Noble Rot

The Daily Reckoning PRESENTS:Everything eventually degenerates and decays…people, eras – and even empires. Bill Bonner wonders if it is worth fighting against the inevitable, or embrace it. Read on…


An aged man is but a paltry thing,
A tattered coat upon a stick, unless
Soul clap its hands and sing, and louder sing
For every tatter in its mortal dress

– W. B. Yeats, “Sailing to Byzantium”

The altoplano of Northwest Argentina is dry. The air is thin. Even though it is not far from the equator, it is not very hot, even in the middle of summer. We were there in early autumn.

Francisco’s grandfather had planted rows of alamo trees all around the house and far out into the open prairie. This time of year, the trees wear their dresses of bright red and gold. And then, when the wind blows, the leaves go dancing in the meadow.

Staring out the window, we can’t remember seeing anything quite as beautiful…the rows of yellow trees, stone walls surrounding a large green pasture, and beyond the stone wall, a broad expanse of open range with rugged mountains in the distance, their summits sparkling with snow.

“I don’t like it when you say things are always decaying and degenerating; it makes me depressed.”

Elizabeth seemed weary as she spoke, like someone who had just been given five to 10 by a federal court, with nowhere else to appeal. “I just don’t like the idea that everything is always getting worse. Always degrading. Always degenerating. I don’t think it is true.”

Elizabeth believes in the power of reason…of progress…of good intentions and hard work. She believes that time takes us forward, generally towards a better world. She imagines an upward slope to human affairs, always marching ahead into the brighter light of an improved day. Where she sees rot and corruption, she is annoyed and aims to treat it like mildew in a closet.

We, on the other hand, give in to rot like a middle-aged man gives in to an affair with his secretary; it might lead to trouble, but he hopes it might be worth it.

Out the bedroom window was evidence – the bright leaves. They were brought to us by corruption and death. Decay, degeneration, death – and then, renaissance. Unstoppable. Ineluctable. Irremediable. It seemed like progress to us…even if it weren’t always uphill.

Elizabeth reads the papers and chaffs against it. Problems have solutions, she believes. Mistakes are made by humans; they can be corrected by humans. She sees the empire in decline and is tempted to do something about it.

She is a better American than we are.

Readers may wonder what any of this has to do with money. Of course, the answer is nothing at all – or everything. For the same laws that condemn the body and rule the soul also apply to all things human – including investment markets and the civilizations that produce them.

It was human beings who created the American Republic, and human beings, too, who nursed it into a great empire with a reserve currency and a $50 trillion public debt. Now, the debt grows more every 18 months than in the first 204 years of the nation’s existence. Competitors in Asia take away its business; energy exporters take away its cash. All while the United States squanders its borrowed money on domestic bread and circuses that can do it no real good, and foreign wars against countries that can do it no real harm.

The empire is surely on a downward slope now. But so what? Empires, like beautiful women, fine wines, or graceful buildings are never more alluring than when there is a hint of decay about them. Age gives them grace and mystery…before destroying them completely. And what man is any good until he has been tempered by age, and hammered at the forge of mortality? A young man walks upward. He climbs the mountain every day, but it is the downhill walk that puts him to the test. Like an army in retreat, he tries to hold himself together and meet his fate without making a fool of himself.

Yet, we cannot argue with Elizabeth’s desire to make things better; in fact, we admire her for it. The process of corruption is no more natural or inevitable than her readiness to fight it. Besides, there is nothing more captivating than a lost cause, and no man so appealing as the one who fights for it, like Rhett Butler who went off to join the Confederate army after he knew the war was lost.

We were put into this philosophical mood by pain. Riding along on horseback on our estate, we wrenched our back and spent nearly three days in bed. Accidents with horses seem to promote a certain kind of reflection. Indeed, the career of one of the greatest thinkers about the corruption of life began and ended with horses. In 1867, when Friedrich Nietzsche began military service, he attempted to leap-mount into the saddle of his horse, only to flounder with a chest wound. That sent him back to the University of Leipzig, where he wrote one of his great works, “Human, all too human.”

