The Land of the Free

The Daily Reckoning PRESENTS:Today is the day we celebrate the unique American experience with “pomp and parade, with shows, games, sports, guns, bells and illuminations.” But, in this DR Classique, first published on the Fourth of July, 2003, Bill Bonner can’t help but notice that America has changed quite a bit since the Declaration of Independence was signed…

LAND OF THE FREE

“This is a society of true believers. The belief in democracy, market economics and the importance of religion is far more pervasive here than Marxism ever was in Russia.”

Michael Ignatieff,
in The Daily Telegraph

It is the Fourth of July. Should we hang out the red, white, and blue bunting from our office balcony…or the black crepe? Should we whine about the America we have lost, or give a whoop for what we have left of it?

That star-spangled banner still waves, but does it still fly over the land of the free, we ask? Or over a country with a spy camera on every street corner…a nation so deeply in debt that freedom has become a luxury it can no longer afford?

Whatever direction we take, we trip over a contradiction. Things always seem to be black and white at the same time.

That is why we took up tango, dear reader. People who dance the tango or write poems don’t let contradictions bother them. They glide across the floor and enjoy themselves. As far as we know, no serious tango dancer has ever committed suicide. It’s the mathematicians and engineers who blow their brains out.

An ideologue or a mathematician cannot tolerate contradiction. His little world has to fit together neatly, like a crossword puzzle. It is ‘cat’ in one direction and ‘day’ in the other. Each intersection has to work perfectly.

But that is not the way real life or real people work. A healthy woman loves her husband, but often hates him too. She has two eyes, and sees a slightly different view of him with each of them. What is wrong with that? Likewise, even a man with only a single eye cannot help but notice that the world is menaced by inflation and deflation at the same time…and that America is both free and un-free at exactly the same moment.

What we have come to dislike about the neo-conservatives is not that their view of the world is right or wrong – for how could we know? – but that it is so small. They are true believers in a very tiny world…one with no room for mystery, contradiction, ignorance or humility. It has to be small; otherwise they could not understand it.

Neo-cons think they can see what no mortal has ever seen: the future. That is the twisted genius of the ‘Preemptive Attack’; they stop the criminal before he has committed his crime!

They think they can know what no mortal has ever known: not only what is good for himself and his country…but what is good for the entire world. And they intend to give it to them, whether they want it or not. In today’s email box, for example, George W. Bush himself sends us the following message:

“…liberty is God’s gift to humanity, the birthright of every individual. The American creed remains powerful today because it represents the universal hope of all mankind.”

Here we will take a wild guess: there are probably more than a few bipeds hobbling around the planet for whom the “American creed” is not so much a hope as a dread.

But the president continues:

“We are winning the war against enemies of freedom, yet more work remains. We will prevail in this noble mission. Liberty has the power to turn hatred into hope.”

“America is a force for good in the world,” continues the leader of the world’s only super-duper power, “and the compassionate spirit of America remains a living faith. Drawing on the courage of our Founding Fathers and the resolve of our citizens, we willingly embrace the challenges before us.”

America’s citizens, meanwhile, are deeply in debt. They see little choice but to back the system, such as it is. Free or un-free, they could care less. Just keep the money flowing. They have come to rely on government. They need Fannie Mae…and unemployment insurance…and social security…and jobs…and the Fed…and fiscal stimulus. Or, at least, they think they do.

After 50 years of the Dollar Standard boom, the average American finds himself less free than ever. He is a slave to the highest government spending and biggest public debt burden in history…and to the heaviest mortgage and other private debt load ever. He has mortgaged up his house…he has taken the bait of credit-card lenders. Now he has no freedom left; he must keep a job…he must pay attention to the Fed’s rates…he must have an interest in George Bush’s government (for now he depends on it)!

“July 4 should be about celebrating freedom and independence,” wrote Richard Benson, published in this week’s Barron’s, “yet the bankers are the only people jumping for joy. Never have Americans owed so much in terms of their total debt, the ratio of total debt to income and the amount of cash flow the debt needs to serve it. Americans used to believe that if they were debt-free, they were free. Today, Americans just want the freedom to borrow more, even if it means they are on the way to becoming enslaved by their debt.”

The average citizen is only a few paychecks from getting put out of his house. He no longer has the freedom to step back…to reflect…to think…to wonder about things…or enjoy the contradictions. Instead, he must listen to the words of economists as if they meant something…and bow before the politicians who control his livelihood…and place himself at the beck and call of every government agency with a dollar to spend.

