The Daily Reckoning
Wednesday, August 19, 2009 |
The old formula won't work - in the West or the East... When it comes to self-destruction, the feds are no slouches... Is it the end of the rally? Or just a bounce? We'll wait and see... Doug Casey on Bush's legacy as the worst president ever...and more!
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Learn to Love the Depression
by Bill Bonner
Ouzilly, France
A V-shaped recovery?
A W-shaped recovery?
Forget it...there ain't no letter in the alphabet that describes a "recovery" we're likely to have.
We say that in the spirit of mischief as well as elucidation. Of course, the world won't stay in a depression forever. And even depression ain't so bad, once you get used to it. The world economy will probably drag around a bit on the bottom...with low, or negative, growth rates in most places...until it finds a new model. The old model is dead. The authorities can put on as much rouge and powder as they want. They could even give the corpse jolts of electricity to make it sit up. But they can't revive it. It's finished. Over. Kaput.
The old model involved lots of players playing lots of different roles. But the main protagonists were the USA. and China. Not to put too fine a point on it, but China was the maker; the United States was the taker. It was a relationship that seemed to serve both parties well...but one that actually enabled foolish and, ultimately, destructive behavior - especially on the part of the United States.
When we were growing up, China was a 'Red Menace.' It was full of mad people doing mad things. They humiliated people by making them wear dunce hats and march through town. The Chinese made steel in backyard barbecues. They built hidden palaces for Mao (the Great Helmsman)...wore odd outfits...and threw female babies onto trash piles. (We're not making any of this up!)
But then came a period of sanity. Deng Xiaoping decided to turn the whole country in the direction of capitalism. At first, this was thought to be a great boon to the West. We had won! And suddenly, there were a billion more consumers in the world economy. Company executives went to sleep with sweet dreams: 'If we can sell one refrigerator to just one out of every 1,000 Chinese...'
The dreams became nightmares. Instead of selling American-made refrigerators to the Chinese, the Chinese sold Chinese-made refrigerators...and toaster ovens...and tables...and every gadget, gizmo and whatchamacallit known to man...to Americans. Instead of being a consumer...China became a manufacturer - taking the 'export route' to prosperity, pioneered by Japan in the '60s and '70s...and perfected later by Korea and Taiwan. Instead of adding to the world's demand for products made by the developed countries, China became the biggest supplier of stuff on the planet.
China made...China sold...China took its money, bought US Treasury paper, thereby helping to keep lending rates low in the United States, and made some more. It worked beautifully as long as Americans were willing and able to continue spending. But no camel's back is infinitely strong. The final straw came in 2007 - with total debt equal to 370% of GDP.
And now the jig is up. The old formula won't work - neither for Americans nor for the Chinese. Despite the urging of their government, Americans cannot be expected to take on more debt in order to continue consuming more stuff from China. Nor can the Chinese reasonably expect to work themselves out of an overcapacity problem by creating more of it. [You can read more on this issue in The Richebächer Letter's latest special report.]
But the officials in both countries seem equally benighted. They don't seem to think very deeply, no matter what language they think in. On one side of the Pacific, the Americans think they can bring a recovery by encouraging consumers to borrow and consume more stuff. On the other, officials offer credit to entrepreneurs and industrialists - encouraging them to build more factories and add more capacity so they can make more stuff. Neither seems to realize that the real problem is THAT THE WORLD HAS TOO MUCH STUFF ALREADY.
More on this below...
But first, let's see what The 5 Min. Forecast has for us today:
"Check out this 'megatrend'," says Ian Mathias in today's issue of The 5. "97% of global population growth over the next 40 years will occur in Asia, Africa, Latin America and the Caribbean, says the shiny new 2009 World Population Data Sheet. The headline data point was the total growth projection for the world population: 7 billion by 2011. That's 200 million extra people on this earth in just two years.
"But it's the fine print that's really getting our attention. Here are the highlights... Some serious investment trends, to say the least:
90% of the world's youth, about 1.2 billion people, live in developing nations. Africa's population just passed 1 billion and is set to double by 2050. Half of the population growth in the US and Canada over the next two years will come from immigration. By 2050, India's population will reach 1.7 billion, passing China as the world's most populous nation. "That last one was a particular surprise to us. In fact, the whole rundown of world population growth by nation is worth a quick look:
"To further illustrate this point, you have to check out this array of animated charts on 'Future Human Capital'. They are too complex for our humble 5 Min., but shouldn't be missed.
