We the Dead

The wind blows where it chooses, and you hear the sound of it, but you do not know where it comes from or where it goes.

– Jesus of Nazareth
John [3:1-16]

Here, we pass along an email that came to us yesterday, in response to our “Dead Men Talking” column of last week. Is it authentic? We cannot say…we can only hope.

Dear Mr. Bonner,

I write on behalf of all of us here in this little corner of Hell – Helferrich is here. Ya…and Havenstein too. He was the guy in charge of printing the money in Germany, 1919-23. And Ben Strong is here, too…forever boring us with his little tale of how he gave the markets “a little coup de whiskey” and brought on the Great Depression…and John Law, always trying to get up a poker game…and, of course, everybody’s favorite schemer, Charles Ponzi.

You hit a raw nerve last week. Well, all of our nerves are a little raw…but a constant gripe in these parts is this:

We sacrificed our very souls…and now we roast in eternal torment – and for what? Yes, when we were living, we all did the wrong thing; we freely admit it. And now every one of us pays the price. (Nothing comes in life without conditions attached, we discovered.) But what good is it for God to make a moral example out of us if no one pays attention?

Believe it or not, we read the papers and watch CNBC down here. [It is part of our torture!] It seems as though every central banker in the world has taken the devil’s bait. The bankers create money, ‘out of thin air,’ as if they knew what they were doing. As if had been not be tried by every one of us…as if there were anyway to get away with it.

Neo-Conservatives: Can’t Get Something for Nothing

Here, we know what we are talking about; every sorry one of us learned the hard way: you can’t get something for nothing.

But let us change the subject. These doom and gloom opinions are boring, your readers tell you. So we dead men will speak of other things. You see, we have learned a thing or two. And if you – whose hearts still beat – would take a minute to listen to us, you might learn something.

That is what really galls us. That each generation seems to think it is the first to stand upright. It is as if its mothers and fathers walked on four legs and howled at the moon!

Even when you feign admiration for same fallen forebear, it is usually without paying a lick of attention to what the poor schmuck actually said…or knew. We leave you our memoirs, our gospels, our histories and constitution – for what is a constitution but a pact with the dead? – and you ignore them, choosing instead to watch the latest brain- fogging episode of Survivor on TV! You seem to believe that all that we suffered, all we went through, all the mistakes we made, had no more interest to you than a comment by a sun-struck contestant in a bikini: “this is…like…weird…”

A dead man, Edmund Randolph of Virginia, attended the Constitutional Convention in Philadelphia in 1789. He explained why America needed a constitution:

Neo-Conservatives: The Follies of Democracy

“The general object was to produce a cure for the evils under which the United States labored; that in tracing these evils to their origins, every man had found it in the turbulence and follies of democracy.”

Another dead man, James Madison, made it even clearer: “Democracies,” he wrote, “have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their death.”

So, we leave you “a Republic, if you can keep it,” added Ben Franklin.

Well, you couldn’t keep it. And now, people who call themselves “neo-conservatives” are pushing democracy on the entire world. These men are supposedly inspired by another corpse, Leo Strauss. But why do they not listen to the man?

“Democracy has not yet found a defense against the creeping conformism and the ever-increasing invasion of privacy which it fosters…” wrote Strauss when he was still above room temperature.

Democracy inevitably leads to a corrosive egalitarianism…there are hundreds, millions of us down here to testify to this…a soul-deadening conformity that Alexis de Tocqueville called “the tyranny of the majority.”

Neo-Conservatives: Not Worth a Continental

The dead men who wrote the Constitution clearly wanted to help you avoid this tyranny…and the evils that come from it. For example (returning to the topic which got so many of us into trouble) they intended for money to be a unit of gold or silver. It was not something that you could ‘create out of thin air.’ By the way, those guys had experience with printing press money. They had lived through it. They knew what happened to paper money. You’ve heard the expression ‘not worth a continental.’ Well, continentals were the paper money printed during the Revolutionary War. We don’t remember how much they were worth, but the phrase suggests that there was not much that was worth less!

