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A Thousand Clowns

By: Bill Bonner & Eric Fry, The Daily Reckoning

-- Posted Friday, 29 April 2005 | Digg This ArticleDigg It!

Ouzilly, France

Friday, April 29, 2005


*** The average consumer has delusions of grandeur...lots of economic mumbo-jumbo...

*** The Donald's million-dollar secrets...blame whoever you want - just not us...

*** The U.S. justice system inspires fear and loathing across the country...unrelenting protectionism...and more!

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Poor George Bush...the younger. He is completing the first 100 days of his second term, his poll ratings are falling and people are beginning to ask questions. What, exactly, was the point of invading Iraq? How come federal spending is out of control? What's going to happen with all those deficits? How are people supposed to maintain their standards of living when real earnings going down...and prices are going up!?

Speculators and investors are used to losses. It's a game to them. Sometimes they win and sometimes they lose. But the average person is neither a speculator nor an investor (even though he thinks he is Warren Buffett every time he buys a mutual fund or a second house). And when this fellow loses money, it's never his own damned fault. Even the investment markets have been collectivized, dear reader. If the lumpeninvestoriat loses money - it's someone else's fault. Instead of admitting their own mistakes, they turn a little sour: they want corporate executives thrown in prison...they want a new president...they carp, criticize and kvetch. If things get bad enough, they look to politics for radical solutions. They want leaders who will "do something."

We're not there yet. But we'll get there. Consumer confidence numbers are falling. The Dow is still trying to breakdown below 10,000 (today could be a big day)...and the Bush administration is floundering. Even the Fed is beginning to sound a little cautious. Alan Greenspan wants to be on record with an "I told you so," for the inevitable day (probably after he's left his post at the Fed) when things go bad. He warns that federal deficits are bound to cause trouble. And Fed governor Donald Kohn worries that the current account deficit could blow up in our faces.

"Complacency would be ill-advised,'' he cautioned last week. "Although the odds seem favorable for an orderly adjustment, the current imbalances are large and -- importantly for gauging risks -- unusual from a historical perspective.

"A permanent correction to the spending imbalances must involve the restoration of fiscal discipline and long-run solutions to the financing problems of Social Security, Medicare and Medicaid,'' Kohn said.

"Achieving these objectives are important in any event, but they take on added weight to the extent that we cannot count on an ever-increasing flow of global savings coming into the United States.

"Without a resolution of these fiscal problems, the balancing of aggregate production and spending would be much more difficult and would result in intensified pressures on interest rates.''

Whooops...economic mumbo-jumbo again. The average voter has even less of a clue about current account deficits than Fed economists. For all he knows, Ben Bernanke is right - they're not a problem at all...but merely a reflection of the fact that Asians, bless their hearts, save too much. And because of all their savings flooding into the United States, even the most repulsive shack on either coast is floating up to such a high price that would have caused shock and alarm 10 years ago. Who complains about that?

So stop whining and go out and buy a new house. Get rich in real estate! Donald Trump will tell you how. He says he's getting a million dollars a pop just to tell young mogul-hopefuls his secrets. Save yourself the money. We can tell you the secret. Buy in hot areas. With no money down and minimum monthly payments. Borrow as much as you can. Then, be very, very lucky. As long as prices continue to go up you'll be rich...and George Bush and Ben Bernanke will be geniuses.

And if prices go down? Then, blame the president...blame the Fed...blame the Chinese.

Just don't blame us. We told you so. And we'll tell you again. The 'wealth' gained from rising property prices is a fraud...a mountebank...a imposter...a phony... America is getting poorer, not richer. It is only a matter of time until property stops going up. Then, the masses, which have gambled their own homes on something that couldn't possibly continue, are going to be in a really foul mood. Real wages will go down further. House prices will collapse; many people will be lucky to sell at all. Imports from China will be much more expensive. So will gasoline. Living standards will be lower. The number of home foreclosures will double...then triple. Bankruptcies will soar. If George Bush is lucky, he'll be a former president at that point...and Alan Greenspan will be a former Fed chief.

And you, dear reader? If you're lucky, you will be a former real estate speculator.

More news, from our team at The Rude Awakening...


