O! BAMA! The Whole World Turns Its Weary Eyes to You...
Last week’s election was an event that will certainly go down in the history books. Everyone has their own take on what Obama’s triumph will mean for the United States…and yet, as Bill Bonner points out, most commentators are missing the point.
Mr. Obama became the president-elect of all the Americans last week. No man’s coffee tasted better on Wednesday morning than it did on Tuesday…no woman’s perfume smelled sweeter. But all over the world, people felt better about themselves, as if the human race had achieved something important.
At least a McCain victory would have caused the press to hold its tongue. Instead, commentators drew all the wrong conclusions and made fools of themselves. Some thought it meant America’s redemption from the sin of slave trade. Others saw a historic transformation that they couldn’t put in words and shouldn’t have tried.
"They did it. They really did it," wrote the Guardian. "…the American people yesterday stood in the eye of history and made an emphatic choice for change…"
It’s the "End of the National Nightmare," said TIME magazine.
Amid the effervescence came the French. Obama’s victory "arouses a wild yet reasonable hope," claimed Bernard-Henri Levi in the Financial Times. Mr. Obama’s election will affect us in "at least three concrete ways," he continued…a decisive turning point in dealing with the ‘racial question’ in the US…hope for an America that began doubting its "famous mission"…and with Obama representing the USA, "anti-Americanism…will have a harder time surviving and it will be forced to revisit its sales pitch."
Nobody knows what America’s "famous mission" is – certainly not the Americans themselves. And if those are his ‘concrete’ ways, we’re glad Mr. Levi is not building bridges. There was nothing concrete about the hopes Mr. Obama’s victory arouse. Just the contrary…they are all in the ether.
They shouldn’t let French philosophers comment on American politics; they take the whole thing far too seriously. Besides, you never know what they are talking about anyway. But Le Monde saw it clearer. Not only was the paper happy to see the United States finally rinse the stain of racism out of the Stars and Stripes, it was glad to see Americans give free market capitalism the flush too.
Obama will be "reviving the role of regulation in the U.S.; [devising] tax policies to smooth out increasingly wide socio-economic divides; planning a health-care system appropriate to the country’s wealth," said the paper. In other words, he will be putting in a system of state-directed capitalism, just like they have in France.
None of the commentators we read really understood Obama’s triumph. They saw it in a yearning for truth and a stretch for progress. It was nothing of the sort. The last thing voters want is the truth; they will reject it if it is put in front of them. Instead, what they want is diversion from the real world. What they hope to get from their leaders is a kind of entertainment…in short, a fantasy. Something to cheer them up when they are down. Or something to give them a fright when they are up.
You’ll recall from last week, the last period of Great Calamity – 1914-1945, with its wars, epidemics, Dust Bowls, hyperinflation, Great Depression, mass murders, bankruptcy and revolutions. It was in the middle of this period that Americans elected Franklin Roosevelt, who told them they had "nothing to fear but fear itself." It was all in their heads! It was a whopper, but it was the whopper they wanted to hear.
And then, on right side of the Atlantic, Britain chose Winston Churchill as prime minister, in May 1940. Churchill crossed his fingers and put his hand behind his back immediately, claiming that Britain was not fighting to save its overseas empire, but to "save the whole world." He promptly kicked out any official who was "exercising a disturbing or depressing influence," that is, any who dared to tell the truth about Britain’s disastrous military situation.
Just weeks later – in France, after suffering the most humiliating defeat in their history, the French recalled an old man to power, Philippe Petain. The hero of Verdun made the French feel that they had just regained their national glory, not just lost it. But at the time, France’s fantasy seemed on more solid ground than Britain’s…which just goes to show how unreliable history can be. Sometime make-believe becomes real; usually, it doesn’t. Britain got the backing of the Roosevelt administration – which had promised voters to keep America out of the war – and beat the huns; Churchill died a hero. Petain died in disgrace.
Today, in the U.S.A., the Bush Administration has worked hard to make people fearful – with its torture chambers and preposterous "threat levels." But the terrorists wouldn’t cooperate; they failed to blow up even a trash truck. Alas, now the mob sweats – and for good reason. People are afraid of losing their houses, their jobs, and their retirements. Losses in equities worldwide top $25 trillion. In U.S. housing alone, some $4 trillion has disappeared. That’s why Obama won; it has nothing to do with national redemption or Sarah Palin. When the world was safe and plush…the mob wanted to feel the frisson of danger. What the public wants now is safety: a movie with a happy ending, not a horror flick. Obama appeared the calmer, more intelligent, candidate. Voters could imagine him as the "black Roosevelt" giving soothing fireside chats and telling the lies they most wanted to hear.
