Remembrance Day

People can be convinced to do the craziest things: They will dress up like comic book heroes on Halloween, paint their bare, beer-bellies for a football game…and even kill one another. Bill Bonner takes a look at the logic behind war, and other public spectacles.

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

Yesterday, at precisely 11am, 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.

Remembrance Day: A Public Spectacle

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 Buffet 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.

Remembrance Day: The Difference Between 1950 and 2004

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.

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

Remembrance Day: Lies

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
November 12, 2004

It is as if there were a universal law, dear reader.

The more a man has, the more he has to lose. The higher he goes, the further he may fall down. The finer his reputation, the greater the potential disgrace.

When a man climbs a mountain, the higher he goes, the greater his danger. If he has his wits about him, he becomes more cautious with every step.

But as asset prices rise, typically, a kind of perverse and reckless mass psychosis sets in: As the risk increases, people become more carefree and confident. As they approach the peak, the thin air must make them a little lightheaded.

Much of the world has enjoyed a real estate boom over the last seven years. Since 1997, property prices have risen 53% in the United States. In some hotspots – such as broad sections of both coasts – prices have risen much faster.

"The United Kingdom is worse than America," said our friend Tim Price the other day. "In the United States there are hotspots. In the United Kingdom, the whole country is hot."

Britain is a smallish island, after all. On average, property has risen 116% since 1997. Ireland, an even smaller island, has seen increases of 174% over the same period.

A few places have resisted the trend. In Germany, for example, the property boom never quite got underway. The typical house sells for 3% less this year than it did in 1997. It’s easy to see why. The German mortgage finance industry seems stuck in an earlier, more responsible, age; you have to have money to buy a house in Germany. Typically, buyers need to come up with a down payment of 40% of the purchase price.

By the way, in Japan you can buy a house for 22% less than seven years ago.

Here in London, the housing boom seems to have come to an end. The press reports that prices fell in October – the fifth month of falling prices in a row.

But in America, house prices are still moving up…and both lenders and buyers are becoming more and more reckless. No sun ever rose without setting sometime later; the longer the sun shines, the closer comes the twilight. But property speculators in America are still enjoying the warm glow of a boom. They should come in soon, is our advice, before they get burned. [Ed. Note: Even though the blaze of the housing boom may be dying out, there’s no need for you to get scorched…We have some suggestions to help you avoid getting sucked into financial turmoil.

More news, from our team at The Rude Awakening:


Tom Dyson, reporting from New Orleans….

"’Destroying the currency and spending your children’s legacy away is immoral and unethical…’ concluded the first segment of Dan’s presentation, ‘but what can you do to profit from it?’ he asks cryptically…"


Bill Bonner, back in London:

*** Stocks are still saying one thing, as the Dow rose 84 points yesterday. But gold and the dollar are saying another: Gold rose slightly; the dollar fell. The Dow is saying, "I believe" to the Bush/Greenspan borrowing-spending consumer economy boom. Gold and the dollar say: "No thanks."

Which is right?

We will put our money on gold. Not that we know how things will turn out, but there’s less of a penalty for being wrong. Could gold go down? Yes, but it is practically impossible to imagine a situation in which it would go down a lot, without also imagining that other things – such as the Dow – could go down a lot more.

"Existing mine output is falling," says Merrill Lynch. Gold bears expect central bank selling to make up the difference – and more. European banks have been selling their gold for years. They agreed among themselves not to sell too much in any given year – the Washington Agreement. But now it appears that they’re becoming reluctant to sell gold at all. Usually, they replace gold with U.S. dollar assets, which have been losing ground against the euro at the rate of about 15% per year…and against gold at about the same pace. Why would they want to shift from an appreciating asset to a depreciating one?

We are just waiting for the day when they decide to dump their Treasury bonds in favor of gold.

*** Yasser Arafat is dead. Reading his obituary in the Times we discover that even from his early years the man had the one essential quality of a politician – he was a good liar.

*** "Lincoln & F.D. Roosevelt won reelection because the American people did not want to change presidents in the middle of a war of vast strategic scope. Can the same now be said for G.W. Bush?" asks our Pittsburgh-based correspondent, Byron King.

"The American people reelected Wilson because ‘He kept us out of war,’ a slogan put to ashes within days of the second inaugural parade. Truman declined to run again in 1952 because of Korea, and Eisenhower won in no small measure because he promised to end the Korean bloodshed. LBJ declined to run again because of Vietnam (Or was it because he appointed Thurgood Marshall to the Supreme Court?) Nixon won reelection in 1972 because he played the China card, and was offering a way to bring the Vietnam War to a conclusion for large numbers of U.S. ground forces.

"G.H.W. Bush was defeated for reelection despite having just won a splendid victory in the sands of Kuwait.

"Lincoln’s war ended a few months after his reelection, and he was dead within days of the surrender at Appomatox. FDR’s war would last not quite another year after his reelection, and he too did not live to see the end of what started on his watch. The Great War and its related events wrecked Wilson’s presidency. Truman’s presidency was wrecked by war. Ditto for LBJ. The continuing Vietnam War did not help Nixon.

"My take on it is that the American people will accept war as part of national policy. But wars are not good for the long-term prospects of a presidency, political or personal. Feel free to pass this on to Mr. Bush the next time you see him."

The Daily Reckoning