Panem Et Circenses

Empires are destined to fall. Fed Chairman Nero – aka Ben Bernanke – has stated in advance, his willingness to fiddle while Rome burns. "The contrast between the 1970s and today is very marked," our Financial Caesar informs us. "Back then, we had high inflation expectations." In this essay, Justice Litle explains that while we may not be reliving the last days of Ancient Rome, sometimes it sure does feels like it.

"The Latin "panem et circenses" (literally "bread and circuses") is a derogatory phrase which can describe either government policies to pacify the citizenry, or the shallow, decadent desires of that same citizenry. In both cases, it refers to low-cost, low-quality, high-availability food and entertainment."
— Wikipedia

As you probably know, Thanksgiving is followed by the busiest shopping day of the year."Black Friday" is widely known as such because it is the first day of the year for many retailers to book a profit. They make a loss on the first ten months and then clean up in the final stretch. That’s the plan, at least.

Following this year’s Black Friday, a story was reported under the waggish headline: "Season’s Beatings." At a South Florida electronics store with a deliciously awful name – BrandsMart USA – a 73-year-old woman was trampled. According to the local paper, "The crowd of shoppers…angry at being forced to wait by security personnel…pushed their way under the security gate and down a hallway into the store."

‘Crowd’ is an overly polite choice of words in this case; ‘Mob’ would probably be more accurate. Poor Josephine Hoffman, the 73-year-old in question, never stood a chance. "I was trying to get out of the way, but they knocked me down," she said. "I hit my head on the floor, and people stepped on me…I don’t understand why people do these things."

Apparently they do it for the discounts. The mob knew that Black Friday would be chock full of bargains, and there was no time for civility – even if someone’s grandmother had to pay the price.

Bread and Circuses: Give Us Our Circuses

"There is more than enough for everybody. The sale is going on all day," a BrandsMart manager shouted. "We have your money out here. We need to go to other stores," an angry mob leader shouted back.

In other words: We’ve got the bread. Now give us our damn circuses. Panem Et Circenses.

"Dear Lord," your editor mutters to himself."Are these people even human? All that’s missing are the bearskin pelts and bones in their noses. Like the raiding hordes – Visigoths sacking the coliseum."

We may not be reliving the last days of Ancient Rome, but it sure feels like it. If Juvenal were here, he’d be quoting Yogi Berra: "Déjà vu all over again." The sacking of BrandsMart has transfixed us.

The Roman fixation has another likely source: We recently finished Bill’s and Addison’s new book, Empire of Debt. But if that’s all there is to it, why are the parallels so striking? And so ubiquitous?

It is not just the wolven shoppers howling for discounts that intrigue us, but also the rivers of "bread," i.e. paper money, flowing through the streets. Goldman Sachs is reportedly handing out more than $500,000 worth of Christmas bonuses per employee. Corporations in general are embarking on the grandest series of dividend payouts and share buybacks in financial history. American consumers withdrew $600 billion from their homes in 2004 – and likely a good chunk more in 2005. Emperors of old juiced the money supply by reducing precious metal content in the coins. How easy the job becomes when there is no content at all!

Bread and Circuses: Our Financial Caesar

More convenient still, Fed Chairman Nero – aka Ben Bernanke – has stated in advance, his willingness to fiddle while Rome burns. "The contrast between the 1970s and today is very marked," our Financial Caesar informs us. "Back then, we had high inflation expectations." (As if there are no such expectations today, good Caesar? Someone kindly inform the gold market.)

The curiosities continue to pile up: Yet another oddity is the strange turn the media has taken. Everywhere you look, the establishment press seems to be cribbing notes from Agora Financial. USA Today has baldly compared America to Ancient Rome. The Washington Post recently spoke of financial MADness, drawing on the selfsame analogy employed by Outstanding Investments six months ago. And just this week, the Financial Times declared, "Decadent America must give up Imperial Ambitions." Why? Too expensive, of course. Sound familiar?

