Thursday, August 27, 2009

Bernanke is No Hero; James Kunstler on the Financial Crisis Still in Progress

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The Daily Reckoning
Thursday, August 27, 2009

  • We don't speak ill of the dead - instead, we turn to the living...
  • The basic housing story remains the same...
  • Reaching for the stars, even though we're on a death march...
  • James Kunstler on the financial crisis still in progress...and more!

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    Bernanke is No Hero
    by Bill Bonner
    Ouzilly, France

    "They were hunters. They stayed here during the Ice Age, probably hunting reindeer," said the archeologist in charge of the site.

    "But who were they?"

    "They were Cro-Magnon...they were like us...human. They wore jewelry. They drew pictures. They cooked meat. And they used this cave over a period of 30,000 years..."

    Yesterday afternoon, we drove up the valley to a limestone cave owned by friends. There, a group of 20 scientists, archeologists and volunteer workers are digging down through 30,000 years of history, about 20 feet worth of dirt, rock and sediment, 5 centimeters at a time.

    We'll come back to the pre-historic world in a minute. First, let's catch up on what is going on in the world of finance, right now.

    Yesterday, most of the news and commentaries concerned either the death of Edward Kennedy or the life of Ben Bernanke. We do not speak ill of dead, not here at The Daily Reckoning. So, we will speak ill of the living.

    Long-time Daily Reckoning sufferers will recall why the nation chose George W. Bush to lead the country. Nature abhors a monopoly and detests a void. At the time, America had an almost complete monopoly on power. The Soviet Union had thrown in the towel. China had taken the capitalist road. The US empire had no rivals...and badly needed to be taken down a notch. But how? If a nation has no worthy competitors, how can it be beaten? The answer is obvious: it has to become it's own worst enemy. George W. Bush was the man history needed...a man who would be putty in the hands of the neo-cons...a man who could be counted on to do the wrong thing...and put the nation on course for destruction.

    Ossama bin Laden kindly sent a videotape explaining to him how to do it. The United States would have to spend its way to disaster, he said. The United States would have to undertake costly, futile wars...while actually expanding domestic spending too. GWB signed the single most expensive bill of all time - a health care measure - while simultaneously sinking the empire in its single most expensive war, one that would last longer and cost more than WWII.

    But George W. Bush was just the beginning. Now, he's back in Texas. And the empire is still in business. What can the Fates do to us now? Give us Obama and Bernanke! Obama continues the imperial wars. And, with Bernanke as his sidekick, the two of them now set out to destroy the empire's finances. When they are finished, the dollar will no longer be the world's reserve money. US Treasuries will no longer be the safest, surest credit in the world. And Americans will no longer be the planet's richest people.

    That is our prediction. Prove us wrong!

    Readers may notice a disjoint between what they find here and what they find in the mainstream press. According to the papers, Ben Bernanke is a hero. He prevented a 'Second Great Depression.' Obama rewarded him by giving him another term. The recovery is a done deal.

    But it is not so. The noise continues. But the story is the same. We are at the beginning of a long period of adjustment - a depression.

    Neither oil, gold or the Dow made any real progress - neither up nor down - yesterday.

    Freddie and Fannie are soaring...but the basic housing story remains the same. There is a record number of empty houses. With incomes falling, there is no reason to expect a rebound in prices.

    The Post Office says it is cutting 30,000 jobs. USA Today says more and more people can't pay their utility bills. And one out of three workers has only enough savings to last a week or less.

    World trade is not recovering either. The Baltic Dry Index has fallen 45% since June. China is a bubble economy, based on credit, not genuine growth. And America's stimulus programs - notably 'Cash for Clunkers' - have merely made things worse by drawing forward future spending and adding to US total debt while not creating any real economic progress.

    In short, Ben Bernanke is no hero. And the economy is not recovering.

    [So, it looks like you better prepare for the long haul. Luckily, a legal 'bailout loophole' could make sure that the auto industry and big banks aren't getting all of the stimulus money - you can get your share as well. As much as $17,500 or more - in this year alone could be just have to click here.]

