Learning to Leave Well Enough Alone by Bill Bonner London, England 'Committee to Save the World' Fails Twice! It was 10 years ago this month that Time magazine gave us the Committee to Save the World:
Looking proud, confident...Alan Greenspan, Robert Rubin and Larry Summers proposed to save the world from the Asian debt crisis... They should have left well enough alone. Because of them, we now have a crisis that is far worse. But the longer the rally goes on, the more people think it is permanent. They think the crisis is over already. Last week, the Dow took baby steps...but mostly up the stairs. On Friday, the index rose another 28 points. Oil held steady at $72. The dollar rose a little, to $1.39 per euro. Gold was the big loser - down $21, but still in the mid-$900 range. When the baby finally gets to the top of the steps, the poor lil' fella will fall backwards... and bounce all the way to the bottom. Why? C'mon, dear reader, you're not paying attention. We have explained why many times. But the more we explain it, the more it doesn't seem to be true. Stocks should be going down; but they're not. And the more they don't, the more people think they never will. Feelings change. The naked fear of the crash period yields to a calmer, more 'reasonable' outlook...where people think 'this isn't so bad'... 'we can live with this'... 'we'll muddle through; we'll be all right.' Thus does a dangerous complacency take over. Like the Donner Party, when the first snow flakes fell: "The mountains are so pretty when it snows," they said to each other. And while they were admiring the view, the passes filled with drifts. "Six Flags" is broke, says the news report from the weekend. Las Vegas casinos are going broke too. Foreclosures are still rising; they're expected to top 3 million this year. The unemployment rate in the US 9.4% - officially; it will be over 10% by the end of the year. Global trade is collapsing - with exports from all the major exporting nations down by double digits. Exports are even going down in the US. Remember how the dollar's decline was supposed to be a good thing, because it made US exports more competitive. But with global trade declining, US manufacturers - along with everyone else - are finding it harder to sell on the world market. Why all this bad news? Because, once a bubble has exploded, it can't be reflated. The feds can put out new money and credit - but it goes somewhere else. What blew up in '07-'08 was the bubble machine itself...the compressor that the Committee to Save the World built. It pumped up property prices. With rising property prices, consumers had so much credit that almost every investment seemed like a good one. In China, they built factories to make geegaws... In the US they built malls to sell them. Americans would buy anything! Naturally, many of the financial decisions from this period proved to be bad ones. And now they're being sorted out. Investments are being written down, written off...and good riddance! Consumers are sorting out their own balance sheets too - cutting spending and paying down debt. Until these things are sorted out, there will be no real boom on Wall Street. Ray Dalio explained it to Barron's two months ago: "It is very clear to me that we are in a D-process...different than a recession... Everybody should, at this point, try to understand the depression process by reading about the Great Depression or the Latin American debt crisis or the Japanese experience so that it becomes part of their frame of reference. " The D-process is a long process. It takes time to sort things. Just imagine how long it takes to pay off debt...or it takes for GM to become a profitable business again...or how long it takes Six Flags to find a new business model. These things don't happen overnight. Fortunately, you still have time to act...to protect your investments...with the strategies outlined here. And while they are happening, people - who have no experience with the D-Process - think they see 'green shoots'...or think another bull market is beginning...or think the feds have fixed the problems. Time after time, they come back into the investment market...time after time they lose money. And then, eventually, they make peace with the D- Process and put their affairs in order. Then, and only then, can a new cycle begin. Here's more from Chris Mayer, making an appearance in The 5 Min Forecast... "Inflation - rising prices, or a drop in the purchasing power of the dollar - will soon rise to the very top of economic concerns," writes value investor Chris Mayer. "I can't understand why there are pundits who insist we can't have inflation while the economy is weak. There are plenty of examples of weak economies with high inflation. After all, I don't think they are hitting on all cylinders in Zimbabwe, where inflation is thousands of percent. "Look at food prices. Soybeans hit a nine-month high of $12.50 a bushel. The Department of Agriculture said that inventories would drop to only 110 million bushels - the lowest level since 1976-77, when inventories hit 103 million bushels. There were about 2 billion fewer mouths on the planet then. At today's 32-year low, we can eat through that stockpile in about two weeks. Not a lot room for error; hence, the nine-month high in prices. "We have a similar tight market in corn. In corn, we're down to about a four-week supply, the lowest in six years. Corn has rallied also. In fact, the prices of a variety of grains are now at levels not seen since the last food crisis:
