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 3rd New York Times best-selling book, Mobs, Messiahs and Markets, offering 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. His most recent book is titled Hormegeddon: How Too Much of a Good Thing Leads to Disaster (2014).
Daily Bell: Hi. Glad to finally catch up with you again. You have a new book out, Hormegeddon: How Too Much of a Good Thing Leads to Disaster. Are you pleased with the reception?
Bill Bonner: So far, yes. I was particularly pleased when I sent a copy of the manuscript to Nassim Taleb and Marc Faber. Each gave me rave reviews. That encouraged me, because I value their opinions. And now that the book is out, readers seem to like it.
Of course, I didn't write it to be liked. I was trying to explore a subject that has gotten scant attention. We all take for granted that governments occasionally do really stupid things over a long period of time. I tried to figure out how it was possible. Why would they do things that were disastrous … even for the people who set the policies in motion? I think I've done a fair job of understanding it … and describing it. And that makes me happy.
Daily Bell: Tell us more about it and where people can get it. Explain the title. Also, you ask in the promotional materials, "What happens when you get too much of a good thing in public policy, foreign affairs, politics and economics?" And your answer: "It ends in disaster." Expand, please.
Bill Bonner: Well, the book is now available on Amazon.
The title? Yes, my friends joked that they thought it was about some disaster about to befall the prostitutes of the world.
It is not. It comes from the bio-chemical phenomenon known as 'hormesis.' It's what happens when a small amount of a substance yields beneficial results (to another organism) but a larger amount causes a calamitous result, such as death.
It occurred to me that this is what happens in public affairs … in public policy measures … when a little bit of interference seems to help things, but keep interfering and you get a real catastrophe.
All of these phenomena can be described – at least in part – by the principle of 'declining marginal utility.' This is a principle in economics which explains why incremental increases – of almost anything – produce less and less gain. A little bit of water helps the grass grow. Keep adding water and it all dies. A little bit of food makes it possible for people to live. Keep eating those desserts and you become unhealthy. Invest a little bit of money in a project and you may get a 20% return. Invest a lot and the rate of return may go down to 10% … or 1%.
And then it gets interesting. Because if you keep investing more money your rate of return will drop below zero. It will be negative, meaning … you are consuming wealth, not creating it.
And whole societies … whole economies … can go into negative wealth production. They don't get wealthier; they get poorer.
You'd say, 'Why on Earth would they want to do that?' Well, that's the great secret of Hormegeddon. Once you're headed in that direction, it's almost impossible to turn around. Even as your most thoughtful and most sensible people come to realize that you are headed for disaster, you still can't stop. You just keep going.
Daily Bell: Why did you choose to write about public-policy disasters?
Bill Bonner: Mankind is plagued by two kinds of disasters – natural and manmade. The natural disasters are beyond our control or comprehension. They happen. But the manmade disasters follow patterns; you can see them coming, when you know what to look for. And, of course, they are endlessly fascinating in themselves … just as all human affairs are fascinating.
Daily Bell: You think public policy is turning into a disaster. Why?
Bill Bonner: Yes. There are lots of public policies. And some are just nuisances. Some are barely noticed. But there are two in the US that now threaten to become grand disasters – military policy and financial policy.
Of course, connected to them are lots of other policies involving everything from student loans to Obamacare … but the two big catastrophes I see coming are military and financial. The two are related as well.
The US is an empire. Empires tend towards catastrophic ends. So much of the output of the empire is devoted to the military/security industries that it becomes almost impossible to stop. Every district has an important facility. And every member of Congress has to wonder if the snoops know something about him that he'd rather didn't get out … or whether something might be made up about him that he couldn't disprove. So, between the carrot of appropriations and jobs – and the stick of a police-state apparatus, whose goals and methods are largely unknown – few members of Congress will oppose the empire. It just keeps going…and growing, an irresistible force that eventually meets an immoveable object. It either runs out of money or it runs into an opponent that defeats it militarily.
Meanwhile, the empire is only possible because of the peculiar way the US finances its debts. It has the world's reserve currency. This gives it the ability to borrow heavily, which it must do to support the wide range of unproductive military activities it undertakes.
The two disasters – military and financial – probably come at the same time, when the world turns away from the dollar as its reserve currency. But that's a long story.
Daily Bell: You write that one of the misconceptions of the age is that public planning is a kind of panacea, an antidote to potential chaos and entropy. How did this come about – and is public policy more effective in small doses?
