Rediscover America

Bill Bonner rediscovers America. Bill follows the path of previous explorers, beating a track into the great unknown. He finds…mosquitoes!

"Everything is extraordinary in America, the social condition of the inhabitants as well as the laws; but the soil upon which these institutions are founded is more extraordinary than all the rest. When the earth was given to men by the Creator, the earth was inexhaustible; but men were weak and ignorant, and when they had learned to take advantage of the treasures which it contained, they already covered its surface and were soon obliged to earn by the sword an asylum for repose and freedom. Just then North America was discovered, as if it had been kept in reserve by the Deity and had just risen from beneath the waters of the Deluge."

– Alexis de Tocqueville, Democracy in America

Yesterday, we crossed a desert section of North America. That is, ‘desert’ in the old sense. We would say ‘deserted’ in today’s language. Explorers tromped from the north shore of Nova Scotia, on the Bay of Fundy, to the south shore on the Atlantic nearly 400 years ago. Today, along both coasts, there are modest habitations. But the interior is still kept in reserve by the Deity and mosquitoes.

We saw few cars, few houses, few people…and no signs of a credit boom. Not once in the last 5 days have we spied a Mercedes. Nor have we seen anything that might pass for a mansion – not even a McMansion – built since the end of the 19th century. The few people that are here live comfortably, if you ignore the mosquitoes, but not extravagantly.

"Maybe it’s because it’s so cold and rainy." Henry wondered why the place seemed so empty, even at the top of the tourist season.

"When do you think it will clear up," we had asked Tilly, the old handyman at Milford House.

"Eh…maybe August," was his reply.

Again today, it is gray, foggy, drizzly and chilly. There is no breeze, so the surface of Milford Lake is like a sheet of black glass.

"Don’t the mosquitoes bother you," we asked Tilly.

Galileo Galilei: When Mosquitoes Attack

"Eh…what mosquitoes?"

But the south shore mosquitoes were as hungry as those in the north. They drew blood, even through sweaters. After a few minutes of hiking, Sophia’s bare legs were covered with welts.

We had come to have a look. In a moment of enthusiasm, we had bought property on the Atlantic. For the second time…and for the second time, sight unseen. Now that we were having a sight of it, we liked what we saw. Our lot has a stunning view out to sea.

"But what would we do here," Elizabeth wondered.

We didn’t have a good answer. But we knew what we would not do. We would not go broke. Nova Scotia is not a good place to go broke; it lacks opportunities to waste money. And keeping up with the Joneses? Don’t worry about it; most likely, the Joneses are going backward.

"This would be a good place to live," Pater familias warmed up. "There is absolutely nothing to do. Almost no restaurants. No theatres. No public transportation…and nowhere to go anyway. You could live on the ocean, but you can’t even go in swimming, it’s too cold.

"But you could live well…" turning to his wife…"that’s what your grandfather did, isn’t it? They retired here when he was still in his 50s…and he lived another 40 years."

"Well, he loved to hunt and fish. And he grew up here, so he had a lot of friends. And he had a beautiful vegetable garden that he worked in almost every day. And my grandmother was active in the local Red Cross and the garden club and things like that. They were very happy here for a very long time."

Galileo Galilei: Social Capital

"They lived well – without spending any money. It just goes to show that money itself is not the key a good life.

"I read in the local paper yesterday that Canadians are richer in social capital than Americans," continued the head of the household.

"What’s social capital," Henry wanted to know.

"It’s things such as friends, family, churches, a support network…I’m not sure it includes government-sponsored health care systems and so forth. I didn’t read the article closely. It might be just an illusion…like people in the Baltimore ghetto who used to say they had ‘soul’ – when they had nothing at all."

"You mean, there really isn’t any such thing as ‘social capital?’

"No, I don’t mean that. Some people have friends. Some people have strong families and strong connections that help them along in life. I’m not denying that. It’s just that these things tend to be rather difficult to measure. So, when the Canadians say they’ve got a lot of it…it might be just wishful thinking. They might not really have any more social capital than the average American. And the average Canadian might prefer to have less social capital and more capital of the private sort – that is, money."