    More news from The 5 Min. Forecast:

    "Looking for a place to ride out this Depression? Give Uncle Sam a call," writes Ian Mathias in today's issue of The 5 Min. Forecast.

    Government vs Civilian Wages

    "Quite the booming industry, no? The Bureau of Economic Analysis and The Cato Institute confirmed what we all expected this week: working for the government is the ultimate racket. In 2000, the average federal civilian employee earned 66% more than typical 9-5 shlubs like us. Today, depression be damned, that gap in compensation is now more than double the average."

    Wanna make sure you get The 5 - in its entirety - sent to your inbox, every Monday through Friday? You becoming a subscriber to one of Agora Financial's paid publications, such as Bulletin Board Elite. And until midnight tonight, you can get BBE, our most expensive advisory, free for six months. But you have to act fast...there are less than 12 hours left to take advantage of this offer.

    And back to Bill, with more thoughts:

    When we arrived at the cave a couple of archeologists were at work. They sat on cushions...wearing only socks on their feet. Then, using tiny trowels and small brushes, they loosened a teaspoon of dirt and swept it into a jar. The jar was then dumped into a bucket, which was taken down to the camp about 50 feet away. There, it was put through a strainer in order to filter out small objects - pieces of bone, shell, flint and anything else that might help them understand what went on here.

    "This is a very exciting place to be," the site manager continued. "We are finding the remains of humans...things that humans left behind 30,000 years ago.

    "They didn't live here. They only used this place, probably for a few weeks of the year, in their hunts. The age of sedentary humans - of towns and agriculture - was still thousands of years in the future. These people were hunter-gatherers. And this part of France probably resembled modern day Siberia. It was cold. The ground was permanently frozen. Herds of reindeer, bison, auroch (the forerunner of the cow), and horses roamed this area. That is what these hunters lived on. And they caught fish from the river. This cave is where they spent the night and worked...

    "We've found hundreds of needles, for example, for sewing clothes. They wore skin clothes, much like people who live in the North of Siberia today. And they made their weapons here too...flaking and heating rocks in order to produce the arrowheads and knives they depended on."

    We were looking at a layer from about 17,000 years ago. The cave's entrance has been sealed off, with a cage built around the digging site to keep out amateurs.

    "This is no Indiana Jones treasure hunt," the top archeologist explained. "This is a meticulous, scientific project that will take many years to complete. You don't want to go too fast. We get thousands of objects out of each 5 centimeters. Each one must be given a chance to tell its story. It means sending it to experts all over the world - experts at dating...experts on extinct fauna...experts at pre-historic plants...climate experts...rock experts...ethnologists, biologists, and so forth.

    "It's like reading a book. But every time we dig down, we not only turn the page...we burn it. We can never recreate those objects in their original setting. We can never read that page again. So we have to make sure we understand what it was telling us.

    "And each page tells us more about the people who stayed here...about what they ate...and how they lived...and what they were worried about. When they drew pictures of women, for example, they drew pictures of women who were pregnant. Maybe they just thought pregnant women were beautiful. But maybe they were worried about life itself...about their survival...

    "Really, that is all men have ever worried about...getting enough to eat in order to survive...and reproducing, so the race survives. Every thing else is entertainment."

    Here at The Daily Reckoning, entertainment is what we do. Who among our dear readers needs to earn 15% on his money...rather than, say, 5%? Will anyone starve to death if his stocks don't go up?

    [As an aside, we would recommend steering clear of stocks for now. But don't worry, there's still plenty of money to be a little- known 'Millionaire's Market.' Once you're in, you can legally 'withdraw' up to $810 a week. Get into this market now.]

    Will any of our readers fail to have children if he guesses wrong about the rally? What if it is a real bull market, rather than a bear market rally, as we have thought?

    Ah, but there's the it really just idle entertainment?

    Our tribe may be deathward marching, but we reach for the stars along the way. We want to be bigger, faster, richer, smarter, righter, funnier, stronger and richer. Why? To entertain ourselves? Yes...but it's more than that. Every species seems to aim for dominion. For status. For improvement. Because each is in competition with each other. There is only so much many wild bananas...and so much game. So every species competes with others for resources. And every member of the species competes with every other member too.

