Markets were mostly flat on Friday.
Then, this weekend, US Treasury Secretary Geithner proposed to the world’s finance ministers that they cap their current account surpluses at a fixed percentage of GDP.
How would that work? Why do it at all?
What’s the point?
Oh…we were going to answer those questions. But then, we said to ourself,‘why bother?’
The whole thing is a fantasy. A hallucination. And a scam. It doesn’t deserve a serious discussion.
Geithner is the secretary of the treasury of the world’s largest economy. There is no evidence — none — that he has ever actually understood what is going on. If he had understood he certainly never bothered to say anything…
…that is, about the credit crisis…about de-leveraging…about the threat of too much debt…and everything else that has happened over the last three years.
Instead, all he has done is REACT to the crisis as it developed…always in the same way, by attempting to avoid any big change or any big losses to the people who most deserve them. Of course, the markets were clearly signaling the need for a major change of direction. The biggest, and formerly most profitable, financial corporations in America were faced with bankruptcy…and millions and millions individuals were in big trouble too….
…but Geithner didn’t understand any of this…
Still, he’s the guy who’s now suggesting HUGE new rules that the whole world will have to live by. Countries capping their surpluses? It is equivalent to individuals putting a limit on how much they save.
What’s the point of it? It would force the savers to spend…and thereby, presumably, reduce the value of whatever currency they spend (by increasing the demand side of the equation). What currency will they be spending? Easy, they’ll spend the currency they are saving — dollars!
Oh that Tim Geithner! What a clever guy. Put a cap on savings and you force people to spend dollars…driving down the value of the dollar and thereby simultaneously decreasing the real value of US external debt…and making US products and services more attractive to foreign buyers.
Well, our hat’s off to Mr. Geithner. The man has come up with an unworkable plan that no foreign nation will actually implement in any serious way. Actually, it is a nutty plan. Forcing people to spend money? Are you kidding? It just shows how little he really understands. A real economy cannot be ordered around or organized in such a heavy handed way. Price controls, central planning, government management of business and investment — they all always fail.
Still, he’s … at least he’s trying, right? Give the man credit for that…the numbskull.
And more thoughts…
“The French are crazy. What do they think they are doing?”
The comment and question came up at a cocktail party. Our youngest son is in the French school in Washington. Occasionally, we are invited to meet other parents.
“My wife is French,” continued a new friend, a former banker with the IMF. “We live there part of the year and have a house near the Swiss border. But I’m thinking of selling everything in France and moving all my assets out of the country.
“There is no way that this is going to end well. I mean, they’re shutting down the country because Sarkozy is proposing to increase the retirement age from 60 to 62. They must be dreaming. Sarkozy is not increasing the retirement age because he is a mean fellow. He’s doing it because he knows the country can’t afford not to do it.
“It’s such a modest little reform. They actually need to do much more. Like they’re doing in England. But the French are so funny. At the smallest provocation they take to the streets. They set cars afire. They think that if they are politically active and powerful enough, the money to finance these things will magically appear. But it won’t. And they’ll have to come to grips with reality sooner or later.
“The real problem is that the promises made by the welfare state are just too ambitious. As long as the economy is on the up and up people think they can afford to expand these benefits. Each generation thinks it deserves more than its parents, because it is richer. But the trouble is that the politicians can expand the claims on wealth faster than wealth itself can expand.
“And then, when it becomes clear that wealth is not expanding as fast as people had hoped, all the forecasts and the projections are shown to be nonsense. The people have been promised things that they can’t possibly afford. And sooner or later some government has to come to terms with it. Sarkozy is just the beginning of the story. He’s just barely tackling the real problem. He’ll have to make much more dramatic cuts in order to make the budget work.
“You know, Europe agreed to limit deficits to 3% of GDP. The idea was the countries would lose their voting rights in the European Union if they went over that limit. France is now at 8%. There is no question that they’re going to take away France’s votes. It just isn’t going to happen.
“But France is in trouble. And if it can’t deal with its problems in a reasonable way, the problems will just get worse and worse…until they finally explode. How? When? I certainly don’t know. But I do know that there is no way France can continue spending money the way it is now.
“And I also know that the US is not that different. It actually has more debt than France. The average Frenchman doesn’t have nearly as much debt as the average American. And at least the average Frenchman knows there is a problem. He just doesn’t understand it well enough to do anything serious or smart about it.
“But the average American doesn’t even know he has a problem. And while Sarkozy is at least beginning to trying to bring government spending into line with likely revenues, in America that conversation really has not even begun.
“In some ways, the US is much worse off than France. Neither its leaders nor its voters seem to have any idea of the problem that awaits them.
“Maybe I should sell all my assets in the US too.”
Bill Bonner,for The Daily Reckoning
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 French smell corruption. Americans will too, after the elections.
Tim Geithner’s nomination pretty much sealed Obama’s fate before he even got sworn in as president. Destined from the start to a single term, no inteligent chief executive could have possibly fathomed Geithner was qualified for the job. By 2012 Obama will be seen as a president who did nothing to tackle the real issues of the day, but who instead heaped enormous bueraucratic weight on top of a sinking ship. Instead of adopting policy that would correct the excesses of the past, Geithner and Obama are determined to hurle us all into economic oblivion. Perhaps the distraction of it all will cause the French to take notice. Somewhat in the manner the attention paid to a bar room brawl becomes distracted as an earthquake causes the chandeliers to drop from the ceiling.
Posting a fantasy profit story like the $200 to millions is ridiculous. I could have bought a lotto ticket instead.
Ah, capping the deficit. The EU did that, only to show that the caps are completely voluntary and optional. What could you do, fine a country with too large a deficit, adding to the deficit? Yeah, great plan! Also, as the greek showed, imaginative arithmetic can help in “reducing” the deficit.
What would the treasury secretary say if everyone with excess dollars bought gold. If gold went to $5,000 an ounce would Tim be happy? When can we dump Tim and Ben? Are we stuck until 2013?
The Presidents who fought central banks throughout history have suffered assassination attempts. Kaiser Wilhelm said that European bankers were attempting to control banking in America through a central bank.
They have succeeded. We are being controlled by foreign powers who have usurped American soveriegnty in the the way that matters more than almost anything – by controlling our money supply.
They can pump or dump our economy at will and take the other side of these trades. By doing so they they divest the country of its wealth once or twice per century.
A) Money should NOT be created as debt as it is now, instead it should be spent intpo existence.
B) The Congress should create its own bank to create money. Not the corporate, foreign-owned central bank, assassinator of Presidents and the cause of Great Depressions.
Ben, Tim, caps it all doesn’t really matter. The fundamental problem is there is too much wealth in the hands of few. The working class are no more then indentured slaves. There is no more wealth to extract from them. The game is over, the rich have won!
The French and the Greeks are not protesting because the retirement age is being raised or because of other austerity proposals. They are angry that the beneficiaries of the cuts are- guess who- yes, the banksters! I believe it was largely French banks that bought Greek bonds based upon creative Goldman accounting…. and then got bailed out as usual. Now, if soccer teams were getting bailed out, the streets would be peaceful. But then again, maybe not!
In places like Mongolia or Myanmar, for example, you find today’s Dakota Territory.
Harris Kupperman, CEO of Mongolia Growth Group has all the assets in one of the best bull markets in the world. Mongolia is a "buy"
For a few short minutes Sunday evening, a bit of chaos roiled the futures markets.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
Today, Patrick Cox shows you an investment space that is (amazingly) overlooked, and ripe with plays for the picking.
Coins may be called in and filed around the edges, with the resulting loose metal coined into new currency for the government to spend.