The Daily Reckoning - The Day the Earth Stood Still - Part II (Bonner)

verfasst von Firmian, 31.08.2004, 09:55

-->The Day the Earth Stood Still - Part II

The Daily Reckoning

Ouzilly, France

Friday, August 27, 2004

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

*** Aren't we great! The tattered ball turns...

*** Back to the J-hole...Greenspan speaks...

*** Terrorism...Luftwaffe...Mr. Prozac...the maternal bond
and more!

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"I'll take Manhattan..."

Nothing much happened yesterday...just as nothing much has
happened all year. Stocks, bonds, the dollar...everything
went pretty much nowhere.

But while nothing goes nowhere...Americans get poorer and
don't realize it, while Asians get richer...and don't
mention it.

Day after day, they accumulate more U.S. dollar paper -
bonds, notes...Treasurys, corporates...you name it.

Why? Because they sell more than they buy. They end up with
a surplus of money that they have to do something with.
Never before in the history of the world has the imbalance
between nations been so pronounced. Never before has the
division of labor been greater: They make, we take. We buy
gizmos and gadgets...made in China, of course...and the
jobs, factories, profits, wages - all of it ends up in
Asian hands.

And someday...after the U.S. economy has slumped into
recession and deflation - that is, after prices have fallen
to the point where U.S. assets are attractive again - the
Asians are going to come in and trade their paper for real
value-producing assets.

"I'll take Manhattan," they will say.

And once again, after 350 years, the island will change
hands - for trinkets.

That's what we like so much about this tattered ball we
live on, dear reader: It turns.

"And the last shall be first..."...and the first move to
the end of the line.

No sooner does a group of people get to be first than they
look for reasons why they will be first forever. They look
for something inherent, innate...some genetic
predisposition or climatic precondition. The Romans thought
it was the sweet temperatures and soft air of their capital
that gave them strength...the Germans came to think it was
the blood of the master race. And now Americans believe
that we too are blessed by God himself with some special
capacity...some special genius...

"We are a revolutionary people," writes Michael Ledeen,
"driving ourselves to new frontiers in every generation,
constantly creating and constantly destroying..."

Ledeen's oeuvre can be summarized in three words:"Aren't
we great!" But the poor man seems not to notice that we are
no longer a revolutionary people...but a conservative one,
desperately trying to keep the world from turning, so that
Americans can bask in the warm light of EZ credit and the
Great Dollar Standard forever...and the only place
Americans drive themselves today is to Wal-Mart...

More below...after the news from Tom:

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

Tom Dyson, from historic Mount Vernon...

- Here's a twisted bit of historically ironic fate on the
eve of this year's Jackson Hole Fed retreat...

- Two years ago, at the same meeting, Greenspan sought to
justify his actions - or inactions - in dealing with the
tech bubble.

- At the time, he was being bombarded with criticism...he
should have been aware there was a financial bubble-in-
progress, said the hounds, and he should have done
something about it. After all, he made his famous
"irrational exuberance" speech in 1996.

-"The struggle to understand developments in the economy
and financial markets since the mid-1990s," said Sir Alan
of Greenspan,"has been particularly challenging for
monetary policymakers."

- Greenspan was pleading ignorance...or stupidity. He told
the world it was impossible to spot a bubble in formation
and even if they could have seen it, there was nothing they
could have done to slow it."As events evolved," he
continued,"we recognized that, despite our suspicions, it
was very difficult to definitively identify a bubble until
after the fact - that is, when its bursting confirmed its
existence."

- Now he's pleading stupidity again! Only this time he's
referring to the housing bubble. Regular readers will
already know that here at The Daily Reckoning, it is our
assertion that - like the tech frenzy - Greenspan created
this bubble with his regime of EZ credit and loose money,
and now depends on the paper wealth he created to prop the
economy.

-"House price increases have outstripped gains in income
and rents in recent years," he pointed out."While that
raises the possibility that real estate prices, at least in
some markets, could be out of alignment with the
fundamentals, that conclusion cannot be reached with any
confidence."

