Undaunted Cowardice

Courage. It is fleeting, fragile, extraordinary and lonely. Even in the best of circumstances, courage is hard to come by. "Don’t be economic girlie men!" says Arnold to those of a pessimistic bent. We include ourselves…

"Fighting is like champagne. It goes to the head of cowards as quickly as of heroes. Any fool can be brave on a battlefield when it’s be brave or else be killed. I’m talking of something else. And my kind of cowardice is infinitely worse than if I had run the first time I heard a cannon fired."

– Ashley Wilkes, Gone With the Wind

Republicans hardly needed to waste champagne in New York last week. America’s many bubbles had already gone to their heads. They looked out with crossed eyes and saw a nation of heroes, every one of them getting rich.

Celebrating "A Nation of Courage," the Grand Ol Party might as well have hosted a swimsuit "beauty pageant" at an old folks home. At best, the advertising for the event was mere fantasy. At worst, it was a lie. Viewers and participants alike smiled and pretended. But a man with his wits about him felt a little queasy.

If there was a single courageous fellow at the Republican National Convention, he must have been kept in the basement. Not a single delegate wondered about even the most important questions a republic can face: war…debt…taxes. Instead, all seemed happy to congratulate each other…and not ask any questions.

Republicans must have no respect for courage. They think they can hand it out like cheap bumper stickers or toss it about like campaign promises. They believe it can be sponsored by a collection of timorous precinct volunteers pussyfooting around with funny hats in front of TV cameras.

Even in the best of circumstances, courage is hard to come by and – like investment profits – almost never seen in the midst of a crowd. Instead, it is fleeting… fragile…extraordinary…and lonely. What makes courage worth celebrating is that it is as rare and as delightful as a liquor store that still makes home deliveries. It is uncommon…and persists only until stamped out by regulators, legislators or a bullet to the head. The idea of a whole nation of it is preposterous. It sucks the meaning right out of the word, leaving it as hollow as a convention delegate’s head…as if we could be a whole nation of geniuses or a whole classroom of A students, all graded on a curve.

American Political Courage: Walking Among the Gods

Men are born one by one. They die one by one. And if they are lucky, somewhere along the way they find a brief moment of grace and courage…and walk among the gods.

Von Choltitz, the German general who refused to blow up Paris…Cpl. Bauman, who refused to murder Jews in Poland…the unknown prison guard who refused to allow a boy to die without the comfort of a sympathetic hand – even when the boy was Louis XVII, son of the decapitated king.

Instances of real courage are infrequent…and most often involve people who refuse to go along with the winds of popular opinion. Often, they are small acts of kindness that never make the papers. But for every one of them, there must be 10 million sorry souls whimpering empty slogans in some dark corner of hell.

We read recently about a man in California who had crashed on an airfield during World War II. He was pulled from the burning plane by a black airman. Both went to the hospital with severe burns, went on to their respective battles and never saw each other again – for 40 years. Then, again in a local hospital, the man spotted his savior in a wheelchair.

The black man was dying of cancer. The other man asked if there was anything he could do to help.

It turned out, there was. The dying man had an unmarried daughter with a small son that he took care of. Who would look after them when he was gone? So the man took mother and child into his home…and has been a grandfather to the boy ever since.

The man will get no medals for this. But he deserves at least a wink and a nod.

American Political Courage: Dereliction, Malingering and Bogus Patriotism

But the Republicans weren’t praising private acts of kindness. They were celebrating a long series of public acts…mostly of dereliction, cowardice, shirking, malingering and bogus patriotism.

"If any one of the hundreds of thousands of CIA, Pentagon, USIA and other security professionals on the public payroll had the cojones to get close to bin Laden’s group…they never would have been able to pull off that 9/11 attack," a retired spook commented after the Twin Towers came down. "No one wants that kind of job anymore. It’s too dangerous. Besides, you could get diarrhea."

But instead of handing each of the security chiefs a loaded revolver, along with a strong hint that they should point it towards their own heads, a whole new bureaucracy, with hundreds of thousands more security personnel, has been set up. Bin Laden is still at large.

In Congress, of course, attacks of courage are as rare as rabies. The U.S. Constitution clearly gives Congress the responsibility to decide whether or not the country goes to war…and to raise the money for it. Instead, the politicos did neither. By a vote of 98-0 in the Senate…and 420-1 in the House, the people’s representatives decided to pass the buck to the White House.

