Lamenting the Consequences of Government Action

The feds are in a funk. Their fixes are coming unfixed. That’s the good news.

In the United States, as in Europe, markets are working diligently, trying to clear away decades of decadence, years of unbridled excess and profligacy. The feds are busy trying to stop them. It’s a fool’s errand, of course, which is precisely why the feds are on the case. We can think of no cadre better suited for the job.

The Dow was down more than 200 points yesterday, with a sharp dive into the close. Apparently, nobody wanted to be caught holding the bag over the Thanksgiving Day break.

The steep move lower was kicked off, so the papers tell us, by Germany’s failed bond sale. Or was it the threat to France’s AAA credit rating? Or a slowdown in growth reported from China? And from the US? And Europe.

So many rainclouds, so few parades.

But we’re optimists here at The Daily Reckoning. Well, we’re more “ambiguist” than optimist. Meaning, we have no idea about why things move the way they do. But they always do…move the way the do, that is. Only after the fact can we look around and pretend to have understood what it was that just came to pass. For the most part, we’re just trying to ask the right questions, even if the answers that spring to mind are not always correct.

So, what caused yesterday’s big selloff, the second of the shortened week? Is this the tipping point we’ve been waiting for on the continent? Is this to be the 21st Century’s “Archduke Ferdinand” moment? Or is it just another small step in the wrong direction? Again, we have no idea…but the slippage in the German Bund market didn’t look good to us.

You’ve read the stories already. East of The Tagus and west of The Danube, nary a stock market advanced, nor did a bond yield retreat yesterday. Maybe investors are catching the drift of the prevailing wind. Or maybe they’re just juggling risk-on, risk-off trades, hoping to benefit from a fickle, here-today, gone-tomorrow zephyr.

Europe’s strongest economy had hoped to auction off more than €6 billion ($8 billion) in 10-year Bunds. One third of the sale found no buyers — none — making it the worst showing for a German Bund auction in the Euro-era, and pushing yields on the Bunds to roughly level with comparable British securities.

So what gives? Inflation is higher in Britain than in Germany…and so are debt levels. Growth rates are about the same on both lands: anemic, bordering on starving. Ahh…but Britain doesn’t have the Euro hanging around its neck. True, it still suffers much of the bloated, meddlesome “eureaucracy” that comes with union membership, but it retains control over its own printing press and can, therefore, delay its own day of reckoning. Not indefinitely, mind you…but for now, at least.

Everywhere we look, the Old Experiment seems to be cracking up. Europe and the US are the most obvious examples. Europe has its Greece and Italy, its Portugal and Ireland. The US has its Illinois and California, its New Jersey and Maine…and many other debt-ridden limbs besides.

The cure for the situation seems simple enough to us. But the answer is too easy for the politicians to understand. It requires no math, no fancy degree, no secret handshake or award-winning formula. In fact, it requires nothing at all…but it requires lots of it. Lots of nothing. Lots of “leave alone.” Lots of “hands-off-haven’t-you-already-done-enough.”

But since “nothing” is not on the average politician’s to-do list, we’ll likely get “something” instead. And because a little “something” rarely satisfies the voting masses, we’ll likely get lots and lots of something.

Lots of meddling, planning, dealing… interfering… controlling… steering… super-committeeing… G-20ing…Jackson Hole retreating…Brussels emergency summitting…11th hour handshaking… speeching…politicking… backpatting… announcing…conniving…thieving…debating…voting…flag waving… finger pointing…stimulating… borrowing… easing…printing…printing…printing…

Readers will do well to remember that it is the sum of all such past “somethings” that led to this very grave and serious predicament in the first place. Isn’t it about time, therefore, that we gave “nothing” a chance?

Yes, Fellow Reckoner. Today, on Thanksgiving Day, we’d be mighty grateful to be able to look our elected and unelected officials in the eye and say, with a full and sincere heart, “Thanks for nothing!”

Joel Bowman
for The Daily Reckoning

The Daily Reckoning