Bill Bonner: Public policy is not only more effective in small doses, it only works in small settings. That's the thing that few people have realized. Our brains are only capable of mastering public policy in small communities … where we can know what's going on. A small town can do a fair job of putting in a new dump. A small group can figure out who is in charge of bringing the hotdogs to the next cookout. A small church community can help the sick and needy as best it can. But Obamacare? Social Security Disability? The war on ISIL? They are disasters from the get-go. Nobody really knows what he is doing or why or what results it will produce.
Daily Bell: You also suggest that the real solution to the problems of society are "trillions of very good decisions made by private citizens in their private lives." This is, of course, a paraphrase of Hayek's Spontaneous Order. Can you expand?
Bill Bonner: There is nothing novel in this view. Goethe said that 'if everyone would just clean his own doorstep, what a clean world we would have.' That's true. Adam Smith explained how whole societies become wealthy when each individual just pursued his own interests.
What is new is that I now have an explanation for why people don't do that. We developed as human beings in a different world. It was a world in which central planning DID work. Each tribe had detailed plans, of sorts. Presumably, those plans helped it survive. Our leading thinkers have failed to notice the difference between the planning that works – by individuals and small communities – and the planning that doesn't.
It's easy to understand when you think of traffic. In a very small community, the entire traffic pattern can be worked out by a central planner. Mr. Smith goes to the store at 9am, so Mr. Jones will have to wait until 9:15 to head out to the gas station, etc., etc. You can do that in a small community, where everyone's whereabouts and travel plans can be known. But in a large community, where you don't know who is traveling, where, when, or why, you need more generalized 'rules of the road' rather than detailed central planning. Keep to the right. Priority to the vehicle on the right. Using these general rules – which are similar to the Ten Commandments in their simplicity and universal application – people get where they are going even though the central planners have done nothing.
Daily Bell: In a sense, public policy is one of the religions of the age even though it doesn't work. Any sense that it is on the wane – that people are waking up?
Bill Bonner: I don't think people are capable of 'waking up.' It's just not possible. We might become a little less gullible … a little less naïve. That's the best we can hope for.
Daily Bell: People SHOULD wake up to what's going on, as the systems in place the world over don't seem to be bringing much in the way of success or stability.
Bill Bonner: No, but it's not an intellectual exercise. Most of the world works on a non-intellectual basis. Patterns persist. Booms lead to busts. Violence leads to peace, which then leads to more violence. I don't think this is going to change.
Daily Bell: Just from a purely economic standpoint things don't seem to be improving much even seven years after the beginning of the Great Crisis. Are Western economies finally in "recovery"?
Bill Bonner: No, not at all. There is no recovery possible. because the economy before 2007 was an economy that only worked by expanding debt. You can't expand debt forever. The private sector reached its limit in 2007. Even with the lowest lending rates in history the private sector is reluctant to take on more debt. Only government is still borrowing at substantial rates. If there is a case in history where a government caused a genuine economic recovery by borrowing or printing more money, I have yet to learn of it.
Daily Bell: Any outstanding areas of economic growth? Europe … US … Asia?
Bill Bonner: I think the problems in the West are structural, not cyclical. Or maybe both. Too much debt. People getting old. Not much payoff now from more debt or more machines. But in Asia, South America and Africa there are still places where you can invest more and expect to get a decent return. Populations are growing. They often have few, or primitive, machines. There is plenty of room to expand production and consumption.
Daily Bell: We think the world is currently engaged in a kind of financial fiesta – a worldwide Wall Street Party. How long does this party last – and what will be the ramifications?
Bill Bonner: I agree. But I have no idea how long it can go on. I'm always surprised. These things tend to last longer than I expect and then stop suddenly. What will happen when the music stops? I don't know, but I wouldn't want to be holding a lot of bonds when it does.
Daily Bell: What's in the works next year? The way central banks are printing we sometimes think the goal is Dow 30,000. This will precipitate great fortunes and great misery. Any way to participate in the wealth effect without the downside?
Bill Bonner: Here's my guess… Some time in the next few months the authorities get a wake-up call. They are tapering off QE. This reduces the amount of excess liquidity driving up stocks. It is bound to increase volatility, too. It wouldn't be too much of a surprise to see the Dow down 1,000 points in a day – or more.
Then, Janet Yellen will panic, and it will be back to QE, and perhaps more. There have been several hints that the Fed and other central banks may be willing to go to direct money printing – something like dropping money from helicopters – as the next stage. When that comes it could mean fantastic increases in stocks – and who knows what else.