Then, in 1889, in the piazza Carlo Alberto in Turin, he saw a horseman lying on the whip and was moved to throw his arms around the horse’s neck. Legend has it that the sensation of pity drove him mad. More likely it was third stage syphilis, a disease of irreversible degeneration in those days. Either way, his career was over.

Our injury on horseback gave us time to think, but nothing newsworthy to think about. We had no television, no radio, no newspapers, no books, no telephone, no Internet. All we could do was stare out the window. And from the position of our bed, all we could see was the bright autumn colors of the dancing leaves, and up the hill behind the house, a large, white cross.

There’s nothing to be depressed about,” we told Elizabeth. “If it weren’t for the decay, we wouldn’t have this view.”

We wouldn’t have the view, and the leaves would never turn colors, curl up, and die. No one would have gone to the trouble to put up a white cross at the top of a barren hill an hour’s drive from the nearest one-horse town. Without death, there would be no redemption, no hope of heaven, no fear of hell, and no chance of everlasting life. Without death, life everlasting would have no meaning; all movement would cease…because all the earth would be frozen into a meaningless past, and an equally meaningless future.

“You know, the main difference between Indian culture and Western,” said Michel over lunch, “is the idea of time. In our culture, it is linear. We see it going forward…in a kind of eternal march of history. But in India it is circular. The Hindi word for tomorrow, kal, is the same as the word for yesterday, because yesterday is in the future, too. Kal (yesterday) – Aaj (today) – Kal (tomorrow). “

Yesterday, today, tomorrow, and yesterday, again. Eram. Sum. Ero. Eram. Ero.

Civilizations rise, and then decline – and then rise again. Markets begin, rise, soar, then collapse, and begin rising again. History records the whole thing as a pack of lies and misunderstandings involving hairy people with tails, doing foolish things for absurd reasons. But, there are moments of glory, too, when men occasionally stand on two feet.

Down in Cafayate, we visited the vineyards. There, too, the process of corruption brings the grapes to a majestic and honorable conclusion. As they mature, they store up sugar, an oenologist explained to us. They also collect what they call a “noble rot” – a type of decay that begins the process of fermentation and turns grape juice into fine wine.

Noble rot is a specific fungus – Botrytis cinerea – found on certain grapes and famous at the Chateau Yquem, which produces some of the finest sauternes in the world.

Botrytis cinerea is a grayish mold that looks like ash on the grapes. When the wine growers see the fungus forming, they carefully watch the grapes and pick them at just the moment when there is enough rot to produce a fine wine, but not enough to destroy it.

The fungus is, of course, a parasite – like a leech on a dog or a lobbyist in Congress. But the rot it engenders does not make the grape go bad; instead, it concentrates the sweetness.

The world and everything in it seems set up for disappointment. The green buds come out in spring, unaware that they are all doomed. But when the crisp weather comes, they do not simply droop and die. Instead, the stress of approaching death brings out the best in them. Like Sidney Carton, they seem to rise in grace and dignity as they mount the scaffold. They are at their moment of glory when the hangman slips the noose around their necks. And as the ship’s officer remarked when the Titanic took on water, the orchestra never sounded better.

Bill Bonner
The Daily Reckoning
May 5, 2006

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:

“Now Perhaps Someone Will Listen!”

[CORRECTION: In yesterday’s issue, we ran an essay by John Williams, writer of “Shadow Government Statistics,” a monthly newsletter and Web site that provides broad background information on problems in the quality of government economic reporting.

Unfortunately, we ran the incorrect url for this highly informative Web site. Our apologies. The correct one is:

We recommend you check this site out.]

¿Y tu, Evo?

If Willy Sutton were alive today, he’d be eyeing the oil industry. Sutton, you’ll remember, was once asked why he robbed banks. “‘Cause that’s where the money is,” he replied.

