How Capital Dies, or What Happens to America When Trump's Done With It

Today Trump did something that I’ve been warning of for a while now (and which your finance guys should have seen coming.) He went thermonuclear on the Fed, the USA’s central bank, with a criminal investigation of its governor for fraud. There’s something almost comical in all that, which I’ll come to in a moment.

Today we’re going to talk about capital. How societies self-destruct. How capital is still what drives and shapes our world, but how Trump’s authoritarian-fascist approach to it—which underpins everything he’s done, from foreign policy to economic policy to domestic policy— is basically a suicide pact for Americans, because it will leave them emptied of capital.

Let me spend a moment teaching you about central banks and finance. We want “central bank independence,” meaning that they set rates independent of politicians. Because politicians tend to do what Trump wants to do: lower interest rates to juice the economy. A sugar rush results—but the consequence is obesity: inflation, currency devaluation, and eventually, financial crises, as prices skyrocket and people are trapped in debt.

Let it be said, by the way, that I’m not a fan of central banking as it works now, but I’m even less a fan of…fascism. Go ahead and chuckle.

Now. The funny part about the above is the problem that Trump is trying to solve. In his own ham-fisted, authoritarian, cloddish way. Let’s boil that problem down to its most basic.

Americans do not have enough money.

That is to say, America’s running out of capital.

As a visceral example, it wasn’t too long ago when a million dollars was a lot of money. Today? Retiring on a million dollars is almost a laughable idea. That is what “running out of capital” means, in the hardest of terms.

All of what Trump is doing is for this reason: to try and acquire more capital for America. All the empire building, the trade wars, all the bluster, the threats, the intimidation, and so forth. Its purpose is effectively to somehow get more money into the hands of Americans, and yes, the fascist part is about “real” Americans, and sure, you can even say, “but only billionaires.” Doesn’t matter—first, we’re going to learn about capital, and how it shapes our world. As another example, he now wants to cap interest rates on credit card debt.

Why is this funny? Because nobody can solve this problem. Nothing can, it’s likely, solve this central problem.

America is running out of capital. And when we see that process begin to happen in a society, it points to far, far more severe problems than merely not having enough capital. It’s a symptom of a much deeper set of maladies. Not an end in itself. See how Trumpists don’t think that way? We need capital! Let’s just seize it from the world! Duh!!

But when capital begins to self-destruct, a society’s deepest foundations, usually, have gone rotten.

Americans do not have enough capital, or in its simplest form, money, for a simple reason. They have made terrible choices as a society for several decades now. And now they are going to have to pay the price. This part isn’t funny at all. Now we cross the line into tragedy. Let me give you a simple example.

Social Security is funded by one thing. Do you know what it is? Legally, Social Security is only allowed to invest in American T-Bills. Now what happens if Trump successfully takes over the Fed? America’s debt goes from increasingly risky to…well…would you trust Trump to pay you back?

Terrible decisions.

Americans don’t have enough money for the reason that they chose capitalism, over and over again. Yes, it’s true that both parties only offered slightly different version of it. But Americans hardly pushed very much or hard for things like universal healthcare or childcare or education or retirement. By and large, as a society, Americans tend to truly believe in all the bizarre myths they’re fed: stand on your own two feet, never take care of anyone else, be a narcissistic child who’s only interested in individualism, acquisition, and money, money, money.

As I sit here at the cafe, three young Americans are discussing “passive income” from YouTube channels. Listen: they deserved better than this. The grift, the hustle, the non-future, ending up pawns in the hands of technology and capitalism, instead of living full lives.

So. Now Americans need more money, but they can’t get it. How would they, in a capitalist society? Trump’s answers go like this. Plunder the world. Rip apart America’s institutions. Break apart old alliances and friendships. Seize the world’s resources. Eventually, Trump will default on America’s debt, and that will crater what’s left of its economy.

And still, none of this will work. You know it won’t work, for the reason you already suspect, which is that even if this results in some kind of tepid gain, it’ll all go to the cronies and billionaires and other assorted creeps at the top.

