01/13/11 Paris, France – To the barricades!
Today, we continue to explore our new idea. Alert readers have already figured out that it is not a completely new idea. The ancient Greeks toyed with it too. Really new ideas are extremely rare.
In our modern version, it might be called the General Theory of Decadence…or the Cycles of Growth and Decline, or more playfully, the Unified Zombie Theory.
Life goes on. Material progress accumulates. The story of human life on earth grows longer, and more interesting. We see no end to it. But each component part comes to an end. Each life, each economy, each company, each society and each civilization still shrivels, corrodes, and exterminates itself. The past must become history so that the future may become the present.
It takes many downsides to make upside progress. And then, the progress – if there is any outside of real science and technology – is probably only barely positive…and painfully cyclical. One generation learns. The next forgets.
We’ll come back to this in a second…
First, a look at the news:
Dow up 83 points yesterday. Gold headed towards $1,400. And the Great Correction continues.
As to Europe’s debt problems, the press seems unable to make up its mind.
“Portuguese bond sale boosts confidence,” says The Financial Times.
Oh yeah?
“Portugal fails to quell fears with auction,” counters The Wall Street Journal.
The International Herald Tribune threw its lot with the FT:
“Pessimists kept at bay in Portugal’s bond sale.”
In short, who knows? Europe has too much debt. Just like America. Sooner or later, some of that debt will be written off. Or worse. Portugal is just like Illinois or California. Only smaller and less important.
Meanwhile, in the US…
“Housing weighs down the recovery,” writes Mort Zuckerman in the FT. There are 5.5 million households with mortgages that are at least 20% higher than their houses’ value, he says. Delinquencies are still rising. The loss so far is greater than in the Great Depression, adds Zillow. And the Case-Shiller numbers show it getting worse.
But let’s turn to murder for a minute…
“Obama says polarized nation needs healing,” says a headline at Yahoo! News.
A guy goes off his head and starts shooting people in Arizona. The whole nation needs “healing,” says the president.
The media is full of argument on the subject. Are Rush Limbaugh and Sarah Palin to blame? Strident political rhetoric? Loose gun laws?
Palin says she is a victim of “blood libel.” The New York Times refers to a “climate of hate.”
Why are people so angry at one another anyway?
Relax… Our theory explains it. When people are creating wealth they have little reason to get mad at one another. Sure, someone takes a shot at a Congressman from time to time, but it tends to be a personal matter. And the politico probably has it coming.
Not so in the degenerate phase. When people try to live at each other’s expense, it naturally gives rise to widespread rivalry and resentment. The poor want food-stamps, welfare and unemployment comp. The rich want tax cuts and government contracts. The feds try to give everything to everybody – especially to their insider friends. Then, they go broke and everyone gets mad.
Just take a look at the TSA’s new peek-a-boo screening machines. They probably do no more for the safety of Americans than US troops in Afghanistan. But, like the war, they make some people rich.
Government officials – including many ex-congressmen – pushed hard for the machinery…despite much evidence that it didn’t work…and then went to work for the manufacturer.
This kind of soft corruption is so ubiquitous that the media barely thought it newsworthy. But thanks to TSA, the wars in Iraq and Afghanistan, medicare, shovel-ready stimulus projects and hundreds of other initiatives, a lot of people are a lot richer than they were a few years ago.
Naturally, with so many greasy bones on the ground, no wonder the dogs fight.
And, naturally, the inside dogs are soon the envy of the outsiders. The insiders…smart, well-connected hustlers…are able to move fast and take advantage of the opportunities as they present themselves. The outsiders – the lumpen, the middle and lower classes, the taxpayers, mooches, and patsies – get the scraps…if there are any left.
One phenomenon that has been much discussed is the widening gap between rich and poor. Some economists think the gap itself causes financial crises. Others think it is merely “unfair” and needs to be addressed by government. Often they believe it is a consequence of a lack of intervention on the part of government. The feds shouldn’t have cut taxes on the rich, they say. Or, the feds should have regulated Wall Street more effectively.
