01/16/12 Melbourne, Australia – On Friday, after the close of business in the stock market, S&P downgraded 9 European countries. Spain and Italy were both taken down another notch, leaving Italy with a BBB+ rating and Spain with an A.
But the headline damage was done to France, whose triple-A rating got downgraded to AA+. France had been rated AAA for 36 years.
The French bid adieu to their triple-A status…said they didn’t care about it, expected it, and didn’t believe it anyway. But it was a blow, not just to the French but to the whole European experiment. France, with Germany, was one of the strong, big economies at the center of Europe. It was one of the economies the others were depending on to bail them out. Now, it looks like France may need its own bailout.
The Wall Street Journal warned that markets needed to “brace for European fallout,” this morning.
But maybe there won’t be much fallout. The US lost its AAA status last year. And it wasn’t at all inconvenienced as a result. Instead, yields on US debt went down…meaning, its bonds were more desirable than before. Investors knew they would get their money back, they didn’t seem to care about what the money would be worth.
Mr. Market often plays tricks on investors. He makes the thing that is the most risky seem the safest. The safest asset, on the other hand, he makes seem like the riskiest thing they can buy.
That was what investors thought about US Treasury bonds 30 years ago. Inflation had reached over 13%. The US 10-year note yielded 15% (from memory). Investors had taken to calling them “certificates of guaranteed confiscation.”
But instead of confiscating investors’ money, bonds proved to multiply it. Yields soon began to tumble. They’ve been coming down, more or less, ever since. Which means…people who bought bonds in the early ’80s have made a lot of money. Bonds turned out to be a very safe investment.
Meanwhile, gold was seen as the safest thing you could buy in the early ’80s. It had been going up for the last decade. Investors saw no reason the trend should stop.
But barely had the ’80s begun when gold put on the brakes. Then, it began to back up. The price fell from over $800 to under $300 — over the next 18 years. Investors would have been safer on an Italian cruise ship!
And how about now? Money rushes to the safety of US bonds. Yields are as low as they’ve been in 100 years. But are they safe?
Nope. They’re probably the riskiest investment you can make.
France has about the same financial profile as the US. In this respect, both are at the center of the developed world — with government debt of about 100% of GDP. Neither can expect to work its way out of debt unless it can keep its deficit below its rate of growth. And that’s going to be almost impossible. Europe appears to be heading into a recession (negative GDP growth)…and the US is not far behind. Despite the renewed talk of a ‘recovery’ in the US, the country limps along with a budget deficit of nearly 10% of GDP…and will probably tip back into recession later this year. In any case, there is no end in sight to America’s huge deficits. And no chance that growth will rise high enough to offset them.
This is going to end badly, dear reader…
It is amazing what you find in the newspapers. In Johannesburg was the story — if you can believe it — of a man who threatened three men with a pistol and forced them to rape and mutilate his wife. Then, he shot and killed his son.
He then fled into the bush…only to reappear when he ran out of food and water a few days later.
In Sydney, Australia, the “Elvis Express” left the station last week, without a single unsold seat. The train takes Elvis fans to the 5-day Parkes Elvis Festival, held once a year for the last 6 years.
And all over the world, the press is howling for the heads of the marines seen urinating on the bodies of dead Taliban soldiers on YouTube. Everyone is appalled. Defense industry chief Leon Panetta says he disapproves. And Al Qaida is said to be using the video already and getting a terrific response to its recruiting efforts.
Here at The Daily Reckoning we rise to defend the downtrodden, the diehards…and those too dumb to speak for themselves. Of course, the marines did something disgusting. They should be court-martialed. And put before a firing squad…along with their commanders…right up the chain of command to the commander-in-chief. They all sabotaged America’s war effort.
But we have mixed feelings about the marines. They were sent to fight a savage war. Is it any surprise they act like savages?
A friend of a friend…a doctor in the Army Reserves, just returned from Afghanistan, offers this perspective:
“It was such a waste. It was so expensive, keeping us all there. Most of the time, we did nothing. Then, we would go on patrol. The Afghanis would try to kill us; we’d try to kill them. And they were just drug dealers and goatherds; what was the point?
“I’d get two kinds of patients…those who had just stepped on a landmine and lost a leg…and those who had injured themselves playing football in our camp. Both were a waste…”
Part of the reason the press is so disgusted by the marines is that they show America’s war in Afghanistan is a fraud. Far from cuddly nation-building, the marines act like soldiers always act when they are put to such nasty tasks. They are not fighting a heroes’ war. They are not defending the country. Instead, they are fighting a mean, dirty war — like the French in Algeria…or like the Russians in Afghanistan before them.