And so, in the national narrative, one cockamamie bamboozle takes the place of the one that went before. Americans were supposed to be fearful; now they are supposed to be confident. They were supposed to be racists; now they are supposed to colorblind. They were supposed to defend free market capitalism to their last breath; now they turn to the state and beg it to protect their last dime.
Enjoy your weekend,
The Daily Reckoning
November 14, 2008
P.S. As an interesting aside, do you know what book was number one on Amazon on election night – and the majority of the day that followed? It wasn’t President-Elect Obama’s book, The Audacity of Hope…no, it was the companion book to I.O.U.S.A., penned by our very own Addison Wiggin and Kate Incontrera.
Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of the national best sellers Financial Reckoning Day: Surviving the Soft Depression of the 21st Century and Empire of Debt: The Rise of an Epic Financial Crisis.
You remember the ‘plumbers?’ That was the name given to a special government committee – known as the Plunge Protection Team. When the drains get clogged and the water starts backing up, this group is supposed to put on its waders and get to work.
And yet, now we have the water rising all over the world…and whole towns in California already submerged. Where are the plumbers?
Who knows? Maybe they had something to do with yesterday’s rally. The Dow rose 552 points. The dollar went down hard – with the euro up to $1.28. And gold rallied $16 too – to $734.
The feds are doing all they can to bail out the economy. If they wanted, they could give the stock market a little boost from time to time. But probably not much more than that – and a great cost. And for all their bailing, the water is still rising…
Foreclosures are increasing at a 25% rate. GM is on the verge of bankruptcy; it’s stopped talks with Chrysler. Joblessness is at a five-year high – and rising.
But there is good news too – prices dropped 65% at a wine auction… White truffles are down 84%.
This just in from colleague Ingrid Labuzan at MoneyWeek:
"In England, the housing slump is catching up to the U.S. Prices are officially down 14.6%. The average U.K. homeowner is losing money faster than he makes it. The housing bear market is reducing house prices by about 27,000 pounds per year – while the average bloke earns only 24,000. And every day, 121 houses are repossessed.
"The unemployment lines are getting longer too. There are expected to be 2 million people in Britain without jobs by the end of this year. Next year, the number is supposed to reach 3 million, above 10% of the workforce."
The OECD, meanwhile, says the floodwaters are rising all over the world. They expect the soggiest year in a long time…with negative growth in the developed world in 2009. Germany says it already faces the worst recession in 12 years.
For us, here at The Daily Reckoning, the crisis comes as no surprise. Heck, we saw it coming years ago. Of course, even we didn’t think it would hit so hard…and so wide. We thought Japan, for example, would be spared. The poor Japanese are already black and blue from having been beaten up for the last 18 years; we figured they’d had enough. Instead, the Tokyo stock exchange got whacked again – taking stock prices down to levels last seen in 1986.
India, too, we thought would stay out of it. After all, Indians are pretty sober people. Almost party poopers. But the same stiff, moronic regulations that kept India from participating in the global credit expansion also meant that India’s banks and consumers were less exposed to the global credit contraction. No party; no hangover. Still, that didn’t stop investors from selling Indian stocks along with everything else.
We’re surprised at how violently the downturn hit commodities too. Rightly or wrongly, investors are expecting a long, deep, deflationary correction.
"We are all Japan, now," says Albert Edwards at Societe Generale.
Of course, we know how it works: the correction must be equal and opposite to the shenanigans that preceded it. But which shenanigans? What, exactly, is this correction going to correct?
So far, the financial industry and the housing industry have had their fannies paddled. Just as you’d expect. They deserve it. Go ahead, Mr. Market, let ’em have it!
The U.S. auto industry too deserves a good spanking. It failed to hold down costs and continued making inefficient, gas-guzzling vehicles long after the market had turned away from them. It should be allowed to fail. Get it over with. Make room for new blood. There are a lot of automakers in the world; we don’t need these dinosaurs.