Eric Fry, reporting from Manhattan:

"Rare though they may be, several asset bubbles are currently frolicking in our midst, according to bubble-tracker Jeremy Grantham. But which bubble does he think is about to pop? Find out here..."

For the rest of this story, and for more market insights, see today's issue of The Rude Awakening:

The Australian Canary


Bill Bonner, with more views...

*** Another note from our friend, Greg Grillot, in the Far East:

"After a harrowing day of travel from Beijin to Xi'an to Shanghai, my jetlagged insomnia finally broke. I slept for a good six hours last night - and this morning I awoke refreshed, ready to tour a rug factory.

"Then at dusk, as the smog and twilight mingle in a creepy skyscraper slashed sunset, millions of artificial stars break through the murk and assail my bloodshot eyes.

"A billion light bulbs baptize Shanghai's half-mile high brow. More shine than Vegas - more luminescence than St. Petersburg on a winter night.

"This reckless use of electricity is a brownout waiting to happen - a permanent blackout lurking on the horizon.

"You can almost see the dirty coal transform into pure photon energy - no doubt you saw the hazy effect of that burnt coal before the sun retreated's what will happen when the last light flickers in Shanghai:

What Would You Do If The Lights Went Out?
*** The Bank of Japan says it expects another year of deflation - which makes eight years in a row of falling prices. Could America ever experience such a long, slow, soft slump? We've predicted as much. But we doubt that the United States could stand eight years of deflation; we couldn't afford it. The Japanese had savings...besides, they are net exporters. America is more like Argentina.

*** Why are people going sour on George Bush? Lew Rockwell describes his mistakes:
"I'm offering what I regard as Bush's top ten economic errors, which might be the very errors that will make the next depression far worse than it needs to be.

"Number Ten: Martha Stewart Jailing. This was just a disgrace. This great entrepreneur was guilty of nothing but being beloved, famous, and rich. When the Justice Department couldn't get her for insider trading, of which she was not guilty under any conceivable definition, the government changed the charges to obstruction of justice, which really comes down to being willing to defend yourself. If you claim you are not guilty, you open yourself up to prosecution for being wrong. The real point of this case, I believe, was to put a great American entrepreneur in her place, and inspire fear and loathing across corporate America. This isn't just my opinion. This was a point made by the New York Times, in the hope that her jailing would intimidate the whole of the American business class.

"Two additional points behind this fiasco: The original case concerned an anti-cancer drug that was made by the company in which she held stock, ImClone. The corporate stock took a dive after the FDA barred the drug, but later tests revealed that the drug was everything the company said it was.

"Also, in sweet revenge, Martha Stewart handled herself in jail with great dignity and now goes on to greater heights in her commercial endeavors. All power to her, but the costs are still there: investors are more cautious, corporate America is more cautious, and ever more live in fear of their DC masters. A fearful and oppressed business class is a very bad omen for continued economic expansion.

"Number Nine: Unrelenting Protectionism. The Bush administration began its campaign for old-fashioned protectionism with a disgraceful tariff on steel that did nothing to help the industry, but much to harm American business by vastly raising the costs of steel. After incredible protest, the Bush administration finally declared victory and repealed its tariff, but only while adding more tariffs and protections for timber, shrimp, clothing, and a hundred other items in the USTR's daily operations, all of which have the same theme: the rest of the world had better buy our stuff, but the U.S. government has no obligation to stop taxing American consumers to benefit well-connected U.S. companies.

"I'm especially concerned about the Bush administration's obsession with what it calls intellectual property rights. I'm as sorry as the next guy that merchants on the streets of Beijing are selling illicit copies of The Incredibles and the complete ninth season of Friends. But I do not believe it is the job of the U.S. government to go abroad with the goal of slaying these particular monsters. Patents are government grants of monopoly privilege. They are a bad enough policy at home but it amounts to an egregious form of imperialist mercantilism to use the foreign policy powers of the United States to stop it.

"Number Eight: The Social Security Reform Hoax. Genuine privatization would be a grand idea. But that is not what the Bush administration proposes. Not anywhere close. They are proposing to partially convert the existing tax and spend system into a forced savings program. This is not choice, but rather a species of socialism. The forced investments would be fed to approved funds with approved companies and be guaranteed a rate of return.

