The Late Great Helmsman, Part II The Daily Reckoning Paris, France Friday, October 13, 2006 --------------------- *** A splash in the stagnant economic waters…you say, "tomato," we say, "inflation!"… *** What you find when you peek under the whole housing hoedown…another record high for the trade deficit… *** Reports from Minne-snow-ta…the juice is on the run - and we don't mean in a white Bronco…and more! --- Advertisement --- Here's how you recoup your heartbreaking stock market losses! Join a small group of forward-looking people not relying on Wall Street's overhyped oil crisis. Instead, they ask: "What's NEXT?" and enjoy 46% average gains on every stock bought and sold! Inside: Details on three crisis opportunities destined to be on everyone's lips in five years! Be among the first to know about them now! http://www.isecureonline.com/Reports/FST/EFSTGA28 --------------------- Yesterday, there was a splash in the stagnant economic waters. A record high trade deficit was announced - $69.9 billion for the month of September. The number is shocking…edging up towards $1 trillion per year. But no one seems to care…or even notice. Instead, the experts are focused on the Fed…what's it gonna do about rates? So - you say, "inflation." We say, "deflation." What do the markets say? "Both!" On one hand, stocks, oil, gold, silver - and even housing stocks - rose yesterday. Bond yields are rising too…after edging downward for weeks. Certainly looks like inflation. Ergo, the Fed won't cut rates. On the other hand, housing - where most of America's money is located - is slipping. Existing houses are down 2% or so nationwide. Now it looks like new houses are going down too - for the first time in 15 years. The housing deflation is bound to suck liquidity out of the rest of the economy; it only remains to be seen how much. Headlines from different parts of the country tell different stories…but all the stories have the same basic theme: the housing market - once hot, is now growing cold, and the cool air will work its way into the broad economy like a draft through a barn door. Ergo, the Fed will have to cut rates. And, peeking beneath the whole housing hoedown, what we find are a lot of icky, creepy- crawly critters. Whoever got the idea, for example, that you actually got wealthier just because your house went up in price? You have to live somewhere, and if your house goes up, generally speaking, so do others, and where does that leave you? Well, one way of tapping your extra 'wealth' is by dying. But we don't know many people who are that desperate for gains in the housing sector. Most of our acquaintances prefer to breathe, even if it means giving up attractive capital gains. The other way to 'take out' that equity is to move into less expensive digs. But what are you really doing? Merely lowering your standard of living to raise cash…and that you can do anytime, even without a housing bubble. Yet, given Mother Courage by a bubbly housing market, the average American has set off a whole chain of screwy, wormy phenomena. In came the cheap suits, promising the most outrageous mortgage loans the world has ever seen. And then came the expensive suits, packaging the dubious credits into even more dubious MBS (mortgage backed securities)…which ended up on the books of financial institutions run by otherwise sensible people who put their pants on one leg at a time like everyone else. Meanwhile, the householder set off on a spending spree. This, too, had consequences far beyond the trivial junk with which he filled his rooms and his life. For the junk had to be made and shipped and financed. Thereby, of course, hangs the tale known as 'globalization'…upon which also hangs the U.S. trade deficit, which happens to be the subject of today's little reflection. One of the Three Big Challenges faced by the U.S. Empire is that it is losing market share. That is a loose way of addressing a number of related trends. 1. Wages in the United States are stagnant. Those in China, India, and the rest of Asia, are soaring. Relatively, Americans are getting poorer. Americans are also getting poorer in real terms - but since practically the entire world believes the opposite, the burden of proof is on us…and we don't have time for it today. 2. The United States no longer has much of a technological advantage. Technology is shared quickly throughout the world, and today Asian universities turn out engineers, while ours turn out people specializing in sports therapy. America no longer has an engineering…and thus, manufacturing…advantage. In fact, what it really has is a big disadvantage. Factories in the United States are old and derelict, and there is no capital to replace them. Meanwhile, the wages of American workers are so far above those of Asians that it makes no sense to invest in new productive facilities in America, anyway. 