How Capitalism Dies

By Bill Bonner, Chairman, Bonner & Partners:

Today, we’re going to tell you why America’s middle class is getting poorer. Or put another way, we’re going to show you how capitalism dies.

Two comedy acts appeared last week: President Obama’s State of the Union address and Mario Draghi’s QE announcement. Mr. Obama claimed credit for a “recovery” that has left the typical American poorer than he was before. And not only is he poorer, but also he is more dependent on the very people who engineered the phony recovery. (See below.) Mr. Draghi followed up with a series of one-liners, the gist of which was that he now proposes to save Europe from the specter of inadequate inflation.

ECB to the Rescue

Who could take Draghi seriously? After all, what’s wrong with stable prices? Nothing at all!

The 19th century had fairly stable prices… as well as the fastest GDP and wage growth in human history. Serious consumer price inflation didn’t begin in the US until the 1970s, when America’s new flexible, adaptable, expandable, super-duper fiat money came into service. Since then, the cost of living in the US is up roughly 600%. And the rate of economic growth has fallen.

Mr. Draghi did not mention these facts when he announced his euro-debasement program. But it hardly mattered. The real purpose of euro-zone QE is the same as the real purpose of the US version – to prevent the cronies from getting what they deserve.

They own hundreds of billions of euro worth of European sovereign bonds – now trading at the highest prices and lowest yields in recorded history. Many were bought with negative yields.

And now, with aging populations, rising debt levels, gummed-up regulations, rising living costs, rising taxes and falling revenues, there is almost no way these bonds can be worth what speculators paid for them. How are the insiders going to get their money back?

The ECB to the rescue! It promises to transfer $1.3 trillion to the financial elite over the next 21 months – buying sovereign bonds and other slippery obligations at the rate of €60 billion ($67 billion) every month.

Not that we are complaining; we’ve got a sense of humor! Besides, we’re card-carrying members of the 1%… and happy to get a share of the loot. If only we had bought those Italian sovereign bonds! So, there you have it…

In the New World, the commander-in-chief claims credit for something he didn’t do. In the Old World, the central-banker-in-chief claims to be doing something not worth doing. Neither is doing what he should do.

America’s Disappearing Wealth Creators

We chuckle… and move on. We were supposed to tell you about how it was possible for the average American to get poorer at a time that should have been the most productive and prosperous ever. We won’t disappoint you. Who makes people better off? President Obama? Mario Draghi?

Can you think of a single thing a politician or central banker has contributed to the welfare of the world? We can’t. Did they invent hamburgers? Did they pave roads? Did they produce wheat or lay bricks? We’re exaggerating to make our point. They are, no doubt, amusing at dinner parties. And they pet their dogs.

But sticking to the material world, the world of getting and spending, has a president or central banker ever put in a decent day’s work or added a single centime or farthing to the nation’s GDP? Not that we know of. Then who has?

If we had to put a title on this little discussion, we might call it: “America’s Disappearing Wealth Creators.” Or if we wanted to be more lurid: “How the Zombies Ate America’s Entrepreneurs.”

Last week, we reported on how more and more people depend on the US federal government for their daily bread. Here’s the chart from American Enterprise Institute’s Nicholas Eberstadt:

Screen Shot 2015-01-26 at 10.28.00 AM
As their number increases, it leaves fewer people creating real jobs, building real businesses and paying real taxes. In short, the people who create wealth are vanishing.

Jim Clifton, the chairman of Gallup, reports that, for the first time ever, there are more US businesses closing than starting up:

There continues to be a direct link between market cap (which measures the total value of all outstanding shares) and performance.

The US now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does.

We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

The US Census Bureau reports that the total number of new business startups and business closures per year – the birth and death rates of American companies – has crossed for the first time since the measurement began.

I am referring to employer businesses, those with one or more employees, the real engines of economic growth. Four hundred thousand new businesses are being born annually nationwide, while 470,000 per year are dying.


In the early 1970s, there were about 200,000 new US businesses created each year (net of closures). Now, the number is negative.

Why are Americans getting poorer? Look no further. No new businesses (net). No new jobs (again net). No new wealth.

Under Obama and Draghi, crony capitalism flourishes. Real capitalism dies. By Bill Bonner, Chairman, Bonner & Partners

And this has led to a situation where betting against mathematical odds in the stock markets has won every time so far. Read…  This Isn’t Investing… It’s Russian Roulette

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  15 comments for “How Capitalism Dies

  1. Boyfromtottenham says:

    Interesting article, Bill. I can’t see this ending well. Btw I think the labels on the graph are reversed.

  2. Max g says:

    How does the generational shift to freelance work and self employement affect these stats?

    Can someone quantify and prove that the increase in “govt goodies” (eg food stamps, Medicaid, tax treatment/refunds, housing, free phones, etc…) directly causes lower employment figures and people dropping out of the labor force?

    • Petunia says:

      There are some people on govt aide who want to work and can’t afford to get a job because the cost of working is higher than the lose of benefits. A single mother may want to work but the cost of child care and health insurance may keep her on benefits because there is no job she can get that will replace the lose of the benefits. This may also be true for people who are disabled. They may be able to work a part time job but would lose all their benefits, so they don’t work. Govt aide is set up to be an all or nothing situation. They don’t help transition people off of benefits over time so most people are reluctant to give up a sure thing for the risks of the free market.