"So in the end, Bush-style privatization would partially socialize the most important sector of the American capital markets, and we aren't talking about small change. And how would this transition be funded? Bush has suggested that he would be willing to lift the FICA cap, which would mean the worst tax increase in U.S. history. Debt, taxes, inflation take your pick. The costs are in the trillions."

[Ed. Note: For Lew Rockwell's complete list, see our site:

Bush's Top Ten Economic Errors
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The Daily Reckoning PRESENTS: Often, the best way to deal with something, or someone, that you find absurd is to take a step back and laugh. Bill Bonner advises his readers to employ this strategy when trying to decipher what our world leaders are really trying to save the world from...

by Bill Bonner

Economics has been called the "dismal science." But even that is merely fraud and flattery. Economics is dismal, but it isn't science. At its best it is merely voyeurism - peeping in people's windows as they go about their business and trying to figure out what they are doing. At worst, it is pompous theorizing about how to get the schmucks to do better.

We doubt that you are especially interested in economics, dear reader. We know we are not. But we can't resist a good comedy...or a good opportunity to point and giggle. We keep our eye on economists and politicians the way children watch clowns; we can't wait to see them get whacked in the head or trip over each other.

But what is amusing is also instructive. Are not clowns people too? Are they not part of human life...human organization...and human economy? Every one of them is driven by the same motors that power everyone else. They want But how do they get it? Can we not watch politicians and economists and learn something about ourselves?

One of the many conceits of politicians and economists are that they are somehow out of ordinary. They are godlike, or so they pretend, having no other ambition but to make the world a better place. Neither drink, nor meat, nor false witness cross their lips. They sweat for no material gain...and know no lust - save for the betterment of all mankind. They pass laws...they enact codes and regulations...they jiggle this lever and turn another - as if they were the masters of the whole human race, rather than mere parts of it themselves. Since they float above it all, they are not subject to the normal temptations. The rest of us spend our whole lives like animals - craving profits, mates, status, pride, love, and money like a raccoon searching for a garbage pail without a lid. Unless we are kept in tight cages, who knows what we will do?

That is why the tabloid press - especially in England - loves the stories of the government ministers having affairs with their secretaries or cheating on their income tax. Who doesn't like to see hypocrisy revealed in public? It is as if the King himself had been caught with his pants down; we gape...and see that he is human, just like the rest of us.

But thank God there are leaders! Thinkers! Theorists with their "isms" and their rat wire...ready not merely to keep us from hurting one another, but also to give us a sense of moral purpose. It is not enough that we should each seek happiness in our own private way, we must Free the Sudetenland! Abolish Poverty! Make the World Safe for Democracy! We must realize our manifest destiny...and provide liebensraum [living space] for the German people! Full employment! A minimum wage! No humbug left behind!

We bring this up only to laugh at it.

In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale - and, of course, make things better. Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight...and by spending itself to make up for the lack of spending on the part of consumers and businessmen. Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and revive the economy.

The new idea caught on. Soon economists were advising all major governments about how to implement the new "ism." It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists' judgment of whether it made sense to spend or save was better than individuals? All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called "political means," instead of allowing normal "economic means" to take their own course.

The economists wanted what everyone else wants - power, prestige, women (except for Keynes himself, who preferred men). And there are only two ways to get what you want in life, dear reader. There are honest means, and dishonest ones. There are economic means, and there are political means. There is persuasion...and there is force. There are civilized ways...and barbaric ones. The economist is a harmless crank as long as he is just peeping through the window. That is what we do here at The Daily Reckoning. But when he undertakes to get people to do what he wants - either by offering them money that is not his defrauding them with artificially low interest rates...or by printing up money that is not backed by something of real value (such as gold)...he has crossed over the dark side. He has moved to political means to get what he wants. He has become a jackass.

Keynesian improvements were applied in the '20s - when Fed governor Ben Strong decided to give the economy a little "coup de whiskey" - and later in the '30s when the stockmarket was recovering from the hangover. The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, like Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means. If a national assembly could make people rich simply by passing laws, we would all be billionaires, because assemblies have passed a multitude of laws and seem capable of enacting any piece of legislation brought before them. If laws could make people wealthy, some assembly somewhere would have found the magic edicts - simply by chance.