"All this data points to the same conclusion: The world is becoming increasingly less Amero-centric."
You can get The 5 in your inbox 5 days a week, free of charge. It's one of the many perks that come along with being a subscriber to Agora Financial's paid publications, such as Master FX Options Trader. Our newest options trading research service has been on the hot streak of the year, booking 122%, 76%, 100%, 136%, 124%, 84%, and 100% (again) in just three months. Get in on the action here. And back to Bill, with more thoughts:
In the United States, the private sector drags its feet; it's had enough of debt. But along come the feds like Fred Astaire or Arthur Murray...ready to borrow and spend until the champagne runs out. When it comes to self-destruction, the feds are no slouches.
They're borrowing and spending trillions - $8 trillion is to be added to US debt over the next 8 years. So far, this money has done nothing to relieve the underlying problem: the consumer has too much debt and too little income. The government can give him a tax rebate...or give him a check for a clunker. These giveaways will produce a temporary boost. But when the giveaways give way there is nothing left. Does the guy who bought a car with government cash in 2009 buy another one in 2010? Does the fellow who brought his mortgage up-to-date with a tax rebate in 2008 go out and buy a new house in 2009?
The problems are real...at the heart of the real economy. They are not problems that can be solved by monkeying with the money supply, interest rates, or even fiscal policy. They are problems that need to be solved by the real economy...in the real economy...by consumers, who need to pay off their debts, and by businessmen, who need to adjust to the realities of the real world - adapting their capacity so as to produce things for people who can actually afford to buy them. It's a long process...with many bankruptcies and disappointments along the way...
That process has only just begun. It will deepen and get worse, as both consumers and businessmen realize that there will be no quick recovery...and no return to the old model - ever. Look for more layoffs...more foreclosures...more cutbacks and workouts...
Look for more depression, dear reader...
And learn to like it; it will be with us for a long time.
[And you should at least learn how to flourish in the face of this depression...and that means not touching stocks. But there is another route you can go...see here.]
The Dow bounced yesterday...up 82 points, after a sell-off on Monday. This leaves it still about 1,000 points shy of the comparable rally of 1930. Will it continue bouncing until it equals the 1930 level? Or is the rally over? We wait to find out...
It is hot here in France. After weeks of cool weather, we are finally getting something that feels like summer. The mornings are still fresh and beautiful. We sit outside to drink our coffee and eat our croissants. But in the afternoon, we barricade ourselves behind closed shutters...waiting for the heat to pass.
Our son Will and an associate from Buenos Aires are here working on a new project. They were asked to take charge of the family office. What's a family office? Ah...glad you asked. A family office is a way for a family to deal with its money in an organized, disciplined fashion. The idea is to treat the family itself as though it were a business...and to maximize its return on capital and labor invested.
Your editor follows the markets every day. But he does not necessarily invest, manage his money, minimize his taxes, or control his expenses any better than anyone else. And yet, he has available to him one of the finest groups of analysts and advisors in the world. The Family Office - run by Will - is a way for us to put 2 and 2 together...to use the resources we already have at our fingertips. We aim to manage our family money in a more professional way...to reduce the effect of taxes (especially estate and gift taxes...from one generation to the next)...and to manage our resources better.
As Yu Faz put it: "Making money is hard. Losing it is easy."
We'll let you know how the family office works out.
Last night, friends came down from Tour. We sat outside on the terrace for dinner. Then, we made a campfire beside the pond...next to where we had parked the gypsy wagon. The wagon was a project from 2 years ago. Your editor put his children to work turning an old hay wagon into a "roulotte" - a gypsy wagon. And so, like a group of gypsies, we got out our guitars and sang songs around the campfire.
The trouble was, none of us knew the same song. Jules is a good guitarist, singer and composer. But his music is more contemporary than ours. He knows songs and composers from the '90s and '00s. Your editor's taste in music stopped evolving during the Carter Administration. We know the old Hank Williams, Percy Sledge and Johnny Cash tunes. But we'd never heard of Limp Bizkit.