    It's a dog-eat-dog world? Not exactly. But the dogs have to fight with the wolves and the hyenas...and the mountain lions and the panthers. They are all predators. And there's only so much prey. A weak dog is a dead dog. And a weak pack is soon an evolutionary dead end.

    Somehow the desire to reproduce is welded to the desire to reproduce many...and good specimens. Without this constant selection...this constant competition to produce more and better specimens...the whole tribe weakens and is eventually exterminated. At least, that's the theory. So every male member of the tribe aims for as much reproduction as possible. Females on the other hand, aim for quality. They know they can only have a few offspring. So, they aim to produce the best offspring they can. How do they do that? By mating with the best, fittest, fastest, strongest, richest, highest status - most dominant - specimens they can find. In other words, the schmuck never gets a date.

    So you see, dear reader, our interest in money is not just an entertainment. It's about the survival of the human race!

    Until tomorrow,

    Bill Bonner
    The Daily Reckoning

    P.S. Dan Amoss isn't the only one getting news coverage. The Explorer News in Arizona ran an article mentioning your humble editor and Addison Wiggin. You can read the full article here, but here's a snippet

    "There were, of course, a few sane voices out in the wilderness, often ridiculed or simply ignored by CNBC, who warned of an impending implosion. It is these voices we as a people should be paying more attention to, rather than those who have been bought by a system that was compromised decades ago..."

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    The Daily Reckoning PRESENTS: So apparently, Bernanke has saved the global economy from self-destruction. Right? Hmmm...maybe not so much. James Howard Kunstler assures us: the financial crisis is not over. Read on...

    Financial Crisis Called Off
    by James Howard Kunstler
    Saratoga Springs, New York

    Whew, what a relief! Everybody from Ben Bernanke and a Who's Who of banking poobahs schmoozing it up in the heady vapors of Jackson Hole, Wyoming, to the dull scribes at The New York Times, toiling in their MC Escher hall of mirrors, to poor dim James Surowiecki over at The New Yorker, to - wonder of wonders! - the Green Shoots claque at the cable networks, to the assorted quants, grinds, nerds, pimps, factotums, catamites, and cretins in every office from the Bureau of Labor Statistics to the International Monetary Fund - every man-Jack and woman-Jill around the levers of power and opinion weighed in last week with glad tidings that the world's capital finance system survived what turned out to be a mere protracted bout of heartburn and has been reborn as the Miracle Bull economy. Our worries over. If you believe the claptrap. Which I don't.

    All this goes to show is how completely the people in charge of things in the United States have lost their minds. They seem to think this mass exercise in pretend will resurrect the great march to the Wal- Marts, to the new car showrooms, and the cul-de-sac model houses, reignite another round of furious sprawl-building, salad-shooter importing, and no-doc liar-lending, not to mention the pawning off of innovative, securitized stinking-carp debt paper onto credulous pension funds in foreign lands where due diligence has never been heard of, renew the leveraged buying-out of zippy-looking businesses by smoothies who have no idea how to run them (and no real intention of doing it, anyway), resuscitate the construction of additional strip malls, new office park "capacity" and Big Box "power centers," restart the trade in granite countertops and home theaters, and pack the turnstiles of Walt Disney world - all this while turning Afghanistan into a neighborhood that Beaver Cleaver would be proud to call home.
    "The key to the current madness, of course, is this expectation that all the rackets, games, dodges, scams, and workarounds that American banking, business, and government devised over the past thirty years will just magically return to full throttle, like a machine that has spent a few weeks in the repair shop."

    America loves the word "recovery" as only a catastrophically sick society can. "In recovery" is the new universal mantra of loser individuals and loser nations. Everybody in the USA is in recovery. Even Michael Jackson (he may have given up on somatic activity but, on the plus side, as the Rotarians love to say, he's quit using drugs for once and for all, and the magazines have stopped publishing photos of him taken after 1990, when he turned himself into something out of the Hammer Films catalog).