Even the Democratic candidate for president – who earned three purple hearts in hot action in Vietnam – couldn’t find the heart or courage to stand up to the post-9/11 war fever.

American Political Courage: Whipping the Yahoos

Mr. Kerry turned against the war in Vietnam when the currents of opinion were at his back. The justification for the War in Iraq is now the same – "better to fight them there than in our own backyard" – but Kerry judges the wind to be blowing in the other direction. According to the Democrats’ campaign literature, their man has done almost nothing since the 1960s except vote for more spending…and he appears to be unable to say or do anything different now.

Sometimes it takes courage to go to war. Sometimes it takes courage not to. But it takes a lot of thinking to figure out the difference. Dying is easier than thinking, for most people. And for most people, probably preferable. But a real coward doesn’t bother to think…and lets someone else die. As near as we can tell, almost no one in either party has had a single serious thought about the war. And none has had the courage to ask: What’s the war really about? Why is it worth dying for? What do we hope to gain from it? When will it be over? At what cost? Who will pay for it? How?

After 9/11, any elected politician, coach or scoutmaster could have whipped the yahoos into a mood for war; but it would have taken courage…and thought…to resist.

Likewise, it would take courage to face up to America’s worsening financial situation.

Sayeth the governor of California:

"There is another way you can tell you’re a Republican. You have faith in free enterprise, faith in the resourcefulness of the American people…and faith in the U.S. economy. To those critics who are so pessimistic about our economy, I say: Don’t be economic girlie men!"

This year, both parties have shown a real genius for propaganda. If you dare to face up to the realities of the U.S. financial system…you are an "economic girlie man." Real men just take it as an article of faith that the "resourcefulness of the American people" will somehow override the laws of economics…

Except for a few cranks and Don Quixotes such as Pete Peterson, Ron Paul and Laurence Kotlikoff, no one in Congress, academia, the administration, the Republican or Democratic parties, nor in the Federal Reserve has the courage to face up to any of America’s looming debacles.

Americans get poorer by $2 billion per day. Who even mentions it?

American Political Courage: $44 Trillion of Obligations

The American government has run up $44 trillion worth of obligations – with no way to pay for them. Who cares?

Americans now absorb as much as 80% of the entire world’s savings – not to build a profit-making economy, but merely to maintain current levels of consumption against a backdrop of slipping real incomes. Who warns them?

American workers now face stiff competition from 3 billion foreigners who will work harder, longer and for a fraction of the pay. Unless he tightens his belt, saves furiously, and learns to produce higher quality goods and services…the average American is going to lose ground in the years ahead. Who has the guts to tell him?

U.S. householders owe more money to more people than ever before in history. A financial collapse will not just affect rich speculators…instead, like the hyperinflation in Germany in the early ’20s, it will reach down to the bedrock of American householders…and upset it badly.

Germany was so unsettled by the financial calamities of the ’20s it welcomed a whole new team of scoundrels. Italy welcomed Mussolini largely because the nation was bankrupt. The Argentine generals launched the Falklands war in order to divert the public from its financial catastrophes.

And now, the "Nation of Courage" itself…lumbers toward its own wussy ruin…

"I don’t see how anyone with an IQ over 70 can be anything but utterly pessimistic about the long-term outlook for the U.S. economy…" writes Marty Whitman of Third Avenue Funds. "Everybody’s – and I mean everybody’s – emphasis is on the short-term outlook. Nobody, but nobody is focused on solving real structural problems, organic structural problems that exist."

No. That would take courage, the one thing the nation most needs and most hasn’t got.


Bill Bonner
The Daily Reckoning
September, 10, 2004

The next report on America’s trade deficit is in today. A new record – over $50 billion – has been set.

No one at the political conventions – not at the Democrats’ loopy Vietnam-era reenactments…nor at the Republicans’ "Nation of Courage" hullabaloo – had the guts to say so, but this deficit bleeds America of its wealth…slowly, surely…and probably irreversibly. Money trickles over to Asia at a rate of 0.1% of the entire nation’s assets per month – including land, stocks, businessesand businesses…everything. In a year, more than 1% is gone. At this rate, in 10 years, more than a tenth of everything we own will be gone.

