The Wasteland

A classique – originally run on December 4, 1999. Bill is off to meet the Nicaraguan ambassador, and couldn’t get his usual essay through today…

T.S. Eliot, American by birth, English by choice, was once asked why he had moved to London, instead of settling down in St. Louis with a nice woman from the midwest.

"I didn’t like being dead that much," was his reply.

Eliot shared one of American intellectuals’ most unflattering prejudices — a contempt for things American. Just sit in the cafes on the Left Bank in Paris today. Make sure you are in the company of American intellectuals… and mention McDonalds. Or Monica Lewinsky. Or Guiliani, and the Brooklyn Museum of Art. Whether they come from San Diego or Portland… no matter what other goofy ideas they may have… you are almost guaranteed to find they despise the views of the common American and the things for which America is best known.

I visit this subject because almost everyone expects the next century to be dominated by America… by its culture, its businesses, and its stock market. Nearly every editorial page makes some reference to "American Triumphalism." Nearly every editorial writer is appalled by McDonalds… and contemptuous of the great hoi polloi of middle-class America… but proud to sit with them on top of the world. My prediction: they will slip from their perch before the end of this decade.

Eliot spent most of his life in London. His first wife went mad and had to be institutionalized after their separation.

His most famous poem, The Wasteland, described the hollowness of post-WWI feeling. God was dead. What was left? Eliot had no interest in politics.

"What shall I do now? What shall I do?"
‘I shall rush out as I am, and walk the street
‘With my hair down, so. What shall we do to-morrow?
‘What shall we ever do?’

Eliot went back in time. After being lionized for his portrayal of 20th century disillusionment — thus foreshadowing Camus by two decades — he announced that he was "a classicist in literature, royalist in politics and anglo-catholic in religion." In short, he had looked into the abyss of nihilism and existentialism — and turned around. What the heck… say a mass, hobnob with aristocrats, read the classics — life didn’t have to be all bad. Later in life, he actually decided to eat a peach too — marrying a woman 38 years younger than he.

But he never went back to St. Louis.

European and American Intellectuals: "An Experiment in Vulgarity–"

For a long time it had been the habit of European intellectuals to disparage America… and for American intellectuals to agree with them. Sydney Smith, in the mid-Victorian era, asked if anyone would really care to see an American play or listen to an American tune. I believe it was he who called the whole nation an "experiment in vulgarity."

Perhaps it was. Perhaps it still is. But that didn’t stop Americans from making money. Indeed, it seemed to encourage it.

The Figaro newspaper has been around in Paris for a long time. It reprinted a copy of its front page from 1900 — as part of its first edition of the year 2000. I noted an interesting article about Senator Andrews Clark. I never heard of him. But the Washington correspondent said he was the richest man in the senate, richer than the next 8 richest senators put together. He made his money, the article tells us, starting with nothing but a team of oxen. He drove them out to a copper mine, the Verde Mine, where he made his fortune. By the turn of the century, he had banks, railways, rubber plantations, you name it.

Was he vulgar? Probably as vulgar as a bus station. But, in New York, he also had a collection of masterpieces from the "modern french school," which probably adorn the walls of some public museum today. The Figaro wondered wistfully whether it might be possible to get "this prodigious businessman" to Paris, where "our artists and poor would have no reason to object."

While America’s intellectuals fawned over their English and European cousins… America’s dynamic businessmen built McDonalds. And made films that are shipped all over the world. And marketed music that people now hear (and often cannot escape) in even the most remote and desolate outposts of humanity.

Joseph Conrad described this quality of American business in his character, Holroyd, who says, "we shall run the world’s business whether it likes it or not."

And indeed, that is what happened in the 20th century. It turned out to be an American Century, just as Henry Luce had suggested.

But America’s chattering classes have no idea of what brought about America’s triumph, nor what to do with it. President Clinton, a man fond of peaches, says "we must never forget the meaning of the 20th century, or… the triumph of freedom."

European and American Intellectuals: The Difference Between 1900 and Now

It was freedom that the US had in abundance in 1900 — and which set people like Senator Clark and Mr. Holroyd on their paths to commercial glory. Freedom allowed them to be prosperous and vulgar at the same time. The more prosperous they were — the more vulgarity they could afford.

Investors and politicians still believe America has a competitive edge in the 21st century. They claim that our economy is free… and more flexible and innovative that those of other nations. It is largely in view of this that the Rocket Chips have been bid up to such extreme levels. And American consumers believe it too. They no longer save. They go into debt and spend like crazy — all in the belief that the American economy is headed for even greater glory.

Fortunately, foreigners believe the hype too. They continue to accept dollars as the currency of choice, despite the fact that the dollar — America’s most successful export — becomes less valuable, intrinsically, with each one in use. Even Cuba… a country that still clings to politics like the Pope clings to the cross — has accepted the dollar as legal tender.

Amid all this good cheer… could I suggest that America is overbought? You bet I could. As reported here yesterday, the US economy did less well than the German economy over the last 10 years. And its competitive advantage, freedom, has been largely dismantled.

American Triumphalism, like democracy and the Nasdaq 100, is another example of a trend whose premise is false. It will be discredited sometime in the next decade.

Sell the dollar.

Regards,

Bill Bonner
for The Daily Reckoning

June 17, 2005 — Baltimore, Maryland

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).

"Insanity becoming the norm," says a headline in the Arizona Star.

