Goldman gets a hidden bailout…Wall Street uses bailout money for bonuses…Cash for Clunkers…nationalizing GM…quantitative easing…Geithner lies to the Chinese…
Crackpot ideas! Corruption! What next?
But the most breathtaking scene is the one no one seems to notice…
Perhaps it is because we have our head in the clouds…so far above the surface of everyday life that we can look down and see what is happening…
…or perhaps because you have to be a connoisseur of absurdity to appreciate it…
…strange…bizarre…almost surreal…even when you see it, you don’t quite believe it…
First, the voters ruined themselves…now it’s the government’s turn!
The US federal government is digging its own grave…bankrupting itself with its eyes wide shut. And it’s not alone…
Look back a little more than 100 years ago, and you’ll see that something similar happened. Europe went to war. No one knew why. No one knew what he stood to gain. But whether he was a kraut, a frog or a Tommy…he kept at it for four years – until every major government of Europe was broke. Most of them collapsed completely. All of them were broke. Germany and Russia, with the added burdens of war reparations on the one hand, and Bolshevism and civil war on the other, forgot their manners. Both were soon butchering their own people.
In the Great War the generals led the way to calamity. Now it is economists…
Some observers think the economy is recovering already. Others think it is not. If it is not recovering, it is because it didn’t get enough stimulus, they say. If it is recovering, it’s because the stimulus has worked.
“Fewer layoffs expected as recession winds down,” says a headline this morning from one of the wire services.
The Dow fell 25 points yesterday…but it’s still in bear market rally mode. With a little luck, it could go to 10,500.
(Of course, it can do whatever it wants…we’re just guessing, based on the experience of other major crash/depression episodes in history.)
Oil trades at just under $72 this morning. Gold is at $960.
It is “business as usual at Goldman,” says a news report. Which is to say, big bonuses for the bankers. The top eight US banks got more than $170 in bailout money last year. They paid about 20% out in bonuses.
But now the press and the politicians are on their case. It looks like they might have to ease up on the bonuses…at least until the heat is off.
The news is mixed. German factory orders are up…but the Bank of England says the recession is worse than expected; it says it will continue buying bonds.
Americans are raising chickens in their backyards again…even in places like Brooklyn. But the latest headlines tell us that requests for unemployment benefits are running below expectations.
The housing market is supposed to be stabilizing…but new waves of defaults, resets and foreclosures are coming. Half America’s mortgages will be underwater by 2011, says a Reuters report. And Deutschebank warned that construction loans were starting to go bad too.
But the big story? Stimulus.
Here is the International Herald Tribune on Monday:
“More Stimulus is Needed to Spark a Strong Recovery,” is the headline. According to the IHT, stimulus is working. And it will work even better if there were more of it.
Once underway, the WWI generals used the same sort of logic. If they were winning, it was because they put so many resources into the campaign. If things were going against them, they called for more men…more guns…more ammunition.
Of course, once a war has begun, it is hard not to want to win it. One hundred years later, it seems obvious the combatants should have called the whole thing off. They could have spared themselves a lot of misery.
But that’s not the way history works. She may be absurd, but she rarely does things by half measures. Once called to action, soldiers fought to win…even at the cost of their own lives.
And now the world’s central banks, Treasuries, and legislatures are at war. With economic strategists egging them on, they have declared war on all that they find unholy about capitalism – deflation, bear markets, and the down swing of the business cycle. John Maynard Keynes, that much-revered strategist from the Depression Era, tells them this is a fight they can win. And they believe it!
Of course, these are the same people who saw nothing to worry about in 2006…the same people who have no idea what is going on – and have the track record to prove it!
Can you really fix a debt-saturated economy by pouring on more debt? We know the answer, don’t we? When you borrow money you take something away from the future and bring it into the present. That is not a bad thing…if you are doing it to increase your future output. In that case, you’ll be able to pay back the loan with your extra earnings. But if you borrow from the future only to consume, the future waits for you…like Shylock waiting for his pound of flesh…
The future caught up with American consumers in 2007. But the feds learned nothing…and soon it will be a ton of flesh the future will want.