The message from George W. Bush concludes with an endearing personal note, in which “Laura joins me in sending our best wishes for a safe and joyous Independence Day…”

Laura who, we wondered? Oh yes…the First Lady.

How we got to be on a first-name basis with the woman, we don’t know. We have never even met her. Why she should wish us a happy day, we don’t understand. But these are the peculiar, baroque eccentricities of America that make it such an endearing place to its citizens and such a rich treasure for contemporary ethnologists and stand-up comics.

They, too, will wonder about the contradictions. Why do Americans celebrate “freedom” ever more loudly, while becoming ever less free…? How can they crow about the “home of the brave” when they attack pitiful, third world nations that can’t defend themselves? How can they ballyhoo their own independence when their armies occupy two foreign nations?

Most people will ignore the contradictions altogether. Many will see them as hypocrisy. Some will be outraged. And a few will hear the off-tempo tango beat, and enjoy the holiday anyway.

Your editor,
Bill Bonner
July 4, 2006

P.S. What a surprise! Upon announcing we had assembled a collection of essays exploring the Idea of America, we wrote: “Of course, we have no illusions”…suspecting that people glued to their TV sets watching FOXNews would have no interest in a collection of “deep thinking on the meaning of our nation.”

But, we are happy to announce…within a month, the entire first print run has completely sold out! Perhaps the ideas expressed in the collection resonate well with readers concerned about military adventurism abroad…and skyrocketing budget deficits…and perishing personal freedoms at home.

Naahh…we suspect most people would still rather not ask questions…so we still have no illusions.

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:

The Most Feared Book in Washington!

“The phones are going crazy,” says the president of a non-profit debt-counseling firm in Florida.

It is the Fourth of July and the Yankee doodles are going broke.

The phones are going crazy because consumers went crazy after the Fed went crazy. It was crazy for the Fed to create a deadly debt bubble. It was crazy for consumers to let themselves fall victim to it. And now what can they do, but call for credit counseling?

“People refinanced (their mortgages) six months or a year ago, so the ‘house bank’ is empty,” a counselor explains. “Most can’t go back and tap their home equity again.”

“You let the car payment go one month, then the house payment. Then you make a lot of little creditors happy for one month, maybe for two months. Then it becomes obvious that you have to catch up on car payments, and everything else slides.”

Apparently, millions of Americans rushed to declare bankruptcy before the law change last fall. Those bankruptcy filings temporarily depressed the delinquency statistics and other measures of consumer financial distress.

“Now we’re seeing a new crop of people starting to get into trouble,” says the expert. “They can’t keep up. They’re the ones most affected by increased gas prices and higher rates.”

When a society resists small changes, it will eventually succumb to a big one. This is true for all collective institutions – business, government…and even whole economies.

Markets are a natural way for economies to adapt to changed circumstances. When oil is scarce, for example, the price rises. This tells consumers not to use so much. And it tells investors to put more money into oil production. Gradually – although sometimes the shocks and crises can be rude and unexpected – needed adjustments are made and things find a new, albeit temporary, equilibrium.

But institutions dislike change. Some people just resist change instinctively. Others have learned how to use the institution for their own purposes – often at the expense of the rest of the world. They are reluctant to give up their privileges, subsidies and parking places. So they use force – through government intervention – to resist. Price controls, restrictions on imports, zoning, regulation, tariffs, licensing, permits, taxes, interdictions, prohibitions – all are designed to avoid natural adjustments and bend prices in whichever direction those with political power prefer.

Cut off from the free movement of prices, of course, investors and consumers get the wrong signals and make the wrong choices. In his landmark book – The Road to Serfdom – Friedrich Hayek argued that the absence of accurate information, provided by freely moving prices, would lead to disaster. He was discussing the Soviet economy, which was then regarded by many people as a model to be emulated. Hayek said no; when central planning replaces market, it inevitably leads to centralized catastrophe.

He was right. The Soviet Union had, and still has, plenty of natural resources. But because they lacked accurate information, the Soviets would use their resources to make finished goods that were less valuable than the raw commodities that went into them. Central planning had created the ultimate absurdity – an economy that subtracted value from its own natural resources. For a long time the truth was disguised by lying numbers and cheating theories. But by the 1980s, it became obvious to even the Soviets that their economy was disaster. It collapsed soon after.

But now we turn to contemporary France…and a news item in the weekend papers:

“The Communist mayor of Saint-Ouen, a working class suburb north of Paris, was so fed up with complaints that property prices had soared out of reach of local budgets that she devised a plan to keep them down.

