War Drums and War Spending

  • Shakespeare without words, and other federal boondoggles…
  • But they’re a drop in an $18.6 $18.7 $18.8 trillion national debt
  • More defense spending, more global instability: New Kissinger Cross trade triggered
  • Treating your illness — and that of your kids not yet born: The next level of gene therapy
  • Recession, depression, potato, potahto…

“Shakespeare without puns is like French cooking without butter,” quipped the journalist James Bovard last summer in The Wall Street Journal.
It seems the National Endowment for the Arts awarded $683,600 to the Virginia Commission for the Arts — which passed on a portion of that money to a theater company that presented silent renditions the bard’s classics, including Hamlet.
Silent Shakespeare is among dozens of federal boondoggles that turn up in “Federal Fumbles” — a chronicle of wasteful spending compiled by the staff of Sen. James Lankford (R-Oklahoma).
Lankford is picking up where his predecessor Tom Coburn left off with the annual “Wastebook” — which in previous years told us about the National Science Foundation dropping $202,000 on university research into alleged sexism at Wikipedia (2014) and $325,000 on how rattlesnakes would react to the presence of mechanical squirrels (2012).
Here’s the thing: “Federal Fumbles” doesn’t even bother totaling the savings if every wasteful program it documents were eliminated, so puny they would be in the big scheme of federal spending.
A search of The 5’s voluminous archives finds the wasteful spending documented in last year’s Wastebook totaled $25 billion — 0.714% of the federal budget.
Whatever name the Wastebook goes by, it serves a useful purpose for the power elite: It incites lots of penny-ante outrages — who wouldn’t be incensed by a $375,000 study of seniors’ dating habits? — to distract the masses from the reality of a massive welfare-warfare state that grows relentlessly no matter which party controls the White House or Congress.
Heck, the national debt ballooned another $100 billion during the final 10 days of November.
As you might recall, the national debt hovered near $18.15 trillion from March through October while the Treasury resorted to “extraordinary measures” to stay below the debt ceiling. At the end of October, the White House and Congress came to terms on a budget — a “zombie budget,” some people rightly called it — suspending the debt ceiling until after the next president takes office.
Not surprisingly, the national debt suddenly ballooned from $18.15 trillion to $18.49 trillion on Nov. 2 — a $340 billion increase, seven months of catching up.
But in the following month, the debt grew another $330 billion:

  • On Nov. 3, we crossed the $18.5 trillion mark.
  • On Nov. 5, we surpassed $18.6 trillion
  • On Nov. 19, we crested $18.7 trillion
  • On Nov. 30, two days ago, the total zoomed past $18.8 trillion.

If this pace keeps up, we’ll be well past $19 trillion as the calendar turns to 2016.
Why the precipitous increase? In part, it’s because the zombie budget not only lifted the debt ceiling, “it also busted the spending caps agreed to in 2011,” says our Jim Rickards.
Both parties had been chafing under those caps, Jim explains: “Democrats wanted to spend more on social programs. Republicans wanted to spend more on defense. What both parties had in common was a desire to spend more. What’s the point of being a politician if you can’t spend more of the taxpayers’ money?
“For fiscal years 2012, 2013 and 2014, the budget caps enacted in 2011 were a taboo subject in Washington. Neither party dared to break them. Republicans did not want to risk tea party anger by busting the caps. Democrats did not want to be painted as the party of big spenders. Both sides kept their heads down.”
But the zombie budget, negotiated in a backroom deal, puts an end to all that.
“The only way to make such a backroom deal work is to offer something for everyone,” Jim goes on. “The Democrats will get more money for teachers unions, and the Republicans will get more money for defense contractors.”
About the money for defense contractors: It comes at a time Jim believes the potential for a new world war has risen materially.
“That does not mean world war is imminent or inevitable,” he cautions. “It does mean that relations among major powers are more fraught, and the military capabilities of those major powers are receiving renewed attention.
“This geopolitical estimate may seem startling, but it is based on a sound methodology.”
It’s called “inverse probability,” expressed in a mathematical formula we shared with you last month…

Description: Formula1

“In plain English,” Jim explains, “this formula says that by updating our initial understanding through unbiased new information, we improve our understanding.
“Basically, the probability of any event can be inferred by the conditions related to that event. The power of the theory is that conditions used to estimate probability may arise after the initial probabilities were assessed. This is why it’s called ‘inverse probability.’”
What sort of “new information” is coming in that points to a greater likelihood of world war?
Well, consider what’s happened just in the 20 days since the ISIS attacks on Paris. Some of this we’ve chronicled already, some we’ve not…

  • Nov. 16: French president Hollande says “France is at war” and accelerates its bombing of Syria
  • Nov. 24: Turkey shoots down a Russian Su-24 fighter-bomber near the Syria-Turkey border
  • Nov. 26: Russia deploys S-400 anti-aircraft systems in Syria — the most advanced system in the world. It can fire 80 missiles at once with pinpoint precision. And its range is big enough to cover all of Syria
  • Nov. 26: China breaks with longstanding policy and announces plans for its first overseas military base in Djibouti, in the Horn of Africa
  • Yesterday: Defense Secretary Ashton Carter announces more ground troops will be deployed to Iraq to carry out raids into Syria.