“Life seemed much more simple when I was growing up,” said mother, reflecting back on her youth during WWII.
“People were so much more modest. I had a job at Bergstrom Air Base in Texas…[she was in the WACs]; we would show movies to the soldiers who were going overseas. Some of the movies reminded them not to talk to people about where they were going… ‘Loose lips sink ships’ was the phrase.
“And there were some awful movies such as ‘Kill or Be Killed’…it showed them that they had to be on-guard…and they couldn’t hesitate. Of course, it is an awful thought – that you had to kill someone before he killed you. And then there were the movies about social diseases…I don’t remember what we called them then…but these were training films that warned the boys that they might catch a disease overseas if they weren’t careful. But we weren’t allowed to show those movies…we weren’t even allowed to see them.
“To tell you the truth, it was so long ago I can’t remember very accurately. And it was such a different world; I can barely believe it existed. It seems unbelievable now…I can barely believe I lived through it.”
Keep reading for today’s essay…
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
At first glance, it seems that pouring on more debt to fix a debt ridden economy is like fighting a fire with gasoline. But somehow, it’s working. I guess it’s more complex than we had thought, but the recovery could be around the next corner, and really, the debts never need to be paid back, do they?
My 401K will recover and I will cash in before October. I will gladly pay the penalty for early withdrawal.
Jason is correct. It is working. It’s not as simple as Bill lays out here every day – it’s complex. And it’s working. Yes, the debt never does need to be paid back, that’s why it works. That’s also the reason I laugh whenever someone points out the “taxpayers portion of the debt”. So what? I’ll never have to pay it. It’s just theoretical. Meanwhile, the economy steady climbs out of its hole.
Surely you jest… Debts never have to be repaid?
Can you please tell me what percentage of the federal budget goes towards debt servicing (interest on the money it borrows) for the debt that “never need to be paid back”?
The debt is repaid – by inflating the currency. Since the creation of the Fed (an organization that enabled the govt to live by deficits), the value of the dollar has decreased 94%. There’s nothing theoretical about it. It affects all of us right in the pocketbook.
Randy: Here’s the issue that is purely theoretical. Explain how “it affects all of us right in the pocketbook”. It doesn’t. Just look around. If the dollar has decreased 94% so has every other currency. Otherwise we’d be paying $50.00 for a loaf of bread. We’re not, in case you haven’t notices.
Yeah,some people just don’ get-it when it comes down 2 debt!”Don’t they know there’s no such thing as a Free Lunch!” Go figure? Hey BB ur Mom sounds alot like mine,its hard 2 remember a place far away and long ago,and many moons ago,a place called America!!!
If the debt doesn’t have to be repaid then why doesn’t the Fed just give every American a million dollars so that we can spend our way to a recovery? How about the Fed allow each American to print their own dollars so there is never a recession or a depression. This would be great. No more work – no more production – just a never ending recess for us all. Could someone explain why the Fed doesn’t just let us do this if the debt doesn’t matter? We await your complex answer
Starter homes are now $200K. Cars are $30K. Gas is $250. A loaf of bread is $2+.
40 Years ago a new Cadillac cost $6000.
A luxury home cost $50,000. Gas was 25cents a gallon and bread was a quarter.
I could also go to movies for a quarter and eat my self stupid for 75 cents.
Why do you think that is?
Debt may not have to be paid back, but it does need to be rolled over. Most of the debt being issued by our government is relatively short term (5-7 years.) Whats going to happen when the government needs to roll over all this newly accumulated debt to a suspicious bond market?
What would happen if the Treasury held an auction and noboby came? The answer is they would keep raising interest rates until someone did come (permiting that the Fed wasn’t able to stealthily do it.) When actual interest payments on debt start equaling tax receipts, then only someone with a lobeotomy would lend us money.