All this is more than enough to raise an eyebrow. With the price of gold around $500, it is enough to raise two eyebrows. But a piece de resistance is still needed. To really send a shiver up the spine – to get that eerie feeling of twilight in the bones – a mysterious sign is required. Some innocuous, yet portentous omen that highlights recent events, hints at the future, and speaks truth to power, preferably all at the same time. This Associated Press snippet does the trick:

"Nov 28th, Washington. A basketball-sized piece of marble molding fell from the façade over the entrance to the Supreme Court, landing on the steps near visitors waiting to enter the building. No one was injured when the stone fell."

If only stones could talk. What might this one say? If it were a particularly erudite stone, perhaps it would whisper poetry to an attentive ear. "I am Ozymandias, King of Kings. Look upon my works, Ye Mighty, and Despair."


Justice Litle
for The Daily Reckoning

December 1, 2005

P.S. "Rome wasn’t built in a day," write Addison Wiggin and Bill Bonner, "nor was its money destroyed overnight." All empires do come to end, though.

Justice Litle is an editor of Outstanding Investments. He has worked with soybean farmers, cattle ranchers, energy consultants, currency hedgers, scrap metal dealers and everything in between, including multiple hedge funds. Mr. Litle also acted as head trader for a private equity partnership, and made contributions to Trend Following: How Great Traders Make Millions in Up or Down Markets, a popular trading book by Mike Covel (FT/Prentice Hall).

The Dow seems to be backing off. The dollar, too. And gold.

None has moved down much. But all are looking a little peaked.

GDP numbers show the U.S. economy advancing at a surprisingly strong pace: 4.3%.Can you believe it, dear reader? We can’t.

We don’t doubt that there is a lot of economic activity taking place. We just doubt that it’s "growth." Remember, consumers’ incomes have been going down for the last two years. In an economy that is 76% based on consumer spending, how can "growth" occur without an increase in the thing that has to do the most growing?

Imagine a man who inherits a mansion – left to him by his father, who made his fortune in auto parts. The man’s own income is stagnant. Still, he finds his house is going up in price. So, he borrows against it in order to increase his standard of living. He goes out to restaurants. He puts in new drapes and how could he resist, new granite countertops! All around him, people feel the effects. Money is flowing. Everyone feels richer…the GDP goes up!

But is it "growth?"

It’s the sort of expansion that is likely to give "growth" a bad name.

But who are we to argue with it? People think they are richer. They spend more. They borrow. Their houses go up, and they think they are richer still. As long as the economy is growing, people think they can grow along with it – until they go broke.

Gold is at $498, which is about where it was when Alan Greenspan first planted himself in the cushiest chair at the Fed. There has been much growth of all sorts since then.Houses are worth at least twice as much – or more (Our house in Maryland has gone up four-fold.). Home mortgages outstanding have quadrupled. Consumer debt has tripled.Corporate debt has more than doubled. State and local debt has more than doubled. U.S. debt in foreign hands is up about 700%. Credit market derivatives barely existed in ’87.Now, there are trillions worth of them.

Gold is correcting. Having hit $500, it is backing off to catch its breath. We don’t know how far it will eventually go. But today we move our target buying price up to meet it – to $475. We hope it falls below that level where we will buy more. Gold would have to go to about $1,000, we figure, just to catch up to all the "growth" that has happened since Alan Greenspan took over at the Fed.

If all this "growth" is as stunting as we think it is, gold will go up even more.

More news from our currency counselor…


Chris Gaffney, reporting from the EverBank trading desk in St. Louis:

"The ECB has made their announcement of a 0.25% increase, so now we will wait to see what Trichet has to say about future increases. Should be a volatile and busy day in the currency markets."


Bill Bonner, back in London with more views…

*** Is the president of the United States of America a great leader? Or a conniving fool?

The question came to mind as we read accounts of the man’s speech last night in our hometown – Annapolis, Maryland. We don’t know the answer. But we have a hunch.