It is not an honorable war, in our opinion. It is not a decent war; not a war good men should not be sent to fight. It is a zombie war. It is the sort of war America’s two most celebrated generals — Washington and Eisenhower — warned against. Its only purpose is to enhance the power, wealth, and status of the military industry. In his farewell address, General Washington warned against getting entangled in foreign military adventures. General Eisenhower made the same point: beware the “military industrial complex,” he said.
And yet, here we are. Entangled…for the benefit of the military industrial complex.
The marines were pissing on the wrong people.
Regards,
Bill Bonner
for The Daily Reckoning
Bill Bonner
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.
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Yes, you nailed it again. Thanks Mr. Bonner.
In pre-industrial use, urine was used as a cleaning fluid due to its ammonia content. In hot weather survival situations, where water is also hard to find, soaking cloth in urine (a shirt for example) and putting it on one’s head can help cool the body.
It’s ok to blow their brains out, but for god’s sake don’t pee on them!
Bill, I no longer appreciate your comments. I must move on.
Yes, life’s pretty straight in Sydney.
We have a saying here most of you could almost identify with; “Life’s a beach and then you die”.
When the USA became the uber-power not so long ago, what an historic time that really was.
The govt must have been faced with a choice of doing good and doing evil.
I wonder how the history books will read in a generations time.
Will the US people take back power from the banking oligarchs or will they go on believing any s**t they are told?
Until the power to create and issue money is taken away from the nation states and returned to the individual enterpriser, none of this will stop. Governments must come hat in hand to their citizens in order to get the money they need. Without the money power, humans will never attain prosperity or achieve their civil rights.
We’re just pissin’ in the wind.
Great interpretations as usual. The Daily Reckoning writings always start my day but lately it seems all your co-writers are going on French working hours (mostly time off). At least you continue to provide the key info as always. Presumably they’ll get back to work helping you fill this out every day.
Hopefully you and Doug Casey will be able to survive the decline of the empire and its censorship as history repeats itself once again.
Bill, don’t worry about “Had Enough.” Starting today, I’m reading everything your write twice!
Iran Not Building A Nuclear Weapon: Leon Panetta – SOURCE: http://www.globalresearch.ca/index.php?context=va&aid=28561
Richard,
Government is not going to come to its citizen’s hat in hand. I have worked in several at the county and state level. Great and caring people but they have never heard anything along the lines of DR or Mish Shedlock. These concepts would not make sense to many of them. They see the world in a completely different way. They want to help but they would consider this site as nonsense or worse. It is very hard to change a world view. At some point these two world visions are going to clash. It is not going to be pretty. I wonder what will happen to the writers like Bill, Addison and Young Joel. I am buying their books so I can go back at some point and read this stuff again if the sites suddenly go away. I really enjoy the balance. I enjoy hearing what is going on each day around the world.
It is business as usual. When Jiang Kai Shek send another cargo to the Atlantic shore, he will be fully paid with paper bond. Still, if he send yet another 40 footer container laden with exotic women, CIF Boston, the transaction would also be contra with paper bills of exchange. When the 4 little snakes boost of their talent in international trade just one and half decade ago it did stir up some ripples in my coffee cup and misled many a commoner to divert to the windy direction. Since then, the giant entered the paper game. The tiny snakes shrinked to merely their master’s outpost. Once staunch anti communism, instead, these crocs now have to dispose their sub standard commodity in the mainland. Obviously the snakey skeleton has been fully demostrated.
Whether, Kai Shek the I,II or III, the outcome remains same. That was 15th century, a blizzard striken winter night, when Marco Polo came to Peking to deliver a fatal blow to his backside. Since then his nervous system hung up, his brain evolution ceased outright.
Bill has the balls to say things no Republican (or any other American leader) will say.
Moi, je dis bravo!
I say “bravo” as well. What Bill has taught me (besides the free economic education and the history of the world) is that it does not matter, Republican, Democrat, left, right, center, etc., is that we are all screwed under the present system. Further, that, DR cannot just offer financial advice (the economic beat) without addressing the politics of the day and who is really running the world…into the ground, unfortunately. Merci, merci beaucoup, Bill.
I’m not too worried. Bill. In the Roarin’ 20s, they needed taxicabs. All through the Depression, they needed taxicabs. when the war came, they needed taxicabs. After the war, they needed taxicabs. I own a taxi company. You said invest in metals; well, I did. I own Lincoln Town Cars and Ford Crown Victorias. And my investment is paying off. But I’m just as curious as you to see what idiocy happens next!
“They were sent to fight a savage war. Is it any surprise they act like savages?”
They act like savages because they ARE savages.