Almost no economists have been able to identify the real cause of this wealth disparity. But it is obvious. It is explained by our theory…
As far as we know, this is the first time it has been explained. So pay attention: as a wealth-producing society degenerates into a wealth redistributing society…and then finally, a wealth-destroying society, the difference between insiders and outsiders becomes more pronounced.
A man with the right connections in Washington can get a juicy contract. Soon, he can be sipping coffee in Potomac, along with your editor. He has a huge advantage over the hoi polloi. He can leverage his insider status into million-dollar paydays.
On a larger scale, let’s look at the work of the US Federal Reserve. This insiders’ bank is supposed to be working for the good of all. It didn’t even exist during much of America’s most productive, wealth-producing history. But now it fiddles US money and interest rates. For whose benefit?
Again, it is obvious… It lends to insider banks below the rate of consumer price inflation. It has been doing so off and on for decades, and consistently for nearly the last 10 years. Even with free money coming their way, the bankers still manage to lose money, pay themselves fortunes and occasionally go broke. And then, the Fed steps in to bail them out.
Pretty nice deal, huh?
Less obvious, the Fed’s easy money policies encourage asset price speculation. Today, the Fed gives the bankers money. The bankers put the money to work where they think they can earn fast profits – not in difficult and risky new business ventures, but by betting against the Fed itself. They buy commodities. Emerging markets. And debt too.
This speculation provides no jobs to the working classes. In fact, it hurts them. It raises the cost of food and energy.
“World moves closer to food shock,” says one headline.
“India may ban wheat exports,” says another.
“Grain prices soar as US slashes outlook,” adds The Wall Street Journal.
Corn is at a 30-month high. Brent Crude oil hit $98 yesterday. And the poor working stiff is stuck. His income is falling. His costs are rising.
Meanwhile, the very few, very rich get richer. Their portfolios bulge with financial profits… And their businesses enjoy relatively low labor costs.
This is the kind of situation, left unchecked, that leads to revolution. In Germany, the hyperinflation of the ’20s led to street fighting…and the rise of Adolph Hitler. In France, hunger in the late 18th century led to the guillotine.
More to come…
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.
The Daily Reckoning is your premier source for making sense of the news Washington and Wall Street generate. Each business day, The Daily Reckoning calls on its stable of world-class writers and thinkers to show you how to get ahead.
Start your 100% FREE subscription to The Daily Reckoning today and you’ll get a free research report, “How to Survive the Fall of Social Security.” Simply enter your email address below to get your free report and join over 495,000 worldwide Daily Reckoning subscribers!
We Respect Your Privacy and We will
Never Share or Sell Your Email Address
You’re right. if you could develope this theory and raise it’s profile, you would contribute much to the understanding of mankind.
people 200 years from now going through the same crisis would be able to quote the vernerable sage Bill Bonner and argue for sanity.
The world always needs strong voices to promote Truth, God knows there are more destroyers than builders.
Samuel Johnson: “Man needs more to be reminded than instructed.”
From wealth generation to wealth redistribution. So true. Falls in line with company’s in the money making mode now in the money saving mode. Once there, for most, there’s no going back. Layoffs, budget cuts, product development, you name it. The best part is,,, most pretend it isn’t happening….
Time to dust off those torches and sharpen the pitchforks….La Revolution is coming….
Seriously though, as the Roman elite figured out almost two thousand years ago, keep the welfare checks.. errr…I mean bread and ESPN…I mean… circuses rollin in and you can keep the lumpenprole fairly well under control. When that runs out it’s time for the proverbial excrement to hit the rotary ventilator. I hope all those G/S employees have their homes in the Hamptons well insured..they’re going to need it!
when the backbone is kissing the belly button ,that is when the brain gets in gear pertaining to the masses. soon to happen in america?