The Constitution also bound the politicians in matters of war; they couldn’t make war without a formal, solemn declaration. And then they had to raise the money and the troops to fight it. That was the dead men’s wisdom, intended to spare the nation the near-constant wars of Europe. But these same neo-cons I mentioned above have made not just one, but two wars, in the last 2 years. Neither time did they pay any attention to the Constitution. And now, they have U.S. soldiers getting gunned down and blown up all over the place. While Europe is at peace, America seems ready to go to war with half the world.

What is wrong with these neo-cons? We read a recent description of the state of the union by Congressman Ron Paul. Just look at what these men have made of the nation we dead men left them:

“As our republic crumbles, voices of protest grow louder. The central government becomes more authoritarian with each crisis. As the quality of education plummets, the role of the federal government is expanded. As the quality of medical care collapses, the role of the federal government in medicine is greatly increased. Foreign policy failures precipitate cries for more intervention abroad and an ever- great empire. Cries for security grow louder, and concern for liberty languishes!

Neo-Conservatives: What the World Wants

“Attacks on our homeland prompt massive increases in the bureaucracy to protect us from all dangers, seen and imagined. The price goal and concern of the Founders, the protection of liberty, is ignored. Those expressing any serious concern for personal liberty are condemned for their self-centeredness and their lack of patriotism.”

But the days of the American constitutional republic are long over. The neo-cons claim that they are bringing Wilsonian democracy to the entire world. Somehow, they seem to know that this is what the world wants and needs.

Everybody gets a vote in this new Democratic Valhalla. Every half-wit’s ballot is worth as much as George W. Bush’s. Every fool and moron gets to have an opinion. Only we, the dead, are left out. Excluded. Ignored. Forgotten.

It is as if only the living had opinions worth hearing…as if only the here and now counted for anything. As if this small, arrogant oligarchy of those who happen to be walking around had all the questions and all the answers. The very idea is absurd. If the present generation could have found the Ultimate Truth and reached the End of History…why couldn’t the last one? Or the one before?

The neo-cons must have never even read the constitution. But they listen to poll results as if they were hearing whispers from God Himself. Thus have they broken the sacred pact with their own dead ancestors.

And here, in this especially hot and putrid corner of Hell, we stoke the fires and prepare to scorch their fat derrières!”

The letter is unsigned.

Bill Bonner
June 27, 2003


The dollar rose yesterday. Gold lost $5.40. Bonds went down.

The typical investor poses himself two questions. Are bonds coming off a top, headed down? And are stocks coming off a bottom, headed up?

As to the second question, our answer is simple: probably not. And what does it matter, anyway? You make money by buying low and selling high. Stocks are high; buying them now starts you off on the wrong foot.

But to the first question, our reaction is almost schizophrenic. Yes, well, maybe…perhaps not. We think U.S. bonds may go up…but we think you’d have to be crazy to buy them.

“Whereas…the early 1980’s provided a once-in-a-lifetime opportunity to purchase bonds,” explains Marc Faber, “the current period is likely to provide a similar opportunity to sell bonds.”

It may be too early. The Fed may not be able to inflate as easily as people think. Instead, as in Japan, overnight rates may eventually drop below zero…as the economy weakens. A 3% yield may seem like a gift from heaven.

But 10 years from now, Marc Faber elaborates, it will be totally irrelevant whether you sold bonds at a 3% or a 4%. In January of 1981, the Fed Funds rate reached over 19%. Sooner or later, it will head in that direction again.

“If the inflationists, who now have the leadership of the Fed, and control of the central banks around the world, have their way,” wrote Faber in yesterday’s Daily Reckoning, “a very dangerous economic policy course will be followed. This will result eventually in sharply rising inflation rates and a much lower U.S. exchange rate, and will bring about a disastrous global recession, which could threaten the capitalistic system as we know it today.”

Bonds probably are at an historic top. And no bonds are at a more historic top than those of Japan – where the yield has dropped to 0.57% on 10-year JGBs. This is not only a high for Japanese bonds…it is the lowest return on government paper ever recorded.

“The Japanese bond market is the short of the century,” Faber told Barron’s. But unlike Japan, he went on, “the U.S. does not have a trade and current-account surplus. It has deficits.”