According to our sources, Evo Morales may be doing a Willy Sutton number. As candidate for President, he promised the Bolivian peasants a big pay increase. Then, when he got into office, the mean people at the national treasury had a little talk with him. “Where was the money going to come from?” they wanted to know.

Evo looked around. He was losing popularity fast. What did the country have that was worth anything? Coca leaves. Yes, but coca growing is a business best done in the dark of night. If he were to nationalize it, he’d have a revolt from his old friends and supporters – that was the business they were in. And, cocaine is a high-margin business only so long as it remains illegal. That’s just another way the world degenerates, dear reader. The cops and robbers collude to protect the industry.

No, Evo had to find something else. He must have read a paper. Or, maybe he called Hugo Chavez in Venezuela to ask for advice. Maybe he talked to America’s Democrats, who are proposing a “windfall tax” on the oil industry…or the Republicans, who cravenly call for stiff penalties on oil companies convicted of “gouging,” whatever that is. One way or another, he’s found where the money is: energy.

From Moscow to Mecca to Maracaibo…oil and gas revenues are irresistible, and they are changing the shape of the world’s wealth and its politics. We have been writing about the Exodus of wealth and power from the West to the East. Incomes are soaring in India and China. Savings are piling up, and the economic power of Asia will soon surpass that of the United States. But there’s another side to the Exodus. While the U.S. runs a $700 billion trade deficit, an almost-equivalent surplus is being enjoyed by the world’s energy exporters: Russia, Venezuela, Saudi Arabia, Iran.

And thus, the great American empire – direct heir to the British, lineal descendant of all the great European empires from Athens to Paris – now finds that its major creditors worship other gods, speak incomprehensible languages, dance to tunes they can’t snap their fingers to and generally wouldn’t give a damn if all Western Civilization collapsed in front of them in a heap tomorrow.

We see the evidence of the big Exodus right here in London. Despite the huge salaries paid in the City, London’s answer to Wall Street, a large part of the spending here comes from Russians, Arabs, and other foreigners. By one estimate, the oil exporters together will earn about twice as much free cash this year as the Chinese.

What a change. Even a couple of years ago, the only time you heard Russian speakers in London was when the waiters spoke to each other. Now, it is the customers who are speaking Russian, and the people shopping for luxury apartments or buying Maseratis and Lamborghinis on Brompton Road.

Back in 1998, the Russians were so broke they reneged on a $5 billion loan from the IMF. The crisis that followed sank the world’s most prestigious hedge fund, Long Term Capital Management, and threatened to bring down the whole international financial system with it. Now, Russia earns about $5 billion every week, and just for the month of April, its foreign currency reserves rose $15 billion.

That is the money that is helping – for the moment – to hold up the dollar and the upper end of property markets all over the world.

And so, the Exodus of cash continues…to the product exporters of Asia…and the energy exporters all over the planet. What can Pharaoh do about it? He owes money all over town. His enemies hold a mortgage on his pyramids. He may bluster and threaten, but he depends on them for his daily bread…and to pay his army.

And now, almost in his back yard, Evo Morales thumbs his nose at the U.S. Empire. He says he doesn’t care who owns the companies that pump oil and gas from Bolivian ground; from now on, he’s in charge.

Will ordinary Bolivians be any better off as a result? Of course not, but soon, we predict, Evo’s cronies will be buying condos in Miami.

More news from The Rude Awakening…


Eric Fry, reporting from Wall Street:

“Although we continue to anticipate a harrowing, short-term sell-off very soon in copper, crude oil and a few other commodities, we also continue to anticipate a harrowing long-term sell-off in the U.S. dollar.”

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


Back to Bill Bonner with more views:

*** Not surprisingly, Iran is still refusing to back down on their uranium enrichment program. They are still sticking with their story that there is no need to worry about their nuclear intentions, saying the United States is cooking up “a crisis where a crisis is not needed.”

