Doges Of War / The Daily Reckoning

verfasst von - Elli -, 27.04.2004, 21:45

-->Doges Of War / The Daily Reckoning

London, England

Tuesday, 27 April 2004

---------------------

*** Sightseeing on the road to ruin...

*** Debtor Nation... getting deeper into debt every day...

*** Dollar steady... stocks steady... gold rising... David
Beckham sleeping... and more!


We are deeply grateful to columnist William Greider this
morning. We came into the office this morning, amazed and
impressed by our own ignorance. What does the fall-off in
the bond market mean, we were asking ourselves, as we
entered the elevator - are falling bonds not a signal of
rising inflation? Or, are they merely the pointy end of the
pin that will finally pop America's debt bubble... causing a
gnashing of teeth, lower living standards and a general
deflation in asset prices?

We could not say. Perhaps neither. Perhaps both. We don't
know.

But then, when we read Greider's article, our stock rose.
Compared to him, we are omniscient.

The article that caught our eye is entitled"Debtor Nation"
and appears in the current issue of The Nation. What a
marvelous work it is. Mr. Greider takes us on a romp
through contemporary macroeconomics that makes us laugh and
cry at the same time. He manages to combine such a sharp-
eyed look at the problems facing the U.S. economy with such
dizzyingly bubble-brained 'solutions' - it takes our breath
away.

At least Greider realizes that the nation is on the road to
ruin. How it got there... and how it might get off... he has
no clue.

The trade deficit was only $30 billion in 1978 and
economists were appalled. But that was just the beginning.
The strong dollar policy, globalization, free trade (he
doesn't mention subsidized credit or the dollar standard) -
all contributed to a spending spree in America. By last
year, the trade deficit was $489 billion. All together, the
U.S. borrowed $540 billion from the rest of the world last
year - an amount that is equal to about 75% or 80% of the
total world's available capital.

It has been customary for rich nations to lend money to
poor ones - thus stimulating development among the world's
yearning masses. But lately, the flow of funds has been in
the opposite direction. People in China work 6 days a week
in unheated factories... save their money... and then lend it
back to Americans so that they can continue living in a
style that not even they can afford.

Already Americans owe the rest of the world $3 trillion. At
any time, the lenders could decide that they are being
taken for patsies. Were they to suddenly stop lending, the
result would be an immediate calamity in America... and
perhaps throughout the world. Or worse, they could continue
lending! At the present rate, Americans will owe foreigners
more than 10% of the value of the entire nation before
2010.

You'd think that Greenspan and Co. - guardians of the
nation's financial health - might be concerned about this.
Instead, they throw out words like magic incantations as if
the mere sound of the words erased all the complications of
real life."Globalization... free trade..." But the national
economy is deaf. Indifferent to words, it goes to Hell at
the rate of more than half a trillion dollars per year.

"Don't worry," says Greenspan..."productivity."

To his credit, Greider gags on this nonsense, as we do:
"The U.S. economy, in essence, is being kept afloat by
enormous foreign lending so that consumers can keep buying
more imports, thus increasing the bloated trade deficits.
This lopsided arrangement will end when those foreign
creditors - major trading partners like Japan, China and
Europe - decide to stop the lending or simply reduce it
substantially.

"That reckoning could arrive as a sudden thunderclap of
financial crisis - spiking interest rates, swooning stock
market and crashing home prices. More likely it will be
less dramatic but equally painful. As foreign capital moves
elsewhere and easy credit disappears for consumers, many
Americans will experience a major decline in their living
standards - a gradual grinding-down process that could
continue for years."

But then, Greider begins foaming at the mouth...

"If the U.S. government reacts passively and allows 'market
forces' to make these adjustments, the consequences will be
especially severe for the less-affluent families already
stretched by stagnating wages and too much borrowing."

"Tariffs... taxes... more credit," he proposes, as if the
pain of a downswing in the credit cycle could be avoided
with the right mix of larceny and fraud.

And then, our eyes moisten and a deep sadness settles on
our soul when we read that Greider actually approves of
Richard Nixon's 1971 desperate surcharge of 10% to 15% on
all imports."America needs a bit of Nixonian nerve," he
writes.

Why not wage and price controls, too? Something awful is
surely coming. Greider and his associates are sure to make
it worse.

Over to you, Eric...

------------

Eric Fry in New York City...

- The stock market provided very little drama yesterday, as
the Dow fell 28 points to 10,445 and the Nasdaq slipped 13
points to 2,037. The dollar also fell slightly, while gold
gained $1.50 to $396.55.

- For more than a year, the stock market has been dazzling
and delighting its many fans. The Nasdaq has soared more
than 70% since October 2002. But the high-performance index
has been sputtering throughout most of 2004 - gaining less
than 2% year-to-date.