Japan, Faber implied, could stomach a little deflation. Falling prices do little harm to a nation of savers. But the U.S. has total credit market debt three times the size of the economy. It cannot bear falling prices; its voters and industrialists are too close to insolvency already. It must ‘inflate or die’…

“This monetization experiment on a global scale will temporarily boost economic activity and consumption,” Faber concludes. “It will end in disaster.”

Meanwhile, we have Eric’s cheerful report from the Big, Big Apple:


Eric Fry from New York…

– The hopeful masses resumed buying tech stocks yesterday. That’s because buying technology stocks has been a much more rewarding activity than buying any actual technology products…(Remember the old days when folks used to buy PCs and semiconductors and routers, and not just the stocks of companies who try to sell this stuff?)

– Yesterday, the resurgent Nasdaq Composite climbed 2% to 1,634, while the Dow tacked on 67 points to 9,078. Government bonds tumbled for a second session, pushing the yield on the 10-year Treasury note to 3.52%, which means that the yield on the 10-year note has jumped nearly half a percent in just 10 days!…Deflation, where is thy sting? Suddenly – and somewhat disastrously for bond investors – deflation fears have given way to “recovery fears.” In other words, the expectation of an economic recovery causes investors to expect higher interest rates in the future, which causes them to sell today’s low-yielding bonds, thereby driving up interest rates.

– We here in the Daily Reckoning’s New York bureau sympathize with the sellers of bonds, simply because it seems to us that a 3% return on 10-year government paper is a miserly compensation for the risk that the bond buyer must bear – principally, the risk (read: certitude) of inflation. On the other hand, the bond buyers may not have completely abandoned their faculties. After all, evidence of economic recovery is sparse at best.

– Last week’s jobless claims, for example, topped 400,000 for something like the 20th straight week. Meanwhile, factories are still running well below capacity and capital spending has yet to recover. High-tech widgets are still gathering dust in many Silicon Valley warehouses.

– But if you think that the “new, new” economy is looking a little green around the gills, you ought to take a look at the “old, old” economy – namely General, Motors. This beleaguered American institution – like a convict on a chain-gang – continues its fruitless toil. Day by day, it hammers away at selling cars, but barely makes any money doing so. Meanwhile, over in the finance division, GMAC makes a few bucks here and there by lending money to auto- lessees and to home-buyers (especially to home buyers!), but then it has to hand most of those profits over to GM retirees. Is this any way to make a dollar for shareholders?

– Every day is a struggle. Today, in the largest-ever corporate bond sale, GM is selling about $17 billion worth of bonds in order to shore up its foundering pension plan. “Although GM touted the debt issuance as ‘an overall effort to accelerate improvements in GM’s balance sheet and financial flexibility,’ the truth is that GM is merely substituting one debt, much of it off-balance sheet, for another debt that remains on the balance sheet,” observes a very skeptical Apogee Research. “Can anyone realistically consider this outcome a positive indicator for GM’s future prospects?…This is nothing more than a red flag signaling the escalating pension and OPEB obligations are placing a menacing burden on the interests of common shareholders.

– “Simply put,” Apogee continues, “the $17 billion of debt- raised proceeds is not going toward R&D or product development or improved manufacturing processes, any of which might conceivably improve the fortunes of the common shareholder. Instead, the proceeds will go to support the growing needs of GM’s substantial retiree base.” All together, GM’s underfunded pension liabilities total a staggering $75 billion. Even the largest-ever $17 billion corporate bond sale, therefore, is literally a drop in the bucket.

– It’s possible, of course, that GM will “pull a Houdini” and wrestle free of these daunting liabilities. On the other hand, it’s possible that it won’t. GM may simply wriggle and writhe in its financial shackles until drowning in its own liabilities.

– We wish GM well, and wouldn’t dare to predict the mighty company’s demise. But neither would we stand in line to become a GM equity-holder, as a GM equity-holder, in turn, must stand at the end of a very long line of pensioners and bondholders.

– The good news is that GM is only one of the 30 stocks in the Dow Jones Industrial Average. The other 29 are probably in much better shape.


