12/15/10 Baltimore, Maryland – “Shoot, if you must, this old gray head,
But spare your country’s flag,” she said.
A shade of sadness, a blush of shame,
Over the face of the leader came;
The nobler nature within him stirred
To life at that woman’s deed and word:
“Who touches a hair of yon gray head
Dies like a dog! March on!” he said.
– John Greenleaf Whittier, “Barbara Frietchie”
It’s the Ides of December, if December has ides. Some months do. Some don’t.
Yesterday, we drove up to Frederick, Maryland. It is the site of the encounter – fictional – between Stonewall Jackson and an old woman. More on that, below…
But you’re probably wondering what the Fed’s FOMC did yesterday, aren’t you? You’re not? Well, good for you. You must have a life. Or a brain.
Those of us who are condemned to follow such things found out that the Fed is standing pat. You can imagine how that stirred our blood. We had barely slept wondering what the Fed would do. We had worn out the carpet, pacing back and forth. And now we discover that the Fed will do nothing!
The “recovery” is too weak to raise rates, said the Fed. And the economy may need more stimulus, it added; so it will stick with its plan to buy $600 billion worth of US government debt.
You’ll remember that the Fed purchases were supposed to drive down long-term interest rates so that mortgage borrowing and capital investment increased. But instead of falling, long-term rates went up.
On the surface of it, you might think the Fed chief would lower his head…and admit that his quantitative easing plan is a colossal failure. Since March ’09, he has committed an amount equal to more than an entire year’s output of the US economy to his QE initiatives. With so much of the nation’s treasure lost, you’d think he’d offer to slit his wrists…or at least resign. But that would just go to show that you’ve never studied modern macroeconomics. If you spent a few more years in school, maybe you too could begin to see that up is really down and black is actually white. The Fed’s actions will multiply the US monetary base by 4. Is it any wonder investors are getting suspicious of US dollar-denominated paper?
In theory, the Fed’s purchases of Treasury debt are absurd. In practice, they have backfired. So, the Fed will do more of them. Makes sense, right?
The US bond market could be signaling that it is headed the way of Greece, Ireland, and Lehman Bros. Who wants an IOU from someone who can’t pay it back? Once the selling begins, it is hard to stop. Interest rates go up, increasing the cost of financing for the debtor. Pretty soon, he can no longer fund his on-going expenses or make the payments on his debt. He is forced into bankruptcy.
Meanwhile, the latest numbers from Robert Shiller tell us that the US stock market is 33% overvalued. Our guess is that stocks will go down much more than that number implies. Markets tend to overshoot in both directions.
And the latest news from China tells us the Middle Kingdom could blow up at any time. Nearly half the GDP is spent on capital improvements (usually things that involve concrete and steel). It’s breathtaking to see it. But there’s no way you can make that many capital investment decisions without making some colossal blunders.
And from Europe comes a bleak and foreboding assessment: European banks have five times as much government debt as they did 3 years ago…and even US banks have nearly $350 billion worth of debt from Europe’s wave-washed periphery. Investors are selling off Spanish bonds; another chapter in the debt crisis could be at hand.
Dear reader, you are faced with a grave and dangerous situation. In front of you is the Valley of Death for investors.
America’s stock market could crash at any moment. Its bonds are slipping. Its homes are sinking. China could collapse into a heap. Europe could come unglued. Trade could fall off a cliff. Interest rates could rise everywhere. Another great depression could be coming soon.
And yet, CEOs are optimistic, says one report. Investors are overwhelmingly bullish, says another. And your captains are telling you to “charge ahead!”
Our advice: Take cover!
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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America’s stock market could crash at any moment. Its bonds are slipping. Its homes are sinking. China could collapse into a heap. Europe could come unglued. Trade could fall off a cliff. Interest rates could rise everywhere. Another great depression could be coming soon.
Maybe we should just shoot ourselfs now and spare ourselves all the agony.
All months have Ides:
“In March, July, October, May,
the Ides Fall on the fifteenth day,”
For other months, the Ides fall on the 13th.
I understand your support for owning gold as opposed to stocks. But what about gold stocks. Aren’t these at least as good or better?
I agree with the idea of great depression, maybe a greatest one, but where it explode? that is the question. It seems that stress of limits of economic system is near, be prepared with grains, food, that is the important when a civilization wiped out!
I can see it now…Hello electric company, how many bushels of grain do you want for 300 kwh of juice? I’ll be right over with it in my truck after I swap some canned vegetables for gas at the Gulf station. Sure.
Back in the colonial days they solved the above kind of problem with colonial scrip.
Of course the villainous federal government would have to make it legal to do so again.
Like any other commodity, there would be a market in money and the best money would win out.
Unless it is counterfeited, this would work wonderfully.
You know, England ran for centuries on a kind of currency called ‘tally sticks’ which were literally sticks with notches on them. As long as the supply of money is right, apparently almost anything could be used as money.
To learn more check out a video called The Secret of OZ. Fascinating take on things.
Years ago I read a novel about how the generals insanely prosecuted the First World War with the concept of attrition of young soldiers.
“They were trying to remove a screw with a claw-hammer.”
Everything anybody needs to know about the ‘science’ of economics can be imparted in a one day seminar, with time left for a few hours of Q and A.
Figures don’t lie, but liars figure. The more discourse employed to explain, justify, or otherwise impute a scheme, plan, algorithm, formula, or whatever you wish; the more one knows in their heart of hearts the deal is not a good one.
Back to sleep everybody.
First thing that a person think is that money is an ally…wrong, it’s a big mistake! money make people an slave, a modern slave. If society dump all money and use goods as money,then society will win and avoid the crash of US, EU!
In the near time, grains and food will be wealthier than fiat currency, and maybe all people -include the chairman of the electricity company- come to exchange food for electricity, gas, gasoline!!