When People Come to Believe that Deficits DO Matter
Here’s a headline for you, Fellow Reckoner:
“Blood and spittle on pub floor, to little avail”
That was on the front page of the Sydney Morning Herald yesterday. No joke. Yep, we’re back on Terra Australis. At least we were for a couple of hours. Then we hopped the Tasman for the Land of Birds and/or Long White Clouds, depending who you ask. We’ve barely slept a wink since we left on Monday.
More on all that when our mind (stuck in a humid Tuesday afternoon reverie back in Argentina) catches up with our body (now floating around somewhere on a rainy Wednesday morning in Auckland).
For the moment, let’s just stick to what we know. And what we all know, as anyone worth asking should well know, is that we know nothing at all. But still we guess. Still we reckon…
Stocks continue moving steadily higher. Back in the US, the Dow crept past the 13,000 mark this week…a threshold beyond which it hasn’t been seen since May of…gulp…2008. We all remember what happened next, don’t we?
By October of that year, despite the rosy predictions of the world’s over-degreed, jowl-flapping experts, markets worldwide were in free fall. Wall Street was a mess and getting messier. Bankers weren’t yet jumping from the windows…but you got the feeling they were beginning to eye up the best spots on the ledge. The mainstream media, as per usual, was frantically trying to figure out what the Hell was going on. “News” just isn’t the correct term for what they peddle. Everything they write about has already happened. “Olds” would be better.
Meanwhile, John Q. Citizen was left standing agape. He had, perhaps, begun to sense that something wasn’t quite right in the months and years leading up to the collapse. The house he bought for $250K at the turn of the century had suddenly turned him into a millionaire. Or close. He took the kids on a holiday to Europe and bought a new 4WD. He didn’t worry about the price of gas or the cost of milk anymore.
But there was always a suspicious feeling at the back of his mind. He still didn’t feel well off. The rich — the real rich — were still way ahead of him, buying things he couldn’t afford. And all the middle class people on his street, those he had hoped to leave behind, had been to the same euro-destinations. They had the same SUVs in the driveway and the same plasma televisions hanging on the wall.
“What’s the point of being rich if everybody else is rich too?” he might have thought. “How am I supposed to enjoy what everyone can afford? And how come even people with low-paying jobs are living in McMansions not so dissimilar to mine?
“No,” he concluded. “Something’s not right.”
Of course, Johnny and Jannie Citizen were right to be leery. Their questions were understandable. It’s the answers that were — and still are — bogus.
The public was told America was the most robust, dynamic economy on earth. They were told that housing prices would rise forever…that deficits didn’t matter…and that spending and splurging — rather than saving and capital formation — was what made a nation great. And when he began to doubt the spin, when he made to look behind the curtains, the same mainstream media read aloud to him blockbuster consumer confidence statistics and bumper holiday spending numbers…as if the road to the Mall represented a path to progress…and not the ruin of a nation.
But, as Bill never tires of pointing out, man will come to believe what he must, when he must. Call it the incentive for denial. A powerful motivation. It must have been tough to admit that the riches of the past ten years were largely purchased with earnings from the next decade (and possible the next, too). It’s hard to admit the success was phony, the extravagance a scam, the pride a necessary, well-trodden step before the fall. But the check always comes due in the end.
In the US, politicians are currently fighting over who is going to pay for it…or, more accurately, who will not.
Can’t cut the euphemistically-named “defense” budget, says the Pentagon. Any such action might imperil “homeland security.” Can’t cut welfare benefits, say politicking candidates on both sides. The mere mention of such might imperil their own election bids. Healthcare subsidies? Nope. Too many vested interests and greasy palms. Energy initiatives, farm subsidies, education grants, extended unemployment benefits? Nope, nope, nope and nope. Same deal. Too many wolves and too few sheep voting on what to have for dinner.
So who’s gonna pay? Nobody. And when nobody pays, everybody does…everybody, that is, except those running up the tab.