- Is the stock market merely catching its breath before
another race higher, or is it gasping for breath as rising
interest rates choke off its growth prospects? Long-term
interest rates have been rising for several weeks, as
reports of booming economic growth have been pouring in
almost daily.

- Yesterday, the Commerce Department reported that home
sales boomed in March - up nearly 9% to a record seasonally
adjusted annualized rate of 1.23 million homes - as the
median sales price rose 8.8% year-over-year. And later this
week, the Commerce Department will likely announce that GDP
growth exceeded 4% annualized in the first quarter...

- Shouldn't this terrific economic news be terrific news
for the stock market as well? The short answer is yes and
no... but mostly no. On the one hand, corporate earnings are
soaring. On the other hand, inflation is heating up and
interest rates are rising, neither of which is helpful for
share prices. Thus the stock market finds itself at that
awkward, manic-depressive stage between celebrating
economic strength and ruing it.

-"The formerly deflation-fearing Greenspan Fed could do
worse than to bone up on its modern American financial
history," writes James Grant, editor of Grant's Interest
Rate Observer."In the late 1960s and early 1970s,
inflation rates of 4% and 5% - i.e., the rates indicated by
the March 2004 CPI report - sent shock waves through Wall
Street."

- History will soon repeat itself, Grant predicts, backing
up his assertion by drawing intriguing financial parallels
between the Vietnam War Era and the Iraqi Conflict Era of
today. Specifically, Grant compares the bond bear market of
the 1960s and 1970s with the bond bear market that he and
we believe began in June of last year.

-"The U.S. invaded Iraq in March 2003," Grant writes.
"U.S. bond yields made their lows three months later, in
June, with the 10-year Treasury quoted at 3.11%. It's a
fair bet, we believe, that that yield will stand as the
lowest for many years to come - that a long-term bond bear
market got under way around the time of the fall of
Baghdad. It was a coincidence that the Gulf of Tonkin
incident [in August 1964] marked a long-term low in U.S.
interest rates, and it would be a double coincidence if the
opening phase of the Iraq war marked a second major low in
U.S. interest rates.

-"But behind the coincidences (actual and potential),
there is a possible train of causation," Grant continues.
"War is bearish for bonds because war finance is usually
inflationary. War is specifically bearish for the bonds of
the United States because war tends to undermine the
standing of the dollar, the world's reserve currency. In
the Vietnam era, it was a loss of faith in the capacity of
the U.S. government to pay out gold for dollars that
precipitated rising interest rates. In the Iraq era, it
will be the world's loss of faith in the capacity of the
U.S. government to finance its external deficit that throws
a spanner in the financial works."

- The Vietnam era bond bear market coincided with a decade-
long bull market in gold. We should not be surprised, says
Grant, if the Iraqi Conflict era bond bear market coincides
with a similar flight to gold.

-"In 1964," Grant recalls,"the law required that 25 cents
of every dollar in circulation in the United States and on
deposit at the Federal Reserve be backed by gold. American
citizens were prohibited from owning the barbarous relic,
but foreign holders could exchange their paper for gold at
the official $35-per-ounce rate."

- In January 1965, the enterprising French availed
themselves of the U.S. Treasury's generous offer, by
shipping their excess dollars across the Atlantic to
exchange them for gold."Yes, gold," declared French
president, Charles de Gaulle,"which does not change in
nature, which can be made into either bars, ingots, or
coins, which has no nationality, which is considered, in
all places and in all times, the immutable and fiduciary
value par excellence."

- Swapping overvalued dollars for gold was fun while it
lasted. But eventually, the U.S. Treasury tired of this
Franco-American arbitrage and in 1971, President Nixon
"closed the gold window." 33 year later, Mr. Market's gold
window is open every business day, and he's willing to
accept 395 dollar bills in exchange for an ounce of
gold... while supplies last.

------------

Bill Bonner, back in London...

*** GM's sales to China rose 70% in the last quarter.

*** Gold is marching back to the $400 level. The dollar
didn't rise yesterday.

*** What's front-page news in London? Well, The Guardian
thinks the most important thing that happened yesterday was
the unveiling of a video portrait at the National Portrait
Gallery. Sam Taylor-Wood, nominated for a Turner Prize,
displayed a 107-minute film of soccer star David Beckham
sleeping."The image is also unashamedly beautiful," says
the Guardian,"Beckham's limbs and face are warmly lit,
looming out of a Caravaggio-esque gloom. The curves of his
musculature and honeyed tone of his skin are sensuously
conveyed. This is a David as physically perfect as
Michelangelo's." Will a British reader please tell us; is
this a joke?

*** Maria Misra, writing in the Times, came up with an
interesting idea. India, she claims, is still an agrarian
economy. The boom last year was caused not by outsourcing,
but by rain. This year, the monsoons may not come.