Daily Bell: Should people play in the market if they are hedged and appropriately diversified? Or should people stay away?
Bill Bonner: Hedged? Appropriately diversified? I don't believe it. At the end of the day you are either long or short, in or out. When the market is this dangerous, I want to be out.
Daily Bell: We think a long-term investment in the cannabis industry could be a positive move. Your thoughts?
Bill Bonner: I think cannabis smoking might turn out to be more popular.
Daily Bell: Are you excited by what may turn into a vibrant industry?
Bill Bonner: I have no idea. It looks to me as though it is an industry that will explode in size, like alcohol after Prohibition. But who makes the money? You'd have to really get into it in order to figure it out.
Daily Bell: Let's look at Europe. You predicted several years ago that the Greeks would default and restructure. Is that an ongoing prediction?
Bill Bonner: Yes, it's an ongoing prediction for them all. They (I'm speaking of all the sub-prime sovereign borrowers) cannot pay the debt back. And the Germans won't let them inflate it away. They'll have to default, sooner or later.
Daily Bell: You expected it perhaps of Ireland, too. But the story from Ireland is one of increasing prosperity. We don't believe it, do you?
Bill Bonner: We have an office in Ireland. All of a sudden, it looks like another boom over there. This is remarkable, since the flotsam and jetsam of the last boom was never cleared away. So, I don't know what is going on … but I'd be very careful.
Daily Bell: When we last interviewed you, in March 2011, you thought EU officials were launching delaying tactics in the hopes the economy would simply improve on its own. Three years later, that doesn't seem to have worked too well.
Bill Bonner: No, but they're still at it.
Daily Bell: You also believed the Germans would have difficulty cooperating with a general inflationary bailout. That seems to be the case. The EU seems gridlocked in slow-growth, no-growth. How long can this situation persist?
Bill Bonner: The only example we have to go on is Japan. They've been in slow-growth, on-again, off-again deflation for more than 30 years.
Daily Bell: It was your opinion not so long ago that the Chinese "miracle" would blow up, an opinion we shared. Has the crash begun? Seems to us that China is engaged in a slow-motion blow-up.
Bill Bonner: Could be. I was just there. The Chinese are very optimistic. They don't believe there will be any crash. Of course, this doesn't reassure me. I'd like to see more cynicism, more skepticism. But there's good news, too. Chinese stocks are not expensive. So there's no bubble there. As for real estate, it is very hard to know what is going on.
Daily Bell: We see the same sort of dysfunction in Japan. Is Abe a savior or just another misguided Keynesian?
Bill Bonner: He is going to blow the place up. It just gets worse and worse in Japan … more debt, more deficits, more foolish programs. The latest was to try to get Japan's forestry industry revved up. And Abe figured that he could also put many of Japan's young women to work as lumberjacks. This is central planning at its worst – delusional, stupid, counterproductive. I'm watching Japan carefully. Wither the Japanese go, thereto we shall go.
Daily Bell: The US seems to have decided that the recovery is so healthy that the Fed can do away with significant continued easing. We don't believe it. Do you?
Bill Bonner: Nah. Just wait. Something will 'give.' Then, they'll be back at it … more aggressively than ever.
Daily Bell: Is Janet Yellen competent to run a US$13 trillion economy? Can any group of people figure out how to do that successfully?
Bill Bonner: Of course not. Each person has to respect the 'rules of the road.' The feds can't hope to direct traffic for 330 million people.
Daily Bell: You predicted a hyperinflationary blowup for the US. Is that still impending, in your view?
Bill Bonner: Yes, that's still the most likely conclusion but not necessarily anytime soon. Remember Japan!
Daily Bell: Where would you be investing now? Last time you mentioned gold and silver, though neither are currently great performers. Have you changed your mind?
Bill Bonner: Russia is my only "Buy" now. It's cheap. That's all I know about it. You buy Gazprom at less than 3 times earnings, you get a 5% dividend yield. And that's after all the nonsense, theft, foolishness.
Daily Bell: Is the current unrest in the Middle East and Ukraine ongoing? How do you see it ending? Are we now engaged in a never-ending war against terror? And how is a war against terror won?
Bill Bonner: I don't think there is really any war on terror going on. There is just a war on whatever is convenient to the war machine.
Daily Bell: Is one end game to remove Putin? We think Western intel agencies want him gone.