Asian manufacturers become stronger each year. Asian tools become better, more high tech. Asian workers become more skilled…and better able to do the jobs Americans once had for themselves.

There are some who think the U.S. government should step in and do something to stop this outflow of U.S. wealth. Don’t count on it. Because the fix is in. And the Feds are part of it.

The foreigners make money selling things to Americans – whose purchasing power is boosted by Alan Greenspan’s bizarrely low lending rates. What, then, do they do with the dollars they’ve earned? Many of them are recycled into U.S. Treasury bonds – in an amount almost equal to the entire U.S. government deficit. In other words, the federal government is beholden to foreign lenders and is an indirect beneficiary of trade deficits. It needs cash from overseas in order to continue spending.

And in the future, the feds will probably spend more, not less. The cost of the Iraq war is already said to come to as much as $200 billion. And the promises made by the Bush administration to old people will cost hundreds of billions more.

But there’s more.

Consumers are dangling at the end of their ropes. Wages are actually below what they were a year ago. Homes have already been refinanced – twice. Tax refunds have been spent. The lumpen consumer has nothing left.

Businesses, meanwhile, are cutting back. They’re not building new plants. They’re not hiring new workers. They’re not investing in new technology. In the face of foreign competition, they see few opportunities for expansion. So they’re merely trying to build up cash.

Who does that leave to keep the money flowing? Only the federal government. Only the federal government has the means – a printing press, as Ben Bernanke famously noted. Only the federal government has a plausible justification – national defense. Someone at the Federal Reserve must have read Richard Duncan’s excellent book The Coming Dollar Decline. They must realize that the only way to stave off a slump is to spend money – money they don’t have. They must spend billions – borrowing the money from foreigners, of course – in order to keep the U.S. economy rumbling ahead.

It is rumbling itself right off a cliff – but who’s going to mention that?

More below…

But first, the news from Tom:


Tom Dyson, from the Baltimore HQ…

– "Tommy, we have a problem."

– "I’m short the dollar and I’ve misjudged my liquidity in the market. I’ve tried to hold the market down, but it’s not going to work. And I can’t buy them back."

– Size of the problem: Between $70 and $90 million. A senior currency trader has got himself in a hole. It’s 1988 and this conversation has just taken place on Salomon Brothers’ New York trading floor. Bill Lipschutz is explaining his position to the head trader.

– "If I try to buy some back, I may get a little here and a little there, but it won’t amount to very much, and we’ll just end up pushing the market further against us. The first liquidity is in Tokyo."

– Of all the capital markets, the currency market is the largest, by far. It’s estimated that over $1 trillion is traded each and every day. Despite its size, there are only ever a few high-stakes players at any one time. And although they frequently take positions measured in billions, they are virtually anonymous. Bill Lipschutz is one of these traders.

– In fall 1988, Lipschutz was short $3 billion versus the D-mark, but expected the market’s sideways action to continue. Then Gorbachev made a speech about troop reductions, which the market interpreted as beneficial for the U.S. budget deficit and therefore bullish for the U.S. dollar. "The dollar started moving up in New York, and there was no liquidity. Very quickly it was up 1%, and I knew I was in trouble."

– This currency trader had just lost $30 million in eight minutes.

– Here at The Daily Reckoning, we also like to trade currencies. Of course, our position sizes look more like golf scores than international telephone numbers, but we still have fun.

– "The dollar looks like it might continue to rally for a while." Your misplaced British editor was providing a rundown of yesterday’s market action to Addison, sitting across the room. "Not sure why, just seems right," we commented.

– The dollar may eventually decline – as we have been saying for years in The Daily Reckoning – but for the next few months, or even another year – the dollar could easily rally. Why? Because the dollar’s fundamentals are so rotten that no one expects a rally.

– Put another way, top trader Dennis Gartman writes: "We have not met one person who can or will or even might argue in favor of the U.S. dollar…that is, the world is short of U.S. dollars, and it shall take massive new bearish news to push the market to new lows."

– Gartman is threatening to become a very aggressive buyer of U.S. dollars. But first, he wants to see some overt dollar bearishness before plunging. He was waiting on the latest trade deficit number to look for an entry point: "We would very much like to see the report come in at $54-$55 billion," said The Gartman Letter a few days ago, referring to a consensus forecast of around $51 billion.

– Well, said report was just released…and the deficit beat expectations by coming in at $50.15 billion.

