, is that inflation is a monetary phenomenon but hyperinflation is a political phenomenon. So sooner or later the inflation rate will go up, but it won't go up by a couple of points it will go up massively and you will see a huge break.
Daily Bell: Do you think the bailouts in the West help at all?
Bill Bonner: No they are part of the problem.
Daily Bell: What are the biggest industry and investment issues affecting silver and gold today?
Bill Bonner: I think gold hangs on, stays, rises ... When we get to get to hyperinflation, gold will be a great place to be.
Daily Bell: What are the most important seminal articles that you would encourage everyone to read? Where can they be found?
Bill Bonner: They can sign up for the Daily Reckoning, and I will send it to them everyday for the rest of their lives. I just did an update of The Empire of Debt book. I re-read it and realized I was right about a lot of the classic patterns, boom and bust, not only with the markets but with politics, where the US empire is going bust.
Daily Bell: What inspires you to write?
Bill Bonner: Well vanity mostly but my publisher asked me to write and said he would give me money and I was ... hey, well that's pretty good. Then it got to be habit forming and I did a couple more books. But after three, I'm calling it a day for now. That's my contribution. I appreciate spending time with you and send me what ever you write I will read it.
Daily Bell: That would be an honor.
Bill Bonner: Thank you for taking time to speak with me.
Bill Bonner's Agora is a very successful non-mainstream publishing house for books, newsletters, blogs and other media. But what makes Agora successful in our opinion is Bill's wide-ranging curiosity and broad economic literacy. It makes the above interview interesting as well. Especially, worthwhile – his idea that the United States is an empire about to be undone by debt.
Of course most citizens in the United States would not necessarily label their country an empire, but as Bill Bonner points out it has many characteristics of an empire, mostly from a military and economic standpoint. From his point of view, America resembles Rome, and perhaps it does. Rome, too, began as a republic before ending up with an emperor. But even then, Rome still had many of the outward manifestations of a republic including a vibrant free-market and private businesses. These businesses were only gradually compromised as the current of the empire descended.
There are lessons to be learned from Rome. The empire's taxation spun out of control and was handed over to private groups. Eventually, the way to wealth in Rome was to avoid being overtaxed, and the diminution of taxation was achieved through personal contacts – and thus the rule of law was severed from financial gain. Once the law is applied to only the breach, and only to those who cannot afford to buy it, then society itself is bound to degenerate.
Another element of Rome's decline was its dependence on the military. The military gradually became Rome's sociopolitical spine, appointing emperors and keeping civic order because the larger manifestations of civil society had failed. A third element of Rome's demise was inflation. The government, in shaving coins and performing other actions that debased the supply of money, proved spendthrift and untrustworthy. The treasury of Rome was constantly being raided for the amusement of its various short-lived emperors.
Ultimately, it would be our contention that Rome fell not because of the barbarians at the gate but because its civilian population simply lost faith in the culture. By the time Rome fell, there was not much left of the republic that had given the nation its start. The inflation, corruption, over-taxation, Draconian state penalties for small infractions and over-reliance on military solutions to civilian problems all made living in Rome difficult even for the wealthiest citizens.
We think much the same happened in South America long ago. It is interesting to watch the many explanations for how these great but bloodthirsty empires – Mayan, Incan, and those that came before – were hollowed out. Famine, lack of rain and other external forces are held up as reasons why the cities emptied and the populations vanished.
We think there are other reasons. It is just as likely, as has been suggested on occasion, that the civilian populations simply decided that the costs of the empire were too great – and voted with their feet. Yes, as with Rome, the citizens of the great South American empires may simply have decided that they had had enough. They were tired of the wars and didn't wish to be sacrificed for precipitation. They left the pyramids and temples behind and returned to the jungles and mountains to live simply and without fear of conscription or cruel daggers.
In much the same manner, Roman citizens gradually abandoned the state, psychologically if not otherwise. Their armies finally were made up of mercenaries and their fidelity to the empire had long since eroded.
There are lessons in all this for modern empires. While the process of becoming an empire may indeed by ineluctable, it may yet be reversible in the West. There are plenty of ways that the course of nations may be rerouted. The fundaments of such change are threefold – knowledge, a way to disseminate knowledge about the relevance of civil society and a will to act.