What are America’s choices now? It only has three.

One. It can go along with Trump, and basically declare various forms of war on the world, economic, imperialistic, resource-intensive, and hope that all this ends up with more money in their hands. It’s hardly likely two.

Two. Americans can reduce their rates of consumption, and invest more. There’s a very, very strange thing about Americans that you don’t notice until you live overseas. Americans spend money like there’s no tomorrow. They’re irresponsible with it, and pretty foolish with it. Americans can change their financial habits, and be more mature about them, but that’s hardly likely to happen either.

Three. Americans can agree to a new social contract, in which wealth is transferred from the top downwards, and even the middle pays more in taxes, to fund a functional society. LOL. I know that "the left” in America is super excited about this at the moment, but let’s get real for a moment, it is never going to happen. Americans’ attitudes towards taxation are somewhere between medieval and Stone Age. What happens if some poor politician goes to Americans and says, hey, I love you, pay 20% more in taxes so this is Canada Lite? They’ll be laughed, mocked, and scorned out of town, by every soccer mom and covert MAGA dad in a radius of infinity.

Nobody can solve the problem of Americans not having enough money. Nothing can.

Now let me teach you what the above means. In more formal terms. Capitalism has failed Americans spectacularly. It’s succeeded on its own terms, which is to amass capital into fewer and fewer hands, until at last, the whole edifice imploded into fascism. But what it’s done at a social level is to eviscerate America’s capital. Capital is hardly useful if it’s just all sitting in the hands of fourteen psychotic billionaires, one of whom loves owning child porn apps.

This is what we call a “deadweight loss” in economics. And in that sense, capitalism has created a tremendous loss at the heart of America’s economy. The average American just doesn’t have the money now for security, safety, stability. Their choices are Trump, some lame attempt at a new social contract, or the status quo, which wasn’t working. And those are the only choices allowed by the strange set of attitudes and values Americans have when it comes to economics, finance, and society. The dead weight of capitalism will just end up crushing them more and more, because they genuinely believe in it.

Why am I teaching you all this? Just to sort of gloat? That’s not the point at all.

So that you understand where you are.

America is running out of capital.

But it needs capital desperately to keep capitalism going.

Americans desperately need capital to keep capitalism going.

What can be done now? (If you want me to gild the lily above, you can argue, yes, that America’s capital is concentrated in the hands of child porn app billionaires and their ilk, sure—remember what we just discussed about a “deadweight loss”?)

This is why Trump is attempting to a) seize it from the rest of the world b) capture institutions which still have it, like the Fed, and c) intimidate every other nation on earth into “making deals” with America.

But none of it will work. What is the correct approach when we have capital deficits? We must attract capital. We do that with democracy. With the rule of law. With functioning institutions. With strong social contracts, that make talented and intelligent people want to join us.

Trump is destroying all those things, isn’t he? And so his approach to capital will backfire, and badly.

When we get the above correct, we have started the process of “capital formation,” which just means that the stuff money is worth begins to accumulate in society: happiness, intelligence, relationships, creativity, longevity, health, and so on.

But when we get the above wrong, capital self-destructs. And that process of self-destruction goes like this. First comes love, then comes marriage. First come trust and reputation, then comes intellect and talent, then come institutions, then norms and values, and when all that is done, finally, money itself goes up in smoke. Because it is now worth less.

Understand this pattern of socioeconomic self-destruction.

This is the glide path of American collapse. And I took pains to point out to you how Americans own attitudes to money, finance, economics, and society trap America in it. Those are difficult things to change. When I discuss them, the point isn’t that I’m judging Americans—I’m teaching you how and why societies self-destruct, because implosion takes on a momentum of its own, while genuine change is, as for societies, just as for people, the hardest step of all.

I’ve tried to teach you how capital dies. So that you can keep yours safe. The process is now under way in America. It always ends the same way. The only question is whether you will be the one left holding the bag.

Lots of love,

Umair (and Snowy!)