"Stay the course," said our main man.

The sentiment may be broadly transferred from the war in Iraq to the whole tableau of America’s 21st century empire.

Should we continue to run huge trade deficits – over $700 billion annually? Doesn’t this put the economy in jeopardy? Doesn’t it mean that real wealth is moving from the United States into foreign hands at a rate (calculated by Warren Buffett) of about 1% of our total net worth per year?

Nah. Don’t worry about it. Stay the course!

And does it really make sense to run federal budget deficits greater than $300 billion per year…as far as the eye can see? Or to commit ourselves to financial obligations that drive up the deficit, year after year, so that it will pass $1 trillion a year within a dozen years?Isn’t this courting trouble? Isn’t it unfair to the young who will have to pay these bills?

Don’t worry about it. Stay the course!

Should an individual family continue to spend more than it earns…counting on an increase in housing prices to give it something to borrow against? Shouldn’t it have some savings, just in case?

Stop worrying. We’ve got the most flexible and dynamic economy on earth. Stay the course!

Mr. Bush says he will settle for nothing less than "total victory." Ah…there’s the weasel in that woodpile. What is victory? He has already defeated the enemy’s army. He has already installed a government more to his liking. Isn’t that victory enough? Saddam has been ousted, and is now the star of a show trial. The people of Iraq have voted; even the president himself said they are capable of misgoverning themselves. Surely this "victory" alone is worth 2,000 American soldiers’ lives and $200 billion – not to mention the thousands of Iraqis who have given up the ghost or the billions in property damage caused by U.S. military forces.

Besides, the president says we are building a, "free, federal, democratic, pluralist and unified state." Isn’t that worth the cost?

Here at The Daily Reckoning headquarters, we are not smart enough to know. We’re forced to stoop to the essentials. We might kill a man for love or money or a parking place, but we wouldn’t risk being damned to Hell for a claptrap theory about how a foreign country should be governed.

*** Addison reports some success in getting Congress to acknowledge America’s empire of debt:

"We’ve received several more holiday cards," writes Addison. "Which is…umn…cheery. But we may have struck a little gold, thanks to reader Jon Rice. He writes:

"Hello Members of Daily

"I thought you might be interested in the letter I received in response to my
asking Senator Nelson of Fl to be sure he read more than just the
introduction of the book you sent him, Empire of Debt. Below is that

"Respectfully, Jon Rice"

Senator Nelson’s Response:

"Dear Mr. Rice,

"Thank you for sharing your views on our nation’s spending priorities. As a member of the Senate Budget Committee, I take seriously my role in the Federal budget process.

"Our nation is at a critical junction. Recent gas price increases and the devastation caused by Hurricanes Katrina, Rita, and Wilma have left many people struggling just to get by. Meanwhile, the budget passed by the Congress shortchanges hardworking Americans, gives the biggest breaks to only the wealthiest among us, and puts our nation in deeper debt.

"To set spending priorities, I firmly believe we must implement a pay-as-you-go system that requires Congress to implement sound fiscal policies that will help reduce the $8 trillion debt. Reducing the debt will help prevent inflation and cuts in critical government programs that many Americans rely upon, like Social Security and Medicare.

"I appreciate your opinions about our nation’s budget and our economic well being, and will take them into account as the budget is debated in committee and on the Senate floor."

Perhaps Senator Nelson means what he says. But it does sound like a page right out of the "Democratic Response to Waning Poll Numbers for Republicans Play Book"(Or, as the great Mogambo would say, the DRWPNR Play Book).

*** The book seems to be catching on in New York, too. It hit the New York Times Hardcover Nonfiction list last week. This week it moved up four spots and is now sitting at#22. Not too bad considering we’ve been grappling with Oprah, an insipid array of diet cookbooks and holiday pop-ups for children.

The Daily Reckoning