    To sum it all up, the US economy is in recovery. Paul Krugman says that we'll soon realize that Gross Domestic Product (GDP) is growing. He actually said that on the Sunday TV chat circuit. Not to put too fine a point on it, but I would really like to know what you mean by that Paul? Do you mean that the Atlanta homebuilders are going to open up a new suburban frontier down in Twiggs County so that commuters can enjoy driving Chrysler Crossfires a hundred and sixty miles a day to new jobs as flash traders in the Peachtree Plaza? Do you mean that the Home Equity Fairy is going to wade into the sea of foreclosure and save twenty million mortgage holders currently sojourning in the fathomless depths with the anglerfish? Do you mean that all the bales of deliquescing, toxic "assets" hidden in the vaults of Citibank, JP Morgan, Bank of America, et al, (not to mention on the books of every pension fund in the USA, and not a few elsewhere) will magically turn into Little Debbie Snack Cakes on Labor Day weekend? Do you mean that American Express and Master Card are about to declare a jubilee on accounts in default everywhere? Do you mean that General Motors will produce a car that a.) anyone really wants to buy and b.) that the company can sell at a profit? Are you saying we get a do-over, going back to, say, 1981? Did we win some cosmic lottery that hasn't been announced yet? What's growing in this country besides unemployment, bankruptcy, repossession, liquidation, gun ownership, and suicidal despair? In short, are you out of your mind, Paul Krugman?

    The key to the current madness, of course, is this expectation, this wish, really, that all the rackets, games, dodges, scams, and workarounds that American banking, business, and government devised over the past thirty years - to cover up the dismal fact that we produce so little of real value­ these days - will just magically return to full throttle, like a machine that has spent a few weeks in the repair shop.

    This is not going to happen, of course. It is permanently and irredeemably broken - this Rube Goldberg contraption of swindles all based on the idea that it's possible to get something for nothing. And more to the point, we're really doing nothing to reconstruct our economy along lines that are consistent with the realities of energy, geopolitics, or resource scarcity. So far, our notions about a "green" economy amount to little more than blowing green smoke up our collective behind. We think we're going to build "green" skyscrapers! We're too dumb to see what a contradiction in terms this is. The architects are completely uninterested in the one thing that really is "green" - traditional urban design - and most particularly the walkable neighborhood. That's just too conventional, not special enough, lacking in star power, not enough of a statement, boring, tedious, so not cutting edge! We blather about high-speed rail, but you can't even get from Cleveland to Cincinnati on a regular train - and what's more amazing, nobody is really interested in making this happen. All we really care about is finding some miracle method to keep all the cars running.

    What we've been seeing is nothing more than a massive pump-and-dump operation in the stock markets, most of it executed by programmed robot traders, with the trading nut provided by taxpayers current and future. These shenanigans add up to new risks and fragilities so extreme that the next time a grain of sand catches in the exquisite machinery they will sink the USA as a viable enterprise. We will end up discrediting not just capitalism, but also the idea of capital per se, that is, of deployable acquired wealth. As this occurs, of course, events on the ground will give new meaning to the term "reality television."


    James Howard Kunstler
    for The Daily Reckoning

    Editor's Note: James Kunstler spoke at this year's Agora Financial Investment Symposium in Vancouver, British Columbia. As always, his presentation was informative and entertaining. In case you missed it, you can hear his speech - and all the rest of this year's all-star lineup of presenters - by purchasing the Symposium audio recordings. Get all the information you need here.

    James Kunstler has worked as a reporter and feature writer for a number of newspapers, and finally as a staff writer for Rolling Stone Magazine. In 1975, he dropped out to write books on a full-time basis.

    His latest nonfiction book, The Long Emergency describes the changes that American society faces in the 21st century. Discerning an imminent future of protracted socioeconomic crisis, Kunstler foresees the progressive dilapidation of subdivisions and strip malls, the depopulation of the American Southwest, and, amid a world at war over oil, military invasions of the West Coast; when the convulsion subsides, Americans will live in smaller places and eat locally grown food.

    You can purchase your own copy here:

    The Long Emergency

    You can get more from James Howard Kunstler - including his artwork, information about his other novels, and his blog - at his website.

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