Utter nonsense and contradiction. Point 1: the widest fiscal disparity in the history of America was actually during Bill’s so-called “wealth building” years a century ago. Point 2: The wealth disparity in China is bigger than ever. Point 3: Even if conditions are getting worse (worse than the regrettable bubble), America is far from entering any sort of societal breakdown phase. For example, crime rate has fallen off a cliff over the past decade and continues to fall even in this great recession. Use of hard drugs also way down.
With the Perfunctory matter of Bill’s editorial out of the way, we can now turn to what you really come here for… which is… of course… my brilliant daily comments.
Wow, Bill said a lot today. Much that I agree with (such as that “innies” are better off than “outies”) but leaving much to attack.
What about his claim (with no bother of any reference data or proof) that the Fed is lending to the banks at low interest rates?
A look at the Fed balance sheet refutes Bill’s wild claim.
The combined Fed banks have apparently no loans outstanding to the banks.
http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9
There is the link to the balance sheet…. show me where it has any loans receivable from banks.
Instead it has deposits from banks. So, the Fed owes the banks money. Not the other way around.
Oh well apologies for bringing facts into an environment of pure opinion and rhetoric.
Until tomorrow..
Im getting my guillotine blade nice and sharp.
I wonder if TIF *er* Harry even bores himself.
Bill has good/great observation skills. The commoners are frustrated. They are either un, or under-employed. Costs are rising leading to further frustration. Who/what is the target of their frustration? Immigrants, the Chinese, gov, pols, media? Who knows. It is probably one, or all depending upon your situation. The gov wants more taxes from us and refuse to lower our property taxes despite the fact that our homes are worth less, or in some cases worthless since it would hurt schools, which in turn hurt children and we all know gov does what it does for the children. On a personal note (I know you don’t care, but I’m sharing anyway), I have 3 recent college grads in the family. Both school teachers. 3 in college and all seek to become – you guessed it – school teachers. None seek private sector employment. Benefits not good enough and jobs not very secure in a shaky economy. The gov employees in my family outnumber the private sector. I’m wondering if it is the same all over. How can we pay for them all? Were tapped out and they want more. If the economy were to implode who or what will become the target of their frustration? I don’t know and I hope to not find out.
The direct of the gap, –expansion or contraction– is far more important than the size of the gap itself. In the case of the USA, the gap is expanding at a wildly accelerating pace. I suspect in China, while the gap is wider, it is actually contracting as millions move into the middle-class.
Bill left out the biggest and ultimately bloodiest revolution of them all; –The Russian Revolution. I don’t think any country has ever achieved the disparity in income the pre-revolutionairy Russians had.
To the investors friend; Don’t you read the Guru? A few months ago the Fed stumped up $3 Trillion to buy toxic debt off the banks!!! This is not a loan, it’s a gift!!! and that’s why it’s not on the balance sheet.
I’m not sure if anyone is talking about the number of delinquent loans that have yet to enter foreclosure.
Foreclosures grew 4% between November and December. “There are 5 million seriously delinquent loans not yet in foreclosure,” says RealtyTrac’s Rick Sharga. “They’ve got to eventually get in the pipeline unless the homeowners cure the defaults.”
I wonder what percentage of these homeowners are making any payment towards their loans? If they are not making mortgage payments, what are they doing with the money that in the past was used to pay their mortgage?
And what will happen when they are evicted and now need to pay rent somewhere?
Seems to me that would be a lot of money no longer spent buying things they don’t need, and another hit to a fragile economy.
“If they are not making mortgage payments, what are they doing with the money that in the past was used to pay their mortgage?”
They are not making mortgage payments because they don’t have any money. Just about everyone in this country is either broke, unemployed or just plain tapped out except for the “innies” who are receiving massive wealth transfers from the Fed and this will be paid for by you and your children and your children’s children. No system of government created by man ever works for long, never has, never will because the “haves” always end up stealing from the “have nots” in the end.
“If they are not making mortgage payments, what are they doing with the money that in the past was used to pay their mortgage?”