Bill Bonner: Gosh, maybe so, but it's none of my business.
Daily Bell: With Iraq destabilized, it looks like the entire region may flare up again. Your thoughts?
Bill Bonner: I think that's the idea.
Daily Bell: Is war ever positive? Should the US simply pull its troops as Ron Paul suggested and "march home"?
Bill Bonner: War is only 'positive' when it is a defensive war … that is, when not fighting would be even more negative. Some people gain from war. They like it. They want it. I don't. So I'm against it.
Daily Bell: Let's talk about the credit crisis briefly. Could rates simply begin to rise on the long end even against central bank policy? Is Yellen worried about this – and Draghi in Europe?
Bill Bonner: Yes, I think this is the big worry for central bankers. Investors could lose confidence. They could begin to wonder how and when they will ever get their money back. Italy is borrowing at a lower rate than the US. What are the lenders thinking? I don't know, but I'll bet they will want to reconsider at some point.
Daily Bell: A significant rate rise could crash bond markets around the world. That, too, would bring up the price of metals. Your thoughts?
Bill Bonner: Yes, but a significant rate rise would collapse the whole system. The US economy now depends on very low rates. Should rates rise – and of course they will – and both bonds and stocks get hit hard, I don't think the Fed could sit still while that happens. So, the rate rise would be just the beginning of the hormegeddon catastrophe, not the end.
Daily Bell: Where does the world go from here? The usual nostrums don't seem to be working. Are we doomed to some kind of slow motion crack up? What should people do to prepare themselves?
Bill Bonner: Get into a good business. Buy gold. Make sure you have a Plan B.
Daily Bell: Is farmland a good investment? What else?
Bill Bonner: From what I've read, farmland must be a terrible investment. It is too expensive.
Daily Bell: What's your take on the wisdom of securing a second passport? Good idea? Other precautions you recommend?
Bill Bonner: It's always a good idea to have a second passport … and a second home in a second country. You never know what will happen. A little diversification can be fun – and potentially very important.
Daily Bell: You've recently launched new paid monthly newsletter, "The Bill Bonner Letter." Tell readers a little about that.
Bill Bonner: Well, I'm trying to write a good letter. That's all I can say about it now. I'm trying. I won't know if I succeed or not for a year or so.
Daily Bell: Thanks for your time.
Congratulations to Bill Bonner on his new book, which sounds fascinating. And thanks, as well, for an interview enhanced by significant insights. We were especially interested to learn he thinks the cannabis industry "will explode in size, like alcohol after Prohibition."
Here at High Alert we had the same insight nearly a year ago. As Bill said, "You'd have to really get into it in order to understand it." We did just that and as a result, as we've mentioned before, we're in the process of working with an early-stage company that is becoming strategically positioned to produce and export low-cost, medicinal-grade and standardized oil-based cannabis extract products to legal importers around the world. Bill asks, "Who makes the money?" If we're correct about this, those making considerable money should be the shareholders.
Perhaps the most interesting points he makes in this interview, which is full of interesting points, has to do with the idea that an increasingly desperate Fed might consider placing digital fiat directly into the bank accounts of individuals.
We find this hard to believe because it would reveal that money is something created at the push of a button. But perhaps he is on to something: It is possible the funds could be created and directed through some kind of mumbo-jumbo that would give people the idea that the money is being created in some other way. Or that it's taken from tax revenues or something.
We've long observed that the power elite has set up numerous dominant social themes regarding money equality. In fact, there's a huge meme devoted to income equality right now. Additionally, as we've long pointed out, alternative money schemes continue to populate the Internet that emphasize paper money and the state's right to provide it at will. This goes back to the socialist Fabians, whose iconography included a wolf wearing a lamb's fleece.
Maybe the table is being set … And yet the antidote to this sort of manipulation lies in the circulation of private money, especially gold and silver. Mr. Bonner doesn't emphasize gold and silver in this interview, pointing to Russian oil as his keenest interest. However, in the long term gold and silver remain the best antidote to the manipulation of money by governments and powerful private interests.
His point also resonates with us because we believe that central bankers and others dedicated to the preservation of the current market run will do almost anything to preserve it. It could be, as we have long noted, that the second half of October brings a considerable downturn but if so we would expect that, as it was after 1987, there will be considerable elite pushback to reignite market averages by whatever means necessary.
No doubt Mr. Bonner understands that. He's a very smart man and we're glad to present this interview to our readers.
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