-"House prices are difficult to measure," Greenspan
concluded. Sound familiar? As familiar as the sound of
escaping air, we answer...

- If this is a housing bubble, as Greenspan thinks it might
be, then the global economy is a busted flush, says the FT.
Bubbles, by definition, pop. And when this one goes, it'll
bring the house down with it."It's a global cycle that has
never really got to self-sustaining, cumulative-recovery
mode and that has relied on monetary and fiscal stimulus in
the United States and on external demand in the rest of the
world," says uber-bear Stephen Roach, speaking in the FT.
"There is nothing mature about it but the imbalances. How
strong will the recovery be when the stimulus steroids wear
off?"

- The real estate market is supporting the U.S. consumer,
who, otherwise, would have been tapped out long ago. In
turn, the U.S. consumer supports China, who supports Japan.
"A slowdown in the United States and China and questions
over the strength of the Japanese expansion," says Roach,
"have raised the risks of a global recession in 2005."

- For now the markets hold up, oblivious to the danger.
Yesterday, stocks went down...slightly. The Dow declined 9
points, to 10,173, the Nasdaq lost 8 and the S&P failed to
move. It stayed at 1,105.

-"The correction will come...eventually," said Addison,
yesterday afternoon."Not only is it healthy, it is
essential. This is the way of nature. The Fed should just
let the correction happen."

-"But they won't..." countered your misplaced British
editor,"they'll keep throwing money at it. They'll do
everything they can to induce 'recovery...'"

-"...And ensure we get the worst of both worlds,"
interrupted Addison,"...a prolonged global slump and
inflation. The government and the consumer will be dragged
down kicking and scratching and screaming for years. That's
why we called our book 'The Soft Depression'..."

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

Meanwhile, back in Ouzilly...

*** As the 21st century takes its first baby steps, it
risks wobbling into a number of sharp and explosive
objects.

"Terrorist attack!" the sons of the pioneers will
volunteer. But the threat of terrorism barely makes the
list. Terrorism is a distraction, rather than a serious
threat. Not that terrorists can't kill people and can't
make headlines. But the handful of fanatics - supported by
no state - pose no serious threat to the republic, its
armies or its institutions. Terrorism threatens Americans -
along with muggers, serial killers and overeating - but not
America.

Terrorism is a method, not an enemy. It was as if,
following the Luftwaffe's bombing of London, the English
had declared war on airplanes! After the fall of the Soviet
Union, no other country had the power to challenge America
militarily. And its few enemies - of whom there were fewer
than in an average small-town police department - were
forced to resort to terrorist attack to express themselves.
Like the anarchists a century earlier, who blew up a public
building occasionally - they launch terror attacks because
they have no means of launching more serious ones. If
terrorists were capable of posing a genuine threat to the
nation, in other words, they wouldn't be terrorists.

Maybe invading Iraq and Afghanistan are effective ways to
prevent terrorist attacks; maybe they are not. But as our
reader wrote yesterday, too bad they will bankrupt us.

*** Things go wrong. A Daily Reckoning reader:

"Here am I at 44, a female veteran of the United States
Navy who, following 14 years of service as a boiler
technician, found myself out of a profession (thanks to
that nasty NAFTA trade agreement) and at that same time
lumped with a mortgage, two small children, and a diagnosed
manic-bipolar husband. Needless to say, the husband, once a
smart hardworking partner, was reduced to a Prozac-ed,
lithium-filled addition to the pillows on the couch of the
home I alone could not save. Social service systems,
contact with congressmen and senators have all proved
useless."

"The word 'struggle' does no justice to what I went
through. The household also included my mother who suffered
with a Lou Gehrig's-type disease along with dementia. In
1998, one of the three jobs I was holding ended. With NO
way to make the mortgage payments any longer, my children
and I moved in with a friend. Mother went into a Masonic
nursing home and the ex went his way. A nurse 90 miles
north of here took him in, got him to straighten out his
meds and - surprise of surprises - he has continued to work
a JOB for the past five years! Sadly, no support came my
way for the children.