I have never – I mean NEVER – heard such a stupid thing as “debt doesnt need to be paid back”. It is the most stupid and absurd and ridiculous idea in the whole freaking galaxy…no, wait, in the whole freaking universe! And in all paralell dimensions too! Even a kirilian from the sistem of orion knows what interest and service is, but some americans dont! Oh, boy, do i fell sorry for you guys…NO, I dont!! hahahah
And it gets better! I can hardly wait till you guys have to convince 2 billion hungry and unemployed chinese they dont really need their money, becasue US dept is not to be paid back!! HAHAHA Oh, god, let me live to see this…
…did I say 2 billion, as in BILLIONs of chinese? And they were hungry and unemployed? guess i did…just cheking…
Bill, your articles are very refreshing. I enjoy that they comment on each day. I’ve only been reading The Daily Reckoning for about four months, but I’ve learned a lot. I’m going to read the archives now!
By the way, which war were you talking about? The Boer War? The Great War (WWI) began LESS than a hundred years ago.
Harry: relatively speaking, you are paying $50 for a loaf of bread. But you don’t see it, because we’ve become so efficient at producing bread that the cost has been driven so low that even with our vastly-depreciated dollars, bread is still affordable.
Think of it like this: a normal tax steals money out of your bank account. You can see this tax; you know it makes you poorer. But the inflation tax intercepts your mail and steals a refund check that you never knew had been sent to you. As a result, you don’t see the inflation tax, and don’t realize that it has made you poorer; its theft is hidden.
You are correct about one thing, though: the Unites States will never be able to pay back its debt. Eventually, one day, the Treasury will hold a bond auction… and no one will show up.
Very quickly after that day comes, all the dollars in the world won’t buy you a loaf of bread.
“Very quickly after that day comes, all the dollars in the world won’t buy you a loaf of bread.”
Perhaps that’s why it’s important that more and more of us learn how to make our own bread – just in case.
“Perhaps it is because we have our head in the clouds…so far above the surface of everyday life that we can look down and see what is happening…
Well isn’t that just the nicest way I have ever heard it put. One might have thought the head be lodged firmly in another place, with a different perspective.
This sure has sparked quite a response. Apart from the person who thought prices had inflated because they cost more, if bread was a quarter and today just over two dollars, remember that the quarter in use is today worth about $2.50.
Then there’s the ‘theoretical’ responses, coupled with the ‘don’t have to repay’ responses. Seems to me that if you were to push me, I would lean back. If I lend you a nickle I want it back. Well, gimme it dammit.
Of course, the quarter was real money, 90% silver, not like the tokens recently in circulation. Thought I should clarify, what with so many heads seeking out alpha in dark places
Someone once said, “A debt will ALWAYS be paid, either by the debtor or the creditor.” Each of you should ask the question, “WHICH ONE AM I?”
Yea, my neighbor Vinnie “no knees” said I can borrow as much money as I want from him, in fact, he insists that I borrow even more.
Vinnie is such a good fella, don’t you think?
BTW Theo, Vinnie will sell you the flour for you bread too, in fact, he insists on it. Ya know wad Am say’n!
Stimuli paradox: $100′s of Billions for economic recovery is a failure because it is dispersed too slowly. A few $billion for car dealers and autoworkers and new cars to clear inventory is a failure because it is dispersed too fast .. Wow, my headache is splitting upside Peaking Oil and downside speculation!
Bill, why not rest your feverish brain with a day or two in Christopher C. Swan’s “ELECTRIC WATER”. If that cools down too quickly, back to Jim Kunstler!
Readers (those that check this) would like your analysis of (peakoil.net) articles 374 and 1037, in ASPO Newsletters 42 and 89, respectively.
We await your comments on Fatih Birol’s IEA Report. Delay is making me nervous…
-Ooops, Birol is an economist!
a nation not repaying a large debt usually leads to war
Government theory regarding debt: “if my soup is too salty, I should add more salt”
can you provide examples?
how can we have a war with china, that’s just too catastrophic to think about
James R – the day is coming, for the Feds themselves bought 50% of the bonds in an auction in July.
