What so Proudly We Hailed

A Special 4th of July DR Classique… back-to-back essays originally broadcast on the 4th and 5th of July in the year 2000. We hope you’ll enjoy them.

"What good did the theories of the philosophers do us? Did they help us to take a single step forward or backward? … Did they alter our forms of contentment? We are. We argue, we dispute, we get excited. The rest is sauce. Sometimes pleasant, sometimes mixed with a limitless boredom, a swamp dotted with tufts of dying shrubs."

Tristan Tzara,
The Dada Manifesto

On July 4th, 1776 a group of rich men and philosophers in the American colonies got very excited. They were so annoyed at Britain’s mercantile restrictions and petty taxes that they decided to take action…

The reasonable thing to do would have been to negotiate, to talk, to bargain…to seek a concession here and there. The changes the colonists wanted were marginal ones. They did not seek a whole New World Order. They didn’t want a real revolution – no new calendar, no Thermidor or Brumaire; the churches would not be burned; no palaces would be looted and no monarchs killed. They merely wanted to be able to do business as they saw fit, without the interference of a meddlesome government. They probably could have gotten most of what they wanted by being patient and reasonable. But their blood was up. And so they did something extreme. They announced their independence from Britain, putting their lives and fortunes at risk, and gave every American some names and dates that almost none could remember.

The consequences were disastrous for many of these men. An e-mail message I received tells the story:

"The men who sowed the path to freedom 224 years ago were a remarkable group of men. We know them as the signers of the Declaration of Independence. But to the British they were marked men and traitors to the Crown.

Here’s what happened to the signers of one of the greatest documents in history.

Twelve had their homes ransacked and burned.

Two of their sons were killed serving in the Revolutionary Army. Another had two sons captured.

Nine of the 56 fought and died from wounds or hardships during the Revolutionary War.

These men put their lives and everything they owned on the line.

All knew that they would be jailed, tortured or killed if captured.

Carter Braxton of Virginia, a wealthy planter and trader, saw his ships swept from the seas by the British navy. He sold his home and properties to pay his debts and died broke.

Thomas McKean was so hounded by the British that he was forced to move his family constantly. He served in Congress without pay and died poor.

Vandals or soldiers looted the properties of Diller, Hall, Clymer, Walton, Gwinnett, Heyward, Ruttledge and Middleton.

At the battle of Yorktown, Thomas Nelson, Jr. learned that the British General, Cornwallis, had taken over his (Nelson’s) home for his headquarters. Nelson urged Washington to open fire on his home, destroying his home and property. Nelson died bankrupt. Francis Lewis had his home and property destroyed. The British jailed his wife, and she died a few months later.

John Hart was driven from his home, and he and his 13 children fled for their lives. For over a year, Hart lived in the forest or in caves. Later Hart returned to what was left of his home: he died from exhaustion and a broken heart.

Norris and Livingston suffered from similar fates."

These men pledged "for the support of this declaration, with the firm reliance on the protection of the divine providence, we mutually pledge to each other, our lives, our fortunes and our sacred honor."

Today, we remember these men and the sacrifices they made. But for what? What difference did it really make? For all their suffering have our contentments been altered in any way? Did anyone’s life expectancy increase as a result? Did anyone’s income go up? Are we really so much better off than the citizens of Britain? Or Australia? Or New Zealand or Canada?

The founding fathers didn’t know it at the time, but government was just at the threshold of a huge multi- century bull market that would take it from something that had little impact on peoples’ lives, to something that controlled nearly ever detail – from the price of rice to the amount of water in your toilet. The sacred honor of today’s politicians seems concentrated on whether it takes two clicks for you to reach an Internet connection or just one. And it didn’t seem to matter whether you were independent or not. In the time since the Declaration of Independence almost all the world’s nations have suffered the same fate.

In America today, nothing is too trivial or too private to escape the notice of the heirs of Misters Adams and Madison. Every aspect of your financial life, for example, is open to inspection. Every molecule you swallow is subject to government approval. Every root cellar and pigsty you build must have the permission of a swarm of agents. Instead of working less than 3% of the time to pay taxes, as did the American Colonists, we now work about 50% of our time to support federal, state, and local parasites. What’s worse, we have to suffer through quadrennial political campaigns (which are stupider than game shows and much less honest) to determine who gets to rob us.

And there is no escape. Imagine getting together a group of hotheads such as those who met in Philadephia in that summer 224 years ago. The Truths that were self-evident two centuries ago – are now threats to the republic. People who believe in the rights that were inalienable in the time of Jefferson – such as the right to liberty and the right to bear arms to maintain it – are seen as dangerous cultists. Try to assert your right to ‘dissolve the bonds’ that tie you to Janet Reno and the Clinton Administration and she will have you shot in the back.