"Sadder still, my own employment consisted of stealing high
school-kid jobs...pizza delivery, dog grooming,
lifeguarding, chimney sweeping...anything to keep my half
of this makeshift household going.

"This friend, 'Charles,' came with two children of his own
(Charles, is yet another who'd been snookered into marriage
by a manic-depressive. I swear they should come with
warning labels.) Charles' two children consist of a most
wonderful now teen girl and a not-so-wonderful now teen
boy. This boy, following delinquent behavior since we all
moved in together, began to spiral out of control.

"Nothing I tried in the way of correction or discipline was
encouraged by the father...

"Rather he cared to view it as if I was picking on his
'Nick.' His 'Nick' continues to be a threat to society. My
children had to go to live with their father for safety's
sake as drawing guns/knives became part of Nick's behavior
pattern, while his father and I both worked...(albeit the
father is still able to earn the $22 hourly rate I should
be earning...as we both had the same training in plumbing
and boilers).

"I tried retraining in computers, a field I was guaranteed
would spring me back to the income range I needed to
sustain the meager blue-collar life I sought.

"To no avail...more lies. Ten grand to a computer school so
I can e-mail my sister? Last year, I obtained an all-
endorsement CDL...America needs drivers, I was told, via my
veterans' job placement counselor. What they did not say is
that America will only hire drivers who have two years over
the road, importing drivers from Russia or Australia if
need be, as the insurance companies will not hear of
school-trained beginners. I continue to collect
unemployment at the moment, lifeguarding on weekends, and
find myself $2,000 in the hole with Citibank from making
visits to my estranged children each month as I am able, or
not. I simply will not NOT visit them.

"I see commercials touting the importance of spending time
with family, and I cry. Who are they meant for? No one I
know is doing any kind of good. So my question is this: Do
you have a position on board for a disgruntled, misled
veteran?

"My Children are 12 and 13 years old, estranged one year
from me come September. How has it happened that, in five
years time, two attempts and $2,000 invested in a failed
effort to divorce Mr. Prozac and that he, in four months of
requesting - while safekeeping the children until HOPEFULLY
something happened to enable me to afford my OWN place -
was able to file and gain full custody of both MY babies?
It is worse than criminal. (The divorce was finalized
September 12, 2003, the same day my mother died...I was
unable to make it to Jersey City to protest, and no
reschedule date was offered.) I am now the third woman I
know to have suffered the same. It is
unconscionable...knock us up, walk away, starve us out,
take the kids, and charge us support! Wanna see females in
mass suicide mode? Let this abhorrent behavior continue.

"There is no bond closer than that of a mother and her
babies.

"I can share with you the fact that functionality is beyond
difficult when every day you wake and your first thought
is...'Another day without my children.' Why go on? What
for? To work? Did I miss something somewhere? Does Wal-Mart
need another cashier? 'F*** it,' comes to mind. 'F*** it
all.'

"Work hard, go to school, get good grades, keep your nose
clean. These were the dubious teachings said to enable one
to 'make it.' Heidi Fleiss worked hard...is that what the
teachers meant, do you suppose? Any help, any ideas?

"Thanks for your time and allowing me to vent at least a
small portion of this morning's thoughts. Same thoughts I
been having daily. I keep hoping maybe this will all land
somewhere useful and enable me to one day help others in
similar distress be spared the grievous agony of missing
their children. Insult to injury? Like struggle and poverty
weren't enough."

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

The Daily Reckoning PRESENTS: Every man with a Social
Security number believes he has the blood of Jefferson and
Franklin somewhere in his veins. The Daily Reckoning
investigates...

THE DAY THE EARTH STOOD STILL - PART II
by Bill Bonner


Who built the pyramids, dear reader?

