Pawns in the Public Spectacle

by Bill Bonner

Who wanted the war? No one. Who stood to gain from it? Almost no one. Why did it go on for so long? No one knows.

But once a great collective enterprise is underway, it goes according to its own plan. It does not listen to reason. It does not permit dissent. And it rolls over anyone who gets in its way. The public spectacle usually begins in comedy, develops into a farce, and often ends as complete tragedy. It doesn’t matter what anyone thinks, or says.

We read recently about an analyst who said the U.S. dollar “will not fall too much because a crashing dollar is in no one’s interest.” But things happen. Who wanted the Great War? Who wanted the Great Crash? Who wanted the Great Depression? Who wants to die?

We have, in the United States today, the idea that bad things happen because there are “bad guys” out there. If bad things happen, people believe, it is because bad guys want them to happen. But who can tell who’s a bad guy? Who were the bad guys in World War I? Allied propaganda made the Germans out to be the “bad guys.” And since victors write the history books, even today many people think that an axis of evil ran from Berlin through Vienna. But the real evil in Berlin didn’t come until almost 20 years later.

What a change a few years made. Before World War I, Europeans were practically delirious with confidence. People everywhere were becoming healthier, freer, richer and better behaved, they believed. Crime rates were going down. Engineers were building skyscrapers, subways, automobiles, airplanes, telephone systems – there seemed no limit to what man and machine might do together. Hardly anyone noticed the machine guns and heavy artillery.

Does this sound familiar? Today, Americans are supremely confident. Every poll says so. So do the numbers. The S&P is selling at 30 times earnings. Investors are prepared to wait 30 years to get their money. Lenders let out money for 30 years at only 5% interest – this in a currency that loses at least 2% per year…and one that has gone down 15% per year, against euros, for the last two years.

The U.S. savings rate has fallen to its lowest level in history. Why save for a rainy day? Americans think it will never rain again.

What is the meaning of the Great War? It is the same message given to us by the Great Crash and the Great Depression. Most often, nothing happens. Things go on, day to day, with little change. The sun shines. But occasionally, not only does it rain, it pours.

We laughed out loud when we read what Mr. Greenspan said to Congress on Wednesday: “If you get into that sort of debt maelstrom, it’s very difficult to get out of it.”

The Fed chief warned Congress to keep an eye on the deficits (expected to total $5 trillion over the next 10 years). But if any human being was the “bad guy” responsible for America’s approaching debt maelstrom, it is none other than Mr. Alan Greenspan himself. The trail that leads from the debt bubble to the world’s most popular civil servant passes through 13 rate cuts and persistent lending well below that actual CPI inflation rate. The Fed has been giving away money – interest free – for more than 2 years; what did he expect?

But we do not really blame the Fed chairman. Like everyone else, he is just playing a role in the great public spectacle. Had he not loosened credit when people wanted it loosened, he would have had to go back to honest work in the private sector. Mass movements have no patience for individual thinking, independent analysis or maverick opinions.

Yesterday’s Times of London mentioned that 300 British soldiers had been shot by firing squads in World War I. These were the men who either went off their heads, or actually used them. The war was plainly a mad waste of money and lives. And yet, if a man tried to walk away from it, he was shot.

Collectively, there is no way out. Imagine the benighted fool who might have sent a letter to the British, French, and German high commands during World War I:

“Well, this is clearly not working out. Why don’t we all go back to our original positions and forget the whole thing?”

There is no going back. Once the madness begins – whether it is a war or a bubble – it must run its course. In fact, early victories and early profits typically reinforce the trend. That is why, in war and speculation, it is often better to lose the first encounter than win it; it might make you reconsider. Otherwise, you’re likely to go on until you are broke, exhausted, or dead.

Germany almost brought the war to a quick close, as it intended. But General von Kluck deviated from the plan. Believing he was trailing a broken army and about to deliver the “coup de grace,” von Kluck followed the French down the Marne, rather than attacking Paris directly.

But the French were not broken. “My right flank is giving way,” said General Foch, “my center cannot hold. Position excellent. We will attack.” The French counterattacked at the Marne and drove the Germans back. The two sides dug themselves in and fought for another three and one-half years.

Francis Fukayama calls General von Kluck the most important man of the 20th century. His mistake destroyed the German’s chance for a victory…and ultimately nearly destroyed Western bourgeois civilization.