Through Agora, Bill Bonner has provided tremendous knowledge about how nation-states function, how investments work and what is necessary to for the West to avoid a decline and fall – especially America. We have always enjoyed his wisdom and we hope he writes another book soon, even though he seems to indicate he is retiring from book writing. There are too few Bonners in the world, and their voices should be heard.
Posted by Doc Evans on 09/07/09 03:41 PM
Insightful article and postscript. Needless, there were other factors contributing to Rome's fall that are also hastening the US slide. Rome's elite showed signs of lead poisoning: the US is infatuated with drugs. Rome lost it's moral compass of polytheism: the US is rejecting the judeo-christian ethic. The death of 1000 cuts. Democracy always ends in tyranny: welcome to the future.
Reply from The Daily Bell
Thanks. Melancholy thought. Interesting point about lead poisoning, though - but wouldn't that have happened throughout?
Posted by Dave Redick on 09/06/09 07:45 PM
Bonner is right. Yes, the Empire concept ties many things together; wars for politics and resources (not defense), fake money, excess spending and debt, mercenaries, corrupt govt, decadence at home, etc. Sadly, the USA is a failing empire. We have over 800 bases in 130 countries. See #5 Empire in the left margin of my site.
Regards, Dave Redick ... Click to view link
Candidate for US President-2012
Reply from The Daily Bell
Thanks for writing. Good luck ...
Posted by John Wiggin on 09/06/09 03:07 PM
The way back to a more simple life for the people of the United States, might start with taking the power to make laws away from our government, and putting it in the hands of the people directly, as it is in Switzerland.
Reply from The Daily Bell
It is better in Switzerland, though Switzerland is a much smaller country. The states would probably have to regain considerably more power, of the sort they had prior to the Civil War.
Posted by Thomas Clawson on 09/06/09 02:11 PM
Having read Empire of Debt a while ago, I have since considered Mr. Bonner and Mr. Wiggens mental giants. Let us elect them to Congress, the Senate or even as President. All joking aside, I think every American should read Mr. Bonners books. They help pull together ones thoughts about what is going on within this country(USA)because of our Governments failings.
I thank you and Mr. Bonner for this interview.
Reply from The Daily Bell
They would appreciate the kind words.
Posted by Henk-2 on 09/06/09 01:33 PM
An apology for my mistake in the number of German scientists who went to the USA. I meant 700. I thank the Daily Bell for clarifying that in fine style.
Reply from The Daily Bell
And thanks for the followup.
Posted by Ingo Bischoff on 09/06/09 11:03 AM
I agree with Scott Smith, there are too few Bill Bonners in the world. If there is a chance for the United States, it lies in returning to the American republic of 1787. The ramification will be costly, but failure to do so will be catastrophic.
Reply from The Daily Bell
It would most certainly be difficult.
Posted by Henk-2 on 09/06/09 04:50 AM
Last week I asked for more and this week you delivered. Thank you. I will admit that I have some trouble thinking of the USA as an Empire. An empire must have done or left something that stands out to later generations. I can't think of much that the USA has done. Stomping over little countries? Looting? Even their technology is German. Seven thousand NAZI scientists imported after WW2 with the aid of the Vatican. The German Patent offices emptied. Please give me time so that I can do some more thinking.
Reply from The Daily Bell
Articles say more like 700 scientists than 7,000. However, the shift of knowledge did provide the basis for the infamous Operation Paperclip.
Operation Paperclip was the code name for the 1945 Office of Strategic Services, Joint Intelligence Objectives Agency recruitment of German scientists from Nazi Germany to the U.S. after VE Day
President Truman authorized Operation Paperclip in August 1945; however he had expressly ordered that anyone found "to have been a member of the Nazi party and more than a nominal participant in its activities, or an active supporter of Nazism militarism" would be excluded.
Under this criterion many of the scientists recruited, such as Wernher von Braun, Arthur Rudolph and Hubertus Strughold, who were all officially on record as Nazis and listed as a "menace to the security of the Allied Forces," were ineligible.
All were cleared to work in the U.S. after having their backgrounds "bleached" by the military. The paperclips that secured newly-minted background details to their personnel files gave the operation its name. (Wikipedia)