Bill Bonner, back in Paris…

*** “Groupies!!!,” said Addison yesterday. “Let’s not let this opportunity slip by…ask for a photo…”

What had got Addison’s attention was a piece of fan mail:

Dear Daily-Reckoning, I signed up for your daily newsletter b/c I am a young English major who has somehow ended up in the strange and getting stranger world of modern finance. I had hoped your newsletter would help me to learn the ways of finance – which it has – but Daily-Reckoning, I never thought I would fall in love.

I find myself spellbound, laughing like a crushed-out 12- year-old girl as I eagerly read your latest letter. You guys are dreamy.

Keep up the comical, witty, intelligent work. Love, Wendy

Dear Wendy, we respond, keep the letters coming. You are a very perceptive young woman.

*** But our mailbox brings bad news as well as good…


I agree with your daily/weekly news…but these are NOT at all NEW. You are repeating always the same in a 100-fold way. And that is rather extremely b o r i n g … You are not specific in the themes and everything is said in a broad “souse” that always has the same taste. Richard Russell was recommending you but with the time I guess its everywhere exactly the same item. At least, if you could relate some special events…but its everytime the same BLABLA.

Aren’t you ashamed to send just a such uninteresting garbage?

Truly yours, Carlos from Germany (Chilean)”

Well, we reply, what do these silly foreigners know. Our blabla is at least as interesting as anyone else’s. And besides, it’s cheaper!

*** But then comes another critic with the same complaint:

“The problem with the Daily Reckoning,” it begins, ominously…

“The Sky is falling!

“Buy gold!

“Thus spake the DR every day. Now I recognize that the sky is falling and I probably will buy gold fairly soon. (But I don’t think it has quite bottomed yet) But the problem with the DR is that this repeated message gets boring.! B-O-R-I- N-G!

“…How come the DR has developed into perpetual criticism without some suggestions as to what the governments could/should do first to prop up this falling sky and then ultimately to raise it to the heavens? That’s both my question and, if Bonner reads this, a suggestion for future DRs.


Oh là là, David, you ask too much. If the government could hold up the sky…or if we could tell them how…what would be left for God to do?

*** And one more: “Enough about China already!” writes a reader on the Daily Reckoning website discussion board.

“China is a LOT weaker than many people suspect,” the writer continues. “The country is in the midst of a major bubble economy right now, but the banking system is an absolute mess, and corruption is rampant. The real-estate markets in Beijing and Shanghai are starting to look ominously like the Tokyo and Osaka markets of 13 years ago, many new developments have high vacancies already.

“More importantly, the underpinning of the Chinese economy is the willingness of foreign consumers to keep going deeper into debt buying goods. Mark my words, when the USA and Europe descend into a deep recession, China will be squealing like a stuck pig.”

“The longer the [Chinese] government applies the reflationary policies of 1998 and 1999 to an economy that is already overheating,” agreed the Financial Times back on June 4th, “the more it jeopardizes the sustainability of its new-found growth momentum. If Beijing does little to reduce its balance of payments surplus and money supply is allowed to surge unchecked, China could find itself creating an investment bubble akin to Japan’s at the end of the 1980s.”

One way to reduce the trade surplus with the U.S. is to float the renminbi…

“I can’t see the Chinese jumping at a float right away,” said Chuck Butler, our friend from the Everbank World Currency research team, to Thom Calandra yesterday. “It has no value for them. But, says Butler, “I believe the governments of the U.S., Europe and Japan will be applying pressure to float the currency. This, I believe, will happen. How soon, is the question. Could be a month. Could be 12 months.”

[Ed note: We told you about Porter’s China Strategy Report on Monday. If you’re looking for an alternative way to seek gains from a revaluation of the Chinese currency, Everbank announced the opening of Chinese Renminbi Deposit Accounts earlier this week – the first account of its kind available to U.S. citizens.

You can call Chuck Butler or Frank Trotter at the Everbank Trading desk: 1-800-926-4922 (If you call this week, you’ll only get Frank…Chuck is out of the office today for his daughter’s wedding.)

Tell them Addison sent you. In the interest of full disclosure, please note that Agora Inc. (our publisher) has a commercial relationship Everbank and may receive compensation if you open an account. Still, Everbank offers some of the best ways we know of to diversify your money safely out of the dollar.]

More, vintage Bill Bonner below…

The Daily Reckoning