Our choice for the fool of the century is our own Woodrow Wilson. Hardly had Wilson won re-election – on a platform of keeping the United States out of the European war – then he spotted an opportunity. By that time, both sides were worn out. Neither saw a way to win. Talk of a negotiated peace was in the air. But if Wilson could hold off peace, and help England and France win a clear victory, the American president would be able to preside over the resulting settlement. Wilson thought he could bring a “politics of meaning” to the war. It didn’t have to be a pointless butchery, he said, it could be a “war to make the world safe for democracy.”

Another lie, and a monumental one, at that. Most of the major belligerents already had some form of incipient democracy. Nor was there any particular reason why a victory for the unelected King of England would be better for democracy than the victory of his cousin, the unelected Kaiser of Germany.

Mr. Wilson sent troops, money, and arms – and scribbled down his 14 Points. Nearly two years and millions of corpses later, Germany finally gave up. Wilson arrived in Le Havre. And while the French and English laughed, the Germans wanted to know what had happened to the 14 Points. Practically every term promised by Wilson was violated. The peace turned out to be nearly as disastrous for Germany as the war – thousands starved as the British fleet continued to block German ports.

Britain and France were the winners. But they were broke. And it is here that the long trail begins. As explained above, our own Fed intervened to help the British…and set off the ’20s boom on Wall Street. One thing led to another. And here we are, at the caboose on one long train of events…and in the first car of another.

Debt levels have increased ever since 1950. Mr. Greenspan has already told us where we are headed: Into the “debt maelstrom.” We do not doubt it. Nor do we think anything can be done to prevent it.

No professor of economics is going to send a registered letter to Alan Greenspan explaining how the “debt maelstrom” can be avoided. What will happen, will happen. Que sera, sera. It doesn’t matter what you or I say or think. The logic of the debt maelstrom will not be refuted. It has its own fate. It’s own resolution. Its own unstoppable tragedy to be revealed and resolved…in its own good time.

When something gets out of whack, it can take a long time for it to get back in whack. Once the governments of Germany and Italy were wrecked, out of the wreckage grew even more absurd forms of government – National Socialism. It took until 1945 for things to get more or less back in whack.

Russia was not so lucky. Communism took 70 years to finally disappear.

Meanwhile, America suffered from too much luck. Both of the world wars ruined its competitors – giving American industry a bigger share of world commerce. And then, when the dollar became the world’s favorite currency, Americans discovered that they could issue I.O.U.’s to the rest of the world – either as currency or as bonds – and never have to pay off. Cutting the dollar lose from gold in ’71 just made a good situation better. Now, there was no limit on how much Americans could borrow and spend. And then, along came China and Wal-Mart, with “Everyday Low Prices” for nearly everything.

No lies were ever so popular. Finally, you could get something for nothing. There was not only a free lunch – but also a free four-course dinner, with all the booze you could drink. The government will give you a nice retirement and cover medical bills. The next generation will pay for it. No problem.

Plus, you can get rich – without working. Just watch your stocks rise. Or your house.

What a hoot! What a perfect nation! What a happy and virtuous race! What a wonderful system!

Again, Francis Fukayama – a neoconservative hallucinator – imagined that we had reached a kind of “end of history.” It had to be the end because no finer system could be imagined. American democratic consumer capitalism was the crown of creation. Everybody wants what we have.

And yet, here we are…on the eve our “debt maelstrom.” Never have a people been so fortunate…and so debt-ridden at the same time. The government runs the biggest deficits in history. The difference between what it has promised voters and what it expects in tax revenue – the “financing gap” – has a present value of $54 trillion.

Mortgage debt as a percentage of house value is at an all-time high. Never have consumer debts been so high, nor have people ever spent so much more than they earned, except for 1950, which was under completely different circumstances.

Americans spend so much and save so little, that it now takes 75% of the entire world’s savings in order to keep them living beyond their means. Few people in the world can afford to live as well as Americans in 2004, sadly not even Americans themselves.

How will this next public spectacle turn out? Who will be its heroes, its villains? Who will be its winners, its losers? Of course, we do not know. This is the story of the “debt maelstrom”…a tragedy, most likely, following today’s epic farce.

We do not know how it will turn out, but you, dear reader, can still walk away to safety. There is no penalty for desertion. You can simply turn your back on the “debt maelstrom” and go back to your own private life. You buy the businesses you want to own – even through a severe, prolonged slump. You hold the assets you want to hold – recognizing that you cannot count on rising prices. You protect yourself and your family…and feel glad you can do so without being shot.

[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:

Now Perhaps Someone Will Listen!