If they had any money they would still be making their mortgage payments. They don’t and they can’t. Most people are either unemployed, underemployed, dead broke or tapped out. That is, except for the “innies” or elite that continue to receive “stimulus”, “payoffs”, “gifts” or whatever you want to call the almost unbelievable transfer of wealth into the hands of a privileged few. You, your children and their children will be paying off this generational theft for the next century, unless of course the U.S. defaults on it’s obligations which is most likely coming.Government by men does not work, never has, never will. No matter how well intentioned at first, it always degenerates into some type of kleptocracy as the privileged “haves’ discover they can steal everything from the “have nots”.
Lay off the insiders-bashing. I don’t like them as much as the next guy, but they really are helping to lift our (emerging market and commodity) asset prices.Good job Bernanke and cronys! My sympathies to those that got left at the station. Another train will be along soon – perhaps.
The Government would violently suppress any revolution. There won’t be a revolution here.
The kinds of freedoms necessary to allow for a revolution are being curtailed as we speak.
The police will come for your guns one day and you will give them up most likely.
The government will impversh you to the point where you have no real freedom. Try fomenting a revolution when you’re living in a tent city and your children need to be protected at all times and kept fed.
A revolution at the ballet box would do it i.e a return to a strict interpretation of the Constitution and limitations on Federal power as our forefathers envisioned. This is not going to happen without a third party, R’s and D’s are just two sides of the same coin and serve the same corporate/bankster masters. Unfortunately, a third party opens up the possibility of an outcome similar to what happened in Weimar Germany when a three party system allowed the rise of a certain malevolent Corporal to the heights of political power.
It is like spilling mercury onto a cookie sheet, then shaking it.
Wealth will coagulate with itself.
Then things blow up and it restarts, kind of a financial big bang.
What will we do when dollars are not accepted for oil, or becomes the “less preferred” method of payment?
It’s interesting that with all the financial malfeasance that has been exposed over the last few years there are no indictments being delivered….oh except Bernie Madoff. His mistake, he made the mistake of stealing from his own kind.
Petters – Minnesota
Hecker – Minnesota
The smaller cases don’t get the national spotlight.
Well, the Tunisians seem to have the right idea!
Their president just fled today.
All we need is a brave Mohammed Bouazizi to get things started.
Well done Bill,
Excellent work as usual, by the howls of protest from some it seems you may be onto something.
Note to the Nobel committee:
With a little more work I am sure this theory can be dressed up and made a little confusing for the wider ordnance, so that people do not feel this theory is pointing at them.
Regarding preconditions for revolution and forecasting revolution in 2011, see
http://www.phibetaiota.net/2011/01/gerald-celente-forecasting-revolution-in-2011/
Further to the topic of the Fed lending money to banks.
Bill said above
Today, the Fed gives the bankers money.
And he said
It [the Fed] lends to insider banks below the rate of consumer price inflation. It has been doing so off and on for decades, and consistently for nearly the last 10 years. Even with free money coming their way, the bankers still manage to lose money, pay themselves fortunes and occasionally go broke. And then, the Fed steps in to bail them out.
I don’t debate that the Fed helped out the banks.
It is a fact though that right now the banks have little borrowed from the Fed.
Here is the data
http://www.federalreserve.gov/releases/h3/current/h3.htm
Banks currently have a paltry $44.6 billion borrowed from the Fed. The same data shows this is down dramatically from the $170 billion they had borrowed as at December 2009.
So the Fed may be doing lots of things to help banks. But the notion that that banks borrow a lot of money at cheap rates from the Fed is false. It’s cheap shot at the Fed and at the banks and it is blatently false. I expect better from Bill. Too often he (at his own admission) writes from the top of his head without bother to check facts.
Banks borrow tons of money from the public at cheap rates. Not so much from the Fed. Certainly the Fed has a big role in keeping rates low but that does not excuse accusing the Fed of lending vast sums to banks.