Remembrance Day

People can be convinced to do the strangest things: They will dress up like comic book heroes on Halloween, paint their bare, beer-bellies for a football game…and even involve themselves in the fruitless quest to "make the world safe for democracy". Bill Bonner takes a look at the logic behind these public spectacles…

"If any question why we died, Tell them, because our fathers lied."

-Rudyard Kipling

Yesterday, at precisely 11:00 am, on the 11th day of the 11th month – London took time to catch its breath.

"We remind you to observe two minutes of silence in honor of Remembrance Day," came the announcement over the office loudspeaker.

No one said a word. The phones stopped ringing. Even the tappety-tappety of keyboards ceased. In the distance, we heard the faint bells of St. Paul’s.

For whom did the bells toll? It was precisely this hour on this day of this month in 1918 that bloodiest war in human history came to an end.

The armistice had, of course, been agreed upon days in advance. On that day, soldiers all knew the war was coming to a close. Who would want to catch the last bullet? A reasonable man would have sat it out that day; for there was nothing to be gained, and much to be lost. And yet, Max Hastings, writing in the British press, reports that the fighting was particularly brutal on the 11th of November 1918, with more casualties than usual.

Publick Spectacles: A Public Spectacle, Not a Private One

But then, war – like markets, politics and team sports – has a logic of it’s own. It is a public spectacle, not a private one. Masses of people are stirred up – mobs, groups, and crowds – to do the most remarkable and preposterous things.

What man, on his own, would consider walking across open ground while people tried to kill him? Or asking his rich neighbor down the street to give him a portion of his income? Or telling the boys down at the pub that they can no longer smoke cigarettes on the premises?

Privately, an investor buys a business only after a thorough and reasonable study of it, after he’s figured out how much it is worth to him. He will pay that much and not a penny more. But the same man, acting as a member of the great mass of investors, will buy a company, in the form of a publicly-traded stock, with hardly a moment’s forethought.

Crowds, mobs, masses, and collections of men do not think; they do not analyze; instead, they only feel and act, and make public spectacles of themselves.

And here, dear reader, we interrupt ourselves with a quick investment tip: You are far better off making your investment decisions as you make your other private decisions. Do not read the newspaper. Turn off the television. Instead, do your own personal research and figure out how well an investment purchase might fit into your own personal plans. Buy a stock the way Buffett does – as if it was your own business and you were buying the whole thing. Study it beforehand and make sure that it gives you the return that you expect. Do not pay attention to stockbrokers. Do not put your money into a mutual fund or hedge fund.

But let us continue our story. You see, when we open our eyes and look at today’s economic picture…we can’t help wanting to go behind the screen to see where the wires lead. The trade deficit did not just "happen." It is plugged into the housing boom. With higher housing prices, Americans could not continue spending…and the housing boom couldn’t happen without Mr. Greenspan’s low interest rates. One wire leads to another. Rates came down because of the tech blow-up of 00-01…which can be traced to the EZ credit policies of the ’90s…and from there you can follow the lines all the way back to cutting the dollar’s connection to gold in August of ’71…which was done because of Lyndon Johnson’s unfunded wars on poverty and Vietnam…which grew out of the boom of the ’60s…after the lean years of the Great Depression and World War II.

And here, another interruption. There is no need to worry about Americans spending more than they earn, we are told, and they did the same thing in the early ’50s. In fact, in 1950, the typical wage earner spent $1.05 for every dollar he brought home. But there is a big difference between 1950 and 2004. What could you buy during the war years? Even butter had disappeared from the shelves. Wages rose, but there was nothing to do with the money but save it. When the war was over, the troops came home, married, begat families, and began spending money on refrigerators, houses, cars…and everything else they needed. The money they were spending was money they had earned and saved up. And it was money they could put back into savings as their incomes increased.

Today, the typical householder spends $1.04 for every $1 of income. He lived it up during the ’90s. Now he is living it up even more. He has no savings, so has to borrow the money. And he has no ready way to pay it back. Looking back, the spending of the ’50s led to the boom of the ’60s. Looking ahead, the overspending of the ’90s and early years of this decade will probably have the opposite result.