Visitors to modern Egypt scratch their heads. All along the
muddy waters of the Nile, nothing seems to work quite the
way it is supposed to. Egyptians are interesting and
enterprising people, say travelers, but organization is not
their thing. In fact, state administrators seem bent on
preventing anything from getting done. For example, if you
wanted to buy a piece of desert in order to build a
factory, Hernando de Soto [in his book, The Mystery of
Capital] found that it took 77 administrative steps,
involving 31 different government agencies - a process that
would take between six and 14 years to accomplish.

How did these people ever build the pyramids, one wonders?

So, too, does a visit to Greece bring question marks. Where
are the descendants of Aristotle, Aristophanes, Euripides,
Plato, Phidippides, Socrates? What happened to the noble
race that stood at the pass of Thermopylae and the plain of
Marathon? The Greeks still participate in Olympics - and
still win a medal or two - but are these the heirs of
Alexander and Pericles...of Euclid and Pythagoras?

Similarly, a visitor to Rome wonders what happened to the
Romans. The people one sees in modern Rome are attractive
and fun loving, but they hardly seem the same sort whose
legions once lorded it over almost the entire civilized
world. Roman armies were practically unbeatable. Roman law
and administration were ubiquitous. Rome's manners, art,
customs, and gods were all the rage.

But where is today's Cato? Caesar? Augustus? Tiberius?
Trajan? Severus? Antony? Italian politicians of the modern
era fall somewhere between ineptitude and buffoonery. We
cannot imagine them conquering anyone...

Our recent visit to North America left us wondering, too.
We are the"conquerors" now, says Michael Ledeen.

"The French Revolution produced massive bloodshed, a world
war, and then failure," Ledeen opines."The Russian
Revolution produced bloodshed, then organized terror for
three quarters of a century, then failure. The fascist
revolutions in Italy and Germany produced a world war, the
Holocaust, and then humiliating defeat. The Chinese
Revolution killed more people than all the others combined,
and China is still looking for a workable solution to its
enormous problems. The American Revolution produced a great
success, and we are still succeeding more than two
centuries later."

Every era - Precambrian, Cambrian, Paleozoic, Mesozoic,
Cenozoic - comes and goes. Revolutions create...and
destroy. The world turns. But Americans believe their own
Success Era is eternal. For us, the world stands still.

Americans believe they are pioneers forever...the same
people who crossed the prairie in covered wagons, beat the
British in 1814, and wrote the Declaration of Independence.

Every man with a social security number believes he has the
blood of Jefferson and Franklin somewhere in his veins...he
sees no difference between himself and Daniel Boone, save
the coonskin cap, and he imagines he is as ready as a
Roosevelt to charge up San Juan Hill.

"The things that will destroy America," remarked this first
Roosevelt,"are prosperity-at-any-price, peace-at-any-
price, safety-first instead of duty-first, the love of soft
living and get-rich-quick theory of life."

On our trip across the lower 48 we found few of the lean,
hard men cast in the mold of the pioneers - at least, not
in public life. America has moved beyond its founders, its
visionaries and its grabby extenders. In their place is a
race of flabby pretenders; as high-minded as modern Romans,
energetic as modern Egyptians, and as disciplined as modern
Greeks. Americans still value their independence; they are
beholden to no one, unless he offers easy credit terms.

In their unbecoming desperation to preserve their own soft
lives Americans go along with almost anything. They stand
in line while grandmothers are patted down at airport
terminals and pretend it makes them safer...meanwhile, they
squander the wealth, institutions and customs that took
generations to build.

In the space of a single generation the nation had been
transformed from the world's largest creditor to its
greatest debtor, and Americans themselves from the world's
most productive people...to its biggest consumers.
Squandered too was the high ground in international
relations; the Bush administration's talk of"pre-emptive"
war brought America down to the level of every other
powerful nation in history: The new doctrine might have
been announced by Bonaparte or by Caesar.

