02/10/10 Bethesda, Maryland – The Dow rose 150 points yesterday. We’re not sure what to make of it. Does it mean we were wrong about the beginning of the end? Are we still in the middle? Or is our whole theory wrong?
Hold your horses, dear reader. We’ll have to wait to find out.
The papers attributed the big upward thrust in share prices to news from Europe. The specific fact that caused the swing to profit had to do with Jean-Claude Trichet’s travel plans. He was in Australia for one meeting; now he’s coming back to Europe early so he can partake of another.
What has caused him to call his travel agent is a problem centered in Greece. The Greeks are in a jam. They spent too much money in the bubble years. Then, they saw their tax revenues disappear in the bust.
Sound familiar? It should, because the same could be said of most of the US states…and most of the world’s countries, emerging markets excepted. They all spend too much. Almost all run deficits. And almost all their deficits are getting bigger and bigger.
So far, the big economies don’t have a problem. Lenders think they are good for the money. Almost miraculously…or supernaturally…the USA – the world’s biggest borrower – is able to obtain financing for 10 years at less than 4% interest. Since the official inflation rate is 2.7%, that means lenders give up their money for a real rate of return of just a little over 1%.
It’s the little economies that have trouble. They don’t have printing presses of their own. Like California or New York, ultimately, they have to balance their budgets. They can’t inflate their way out of trouble. So, when their backs are to the wall they either get tough and cut expenses rudely. Or they go broke…default…and then have the cuts forced upon them.
The focus of this week’s discussion is the PIIGS – Portugal, Ireland, Italy, Greece and Spain. Together they’ve got about $2 trillion worth of debt. And lenders are making it more expensive for them to borrow more. If this continues, they’ll default. And then, say the financial authorities, terrible calamities will happen. The whole European financial system could come falling down. It would be the end of the world as we have known it.
Does this sound familiar too? It should. It’s the same scare tactic used after Lehman was allowed to go under. AIG had to be saved. And Fannie and Freddie. And GM.
Now, that lame argument is probably going to lead to the bailout of Greece…and by extension, all the other insolvent nations along the periphery of Europe. The debts will be collectivized…just like those of Fannie and Freddie. Instead of being allowed to fail on their own merits, in other words, European nations are locking arms…they are all going to fail together!
Germany’s politicians are already talking about a program of support in a “broad sense” for Greece and other problem economies. Soon, in Europe, the English word ‘bailout’ will be as common as “hamburger” or “coke.”
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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“Does it mean we were wrong about the beginning of the end? Are we still in the middle? Or is our whole theory wrong?”
Your whole theory was and continues to be wrong. The markets have seen their little correction and are marching back up. The noise from this Greek stupidity has caused everyone to overlook how strong our economy is and continuing to strengthen.
Looks like the perfect time to buy equities once again. The market has given us a gift!
You’re a failure Harry. Time to admit it.
Since the recovery is invisible to all/most us here that read the DR, I guess the burden of proof is on you Harry, is it not ?
The Greeks hosted an Olympics–no kidding they borrowed lots and wasted lots. No doubt some construction contractors and government insiders did well for themselves.
Can’t wait for the DR articles on British Columbia that will be coming out in a couple of years!
This idiot Harry was probably going long on the DJIA when it was at 14 grand.
How does collectivizing debt to the tune of $2 trillion NOT collapse economies that do not have the tax revenue to back up the initial debt, let alone the servicing?
Harry, you’re a turd-eating basement dweller.
I, on the other hand, am up almost 100% on silver bullion and my mean black AK-47 and 1,200 rounds of ammo were bought for a steal in the summer of ’08.
I intend to stock up on PM’s once the $ reaches its greatest strength this spring as ‘conventional’ traders or is that traitors like Harry load upon Treasuries, not realizing the end of the US monetary system is at hand.
I may write a miniseries about it called “The Last Carry Trade”.
The DOW only lost about $20 today when Ben Bernanke announced that the stimulating is coming to an end. Let’s see how the patient does without the life support…
Harry I love you, you are even more interesting than BB to read. But unfortunately I think BB is going to be right long before you. Only once the debts are wiped out and that can only happen with the collapse of the financial system, will there be true economic growth. Daniel calling Harry a turd- eating basement deweller is a little harsh.
Seriously guys Harry is entitled to his opinion there is no need for name calling.
“If Everyone Is Thinking The Same Thing, Someone Isn’t Thinking ”
General George S. Patton.
Or everyone is non-ignorant. No one thinks the world is flat anymore.
If Harry is real (which he isn’t) or is just pretending to be one of the banksters who are stealing our money in the carry trade, they need to know there will one day be REAL consequences to face.
And I don’t mean a mild tax on their bonuses….
No penthouse is high enough to protect them forever!
If the EU bails out Greece causing the EURO to continue to erode, then the whole argument that a common currency among nations leads to greater fiscal responsibility and currency stability is out the window. I think this is an important test case, since Stiglitz and fans are arguing that a basket system should replace the dollar as the reserve currency. It will be interesting to see what happens here, since the result could serve as evidence for/against the basket idea, which seems to be gaining momentum in a lot of countries (including the USA).
Agreed that there is no need to go calling names, after all this is not Junior High.
I actually like Harry. We need people like him to take the other side (the dumb side) of our trades! Harry, go and buy some more stocks, they’re a bargain!