Better yet, forget the whole thing. Grill some hot dogs…drink some beer…watch the rockets’ red glare and the bombs bursting in air and be thankful you don’t live in Zimbabwe.

Your very thankful eyes and ears here in France…

Bill Bonner
July 4, 2002

P.S. A nice thing about living in a foreign country is that it changes your perspective. When I lived in America, I viewed most of the news as a tragedy – a miscarriage of justice here…skullduggery there…numbskullery almost everywhere. But here in France, I read the papers and see things in a different light. It is all a comedy. I expect to be entertained and amused by the silly things people do – and I am rarely disappointed.


"I have just one question," asked a representative of the John Birch Society many years ago. "Do you love this country?"

I doubted that I could give him an answer that would satisfy him. He was looking for Patriotism. But not the sort of patriotism I am capable of. Fortunately, my friend Jim Davidson was there at the time. As always, Jim had an answer that satisfied us both:

Quoting John Milton, Jim replied: ‘Wherever freedom is, that is my country.’"

The John Birch Society representative, perhaps a little too slow on the draw to distinguish freedom from nationalism, went on his way.

Hearts swelled yesterday as bands played the Star Spangled Banner. Voices, stretched to their limits, choked or went dumb, depending upon the key…and people all over the nation…and the world…celebrated their sentimental attachment to the Stars and Stripes.

And such an odd attachment it is. America never really was a nation state – despite the efforts of the public schools and the 1950s nationalists to make it one.

It is a powerful state. But there is no nation of Americans. Instead, there are groups of immigrants from various places in the world with very different ideas about how the world should work.

Culturally and genetically, I probably have more in common with most Europeans than Americans. I feel at home among the French, the English, the Germans, Swiss, Austrians and the Irish. I feel safer on city streets in any of these countries than I do in Baltimore. I enjoy the music, the food, and the architecture on the east side of Paris more than on the east side of Washington, D.C.

This makes me a bit footloose. But wherever I go, I am still an American.

Americans are not united by blood, not by territory. America began as a group of colonies on the East Coast of North America. But the land itself meant nothing. Over the years, America has taken many different shapes – spreading out to the west all the way to the other side of the continent…and then hopping over 4,000 miles of the Pacific Ocean to the Hawaiian islands.

No particular land or climate characterizes the U.S. You can find almost any variety you like.

Nor are the America people a "nation" in a tribal sense. Unlike, say, the Scots, the Irish, or the even the French, there are no over-riding blood links with other Americans. Any individual American might have more in common, genetically and culturally, with a tribe in Africa or a clan in Scotland than with the rest of the population of the U.S.

We do not even have a language of our own.

Compare this to France, perhaps the best example of a nation-state. The French are, with the exception of immigrants such as I, related to one another, speak a common language, have a common history, and inhabit the same land – bordered by the Pyrenees on one side and the Rhine river on the other – where they have lived for more than a thousand years.

Frenchmen are rooted in France. They rarely leave it. Though many will spend years working abroad, most eventually return.

When I first arrived in Lathus, I was visited by the local police.

"What are you doing here," they asked, putting the question directly.

I explained my business rationale. France is centrally located; it gives me a base of operations for Britain and Germany. This would have been satisfying to an American, but it seemed to have little effect on the gendarmes. They seemed suspicious. There were rumors that the chateau had been purchased by an American cult. The police were eager to know what was up.

Then I explained that my mother’s family was of French origin, from a nearby area, in fact, Deux Sevres. Suddenly, their expressions changed. They almost smiled in relief. Now it made sense to them. We were coming back home (after two centuries in the New World!)

Neither blood nationalism, nor land, unites Americans. It is only an idea that holds us together…an idea that is in danger of disappearing all together, like the last Liberty Tree that was cut down last autumn in Annapolis.

What makes America special is the idea of independence and liberty. The Declaration of Independence established America as the first and only country in which the individual was free and sovereign – free to go where he chose and do as he pleased…without having to get the permission of the ruling class. And the new country was open to anyone and everyone who liked that idea.

In came the huddled masses yearning to breathe free. They brought ideas and energy…and made the country the most dynamic place on earth.

Our hearts, too, swelled with pride…at the dinner table yesterday…where we suddenly reflected on what being an American was all about.

We, who live in the Old World again…and still yearn to breathe free. We are still very much Americans.

Your patriotic, sentimental correspondent,

Bill Bonner

"Tension Mounting on Wall Street…," warns a headline in France’s financial newspaper, La Tribune. And in Paris…?

"Vivendi Universal spreads panic…."