From the ’50s…the trail leads back to the Depression itself…and the stock market crash of ’29 that began it. And what’s this? How did the market get jived up in the first place? We trace the wire and find it in the hands of Benjamin Strong, Fed chief in 1927. The English were broke after World War I. Strong wanted to help them out, by giving a little "coup de whiskey" to the financial system.

One thing leads to another. But it all seems to lead back to the Wilson period…and the biggest public spectacle of all – World War I. In the period, 1913-18, everything changed. The Fed was created. An income tax was laid on. A whole generation of European men was practically wiped out. Nearly every major government in Europe fell…and every major combatant, except the United States, went bankrupt.

Public Spectacles: What Should We Remember

And so, on this Remembrance Day, we wonder: What is it we’re supposed to remember? Why had so many young men died?

Blame the fathers who lied, says Kipling, whose own son was killed in the war.

The first lie came from Britain. The British had cut the transatlantic cable from Berlin to New York. After the war began, Americans got their information from London, information that had been doctored by British propagandists. Reports told of German atrocities in Belgium. The Huns were barbarians. The Huns were murderers. The Huns were rapists, according to the news.

A group of investigators was dispatched from the United States. They could not confirm a single charge. It was all lies. The Germans were no better – and apparently no worse – than other troops. Almost all the reports of German atrocities against civilians in Belgium and France were made up.

But soon, the public came to believe that the Germans were responsible for the war…and that they were murderers.

Germany found itself in a tight spot after the assassination of the Archduke Ferdinand. It faced war on two fronts. Russia was Serbia’s ally. France was Russia’s ally. Austria had declared war on Serbia. Austria was Germany’s ally. What could Germany do? Its military strategists had always warned against a two-front war. The German Chief of Staff, Helmuth von Moltke, the Rumsfeld of 1914, urged action. Germany must move quickly to knock out France, he said, in order to free its armies for the larger enemy – Russia.

The Kaiser dithered. But von Moltke pushed ahead. And so the war was on.


Bill Bonner
The Daily Reckoning

Novemeber 11, 2005 — London, England

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).

When a man gets married, even in the third millennium, he has no more idea of what he is getting himself into than did a Roman when he took to him a wife 2000 years ago. Nor when U.S. airmen drop bombs on Iraq, do they have any fuller knowledge of why they are doing it, or what is likely to happen as a result, than the lackeys and footmen of William, Duke of Normandy, when he set out for Hastings in 1066. The burden of today’s reckoning is that the investor of 2005 is no better off either. Now as then, when he makes an investment, it could go either way.

There are some things in life that are cumulative, dear reader, and others that are cyclical. Science and technology genuinely seem to deserve the word "progress." Each additional bit of knowledge adds to the whole, so that a young man who enters a university in the 21st century has vastly more to learn and to work with than one who took to books at the time of Christ. From the practical experience and theoretical thinking of others, he can build an airplane, or a radio, or a nuclear bomb. With modern telescopes, he can also peer into the far reaches of the universe and gaze at stars that his ancestors could never have seen, not even on a clear night.

Perhaps this accumulation of learning could also help him avoid a spat with his wife…or a pointless and costly war…or a terrible financial loss? Alas, it does not seem to work that way.

There are some sciences that are "hard." Others are pure mush.

Yesterday came news that the U.S. trade deficit reached a new high of $66.1 billion, or an annual rate of nearly $800 billion. Exports dropped the most in four years. In the curious way the world’s financial plumbing is put together, the money flushed out of American consumers’ pockets and ran into the cisterns and cesspools of Asian, whence it was purified, recycled and pumped back into U.S. financial assets – notably interest-bearing ones. Everyone seems to come about ahead. Savings rates were negative again in the United States , for the fourth month in a row. There is no need to save, not when so much of someone else’s savings is so readily available. And while credit floods the United States, rather than allow it to raise consumer prices, it is happily drained off to Asia. Then – hallelujah – it cometh back in a more appealing form…boosting asset prices and the dollar.