Such was the palaver in the Bonner car as the family returned from its visit to the South Shore…until the conversation turned to Galileo.

"What Galileo was trying to do," Elizabeth explained, "was to expand the use of reason in contemporary thought. He maintained that while the Bible provided a reference for man that helped him understand his relationship to God, man also had been given the capacity to reason – by God – and he was expected to use his reasoning ability to understand the physical world around him.

"At first, the Papal authorities had no problem with it. Galileo actually went to visit Pope Urban the something-or-other and the Pope was impressed. The trouble had little directly to do with Galileo, but the Catholic Church was under a lot of stress. This was the time of the Protestant Reformation…or right after. The Pope had lost England, for other reasons…and most of Germany. There were all sorts of new ideas percolating. Most of them, in far away countries the papacy could do nothing about. But when the Pope was accused of being soft on heresy, there was Galileo right in front of him…where he could put his hands on him and prove his adversaries wrong.

Galileo Galilei: Writing in Italian

"Wasn’t the Catholic church, at the time, a kind of social capital," interrupted Henry. "I mean, weren’t they responsible for taking care of the poor and so on?"

"Yes, I guess so…

"Galileo was writing in Italian, rather than Latin, which irritated the Pope. Because it meant that what he was saying was being read not just by the highly educated few…but by a great number of people. Galileo’s books were best-sellers of his time…."

"You mean, like Dad’s book," asked Henry.

"Yes…but I don’t know if they had a ‘business’ section back then."

"Wait," Henry wanted to keep the floor, "are you saying that the Pope really didn’t think Galileo was wrong about the planets going around the sun?"

"Well, I don’t know. It’s not clear that he had any opinion on the subject.

He just wanted to make an example of him. I don’t know if he was really that calculating about it. The whole church felt under attack…a bit like Americans felt after the World Trade Center was attacked. He thought he had to do something to fight back, even though there was not much he could do."

"Sounds as if the social capital of the Catholic Church turned anti-social," said Henry, proud of himself.


Bill Bonner
for The Daily Reckoning
July 9, 2004

Our sojourn around the wilds of Eastern Canada continues…we turn you over to our Baltimore-based British editor, Tom Dyson, for the news…


Tom Dyson, from 808 St. Paul Street…

– Here’s something to think about over lunch today.

– We always believed that Warren Buffett was a cheap date; the Sage of Omaha still lives in a starter palazzo and drives and old car. He owns no fancy shower curtains and throws no lavish parties, despite being the second richest man on the planet with a fortune of $43 billion.

– But we were wrong; today we read that a lunch date with Warren Buffett costs $202,000. That’s what one foolhardy investor bid in an E-bay auction, yesterday, to raise money for charity. $202k? For lunch? Here at the Daily Reckoning, we never receive lunch offers that juicy, in fact…we often find ourselves picking up the tab.

– As an alternative, readers may consider James Boric. Our own James Boric offers all the sound investment insight without the hefty E-bay bill. And James is in an excellent mood this morning…not only did he just close out his ninth consecutive winning option trade for a 22.2% gain but India’s new budget was unveiled yesterday and it was everything James had hoped for following his trip to Mumbai.

– "This past week, India said its GDP growth for Q1 was a whopping 8.2% – the largest growth seen in 15 years. That’s awesome! This news should have been on the front page of every newspaper in the world. But it wasn’t. People are still inherently scared when it comes to India. In fact, most people refused to get excited until the country had unveiled its FY 2005 budget – they wanted to see if the government would encourage this amazing growth with government spending.

– "Yesterday," Mr. Boric continues, "the new budget was unveiled. In my opinion, and more importantly, in the market’s opinion, the growth should be sustainable. More importantly, Prime Minister Singh is proving he can work with his Leftist alliances." Yesterday, Bombay’s stock market, the Sensex, rallied sharply upon release of the budget. It closed up 102 points or 2.1%. The Sensex is still down over 15% year-to-date.