3. The United States no longer has a financial advantage. While Wall Street used to dominate the money world, now huge fortunes are being made overseas. Persistent trade surpluses have given the Asians enormous capital sums, on which Americans count, not only for capital investment…but to support the imperial lifestyle of consuming and spending…on misbegotten programs like the military occupation of Iraq, for one thing. That these trends are underway is beyond question. Every day that goes by, Asians add to their wealth and power. That these trends will continue is, we admit, a matter of guesswork. We can imagine many interruptions. But we can't see why they wouldn't generally continue. Which is no skin off our nose…but it does pose a serious challenge to the Empire. For we know of no case in history where an empire depended on its rivals for money and still managed to stay afloat. Soldiers, after all, must be paid. Weapons must be bought. Bread and circuses must be provided. "He who pays the piper calls the tune," goes the old expression. In the late Roman Empire, when barbarians were called on to defend Rome, they quickly took over. Currently, China is the biggest single lender to the United States, while Japan has the largest pile of U.S. debt in the world. Surely, the modern day creditors will also want a say in who is paid, how much… and soon. We can't say how the U.S. Empire will end, but based on how all other empires ended, we have a good guess…see for yourself: Empire of Debt - now in paperback! More news: -------------- Chuck Butler reporting from the EverBank world currency trading desk in St. Louis… "I was really not going to get into the trade deficit like that, because if the markets don't care about it, then why should I? But you know me…I couldn't let a brand spanking new record trade deficit pass by without saying something!" For the rest of this story, and for more market insights, see The Daily Pfennig -------------- And a couple short notes: *** Kevin Kerr, checking in from his Grain Exchange tour: "Greetings from cold 'Minne-snow-ta.' Minneapolis is a lovely town even though it's 22 degrees Fahrenheit (-2 c) outside and yup…it's snowing. Little early for snow in my book, but it's all good. I was so happy to see that not only orange juice, but corn skyrocketed yesterday as I boarded the plane. "Corn is likely to continue much higher, and as for juice… WOW! is all I can say. Juice opened limit-up this morning, and then they reset the limit and it tacked on another $15 for a total of $25. Did you hear me? $25 highr! This is the smallest crop in 17 years, and the crop isn't going to get any better if a hard freeze moves in. "I'll be sure to keep you updated…" [Ed. Note: You can get all of your orange juice updates from Kevin - live - when he appears on CNBC's "Closing Bell with Dylan Ratigan" today at 3:15 pm (EST). And if that's still not enough to sate your appetite for resource and commodities info, check out our Maniac Trader's latest special report, here: Ride the Commodities Wave *** Next week, we'll look at America's third challenge: running out of fuel. Stay tuned… --- Advertisement --- 4 Minutes a Week is All it Takes…to TRIPLE your money over the next 6 months… GUARANTEED! Introducing one special "alternate" investment - which does not involve buying stocks or bonds and even soars when stocks fall apart… Just over the last two years, you could have made at least eight times more buying this secret investment instead of buying traditional stocks… Is that something you are willing to pass up? Learn about this GUARANTEED investment secret NOW! http://www.isecureonline.com/Reports/RTA/ERTAGA09 --------------------- The Daily Reckoning PRESENTS: Today, Bill picks up where he left off in last Friday's essay - with our sordid protagonist, Mao Tse-tung, lolling in his sedan chair, with scrawny, skin-kneed porters hauling him all around China. Read on… THE LATE, GREAT HELSMAN, PART II
by Bill Bonner What a sight it must have been! As many as 80,000 soldiers backed the communists under Mao when the Long March began. A rag-tag band…walking along…feared and reviled almost everywhere they went. And in the midst of it all went the litters carrying the people's top honchos and the wives of the people's top honchos. By the time the wandering was over - Mao didn't especially want to arrive anywhere - he had managed to reduce his own ranks to only 10,000. The rest died along the way…were killed in pointless battles…or ran off, as soon as they got the opportunity. In reading about the life of Mao, the dominant emotion the reader experiences is neither contempt nor outrage, but rather puzzlement. He wonders how the big Chinaman got away with so much. How was it possible that a nation of so many millions couldn't manage to figure out that their leader was an incompetent, self-interested fraud? Or find one person who would put an end to him? Didn't Mao's early career as a bloody crime boss signal what was coming next? When he brought out his first torturers…and his policies of mass starvation and working the peasants to death… …or his proto-purges…his early assassinations… …or when he got his hands on a little bit of ground where he could set up his model society, and it turned out to be a miserable prison for everybody but its bosses… …wasn't it clear where he would take the nation? An earnest communist from Sweden later visited one part of the country - Yenan - and wondered why it was so poor. After all, it was the cradle of the people's