"During the last food crisis, rice traded for $1,000 a ton and there were riots in different parts of the world. The financial crisis took the headlines away from the unfolding food crisis, but now we are looking at act II." Chris has been studying the agriculture situation closely and has outlined a strategy to help you capitalize on these opportunities in his publication, Mayer's Special Situations...available here. And back to Bill with more thoughts... The New York Times reports that Mr. Tim Geithner is defending the stimulus program wherever he goes. The Washington Post reports that Larry Summers is doing the same thing. Isn't it interesting, dear reader? There were very few people who understood what was happening during the bubble years. Neither Summers nor Geithner was among them. Summers was one of the original members of Time magazine's 'Committee to Save the World.' Along with Alan Greenspan and Robert Rubin, Summers saved the world from the Asian debt crisis. That was 10 years ago this month. Of course, the three didn't really save the world - they set it up for a much bigger catastrophe. In the meantime, Summers went on to a disastrous interlude in academia. Robert Rubin went to Citigroup, where he pushed the bank in the wrong direction - towards dangerous derivatives. When the debt bombs blew up, Rubin was then pushed out of the firm. And Alan Greenspan went on to manage the Fed in an almost unimaginably clumsy way - practically single-handedly bringing about the biggest bubble in world economic history. But now, there's a new Committee to Save the World. Summers is back. And he's joined by Bernanke and Geithner. What a great committee! Innocents and insiders... who neither saw any evil, heard none, nor spoke none. The three were deaf, dumb, and blind to the biggest bubble in all time. But now they are taking the lead in fixing the problems they never saw. How? With stimulus! A $100 billion here. A $100 billion there. They've put at risk an amount of money nearly three times as great as America's expenses in World War II. They bail out a bank in North Carolina. They take over an auto company in Detroit. Hey, what about the casinos? Aren't you going to bail them out too? What makes these three fellows think that this will make Americans richer? More prosperous? Or more secure? Has this sort of meddling ever actually made people better off? They should follow Ray Dalio's advice and read about similar crises in history. Can you make those crises go away by spending trillions? If so, there's no evidence of it in the histories we read. Not in the Great Depression. Not in the Latin debt crisis. Not in the Japanese experience. And what about this time? The evidence we see tells us that the underlying economy is getting worse, not better. In addition to the figures cited above, there are the inflation rates. Inflation in America and Britain is coming down...to around 2%. In Europe it has already fallen into negative territory...with rates heading to minus 1%. Meanwhile, oil is over $70 this morning - 7 times higher than it was when Larry Summers, et al, saved the world the first time. Gold is nearly 4 times higher. In other words, the feds' easy money is not reaching the consumer and not stimulating the consumer economy. Consumption is down...and with it, business earnings are down too. "Dow 1 million," says our old friend Jim Rogers. The feds' phony money can stimulate speculation, he points out. But it can't stimulate real growth. This second 'Committee to Save the World' is destined to end like the first one - in disgrace and disaster. It will try to cure one disaster by creating a worse one. Until tomorrow, Bill Bonner The Daily Reckoning P.S. The financial disaster unfolding is highly inflationary...and your best defense against the ravages of fiat currency is gold. The sooner you're able to protect your portfolio, the better...learn the ropes here. | ||
| The Daily Reckoning PRESENTS: Laughter is a sound usually indicative of something enjoyable... But there are at least two exceptions to this: 1. When the Mighty Mogambo laughs his Scornful Laugh Of The Damned (SLOTD), and 2. When Chinese students laugh at the US Treasury Secretary. Sadly, you'll hear both in today's essay. Read on... Chinese Laughter the Sound of US Stupidity by The Mogambo Guru Tampa Bay, Florida The winner of the Mogambo Award For Most Imbecilic Statement Of The Month (MAFMISOTM) comes from a Financial Times article where we read that Tim Geithner, whom I ungraciously call (with a sneer and a voice dripping with a tone of Pure Mogambo Contempt (PMC)), the "rat-like Treasury Secretary of the United States," tried to convince China that "the US would do what was necessary to bring its budget under control." Hahahaha! Now, there are many ways to define "do what is necessary," and after the fiasco of the United States now being known as a country that tortures people, the sky's the limit on that, I guess, and as it turns out, I was right! Listen to this: Geithner, the rat-like Treasury Secretary of the United States, told the Chinese that after a long period of grotesque, Banana- Republic style fiscal excesses for the next decade or so, we would "do what is necessary" to somehow, some day, at some time in the unforeseeable future, nobody knows how, or when, the government of the USA will bring down "the fiscal deficit to about 3 per cent of gross domestic product"! Hahahahahaha!