“When her office thinks the price a seller is asking for a property is too high, it simply blocks the sale. Developers are only granted a permit to build if they promise to sell the new properties at a pre-agreed price.

“‘Saint-Ouen is traditionally an industrial area,” said Fabrice Marine, a spokesman for the town hall. ‘If we had let the market determine the prices, it would have been very difficult for the people of Saint-Ouen.'”

Of course, we laugh. If they control prices downward, no one will want to build new houses. Instead of going down, price pressure on the few that are available will go up even further. Besides, what are they thinking? For every buyer there must be a seller. In fact, there must be exactly the same number of buyers as sellers. What principle of fairness or economics causes them to favor one group over the other?

We can only guess. There must be a lot of voters in the area who might want to buy…and relatively few who might want to sell.

Pity the poor homeowner who has worked his whole life, living in the miserable suburb of Saint-Ouen. Now, his retirement at hand, he finally wants to unload his apartment and retire to the Cote d’Azur…and along comes the mayor, telling him that he can’t have his price. Fortunately, the French as a supple and clever race. Most likely, he will get his price – even if some of it has to pass under the table!

But our point is simple, modest and self-evident: In trying to hold off natural market adjustments, the mayor will make the situation worse. So too, our own Federal Reserve – now the Bank of Ben Bernanke – in trying to hold off the correction of 2001-2002 has made the situation in 2006 much worse. Now it must face millions of homeowners who are running out of money. During the last five years they have come to depend on real estate as a source of spending money. Now that housing resales are slowing so is their source of ready cash. Soon, we predict, they will stop spending so freely.

More news – if there is any…

————–

Greg Guenthner, reporting from hot and humid Charm City:

“Many water and wastewater treatment plants are built close to a water source such as a river. So when major flooding occurs, these facilities can end up under water, or worse yet, spilling sewage into rivers and streams…”

For the rest of this story, and for more market insights, see today’s issue of The Sleuth

————–

And more views from Bill…

*** We never quite answered the smart question put to us by a Dear Reader yesterday.

On the one hand, she said, we seem to admire the professional class of Prussian Junkers…whose sense of duty and national identity made them incorruptible.

And on the other, we clearly are looking out for ourselves…not the empire. We have been offered no commission in the Imperial Forces. But our reader is right, if one were offered, we would refuse it.

She is right too in that these two ideas are vaguely incompatible. If you’re going to have a vigorous, growing empire you need a class of Junkers – a group of people whom you can count upon to make it work. The Romans drew upon their own citizens – at first. They all shared the same culture and same sense of purpose. But as the empire matured, more and more came into the administrative ranks with different ideas. After 100 AD even the emperors likely to be non-Roman. After 200 AD, they often never even lived in Rome.

Likewise, the British in the 19th century had their own trusty civil servants and officers. As we pointed out, many were incompetent, but few were disloyal. But now, throughout the English-speaking empire we find no similar class. Instead, whether you look at CEO compensation, government contractors, civil servants – or the masses themselves – you are likely to find people who are not merely incompetent, but also uncommitted to imperial service. That is, they are looking out for themselves. This is merely an observation: the lack of a Junker class suggests to us that it is late in the day for the empire.

Meanwhile, we note without apology that we, too, are creatures of our own age. This is not WWII – WWII had Americans lining up to enlist. A friend of ours once recalled to us how disappointed he was when he was rejected by the army in 1942.

“I had had polio as a child. So I walked with a limp. Still do. But I still went to sign up. Everybody did. Nobody wanted to be left behind. At least I didn’t. So when the army turned me down, I went over to the Navy. They took me. I spent the next three years in the South Pacific. And I can tell you, it was no vacation.”

But now it is a new century and the recruiting offices are empty. The military forces are having a hard time making their quotas. In poor and backwards neighborhoods they still get a decent turnout. In the good neighborhoods, people seem to have better things to do. Not many Americans want to risk their lives in a war on terror – not without a lot of financial incentives.

No, it is a different age…and we are part of it. We go where the opportunities are…we explore…we test out possibilities…we try on a new location as if it were a new suit. We want to see how it looks on us.

Of course, wherever we go we are still there. And we are still Americans. But we are post-WWII Americans. We are Late Empire Americans… we are overseas Americans…like Chinese in San Francisco…Indians in Jamaica…or Lebanese in Paris.

“When people ask you what you are,” asked a friend recently. “What do you reply? I mean, of course you are Americans, but you’ve been away for ten years and your children sound more French than American…you live in London. How do you think of yourselves?”

“We are Irish,” we say, only half joking.

We are a new American diaspora, trying to figure out who we really are.