The paper meant the real estate market. But it strikes us as one of those durable headlines that might work almost anytime.

We had dinner last night with an old friend who has just remarried a much younger woman. A middle-aged man is always in danger of making a fool of himself. A mature man who dumps his wife and takes up with a woman in her 20s invites comment. Half of his friends think he is a fool for doing it. The other half would think him a fool if he didn’t.

It is partly a matter of romance and partly a matter of money. A young man may steal a girl’s heart. But an older man has to buy it. In today’s world that pound of flesh can be expensive. The woman needs a sleek new car, clothes, vacations…and a nice house. While they practically give away automobiles these days, houses have become expensive.

"I bought a house nearby here (Northern Virginia) in 2001 for $700,000," explained our friend. "Now, the place is worth $1.8 million. I have to sell it. I’d be a fool not to."

Our friend is a shrewd judge of markets. Here, we pause for a brief comment to new Daily Reckoning readers:

Most people don’t know this, and we know it will come as a shock to many readers, but markets go up…and down. When they have gone up most emphatically, people come to believe what isn’t true – that they will always go up. Real estate prices in America have been in bull market for a very long time. An expert quoted in the Arizona Star says that nationwide they have never gone down. Locally, however, they have gone down a lot. In Texas, after the oil price collapsed in the early ’80s…in New York in the early ’90s…and here in downtown Baltimore, our office fell in price, adjusted for inflation, from the late 1920s until just a few years ago. In the early ’90s, you could buy buildings for a fraction of the real cost of construction. Who wanted to be in downtown Baltimore? Now, it seems everyone does. Baltimore is one of the most-visited cities, not just in America, but in the world. At least, that’s the story at the local tourist office.

In America as a whole, prices may not have gone down. But then, the American empire has never before been in decline. We have no data for this, but we believe prices in Rome rose for the 500 years or so that the empire grew…and declined along with the imperium from the 4th century, probably until the 15th.

We do not know when the current real estate boom will end. We don’t know when we will die, either. But we know that all things that have a beginning also have an end. Real estate in America, nationwide, has only had two booms like this that we know of. The first came after WWII when soldiers began families, people had money to spend, and the economy came roaring back after the war years. The second began in the late ’90s…and then got a huge boost from the Federal Reserve, which began, in 2001, giving away money. Except for those two periods, real estate has only kept pace with consumer price increases – just as you would imagine it should. There’s nothing magic about real estate. That, too, may come as a shock to many readers. But real estate is really only worth its utility. A house is a house is a house. It is a place to live, not an investment. It can be expected to rise in price along with the prices of other consumer goods, not more.

But in today’s curious and entertaining world, people have come to believe that houses always go up in price – much faster than consumer price inflation. Evidence rushes in to help them prove their case. From Bradenton, Florida, comes word that houses rose 45% in price last year. From the Wall Street Journal comes news that prices are rising all over the world.

What hath Alan wrought? A worldwide real estate boom. Can it last? No chance. When will it come to an end? We don’t know. How will it end? In disappointment.
More news, from our team at The Rude Awakening…

————–

Eric Fry, reporting from Manhattan:

Financial bubbles are mortal organisms. Even though they might seem immortal for a time, they never live forever. The housing bubble will be no different. Are we ready for the after-life?

————–

Bill Bonner, back in Charm City with more views…

*** "More sell homes to lock in big gains," says the money page on USAToday this morning. The curious thing about markets, dear reader, is that in order to have sellers… you must also have buyers.

*** CNN reports that people are using credit cards to buy fast food. $6.6 billion was spent in the last 3 months on burgers, fries and colas. The tab for the year will be about $30 billion. You see, dear reader, insanity is becoming the norm. CNN goes on to explain that the charge can remain on a consumer’s account for many years – on which the poor schlep makes ‘minimum payments.’ And credit card companies rely more and more on penalties and late charges. On a $10,000 balance, late penalties can add $1,000 a year in carrying costs. The whole transaction is mad. The consumer lugs the debt around like a huge grease ball; he probably didn’t need the hamburger in the first place, but it ends up costing him far more than a proper meal.

*** "I think the ‘no’ vote in France was a reflection of a deeper problem," our friend explained last night. "The real problem is that people in the developed world are not prepared for competition."

What set the French against the European Constitution, among other things, was a lively discussion of "Polish plumbers." Workers from Eastern Europe are willing to work for less money. In France, if you want a job done you often look for someone from Eastern Europe – because you know it will cost less and the job will get done faster. Sometimes the plumbers are working within the law. Often, they are not. People pay in cash and don’t ask questions.

America has its own jackleg labor coming up from Latin America – plumbers, gardeners, handymen – pushing down wage rates at the bottom of the scale. But both Europe and America face even greater competition – from China and India. And not only at the bottom of the pay scale. When GM loses a job to China’s Chery Automotive, it’s a high paying job. And it supports another 7 jobs – throughout the automotive supply chain…not to mention other people working to supply goods and services to the laid-off autoworker.

Not that we’re complaining. We’re just warning you. It was a fluke that put Europe, and by extension, America, so far ahead of the rest of the world following the industrial revolution. Before it happened in the 18th century, a person in India or China earned about the same thing per hour as someone in France or Italy. Now, relative pay scales seem to be flattening out.

That is what is happening; we have no problem with it. We try to take it with good grace – like middle age.