The long string of the repetitious use of the word "ha" is my clever way of communicating in prose the sheer degree of disrespectful laughter that this ludicrous crap deserves! Hahahahaha! The reason for my scornful laughter is mostly because I have already been drinking heavily to toast my success in getting through another day without screaming my guts out that we are all doomed from the effects of this monetary and fiscal insanity and how much I hate everybody connected with it, and so it somehow strikes me as funny that this federal spending deficit of 3% of GDP is the point where it starts getting bad! Hahaha! And this (hahahaha!) is the goal? Hahaha! We're going to bring the fiscal deficit down to the point where (hahahaha!) history says that we have to do something to reduce the fiscal deficit? Hahahahaha! By this time I am laughing so hard that I am sorry that I ate all that pizza for lunch, and with gasping, rasping breath I am coughing up bits of lung tissue, along with pieces of sausage with tomato sauce, while trying to say, "Stop! Stop! Hahahaha! My stomach is hurting from all this laughter! Hahaha!" Oddly, enough, this is NOT the place in the speech where the Chinese students laughed in the face of the rat-like Treasury Secretary of the United States, although I am sure that there was a of tittering and indecipherable muttering that sounded like "Ho how chang won hong chow?" which is difficult to translate literally, but means, "What in the hell is wrong with this idiot? Did he really say that the long-term goal of these American lowlifes is to bring their fiscal deficit to 'about 3 percent of gross domestic product,' when the goal is actually to have a balanced budget, no debt, and with the government tax rake- off being as small as possible?" I can see where they would not laugh at such insufferable stupidity, considering the consequences. Instead, they laughed, according to Financial Times, when he said that "Chinese assets are very safe," which actually may have been a joke on the infamously corrupt Chinese government, which routinely takes property from citizens, actually killing millions of them in the recent Cultural Revolution, and continues its thieving ways even now by also creating lots of money and credit so that it is constantly stealing the buying power of the money that people hold! Hahaha! On the other hand, maybe they laughed because Chinese students know that with a fiat currency like the dollar and a spendthrift, redistributionist, commie-think Leftist government like the American Congress causing the over-creation of more money and credit, the dollar is doomed, and so the idea of dollar-denominated assets as being safe is totally ridiculous. The Financial Times came to another conclusion, and said that while the comment of the rat-like Treasury Secretary of the United States "drew loud laugher from his student audience," it was "a reflection of skepticism among many Chinese about the wisdom of building up large foreign reserves." Hahaha! Now I am laughing too, especially since this puts them miles ahead of us Americans, who think nothing of putting all our money, and all our retirement hopes and dreams, into dollar-denominated assets! Hahaha! The Chinese have expressed their skepticism by starting to accumulate some gold and commodities. We should do the same. And while we are at it, accumulate some silver and oil, too, an investing decision made so easy by the astounding fiscal and monetary stupidities of government that it makes you giggle with glee, "Whee! This investing stuff is easy!" Until next time, The Mogambo Guru for The Daily Reckoning Editor's Note: If you haven't already, please make sure you sign up for the 2009 Agora Financial Investment Symposium in Vancouver, Canada. This event officially marks the 10th anniversary of The Daily Reckoning, and the conference is filling up rapidly. Join us as we gather to celebrate a "Decade of Reckoning." You'll have the chance to meet your favorite writers and speakers...who will uncover the hidden profit opportunities of the next ten years. This event will certainly sell out...so secure your spot ASAP. Call Opportunity Travel at (800) 926-6575 to make your arrangements or click here for all the information: The Agora Financial Investment Symposium: July 21-24 Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it. The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page. | ||
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