Our two guests, meanwhile, came from a different tradition all together. One, a beautiful Argentine woman, sings songs derived from the pampas and the barrios of Buenos Aires. Enchanting, light, melodic...but we have not idea how to play them on the guitar. Her companion was an Italian fellow - Lino - who played the guitar like Django Rhinehardt.
Like Rhinehardt, Lino is missing a finger on his left hand. We wondered how he was able to hold down the strings. But his three fingers worked the frets so well...he serenaded us until three in the morning. By the end of the show we felt like cutting off one of our own fingers.
Until tomorrow,
Bill Bonner
The Daily Reckoning
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| The Daily Reckoning PRESENTS: Bush is no longer the Commander-in-Chief, but he's not forgotten. And our good friend Doug Casey wonders: why do conservatives seem to have this warm and fuzzy feeling for ol' Dubya? Read on...
Baby Bush: The Worst President in History?
By Doug Casey
Vancouver, British Columbia
I recognize that I've antagonized many of my subscribers over the years with "Bush Bashing." In January, just after OBAMA!'s election, I said I wouldn't mention Bush again, his departure having made him irrelevant. I only feel bad that he and his minions will apparently get away scot- free with their crimes; better they had all been brought up before a tribunal and tried for crimes against humanity in general and the US Constitution in particular. But that is objectively true of almost all presidents since at least Lincoln.
Most of our subscribers to The Casey Report appear to be libertarians or classical liberals - i.e., people who believe in a maximum of both social and economic freedom for the individual. The next largest group are "conservatives." It's a bit harder to define a conservative. Is it someone who atavistically just wants to conserve the existing order of things (either now, or perhaps as they perceived them 50, or 100, or 200, or however many years ago)? Or is a conservative someone who believes in limiting social freedoms (generally that means suppressing things like sex, drugs, outré clothing and customs, and bad-mouthing the government) while claiming to support economic freedoms (although with considerable caveats and exceptions)? It's unclear to me what, if any, philosophical foundation conservatism, by whatever definition, rests on.
Which leads me to the question: Why do conservatives seem to have this warm and fuzzy feeling for George W. Bush? I can only speculate it's because Bush liked to talk a lot about freedom and traditional American values, and did so in such an ungrammatical way that it made him seem sincere. Bush's tendency to fumble words and concepts contrasted to Clinton's eloquence, which made him look "slick."
I'm forced to the conclusion that what "conservatives" like about Bush is his style, such as it was. Because the only good thing I can recall that Bush ever did was to shepherd through some tax cuts. But even these were targeted and piecemeal, tossing bones to favored interests, rather than any principled abolition of any levies or a wholesale cut in rates.
Is it possible that Bush was actually the worst president ever? I'd say he's a strong contender. He started out with a gigantic lie - that he would cut the size of government, reduce taxes, and stay out of foreign wars - and things got much worse from there. Let's look at just some of the highpoints in the catalog of disasters the Bush regime created.
No Child Left Behind. Forget about abolishing the Department of Education. Bush made the federal government a much more intrusive and costly part of local schools.
Project Safe Neighborhoods. A draconian law that further guts the 2nd Amendment, like 20,000 other unconstitutional gun laws before it.
Medicare Prescription Drug Benefit. This the largest expansion of the welfare state since LBJ and will cost the already bankrupt Medicare system trillions more.
Sarbanes-Oxley Act. Possibly the most expensive and restrictive change to the securities laws since the '30s. A major reason why companies will either stay private or go public outside the US.
Katrina. A total disaster of bureaucratic mismanagement, featuring martial law.
Ownership Society. The immediate root of the current financial crisis lies in Bush's encouragement of easy credit to everybody and inflating the housing market.
Nationalizations and Bailouts. In response to the crisis he created, he nationalized Fannie Mae and Freddie Mac and passed by far the largest bailouts in US history (until OBAMA!).
Free-Speech Zones. Originally a device for keeping war protesters away when Bush appeared on camera, they're now used to herd.