America’s retailers…and shopping malls…and fast-food joints… Well, the list of industries in need of a good whack is long and obvious.
But right now, it’s the consumer who’s bending over. In fact, from MarketWatch we get the news that "retail sales plunge a record 2.8% in October."
*** "Consumers stop shopping," is the stark headline at the Chicago Tribune. We know that that is just what he should do. He’s got to pull himself together, get on the wagon, clean up his balance sheet.
But here come the feds – determined to stop him. They pull up to his house in a shiny convertible. "C’mon…it’s happy hour all night long… No money? Don’t worry, I’ll lend you some…"
Here’s the report from the New York Times:
"… with a little more than two months left before President Bush leaves office, Treasury Secretary Henry M. Paulson Jr. is hoping to put in place a major new lending program that would be run by the Federal Reserve and aimed at unlocking the frozen consumer credit market.
"The program, still in the planning stages, would for the first time use bailout funds specifically to help consumers instead of banks, savings and loans and Wall Street firms.
"Treasury officials said they hoped to invest about $50 billion from the bailout fund into the new loan facility, with the aim of helping companies that issue credit cards, make student loans and finance car purchases."
Paulson’s new plan is simple enough. Borrow money from savers all over the world and give it to spenders in the United States of America. Put things back to ‘normal’ – or at least to what they were a few years ago. To a thinking man, of course, this plan is absurd. It merely encourages Americans to continue making the same mistake – spending money they don’t have on things they don’t need. Rather than cleaning up their balance sheets, they’d be making them worse.
But you couldn’t put together a chess team with the few people who have their thinking caps on. This is a crisis; everybody says so. And in a crisis, you don’t stop to think – you act! You act like a jackass, usually.
Paulson was the front man at Goldman up until 2006. You’ll recall that that was when Wall Street’s party was completely out of control…when financial shenanigans reached their crazy apogee. Now, the very same Henry Paulson is working his magic on the whole U.S. economy – good luck to us all!
But it really depends on how much correction Mr. Market has in mind. Is he correcting the excesses of the 2002-2007 period? That would take the Dow back to 7,000 or so…and cut housing down a few more percentage points.
But it would leave the fundamentals of the economy intact. Or is he correcting excesses of the entire bull market from 1982-2007? Or is he aiming to correct the whole, grotesque dollar-based post-’71 money system? That is, is he merely trying to correct the bubble or the pump? The speculative hyperbole of the last 5 years…or the source of so many bubbles…and so much economic distortion – the paper money system created by Richard Nixon in 1971?
We don’t know. But judging by the way things are going…our guess is that he has bigger fish to fry than just the stock market…or the housing market. This looks like the big one to us – the "Greater Depression," as our old friend Doug Casey puts it.
Our guess is that he aims to take America down a peg or two. Its money. Its standard of living. Its power and its prestige. It won’t be pleasant for many Americans…but in the end, they will be standing on more solid ground.
*** Chris Mayer assures us that there are still some companies that are doing well…
"By and large, at Mayer’s Special Situations, it seems we’ve been successful in finding the little creases and pockets where companies are still doing well and reporting strong results. The stock market, though, isn’t giving them much credit. At some point, the market will change. Investors in companies like this will get their reward in a better multiple and a much higher stock price.
"In the meantime, we can only watch our companies grow their businesses and execute fundamentally. The price will catch up eventually. But the wide discounts give us plenty of chances to build low-cost positions in a number of exciting opportunities."
*** This from colleague Dan Denning in Australia:
"I ran across Dmitry Orlov’s book, Reinventing Collapse, in which he compares present day America to Soviet Russia prior to its…collapse.
"Orlov outlines five stages of collapse, and where the U.S. along the way:
"Financial Collapse. Already in motion.
"Commercial Collapse. Just started.
"Political Collapse (a loss of faith in ideology). First part is over (the recent election in the US). Second part is going to be nasty.
"Social Collapse. Potentially the end state or stable equilibrium point for most of the world. Everyone against everyone with points awarded by the global marketplace.
"Cultural Collapse. Full meltdown. Global market breaks."
*** Finally comes word that "VP-elect Biden aims to be a hands-on No. 2." What a disturbing thought. When an empty car drives up to the White House for a meeting with Obama, it will be Joe Biden who gets out.
Bill’s latest book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, written with co-author Lila Rajiva, is available now.