Even more remarkable, in the space of barely three
generations, the West had used up nearly half the world's
readily accessible petroleum deposits - which took the
planet 20 billion years to create. Precambrian, Cambrian,
Paleozoic, Mesozoic, Cenozoic, Triassic, Jurassic... it
takes a long time to crush a barrel of oil out of the
world's bogs.

And now it is the century after the American Century. It is
time for real challenges tossed by Fate in our path, like
banana peels on the steps at twilight.

A recent edition of the Financial Times reported that
"Confidence among business leaders is stronger than it has
been for 20 years."

Markets make opinions. But the bull market that so
flattered Americans' opinion of themselves and their
prospects has come to an end. Typically, prices go up and
down. After stock market prices have run up for a period of
15 to 25 years, they turn around and run down. Nothing goes
up forever, after all. Since the U.S. stock market - aided
and abetted by a long downward trend in interest rates -
went mostly up from 1975 until 2000, it is a decent bet
that it will go mostly down from 2000 until most of us in
this room are dead.

But if that were all there were to it - that is, if we only
faced a normal, regular, run-of-the-mill bear market cycle,
we could sell our stocks, put our money in short-term
Treasury paper, and relax. Unfortunately, this new cycle
comes at a bad time...when a number of other longer-term
cycles seem to have turned against us.

For the first time since the beginning of the Industrial
Revolution, American workers face competition - directly or
indirectly - from 3 billion people in Asia who are willing
to work twice as hard for a tenth the money.

For the first time ever, the world's supply of cheap oil is
declining. There is plenty more of the stuff...and plenty
of other ways to generate power - but none at the same
price. As Asians earn more money, they will use more energy
- and compete with the West for it. Everyone will have to
pay more for energy.

For the first time since - perhaps - the decline of Rome,
the dominant civilization is getting old and fat, and has
become dependent on thin people in much poorer countries in
order to maintain current living standards. All governments
in the Western world have made promises and commitments
that they can't possibly keep and seem to be headed towards
bankruptcy. For the U.S. government, those obligations
presently out-run expected revenues by $44 trillion
dollars, a gap that couldn't possibly be filled, even if
every centime were squeezed out of the rich and poor alike.

For the first time ever, Americans are net debtors to the
rest of the world...and are presently going deeper and
deeper into the hole at a faster and faster rate. No
country has ever dared - or been permitted - to run up such
a tab. No similar situation has ever been set straight; we
have no idea what it may mean - except the likely
destruction of the dollar.

And for the first time ever, the whole world operates on a
currency of no particular value - a faith-based money -
whose custodian, the Federal Reserve, has proposed ways to
destroy it itself, including dropping it from helicopters,
if necessary.

As our friend Byron King puts it:"Debt, resource-
depletion, industrial decline and adverse demographics - we
are...on the cusp of a major set of changes in the world
that will be as significant as the events of 1914-1918.

"What will be the trigger for things? Your guess is as good
as mine. It seems that things are wound about as tight as
they can be in the political-military arena. So my next
question is, what event will be the 'assassination of
Archduke Ferdinand' this time around? Will al Qaeda get
lucky with a couple more airliners? Will the Iranians
preemptively hit the Israelis, in order to pre-empt the
anticipated Israeli pre-emption of the Iranians? Will
Taiwan do something like declare independence, and incur a
barrage of Chinese missiles? Somebody will do something
stupid and upset the whole matter..."

Almost inevitably, living standards in America will fall -
relative to those of other nations. It is one of the
safest, surest predictions we could make.

But at The Daily Reckoning, as you know, we always look on
the bright side. Standards of living may fall, but not
necessarily quality of life. In the years ahead, Americans
will be broken, buckled and bent - but into a better shape.

Regards,


Bill Bonner
The Daily Reckoning

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gesamter Thread:

• The Daily Reckoning - The Day the Earth Stood Still - Part II (Bonner) - Firmian, 31.08.2004, 09:55
  • Re: The Daily Reckoning -"Ich nehme Manhattan" - Firmian, 31.08.2004, 09:57