– The Indian government agreed to completely abolish long-term capital gains tax on stocks. Power, petroleum and the telecom industry will be specific beneficiaries as the Indian government has agreed to hike its expenditure budgets for all three.

– India’s finance minister Palaniappan Chidambaram called for interest rates to remain market-friendly. This should continue to stimulate the economy and allow for India to maintain its 7% to 8% GDP growth.

– The government is permitting greater foreign direct investment into key industries (including telecom). New capital will generate new buildings, new roads and new manufacturing capital. You may recall, the two stocks James recently recommended to his Penny Stock Fortunes readers were both Indian telecom companies. He expects them to benefit directly from the budget.

– Meanwhile, in the US markets…the Nasdaq shelled out another 31 points for a loss of 1.6%, yesterday. The tech-heavy index closed at 1,935. The Dow dropped 79 points to 10,172 and the S&P closed down 9 to 1,109.


Back on tour, with Bill Bonner…

*** Our old friend Martin Spring:

"Monetarists argue that [Japan’s anti-deflation] policies haven’t worked because they haven’t been implemented properly. The banks, for example, haven’t been forced to restructure to free themselves of their enormous burden of bad debt, so they can start a new round of lending to promote economic growth.

A few months ago the Wall Street Journal summarized the problem pithily: "Since the Bank of Japan became independent in 1998, base money has risen 94 per cent (but) broader money just 16 per cent." No matter how or how much money the bank "prints," most of it ends up trapped in the banking system, the Journal said. The banks borrow money at zero interest and reinvest much of it in government bonds earning 2 per cent or so, financing government rather than spurring growth in the private sector.

Japan is caught in what the famous economist James Maynard Keynes called a "liquidity trap." Even at low or zero interest rates, banks consider the prospective returns from lending as not being enough to compensate for the risks involved. (There are other problems in Japan such as the unwillingness of borrowers to take on more debt).

Some economists argue that central banks have to take more aggressive and unconventional measures to spur demand and get prices rising again.

[Chris] Farrell warns: "Investors will flee any currency – including the American dollar – if the global capital markets decide the brand is being debauched through unsound fiscal and monetary policies." That would force up interest rates in the US, with knock-on effects around the world.

However, Farrell argues that the only kind of deflation we should worry about is one serious enough to produce a depression. And that is only likely if its severity comes as a surprise."

Our guess: it will.

*** From our man at the Southern Terminus of the Pittsburgh & Lake Erie Line, Byron King:

"As you ponder life in Nova Scotia by the Sea, a land that time has passed by, I get the feeling that I ought to offer you some more of A. de Tocqueville’s food for thought. Reviewing the following excerpts, it seems to me that he was writing about a different land, another age. But the lessons from the past are embedded in the contrasts with the present. Reading the following, I have to think about the United States of 1831? What has it become?

How did it get to be this way? Is the nation on the wrong trajectory, plummeting into a gravity-well of national doom and demise? If the nation is in fact on the wrong pathway of history, then where and how did things go so wrong? Can we find a way to change course? And if not, can I find a way to mitigate the impact on my family, my friends and myself?

I do not and cannot begrudge the fact that mankind has, over time, filled up an otherwise (mostly) empty continent with people and human activities. As Frederick Jackson Turner said in 1892, "The frontier has ended." But my view is that things really left the rails when the national consensus fell for the alluring myth of the nation having an "elastic" currency. That would be…hmmm…let’s see…December 23, 1913 perhaps?

When the currency is elastic, who is charged with responsibility for its subsequent shape? Could it be those same noble political forces of democracy?

So the nation democratizes its politics, and then it democratizes its currency by expanding access to credit. Then come the speculations with other peoples’ money, and then come the bubbles. And then come the "democratic" imperatives of the political classes not to be running the show when the bubbles pop, so don’t let them pop.

Bill, I am sure you know where all of this is heading.

The Daily Reckoning