– But even though the deficit was nowhere near where Gartman had hoped, he still may have got his entry point…the dollar just fell to a new three-week low against the euro. And for completely different reasons, to The report on producer prices was just released. Here’s the detail: The PPI rose by 0.1% versus expectations of 0.2%. Core PPI fell 0.1%.

– Against the euro, last we saw, the dollar had lost 40 cents, to trade at $1.2206. And gold was up nicely too, moving back above $400, to $402, with a $4.30 gain in early Friday trading. Yesterday, it declined $1.

– At the stock market, the Nasdaq rises while the Dow falls. At least, that’s what happened yesterday. The Nasdaq gained 19 points, to 1,870, while the Dow lost 24, closing at 10,289. Somewhere in between, the S&P managed a 2-point gain. The same pattern has been repeated in early morning Friday trade…the Nasdaq is currently up 12 points, while the Dow has sunk 24.

– As for our super-large currency trader trapped in a hole, he tried to reverse the bullish move by selling another $300 million. He figured there wasn’t much liquidity, which should help cap the move, but the market went right through it.

– "I couldn’t cover these positions. I was really scared."

– Then he got lucky. When Tokyo opened, the dollar broke back down. But still, Lipschutz didn’t cover. He waited for the markets in Europe to open, and then bought the whole position back for loss of only $18 million on the day and a big sigh of relief from his manager.


Bill Bonner, back in Baltimore…

*** Things could be worse, dear reader. We could live in Africa. A Daily Reckoning reader comments:

"I came across this recently and thought it a sufficiently interesting illustration of inflation and a collapsing economy that I should share it with you…

"At one time, agricultural output accounted for about 45% of the Zimbabwean economy, and tobacco was by far the single biggest export. The Zimbabwean government deserves credit for the entirely successful implementation of a policy: redistribution of land to poor peasant farmers.

"It’s just a pity they got it backward; instead of sharing the wealth at the top with the poor masses at the bottom, they shared the poverty of the masses throughout the system!

"Zimbabwe tobacco production 2000: 237 million kilograms
Zimbabwe tobacco production 2004: 64 million kilograms
One packet of 20 cigarettes in 2000: $22
One packet of 20 cigarettes in 2004: $4,500

"Zimbabwe wheat production 2001: 314,000 tons
Zimbabwe wheat production 2003: 50,000 tons
One loaf of bread in 2000: $21
One loaf of bread in 2004: $3,500

"Zimbabwe milk production 2001: 160,000 tons
Zimbabwe milk production 2003: 100,000 tons
One liter of milk in 2000: $15
One liter of milk in 2004: $2,600

"One dozen eggs in 2000: $36
One dozen eggs in 2004: $7,500

"One bag of sugar in 2000: $40
One bag of sugar in 2004: $5,303

Harare Agricultural Show total livestock exhibits 2004: nine cattle, two goats, three sheep.

Zimbabwe tourism earnings 1999: $200 million
Zimbabwe tourism earnings 2003: $44 million."

I end this week with numbers using a quote from the Zimbabwe Independent: "Baton-wielding riot policed on Wednesday broke up pro-democracy demonstrations in the capital, arresting at least 44 activists."

*** "Oh Daddy, I’m glad I’m going away to college in London…of course…but I’m a little bit scared too."

Maria is leaving on Saturday to attend a theater school. Like millions of other 18-year-olds, she is leaving home.

"Don’t worry…you’ll be fine," said her father.

"But what if I’m not fine…what if I don’t like it…what if I’m miserable?"

"Don’t worry about it…you’ll be fine."

"But suppose my roommates are mean to me…or my teachers don’t like me…or…or…" and here we noticed a sweet sadness in her eyes. "Suppose I’m just homesick?"

"Look," said Dad, with a father-knows-best tone, "you can’t always be completely happy. But you just have to have courage and keep going."

"But what if I don’t feel courageous…what if I get stage fright…what if I feel too scared?"

"Feeling scared’s got nothing to do with it. Everybody feels scared. It’s not how you feel, but what you do that counts. You just have to figure out what is the right thing to do…and do it. Courage is doing what’s right…no matter how you feel.

"And by the way, the greatest heroes always feel scared. So do the best actors and actresses."

"What do you know about actors and actresses, Dad?"


More below…

The Daily Reckoning