On that last score: It seems Carter didn’t notify anyone in the Iraqi government. Prime Minister Abadi says he doesn’t want any foreign ground troops. And the Shiite militias that help keep Abadi in power say they’ll fight U.S. ground troops if and when they show up. Good times.
“It’s a mistake to put these stories into the ‘business as usual’ category,” says Jim.
“The timing, interconnectedness and escalatory dynamic of events look more like a prelude to wider wars than a mere series of setbacks.
“Right now we see the convergence of war drums and war spending.”
And that’s triggered a new “Kissinger Cross” trade this week — in which Jim applies inverse probability to the markets. This trade has the potential to double or perhaps triple your money over the next year.
Readers of Rickards’ Strategic Intelligence got the recommendation just yesterday, so it’s not too late to act. To learn more about how “Kissinger Cross” trades work, check out Jim’s tutorial right here.
Stocks are mixed as traders await a lunchtime speech from Federal Reserve chief Janet Yellen — where perhaps she’ll drop more hints about the Fed’s intentions with the fed funds rate when it meets two weeks from today.
The S&P 500, which poked above 2,100 yesterday, is back below that mark as we write — down about a third of a percent, at 2,094.
Gold’s attempt at a rally this week has failed; the bid has slipped to another six-year low at $1,054. Only some of that move is a function of dollar strength, although the dollar index is testing its March highs at 100.3.
Crude is down 3%, to $40.58, after the latest inventory figures from the Energy Department.
The big economic number of the day is ADP’s estimate of private payrolls for November — up 217,000, better than expected. This figure is sometimes a harbinger for the Labor Department’s monthly job report — due on Friday, and yet another potential cue about the Fed’s intentions.
Here come the CRISPR critters — and, in time, CRISPR humans, too.
CRISPR is short for “clustered regularly interspaced short palindromic repeat.” You might think of it as genetic engineering that can be handed down from generation to generation. And the subject has brought together hundreds of scientists for a three-day meeting in Washington that began yesterday.
“Developed only in the past four years,” says a Washington Post summary, “the CRISPR technique exploits a natural process used by ordinary bacteria to defend against invasive viruses.
“It enables rank-and-file scientists — just about anyone with a modern laboratory and the right skills — to alter specific genes within plants and animals and make those changes heritable. This kind of gene editing could potentially be used in gene therapies targeting a variety of devastating, heritable diseases.”
Yes, it’s controversial: Many researchers at the conference say it’s too soon to alter the human genome such that those alterations can be passed down.
For whatever it’s worth, Chinese scientists have pursued CRISPR with the most gusto — one team reporting results this year from experiments on nonviable human embryos.
If you’re wondering, scientists have been tinkering with gene therapy for years — some 2,000 gene therapy trials are underway right now. What makes CRISPR different is the cost. “It’s about 1,000 times cheaper for an ordinary academic to do,” Harvard geneticist George Church tells the Post. “It could be a game changer.”
And a profitable one, for sure. Our own experts are on the case. For the easily offended, however, we caution you that you click this link at your own risk.
“What is the difference,” a reader inquires, “between a recession and the ‘Great Recession’ and a depression? (Is there a great depression?)”
The 5: Betcha didn’t realize what a can of worms you opened… heh.
First, there’s the anecdotal definition: “A recession is when your neighbor’s out of work. A depression’s when you’re out of work.”
Conventional economists define a “recession” as two or more consecutive quarters in which GDP is shrinking. We had two recessions in the early ’80s, one in 1991, a mild one in 2001 and a very rough one from 2007-09.
The media took to calling that last one the “Great Recession” because it was worse than the ones that came before, but not as bad as the “Great Depression” of the 1930s.
There’s little agreement on the definition of a depression these days — other than we’re not in one now, no sirree.
Jim Rickards disagrees. “The economy [is] in a phase not seen in 80 years,” he wrote last year in The Death of Money — neither a recession nor a recovery, but rather a depression as Keynes defined it during the 1930s — “a chronic condition of subnormal activity for a considerable period without any marked tendency either toward recovery or toward complete collapse.”
True, there aren’t any bread lines like the 1930s. That’s because there are EBT cards now: As of last year, 46,664,000 Americans were on food stamps — 14.6% of the population. That’s down from the peak the year before, but not much.
Which is discouraging enough before you realize matters could become much worse.
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. “Turkey shoots down Russian jet — was that really necessary?” a reader muses.
“I find it interesting that Israel and Russia maintain good lines of communication. Among other things, as a result, Russian warplane overflights of Israeli territory are no big deal.”
The war in Syria is creating many strange bedfellows — starting with American support for Saudi Arabia and the other Gulf sheikdoms that finance and otherwise support jihad in the Middle East.
As Jim Rickards pointed out above, a new world war is neither imminent nor inevitable. But events are already moving in a way that’s altering flows of money… and triggering a new “Kissinger Cross” trade.
Again, readers of Rickards’ Strategic Intelligence got the scoop only yesterday. So there’s still time to act. And three other trades are flashing “go” right now as well. Go here for a comprehensive view of the Kissinger Cross’ predictive powers.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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