The price of crude rebounded from three-week lows on the continued uncooperative actions from Tehran. Closer to home, hurricane worries have added to the price increase. Our own commodities guru, Kevin Kerr tells MarketWatch:

“We are seeing frantic warming in the region, more so than normal this early,” said trader Kevin Kerr, who edits Global Resources Trader, a newsletter published by MarketWatch, the publisher of this report.

“This does not bode well for the folks in the Gulf Coast. We could see a hurricane much earlier then we ever have before if these patterns continue.”

This doesn’t bode well for the rest of the country either. The price of gasoline rose with the abnormal warm weather – and hurricane season isn’t anywhere near full-effect. It will be interesting summer, to say the least.

*** “Cheney rebukes Russians,” the front page of today’s International Herald Tribune tells us. We had to a laugh. What’s his beef with the Rusians? Get this. They’re using oil and gas as “tools of intimidation and blackmail.” In other words, they’re using their resources to get what they want, just as America does with its trade policies and foreign aid. And then, the man who led the invasion of the sovereign nation of Iraq adds: “No one can justify actions that undermine the territorial integrity of a neighbor.”

What is funny about this is not the hypocrisy. We appreciate a certain type of hypocrisy which if it does not demonstrate virtue, at least shows the proper respect for it. No, what is funny is that this old “new conservative” doesn’t seem to realize that the game itself has changed. The Russians are no longer the Evil Empire. The only empire left in town is our own, and though its real nature is yet to be determined, it is much in doubt.

The vice president can lecture the Chinese about the need to raise their currency, and harangue the Russians about the need to reform their energy policies, but what can he do? Threaten to stop borrowing from them?

*** There are those much further on the road to ruin than America. Keep your eye on Zimbabwe for instruction, but also for amusement. You want to see what kind of trouble a country can get itself into – Bolivia, please take note – when it is run by morons for the benefit of jackasses? You think you’ve got problems. Just try to buy a bar of soap in Harare. The papers tell us that ordinary supplies have disappeared from the shops. You have to go out and find a vendor on the street…who might have two bars of soap and one loaf of day-old bread as his entire inventory. But whatever you find, buy it. The Zimbabwe dollar is losing value even faster than the U.S. paper – a lot faster. In fact, the rate of domestic inflation is expected to top 1,000%, when it is computed this month. The central bank is offering 91-day notes paying 525%.

There is no winter without a spring. We’re beginning to think we see some buds in Zimbabwe. This might be a good time to buy there – not soap…farms. Yes, we know the government has been confiscating them. And yes, we know the economy is an absolute shambles, but it is beginning to appear as though Zimbabwe has gone about as far down this road as it can. There are only 300 white farmers left in the country, and many of them are packing their bags. The country is proposing to keep them and draw back some of those who left, offering 99 year leases on the property it stole from them.

*** Back in the United States, real estate is on shaky ground. Mortgage defaults are rising in the San Francisco bay area. In San Diego, the paper tells us prices are “flattening.” And in Las Vegas, new developments are being cancelled faster than they are starting up. “Homeowners are cashing out,” says a report on CBS Marketwatch.

“If you wanted to sell that place this is the time to do it,” said a cousin. He was referring to our old farm in Maryland.

“Prices haven’t gone down, but they’re not going up anymore. At least, not like they were. And, a lot of people are hoping to get rid of property now…before it starts to go down.”

Stay tuned…

*** Debt, debt, debt. America’s young people are rattling around in chains before they ever get a chance to commit a crime. The average student leaves a private university with $22,581 in debt, up from $15,000 in 1990. Put aside whether that investment really pays off. We don’t believe it does, but imagine two of these poor young people getting together. They start out in their family life with nearly $50,000 in debt – as much as a mortgage, without a house! At 6% interest, making minimum payments, it will take them until their golden wedding anniversary to pay it off.

Poor things.

The Daily Reckoning