paradise. It was such an important part of Marxist traditions. "What went wrong?" he wanted to know. "Ah traditions…traditions…" Mao laughed heartily. He couldn't believe the Swede was so naïve. Mao cared nothing for traditions…neither real Chinese traditions nor instant Communist ones. What he cared for was power, and he exercised it ruthlessly, pitilessly, recklessly and absurdly. What's troubling about Mao's life was not Mao himself, but the rest of us (he was merely a talented cutthroat, and a lucky slob). What's wrong with us? Normal, decent human beings repeatedly buckled under Mao…they let him get away…or couldn't get organized to oppose him. When they were ordered to persecute each other, they took up the task readily…even knowing that their own necks could be next. When they were told to take up a new agricultural policy, for example - which every peasant knew in his bones was lunatic - they nevertheless put their backs to it. When they were summoned to carry Mao on their shoulders…or procure women for him…or embark on some suicidal military campaign…or build him another luxury villa…did any one of them raise a serious objection? Some did; but the rest went along, usually taking the objector out to execute him. Mao worried about being murdered all his life. He took exaggerated precautions to make sure no stranger could get close enough to put a bullet in his brain. Cronies, henchmen and servants were kept under surveillance and in a state of terror. Those who appeared likely to cross Mao were eliminated. Mao encouraged periodic purges…denunciations and confessions. Even his most trusted and loyal bagmen - such as Chou En Lai - were required to humiliate themselves from time to time for the chairmen. Still, only one person was known to have tried to assassinate Mao - Marshal Lin Biao's son, 'Tiger,' in 1971. The plot quickly thickened…then dissolved altogether. Tiger and his wife died in an airplane crash in Mongolia as they were making their getaway. There must have been a hundred million people in China who would liked to have seen Mao dead, and hundreds of millions more if they had known what was going on. But Mao controlled the press, and had created such an aura of fear that people dared not talk, even to friends or relatives. In the late '30s and early '40s, while Chiang Kai-shek's nationalist forces fought the Japanese, Mao focused on killing and purging his own troops, and supporting his strange kingdom by selling drugs. Even this, Mao could not do well. Opium production soon expanded beyond what the market would take up. By the time the first American officials arrived on the scene, Mao had filled his coffers with cash and was ready to suppress the trade. (The Russians estimated his opium sales at $640 million in today's money). Mao also experimented with central banking during this period. He printed his own currency, the bianbi. This too went in the predictable way. Neither communists nor capitalists seemed able to resist the lure of easy money for very long. By 1944, the reds had printed so many bianbi that the price of matches was 25,000 times greater than its price in 1937. During this whole time, Chiang had threatened to wipe out the communists several times…but he relented; Chiang's only son was being held captive in Moscow. Stalin told him that if he ever wanted to see his son again, he would have to ease up on Mao's troops. Then, after the Japanese were defeated, Mao found another protector - the United States. Once again, Chiang was going after Mao, and by this time the Nationalist forces were seasoned fighters - they'd been engaged in serious fighting with the Japanese for years, while the Reds had been doing nothing but preventing each other from escaping. When the two forces clashed, the outcome was inevitable - Mao's men were run off. Chiang was about to go after them and crush them completely when George Marshal intervened, pressuring Chiang to lay off. Which just goes to show why U.S. public officials have no business meddling in foreign affairs. When the first Americans arrived at Mao's headquarters, the communists put on a show designed to win them over. With an apparently straight face, Chou told Marshal that Mao preferred America to Russia…and Mao let it be known that he was even considering dropping the word 'communist' from their party name! Marshal must have fallen for it. Because Chiang was pulled off the chase…and the commies got away to Manchuria. The mistake proved fatal to the Nationalists. Out in the northwest, the Reds linked up with the turncoat Chinese "Manchukuos" who had supported the Japanese during the war…and were also closer to their supply lines from Russia. With these supports, not to mention a clandestine campaign against poor Chiang, they were able to boot the Nationalists out of the country and turn the whole place into the largest Auschwitz in history. I say that not to exaggerate. It is not merely an analog guess but a digital comparison. In the Nazi concentration camp, inmates received between 1,300 and 1,700 calories per day, as they were worked to death. In the famine Mao forced on China in the late 50s and early '60s, the average calorie intake was only