But instead of making them richer, each law makes them a little poorer. Every time political means are used they interfere with the private, civilized economic arrangements that actually get people what they want. One man makes shoes. Another grows potatoes. The potato grower goes to the cobbler to buy a pair of shoes. He must exchange two sacks of potatoes for one pair of penny loafers. But then the meddlers show up and tell him he must charge three that he can pay one in "taxes," to the meddlers themselves. And then he needs to put in an alarm system in his shop, and buy a hardhat, and pay his helper minimum wage, and fill out forms for all manner of laudable purposes. When the potato farmer finally shows up at the cobbler's he is informed that the shoes will cost seven sacks of potatoes! That is just what he has to charge in order to end up with the same two sacks he needed to charge in the beginning. "No thanks," says the potato man, "At that price, I can't afford a pair of shoes."

What the potato grower needs, say the economists, is more money! The money supply has failed to keep pace, they add. That was why they urged the government to set up the Federal Reserve in the first place; they wanted a stooge currency that would be ready to go along with their plans. Gold is fine, they said, but it's anti-social. It resists new "isms" and drags its feet on financing new social programs. Why, it is positively recalcitrant! Clearly, when we face a war or a Great National Purpose we need money that is willing to stand up and sign on. Gold malingers. Gold hesitates. Gold is reluctant and reticent. Gold is fine as a private money. But what we need is a source of public funding...a flexible, expandable national currency...a political money that we can work with. We need a dollar that is not linked to gold.

In the many years since the creation of the Federal Reserve system as America's central bank, gold has remained as steadfast and immobile as ever. An ounce of it today buys about the same amount of goods and services as an ounce in 1913. But the dollar has gone along with every bit of political gimcrackery that has come along - the war in Europe, the New Deal, WWII, the Cold War, the Vietnam War, the war on poverty, the war on illiteracy, the New Frontier, the Great Society, Social Security, Medicare, Medicaid, the War in Iraq, the war on terror...the list is long and sordid. As a result, guess how much a dollar is worth today in comparison to one in 1913? Five cents.

Keynesianism is a fraud. Supply-siderism is a con. The dollar itself is a scam. All were developed by people with good intentions. But these good intentions not only paved the road to Hell, they greased it. There was no point putting on the brakes. Once underway, there was no stopping it.

Right now, the United States slides towards some sort of Hell. A half-century of deceit has produced a nation that is ready to believe anything...and go along with anything...provided it promises to make them rich. They will be very disappointed when they discover that all the political means they counted on - the phony money, the laws, the regulations, and the wars - have made them poorer. That is when we will really need cages...

"Nothing in nature is evil," said Marcus Aurelius. Keynes was human. Even Adolf Hitler was a man, a part of nature himself. And the "Evil Empire," was it not created by men too, men who - like economists and politicians - followed their own natural impulses? Adolf may have erred and strayed. But he did so with the best of intentions; he thought he was building a better world. And he had all the "reasons" you could ask for. He could argue all day; "proving" that his plan was the best way forward.

Not that there weren't arguments on the other side. What were smart people to do? People argued about Keynesianism for many years. Each side had good points. One was convincing; the other was persuasive. It was like a couple arguing in divorce court - the husband forgot to take out the trash and knocked over a vase; the wife ran him over with the family car. "He had it coming," she says.

What would an observer think? No amount of logic could help him. Both parties made good points. All the judge could do was to fall back on his own deep sense of right and wrong, of proportion...and good taste. "She shouldn't have run him down," he says solomaniacally.

"Love the man, hate the sin," say the Baptist preachers. They have a useful point. There's no point in hating Adolf, Josef, Ossama...or John Maynard...or any of the other thousands of clowns who entertain, annoy and murder us. They are God's creatures too, just like the rest of us. What they did wrong was what they always do wrong...they all resorted to political means, to get what they wanted.

We do not hate them; we just hope they get what they deserve.

Bill Bonner
The Daily Reckoning

Editor's Note: Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons).

To purchase your copy of Financial Reckoning Day at a discount, see our bookstore:

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-- Posted Friday, 29 April 2005 | Digg This Article

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