I have in my possession a stack of German bills from the years after the first world war. One example: a 100 Mark bill, printed over with one thousand marks. Thousand Mark bills overprinted with a million Marks. Bills printed over with a billion marks. It’s called inflation and it the money was printed by the German government. That’s how my grandparents lost every “Pfennig” they had ever earned. After WW2, as a twenty year old, my savings of 20 thousand marks were converted into 200 Deutsche Mark. In fact, every German received 120 new Marks and after one year, savings of up to 2000 Marks were converted to 200 new Marks. Anything over 2000 Marks was written off. My grandmother had to buy one half of her house back in special taxes. Do you really think it can’t happen again? Ask people who lived through it. There are still a few of us left who can explain to you what happens when you start printing money that has no value.
An old Kraut
“The 1980 gold price peak of $875 per ounce”
Now, 30 years (inflation factored in) later,
Today, August 9, 2009, gold is $959.50 per ounce.”
What is the real value of gold?
Pat Said: “Uh, guys.
Why do you think that is?”
Let’s see…40 years ago you were ecstatic if you made $10,000 in a year. It’s all relative. How naive are you people??
James R said: ” Harry: relatively speaking, you are paying $50 for a loaf of bread. But you don’t see it, because we’ve become so efficient at producing bread that the cost has been driven so low that even with our vastly-depreciated dollars, bread is still affordable.”
Yes, it is relative. But we make so much more money that keeps pace with the “price of bread”. So a $50 loaf of bread is only fifty bucks if incomes haven’t increased along with it. They have. So the bread is the same price, theoretically, that it was 10, 15, 20 years ago.
Thank you for your great comment. By the way, history never repeats but it rhymes. (Mark Twain)
We Japanese didn’t expect to receive
one more atomic bomb.
I mean “lost decade”.
And You too, receive another ” G “.
For those of you who think the debt never has to be repaid, please read The Creature From Jeckyll Island to discover exactly how this debt is serviced. Also note that the game can only go on as long as the interest on the debt is being serviced. Once the interest is unservicable, default is imminent and unavoidable.
Homer Winslow-Herman Melvill-Samuel Clements-Walt Whitman-Walt Disney-The Wright Brothers-Nikola Tesla-Henry Ford-Richard Feynman-Jimi Hendrix-
Sam Cook and Hank Williams to name but a few of the USA’s more enlightened progeny.
Ya gotta ask.HTF did the US end up with a semi literate nutjob like George W Bush for prez?
I’m pretty sure he wasn’t American. Serbian I think.
“debt doesn’t have to be repaid”
So you beleve that it is possible to consume more than we produce, forever. If you can tell me how this works, please do, I’d love to quit my job and keep consuming forever.
Immigrated at 30′ish. Died in NY at 86.
Apparantly quite a staunch patriot.
And when all of a nations taxes go toward paying the interest? Thats called tyrany.At which point not even america will be amercan anymore….Way to go George & Co.
“…it seems that pouring on more debt to fix a debt ridden economy is like fighting a fire with gasoline. But somehow, it’s working.”
No it’s NOT, Jason. Even a heroin addict can remain ‘functional’ as long as the smack keeps flowing. But our stimulus money is going to run out eventually. Even if they pass a second stimulus, sooner or later it will run out.
Then comes the inevitable crash.
I wonder how many other people “think” like Harry?
Harry and Jason are the kind of witless, gullible citizens that politicians love.
“We’ll never have to pay it back!”
You idiots. The national debt is constantly being rolled over as older bills, notes and bonds mature. Debt service is currently over 4% of the budget and set to reach 8% sometime next year. You’re already paying it, with every payroll tax withholding, every hidden corporate tax, every time you buy a gallon of gasoline and in a thousand other places. And you’ll NEVER GET DONE PAYING IT.
There’s an easy recipe you can use to root out the strongest stocks on the market right now.
America’s Strategic Energy Weapon, Part II
The quack policy that was good for stock owners in North America turned out even better for those in Japan.
From under which fetid igneous formation did these IRS slugs slither?
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Why following market skeptics can protect you in the long run.
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