*** And here's something interesting. A fat woman with dark
hair named Joyti De-Laurey is in the newspapers after
stealing about $7 million from her bosses at Goldman Sachs.
"They made it so easy, they deserved it," she told the
Times."Their money was just left lying about; if it wasn't
me it would have been someone else. Quite frankly, it would
have been rude not to."

*** [Ed note: Below, you will find your editor's rescued
essay on 13th century Venetian history... dead dukes,
democracy, commerce, freedom, war, and disaster... Enjoy.]


The Daily Reckoning PRESENTS:"Been there, done that,"
affirm the wizened specters of Venice. The fabled East-West
'clash of civilizations' - and the various 'solutions'
proposed to combat it - are nothing new under the sun.


DOGES OF WAR
by Bill Bonner

"Cry 'havoc!' and let loose the dogs of war, that this foul
deed shall smell above the earth with carrion men, groaning
for burial."

- Antony, in Shakespeare's Julius Caesar, Act III


One of the nicest things about Europe's cities is that they
are so full of dead people. In Paris, the cemeteries are so
packed that the stiffs are laid down like bricks, stacked
one atop the other. Occasionally the bones are dug up and
stored in underground ossuaries that are turned into
tourist attractions. Thousands and thousands of skulls are
on display in the catacombs; millions more must be spread
all over the city.

Here in Venice, a dead man gets - or used to get - a send-
off so gloriously sentimental that he could hardly wait to
die. There is barely room within the city walls for the
living and none at all for cadavres. So the dead were
loaded onto a magnificently morbid floating mariah - a
richly decorated funeral gondola, painted in bright black
with gold angels on her bow and stern. Then, as if crossing
the river Styx, the boat was rowed across the lagoon to the
island of San Michele by four gondoliers in black outfits
with gold trim.

How America's versifiers must have envied one of their own,
Ezra Pound, when he took his last gondola ride in such
fabulous style in 1972. And then, what luck... the former
classical scholar, poet and admirer of Benito Mussolini got
one of the last empty holes on the cemetery island. Today,
when a Venetian reaches room temperature, the best he can
hope for is a damp spot over on the mainland.

Here at the Daily Reckoning, we do not hasten to join the
dead, but we seek their counsel. When corpses whisper, we
listen.

"Been there. Done that," they often seem to say.

Reading Mrs. Oliphant's history of the dead dukes - or
"Doges" - of Venice, we felt as though we should send a
copy to someone in Washington."Read this. Spare yourself
some trouble," we might write upon the accompanying note.
But who reads anything but newspapers in the capitol city?
Who reads at all? In America, if it isn't on the evening
news, it didn't happen. Ancient history is something that
happened last week.

Too bad. For many of the most preposterous ideas now
emanating from the feverish swamps of the Potomac have
already been tried out here in the feverish swamps of
Venice, hundreds of years ago.

"Democracy! Commerce! Freedom! Nation-building," the ideas
are cast into the murky lagoon of human affairs... as if the
words themselves were clarifying magic. Suddenly, wrong is
as distinct from right, as day from night. Good from
bad... success from failure... how clearly we see things in
the crystal waters of our own delusions!

America congratulates itself as the finest democracy the
world has ever seen, but the system of ruling Venice 8
centuries ago was no less democratic. People voted for
people who voted for other people, who then voted for yet
more people who elected the Doge. The whole idea was to
allow ordinary people to believe that they ran the
nation... while real authority remained in the hands of a
few families - the Bushes, Gores, and Rockefellers of 13th-
century Venice.

"So easy is it to deceive the multitude," says Mrs.
Oliphant."The sovereignty of the Venice, under whatever
system carried on, had always been in the hands of a
certain number of families, who kept their place with
almost dynastic regularity undisturbed by any intruders
from below - the system of the Consiglio Maggiore was still
professedly a representative system of the widest kind; and
it would seem at the first glance as if every honest man,
all who were da bene and respected by their fellows, must
one time or other have been secure of gaining admission to
that popular parliament."

To Mrs. Oliphant's dictum on the multitude we add a
corollary: it is even easier to deceive oneself. Today,
rare is the American who is not a victim of his own scam.
He mortgages his home and thinks he is getting richer by
it. He buys Wall Street's products as though he were
gambling in Las Vegas, and believes himself a mini-Warren
Buffett. He goes to the polling stations this November and
believes he is selecting the government he wants, when the
choice has already been reduced to two men of the same
class, same age, same schooling, same wealth, same secret
club, same society, with more or less the same ideas about
how things should be run.

In Washington, the U.S. senate meets in the same solemn
deceit as the Consiglio Maggiore - pretending to do the
public's business. While down the street, America's own
Doge, George W. Bush, takes up where the Michieli and
Dandolos left off: trying to hustle the East.