The hasty departure of Jean-Marie Messier and the collapse of Vivendi shares caused investors to stampede out of stocks on the Paris Bourse on Tuesday. The CAC 40 lost 4.15% of its value before stabilizing yesterday.

Yes, we know it is the 4th of July. And, yes, Eric Fry is taking the day off like any red-blooded American ought. But here in the Paris office, the sun is shining…Isabelle, Luc, Magda, and Benoit are a their desks….and even the ancient whores on the Rue des Lombards are already at their doorways – inviting anyone with good money and bad eyesight to come thither. (Neither your editor nor his trusty side- kick, Addison, know the exact price…there are limits to the research we will do on your behalf, dear reader.)

Here in Paris, we just can’t stop reckoning.

No panic seized Wall Street yesterday. Stocks fell in the morning and then recovered to end the day with the Dow 47 points higher. Once again, the panic was put off. But the longer it is delayed, the worse it will eventually be.

What will it take to turn the patsies against stocks?

All of the conceits of the late ’90s have been destroyed. Stocks, it turns out, do go down as well as up. About 6 and a half trillion dollars has been lost since Wall Street topped out two years ago. And the stocks that went down most were the very ones that held the most promise for investors – the techs and telecoms. In fact, the most promising of them – Global Crossing, for instance – are now not only down, but out; depending on the tender mercies of bankruptcy courts to pay the phone bills.

Of course, the ‘peace dividend’ is history. And the American capitalist model? You remember – the cult of ‘shareholder value’….coming through with ‘a penny more than expected’ in earnings…enormous executive compensation and ‘pro-forma’ profits. Remember all those books by American tycoons…and all that finger wagging at the dumb Japanese? It seems like it was only a few months ago.

But now, just mention American capitalism at any cocktail party anywhere in the world and you’re sure to get a laugh.

"The more enduring impact of the accounting and boardroom scandals may be the tarnish they spread on the ‘American model, a philosophy that emphasizes bare-knuckle competition, aggressive deal making, a high level of public disclosure and fantastic rewards for executives who deliver the goods." understates Edmund Andrews in the New York Times.

Bloomberg reports that corporate bankruptcies are "headed for a second straight record year." In 2001, 255 companies, with $260 billion in assets, went belly-up – beating the record of 10 years’ ago by 200%.. So far this year, 113 publicly-traded corporations have ‘gone chapter,’ representing $!49 billion in assets. If Worldcom is forced into bankruptcy, that will be another $100 billion or so of assets in bankruptcy custody.

And the SEC announced yesterday that it would require corporate officers still at liberty to sign off on financial statements – putting themselves at risk of criminal sanctions if the numbers turned out to be materially false.

Oh la la… thank goodness it applies only to the largest companies, who can afford auditors!

But the lumpeninvestoriat is still counting on the promise of ‘investing in stocks for the long term.’ Markets make opinions, say the old-timers. Stocks increased for 18 years, taking the Dow from 1,000 to over 11,000, it looked like they went up forever.

John Mauldin explains: "Since 1800, there have been 7 secular bull markets an 7 secular bear markets. According to Michael Alexander in his prescient book called Stock Cycles, the average real return in a secular bear market is 0.3% (even thought the market was falling investors still got dividends). The average return during a bull market cycle is 13.2%…..

"I’m sure you have gotten one of the many direct mail packages [from Lou Rukeyser] showing you the profits to be made by investing in the stock market. They show how even if you started just as the secular bear market began in 1966 or 1974 and invested on the worst day each year, you would be so much farther ahead than someone who only started to invest in the stock market in 1982, even if he invested at the best possible time each year…."

What really happens is that the guy who invests his money at the top of a bull market may have to wait nearly 3 decades just to get back to zero. But…

"The numbers are misleading," John continues. "The reason the investor who started out in the bear market ended up with so much more is that when he came to 1982 he was back to even, and therefore started with a much larger position. He simply started with a larger investment portfolio than someone who started in 1982. The huge compounding effect of the last bull market (+ 1239%) grossly overstates the potential."

Markets make opinions….then, markets change them. Eventually, investors will see ‘stocks always go up over the long run’ as a lie. But by then, they’ll be ready for the next myth – that stocks never go up.

Meanwhile, factory orders in May were better than expected. Jobless claims were down to their lowest level since March. But retail stocks seem to have topped out and evidence is mounting that consumers are running out of juice, which we’ve been predicting for so long we have exhausted our credibility on the subject.

More tomorrow… as the Great Bear Market continues….

Bill Bonner

p.s. John, by the way, is a frequent contributor to our own Fleet Street Letter. If you’re interested in safe value investments during tough markets, there’s no better source of them available.

The Daily Reckoning