The new Fed chief dauphin, Ben Bernanke, finds the whole scene to his liking. His colleagues also seem unconcerned about the situation. "Fed’s Poole not troubled by U.S. current account deficit," says an AFX headline. Nor does the U.S. Treasury Secretary, John Snow, lose a moment of sleep. All of these "eminentistas" share the same thought, that this time it really is different. Now, the modernized methods of the U.S. Federal Reserve, along with the sophisticated instruments of today’s financial markets, mean that market stability can be not just a passing phase, but also a permanent addition to mankind’s accumulated patrimony. It is something we will enjoy all the days of our lives, and then leave, like an un-paid mortgage, to our children.

"The Great Moderation," they are calling this quiet period. But is it really progress? The maestro seems to have succeeded in drowning out every menacing new noise by opening valves and letting more credit gush through the system. Does all this debt and derivatives really make the system more stable, dear reader? Or do they set it up for a worse disaster?

We will see.

More news from The Rude Awakening…


Byron King, reporting from Pittsburg:

"In boom times, oil companies are supposed to be out in the field, drilling for oil & gas. But when oil companies actually make some money, the folks on Capitol Hill believe that they should be drilling the oil companies."


Bill Bonner, back in London with more thoughts…

*** Poor G.M. It’s stock has fallen from $94 in 2000, to $23 today. And now the company has been forced to admit that it overstated its profit by $400 million in 2001. What next for G.M.? Bankruptcy?

"With the erosion in share prices of the once big blue chip equities, like General Motors and IBM for example, assurance groups and pension funds are increasingly turning to commodities as a vital asset class for a well rounded and profitable portfolio," our resident commodities expert, Kevin Kerr, told MarketWatch.

"Commodities, once the red headed step child of the investment world, are suddenly riding to the rescue for beleaguered fund managers who touted equities as a low risk, high return assets during the 1990s," Kerr continues.

"In many cases, equities have become a high risk, low return investment in the new millennium. Bond returns aren’t much more attractive since they’ve been under threat from inflation and persistently low interest rates."

"So while bonds and once coveted shares sink, commodity prices continue to explode with growth. Many analysts predict they will continue to rise, because of growth in demand and dwindling supplies."

*** Alan Greenspan appeared in Congress recently. As usual, he noted that inflation was not a problem.

Oh yeah, said our old friend Congressman Ron Paul. If that is so, how come the dollar has lost almost half its value since you’ve been Fed chairman?

The maestro had no answer.

*** Here in London, the papers are full of buffooneries. We turn to the Daily Express for an eyeful. When people get married in England they go to the "Register office" to record the act. The office in Liverpool even had a couple of sentimental pictures on its walls – one of Romeo and Juliet, the other of a 19th century couple signing the register. But now the geniuses in Liverpool have decided to take down the decorations for fear they would offend gay couples.

*** This being Remembrance Day, there are more buffooneries than usual. People can’t seem to honor fallen soldiers without wanting to wrap the corpses in a lie. Everywhere the dead Tommies are praised for, "helping to preserve Britain’s independence…and its freedom." The editorialists at the Daily Express propose that they were, "instrumental in saving the British way of life." But England’s independence or way of life hasn’t really been at risk for nearly 1,000 years. And then, in 1066, the one and only time when the island was invaded by an organized army between the departure of the Romans and the arrival of Tony Blair, the English defenders suffered a defeat and ran away. A tiny force of Normans was able to take over the whole place. Since then, all of Britain’s wars have been fought to interfere with someone else’s way of life, not protect their own.

At least Col. Mike Dewar, formerly of the Royal Green Jackets, knows what British forces have been up to. "Let us also be aware," writes he, "that our soldiers, sailors and airmen are still striving to make the world a better place." Rarely, but perhaps occasionally and accidentally, they may succeed.

The Daily Reckoning