Making a very long story short, at the beginning of the
13th century, as at the beginning of the 21st, many people
saw a"clash of civilizations" coming and sharpened their
swords. They were, then as now, the same civilizations,
clashing in about the same part of the world - the Middle
East.

What was different back then was that the effort to make
the world a better place - at least in this episode - was
being prodded forward by the French. Mrs. Oliphant's
history tells of the arrival of 6 French knights in shining
armor, who strode into San Marco's piazzo to ask the Doge
for help. They were putting together an alliance of
civilized Western armies in order to reconquer Jerusalem,
they explained.

All the usual arguments were brought out. But the Venetians
were not so much convinced by the French as they convinced
themselves. They were, they said to themselves, just as
Madeleine Albright would centuries later, the indispensable
nation. Without them, the effort would fail; therefore they
must act. Yes, they could still fail, they acknowledged,
but look what they had to gain! For not only would they
being doing good, but they stood to do well, too -
implanting trading posts and ports along the way.

And so a fleet of 50 galleys was assembled and set
off... the old Doge himself leading the way. Finding their
French allies along the way, a bit the worse for wear and
tear, they proposed a new deal: instead of attacking the
infidels forthwith, they would warm themselves up with an
assault on Zara, a town on the Dalmatian coast that had
recently rebelled against its Venetian masters.

The French protested. They had intended to make war against
the enemies of Christ, not against other Christians. But
they so needed the Venetians' support, they had no choice.

In five days, the city of Zara surrendered; its defenses
were no match for the armies in front of them. And so the
city was sacked and the booty divided up. Soon after came a
letter from Pope Innocent III, who wondered what they were
doing killing the fellow Christians; it was the pagans they
were meant to be killing, he reminded them. He commanded
them to leave Zara and proceed to Syria,"neither turning
to the right hand nor to the left."

The Pope's letters greatly troubled the poor pious French,
but the Venetians seemed undisturbed. They ignored the
letters and remained in Zara until a new comic opportunity
presented itself.

This time, it was Constantinople that was the unfortunate
target. A young prince from that city had come to them,
asking support for a mission at once as audacious as it was
absurd. His father had been blinded and thrown in a
dungeon; the capital of Eastern Christendom was in the
hands of men who must have been ancestors of Saddam Hussein
- evil usurpers, dictators whom the people detested. If the
Venetians would come to his aid, he promised, they would be
rewarded generously. More than that, he and his father
would return the entire Eastern Empire back to the one true
church... the church of St. Peter in Rome.

The Venetians couldn't resist. In April, 801 years ago this
month, they set sail for the straits of the Bosporus. And
in a great battle - a battle that must have been an
undertaker's dream - the city was taken.

Historian Edward Gibbon describes the scene:

"The soldiers who leaped from the galleys on shore
immediately ascended their scaling ladders, while the large
ships, advancing more slowing in the intervals and lowering
a drawbridge, opened a way through the air from their masts
to the rampart. In the midst of the conflict the doge's
venerable and conspicuous form stood aloft in complete
armor on the prow of his galley. The great standard of St.
Mark was displayed before him; his threats, promises and
exhortations urged the diligence of the rowers; this vessel
was the first that struck; and Dandolo was the first
warrior on shore. The nations admired the magnanimity of
the blind old man..."

It proved, however, that the young prince upon whose
stories and promises the campaign was launched had been a
bit economical with the truth. Like the intelligence
services' warnings of weapons of mass destruction in Iraq,
his depiction of the circumstances prevailing in
Constantinople at the time was only partially accurate.
Much of it seemed fanciful.

Though the initial conquest was fairly easy and glorious,
subsequent events were less so. The local population rose
up against the invaders. The city had to be retaken; this
time, the battle was even bloodier and thousands of
innocent citizens were put to the sword.

As near as historians can tell, no lasting gain or benefit
was earned by the Venetians. Dandolo died in 1205, never
having seen his home again. As for his compatriots, what
was left of them eventually returned to Venice.

"But there still remains in Venice," adds Mrs. Oliphant,
"one striking evidence of the splendid, disastrous
expedition, the unexampled conquests and victories yet
dismal end, of what is called the Fourth Crusade. And that
is the four great bronze horses, curious, inappropriate
bizarre ornaments that stand above the doorways of San
Marco. This was the blind doge's lasting piece of spoil."

"Been there. Done that," whispers the old doge.


Regards,

Bill Bonner,
The Daily Reckoning

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gesamter Thread:

• Doges Of War / The Daily Reckoning - - Elli -, 27.04.2004, 21:45
  • The Daily Reckoning/ Deutsch - Sorrento, 27.04.2004, 22:27
    • Danke für diesen Super- Bericht - Euklid, 27.04.2004, 22:47