Josh Hammer, the Newsweek Opinion Editor, recently penned a brief essay entitled The American Ruling Class Reaches Its Inflection Point.
According to Hammer, the late, great intellectual Angelo Codevilla (1943 – 2021), wrote in the American Spectator “America's Ruling Class,” a rare essay that was, in retrospect, so prescient as to be outright eerie. [Angelo Codevilla also wrote several books among them The Ruling Class: How they Corrupted America and What We Can Do About it, 2010.]
According to Codevilla, “Today's ruling class, from Boston to San Diego, was formed by an educational system that exposed them to the same ideas and gave them remarkably uniform guidance, as well as tastes and habits. Whether formally in government, out of it, or halfway, America's ruling class speaks the language and has the tastes, habits, and tools of bureaucrats.”
In The Ruling Class, Codevilla further argues there has been a widening rift in the relationship between the governing and the governed. According to him, the Washington’s elite comprising of both Republicans and Democrats form a "Ruling Class" that no longer believes itself accountable to the people, which Codevilla calls the “Country Class.” Furthermore, the “Ruling Class” thinks of the “Country Class” disdainfully as “retrograde, racist, and dysfunctional unless properly constrained.” [In short, the “deplorables.”]
Newsweek’s Hammer believes that there is a silver lining because “on every major issue, from COVID hysteria to critical race theory indoctrination to the Afghanistan withdrawal debacle, the rottenness of the American ruling class has been exposed. The ruling class senses this, and it will respond in the short term by doubling down yet again.”
[It is interesting that already more than 100 years ago, Lenin maintained that the US had “a democracy for the rich,” by which he meant the representative democratic system of the United States, was a “spectacular and meaningless duels between two bourgeois parties”, both of whom were led by “astute multimillionaires” that exploited the American proletariat.]
“The doubling down,” which Newsweek’s Hammer refers to, is the issue we investors need to be concerned about. Should the governments implement additional lockdowns further supply shortages and bottlenecks would likely follow. Thus, we should understand that interventions involving lockdowns and ultra-expansionary monetary policies by central banks are directly responsible for current inflationary pressures.
John Greenwood and Steve Hanke recently wrote an essay about monetary policies in the US. They explained that in order to understand what was happening in the U.S. economy, they had developed the “bathtub theory of money and inflation.” According to Greenwood/Hanks, the amount of money flowing now into the bathtub far exceeds the two outflows, and therefore the excess money in the tub - around $8.2 trillion - will hit the inflation overflow drain. They conclude that, “Persistent, not transitory, inflation will be with us for the next two to three years.”
I have known Greenwood since the early 1980s and I have a high respect for him as a meticulous economist. Assuming he and Hanke are right, the Inflation Genie has been let out of the bottle and it will be under current economic and financial conditions next to impossible to put it back into the bottle.
High downside volatility will likely follow for government bonds, high-priced equities, and the US dollar.
I wish my American readers a wonderful Thanksgiving, and my Hindu readers around the world a joyful and happy Diwali, and don’t ever forget that governments never spend money like an honest drunken sailor because I, as a drunken sailor/investor, spend my own money. Government officials spend your money and with their insatiable greed steal some of it.
With kind regards
Yours sincerely
Marc Faber
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