      • Max g says:

        “Some” = what % in your mind and from your perspective?

        • Petunia says:

          Almost all of the welfare moms are trapped in the system. The percentage that want to work I don’t know but I knew women like this and would say that once their children were out of grade school most wanted to get out of the system and couldn’t.

  3. Petunia says:

    Running for public office has now become a new industry. Raising and spending campaign money is what passes for productive economic activity. Then there is taking shell start ups to market in yet another IPO which will be merged into another hollow company later. This is what Washington traded our industrial base for. Not too productive is it.

  4. Julian the Apostate says:

    Max g can’t be serious, right? I personally know people who spend more time and effort in gaming the system than I do working for a living.
    Free lancers and self-employed? If they’re not hiring they are producing no more than they consume. A lot of the businesses that are dying got out of business because the mass of regulations, taxes, fines, levies and fees, and bureaucrats have made it impossible to make a profit. The lucky ones pulled their money out of the reach of redistributors and their minds of the market. The rest are so deeply in debt that to stop is to go bankrupt, which as conditions continue to deteriorate they probably will.

    • Max g says:


      You incorrectly assume; I am on your side of the debate. Opposition asks these questions so just looking for answers from the wolf crowd. Both your answers, ones I’ve heard over and over regarding the govt goodies, are generalities, thus my specific questions.


  5. Konstantin ks says:

    I am confused. Either your chart is incorrect or your main argument is invalid. New bussiness seem to be increasing!

    • Wolf Richter says:

      Chart labeling looks off to me too. The main argument is based on numbers that I have come across a number of times and that seem to be solid.

  6. Julian the Apostate says:

    Max g you are correct that I was giving you the benefit of the doubt. Now that you have declared for voting in politicians who will rob your neighbors and get the ‘goodies’, while the country is crumbling around you, I know of no logic that will sway you from your error.
    So party hearty in the bunker while it lasts; the next phase is a killer.
    Your projection of your need for approval of a group onto me carries no weight either. I do come here to the Long Porch for dialogue with other Seekers but my actions and thoughts are my own, and I act on my own judgement. The only mystery left is, if you are alone in a room, is anybody there?

    • Max g says:

      I don’t understand why you keep calling me a liberal. Again i repeat i am not. What is this faulty obsession to assume, attack and mock? I am 30, own my own business, grew up and live in brooklyn ny, socially progressive, fiscally conservative, and certainly did not “vote in any politicians who will rob my neighbors” (whatever you’re ignorantly even trying to imply).

      My guess is you are of the older generation; seem to have an inability to persuade against “govt goodies”; hold a superficial and misguided or uninformed understanding of the topic, as evidenced by your few anecdotes of “people you know”. You want to see welfare state and what it does to the people, businesses and politicians? come live here in brooklyn for a few years. Otherwise you simply don’t understand, not that you are ignorant, just coming from a different perspective i guess.

      I ask these questions because for some reason the right has a difficult time explaining concisely and persuadably to the common folk and younger generations why “govt goodies” are harmful and a barrier to true success, independence and happiness in the long run. You are a perfect example.

      • Petunia says:


        I am a native New Yorker and was there when Johnson’s War on Poverty began. What both you and Julian don’t know or overlook is that the War on Poverty was a giant jobs program for middle class professionals. The point was to give government employment to the many new college graduates coming out of the universities in the 60’s. Helping the poor was the cover story if you will. Once people get into the system the poverty industry has a great incentive to keep them there. Julian thinks they can get out anytime but it really isn’t true. Once you are in govt housing and you get a job you lose your subsidy and your welfare. Same thing with child care and medical care. The system is set up to keep the social workers employed.

  7. Julian the Apostate says:

    Alright Max, you are correct I am twice your age, and a different cultural perspective as well. But I do know the city, as well as someone who didn’t grow up there can. I spent the first seven years of my career hauling meat into the five boros. I grew up in Omaha at a time when all these government handouts were just starting. We went through the first and second Arab oil embargoes, the assassinations of the Kennedys and Dr. King. We had a President who talked about the malaise that had settled over us like a pall. The bad ending in Vietnam and the hostage crisis and the rebellion of the youth of my generation.
    It was an embarrassment to have to go on welfare, or relief as my Grandfather had it. Men had two jobs: to provide for and protect his family. Now the family is a dying relic of the past and many young men today never mature into men. We used to make things in this country Max. Now we make the containers they come in. We have been broken from within, which no invader could have accomplished. How do you plan to teach people who haven’t been educated but indoctrinated? How do you teach someone who has watched his or her parent go to the food stamp office and get stuff for ‘free’? Or a government that prints trillions out of thin air? Read about the great men and women who changed everything after the Civil War. It will astound you. Trucks loaded gotta go

  8. Julian the Apostate says:

    Petunia is right about the quicksand nature of the entitlements. Things always start on the coasts and move inward to my part of the country. There was a time in the late 1800s when the rolls were reversed, but no longer. Instead of William Jennings Bryan and ‘free silver’ we hav the Fed and rampant debasing of the currency.
    Max I’ve spent the last 30 years studying philosophy, history, and lately finance in its current incarnation. There’s no way to condense all that into the comment section of a blog post. There’s no substitute for cracking the books and learning. It’s old school I know and while it’s a wonderful tool the Internet is not the answer. I’m sorry I took your head off this morning as I misunderstood your question.
    Your Servant, Sir JULIAN

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