about 1,200. Mao, of course, thought the peasants had too much to eat. He was determined to squeeze the grain out of them so it could be shipped overseas, to help pay for his crackpot modernization programs. His agents went about their work with the same zeal they has shown in his earlier famines and purges. Chang and Halliday report, in their book, "Mao": "The cadres' job was to stop the peasants 'stealing' their own harvest. Horrific punishments were widespread; some people were buried alive, others strangled with ropes, others had their noses cut off. In one village four terrorized young children were saved from being buried alive for taking some food only when the earth was at their waists, after a desperate plea from their parents. In another village, a child had four fingers chopped off for trying to steal a scrap of unripe food; in another, two children who tried to steal food had wires run through their ears, and were then hung up by the wire from a wall…." People starved to death by the millions. One of the lessons we take from these stories is that the people who want to force their ideas on you, are always the same people whose ideas are idiotic. Mao had more than his share of them. He had peasants digging up the soil by hand, down to a depth of half a meter. Then, he figured that planting seeds closer could enhance crop yields…while actually reducing the amount of fertilizer applied. He had the whole country launched on a goofy program of making steel in backyard furnaces. And then, he decided that sparrows were eating too much of the nation's harvest…so he got the peasants to shoo away the birds and kill them. As the sparrows disappeared, along came the bugs and insects that they had kept under control, in such numbers that they soon threatened the entire harvest. Secretly, the Chinese government finally had to ask the Russians for aid: please send sparrows, in the name of socialist internationalism! Yes, there are funny parts to the Mao story. So eager were the Maoists to industrialize that they completely neglected quality control. Chinese planes couldn't fly. Tanks couldn't drive in a straight line (on one occasion, a Chinese made tank swerved around and charged at a group of VIPs, say the "Mao" authors). Chinese ships were more of a danger to their crews than to the enemy. And when a Chinese helicopter was presented to Ho Chi Minh, the manufacturers detained it at the border because they were afraid it might crash. But mostly, the Mao story raises question marks about our whole race. Western readers may be appalled by the murders, betrayals (Mao would set up his own troops, in the thousands, to be killed by the enemy…just to give himself an excuse to break an agreement or avoid following orders), famines, and tortures. But they will surely find Mao's attitudes to sex reprehensible too. The modern citizen of a western democracy feels he is entitled to sex, above all else. At least, that is the idea you get from reading the press or watching TV. But Mao was a humbug on sex, as on everything. Workers were expected to follow orders and put the party and its rules above all else. There was little privacy…and, with people dressed in those tawdry, gray Mao outfits, and crowded into tiny, charm-less tenements, there was neither the time, the energy nor the place for romance - or sexual congress. Couples were often posted to different cities…and allowed to see each other only 12 days per year. The rest of the time they were not allowed any outlet for sexual feelings - if they had any. Even masturbation was outlawed. Meanwhile, Mao himself lived it up in his luxurious villas - dozens of them spread all over the country - complete with in-door swimming pools. He ate like a pig and had his agents scour the countryside to find young women - 'imperial concubines' for the Chairman. Singers, dancers, nurses, house staff - they were all available to Mao as he pleased. But Mao was fat and repulsive. He never bathed in 27 years, according to reports. And his teeth, which he never brushed, went black. How did he get women to sleep with him? Ah, dear reader, that is just another mystery of our race; people seem willing and able to do just about anything. Bill Bonner
The Daily Reckoning Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Daily Reckoning readers can buy their copy of Empire of Debt at a discount - just click on the link below: The Most Feared Book in Washington! --- Advertisement --- Do you believe gold is money? We do, too. Long gone are the days when the dollar was "as good as gold". We all have to take individual measures to protect ourselves and the stability of our personal wealth. Since 2001, thousands of individuals and companies have used GoldMoney® to buy gold to guard their assets from today's financial uncertainties. Many of them have also found GoldMoney's patented process of digital gold currency payments to be an ideal payment solution for online commerce. GoldMoney is easy to use and inexpensive, with the added convenience of transacting entirely on the web. Want to give us a try? Please click on the link below to start buying gold or silver today: http://goldmoney.com/?gmrefcode=dailyrec | 