The Patriot Act. This 132-page bill, presented for passage only 45 days after 9/11 (how is it possible to write something of that size and complexity in only 45 days?) basically allows the government to do whatever it wishes with its subjects. Warrantless searches. All kinds of communications monitoring. Greatly expanded asset forfeiture provisions.
The War on Terror. The scope of the War on Drugs (which Bush also expanded) is exceeded only by the war on nobody in particular but on a tactic. It's become a cause of mass hysteria and an excuse for the government doing anything.
Invasions of Afghanistan and Iraq. Bush started two completely pointless, counterproductive, and immensely expensive wars, neither of which has any prospect of ending anytime soon.
Dept. of Homeland Security. This is the largest and most dangerous of all agencies, now with its own gigantic campus in Washington, DC. It will never go away and centralizes the functions of a police state.
Guantanamo. Hundreds of individuals, most of them (like the Uighurs recently in the news) guilty only of being in the wrong place at the wrong time, are incarcerated for years. A precedent is set for anyone who is accused of being an "enemy combatant" to be completely deprived of any rights at all.
Abu Ghraib and Torture. After imprisoning scores of thousands of foreign nationals, Bush made it a US policy to use torture to extract information, based on a suspicion or nothing but a guard's whim. This is certainly one of the most damaging things to the reputation of the US ever. It says to the world, "We stand for nothing."
The No-Fly List. His administration has placed the names of over a million people on this list, and it's still growing at about 20,000 a month. I promise it will be used for other purposes in the future...
The TSA. Somehow the Bush cabal found 50,000 middle-aged people who were willing to go through their fellow citizens' dirty laundry and take themselves quite seriously. God forbid you're not polite to them...
Farm Subsidies. Farm subsidies are the antithesis of the free market. Rather than trying to abolish or cut them back, Bush signed a record $190 billion farm bill.
Legislative Free Ride. And he vetoed less of what Congress did than any other president in history. The only reason I can imagine why a person who is not "evil" (to use a word he favored), completely uninformed, or thoughtless would favor Bush is because he wasn't a Democrat. Not that there's any real difference between the two parties anymore...
| "Why do conservatives seem to have this warm and fuzzy feeling for George W. Bush? I can only speculate it's because Bush liked to talk a lot about freedom and traditional American values, and did so in such an ungrammatical way that it made him seem sincere." | |
As disastrous as he was, I rather hate to put him in competition for "worst president" in the company of Lincoln, McKinley, Wilson, the two Roosevelts, Truman, Johnson, and Nixon. He is simply too small a character - psychologically aberrant, ignorant, unintelligent, shallow, duplicitous, small-minded - to merit inclusion in any list. On second thought, looking over that list of his personal characteristics, he's probably most like FDR, except he lacked FDR's polish and rhetorical skills. I suspect he'll just fade away as a non-entity, recognized as an embarrassment. Not even worth the trouble of hanging by his heels from a lamppost, although Americans aren't (yet) accustomed to doing that to their leaders. Those who once supported him will, at least if they have any circumspection and intellectual honesty, feel shame at how dim they were to have been duped by a nobody.
The worst shame of Bush - worse than the spending, the new agencies, the torture, or the wars - is that he used so much pro-liberty and pro- free-market rhetoric in the very process of destroying those institutions. That makes his actions ten times worse than if an avowed socialist had done the same thing. People will blame the full suite of disasters Bush caused on the free market simply because Bush constantly said he believed in it.
And he's left OBAMA! with a fantastic starting point for what I expect to be even greater intrusions into your life and finances. Eventually, the Bush era will look like The Good Old Days. But only in the way that the Romans looked back with nostalgia on Tiberius and Claudius after they got Caligula. And then Nero. And then the first of many imperial coups and civil wars.
Regards,
Doug Casey
for The Daily Reckoning
Editor's Note: Only by looking at the past can we make sure that history won't repeat itself. But most of the time, Doug and his co- editors of The Casey Report look at the future. They analyze budding trends for potential money-making opportunities and share that research with their subscribers...usually for two- or three-digit gains. One of their favorite investments of 2009 is a play on an economic inevitability that is almost guaranteed to bring early birds big returns. Read more here.
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