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The Daily Reckoning | Monday, October 17, 2011 Occupy This! The “debt-slave rebellion” takes hold around the world, A history littered with busted oracles and their broke followers, Plus, Bill Bonner on gold, stocks, flat wages for working stiffs and plenty more... -------------------------------------------------------- When Will Obama Confess to the Secret “Timebomb” Event Ahead? Obama and Congress won’t even talk about it... but we’ve got a much bigger problem ahead than anybody cares to admit... and it could hit harder than the 2008 banking collapse. What problem? Nothing less than a secret new meltdown for world oil supplies — with gas potentially doubling in price and oil potentially about to hit $300 — and it could hit as early as the end of this year. Find out how in this urgent new report... Appetite for Wealth Destruction Why a Revolutionary Spirit is Targeting “Wall Street Greed” Bill Bonner Reckoning today from Paris, France... The debt-slave rebellion! Get ready; it’s coming...the uprising of thepopolo minuto...the revolt of the masses...the Jacquerie! Bloomberg reports: The Occupy Wall Street demonstrations that began last month in Lower Manhattan migrated uptown on Oct. 15, as about 6,000 people gathered in Times Square during what organizers called a “global day of action against Wall Street greed.” There were 92 arrests, according to the New York City Police Department. More than 100 people were injured in Rome, where as many as 200,000 amassed, the Corriere della Sera newspaper reported. Chicago police arrested about 175 protesters in Grant Park around 1 a.m. local time yesterday after they refused to disperse, the Chicago Tribune reported. Eight were arrested in London a day earlier after demonstrators were barred from entering Paternoster Square, home to the London Stock Exchange. Six were charged, the Metropolitan Police said in a statement. London protestors were camped out for a third day in front of St. Paul’s Cathedral near the financial district. Banners attached to the tents included signs reading “People Before Profit” and “The People are Too Big to Fail,” while protesters made speeches from the steps of the cathedral using megaphones. Protesters and local politicians had gathered 300,000 signatures, flooded the city’s 311 information line and drew more than 3,000 people to the park to oppose the cleanup, according to Patrick Bruner, an Occupy Wall Street spokesman. “The world will rise up as one and say, ‘We have had enough,’” Bruner said in an e-mail. A news release from the organization said there were demonstrations in 1,500 cities worldwide, including 100 in the U.S. We read reports on the worldwide demonstrations in The Washington Post,Bloomberg and The Wall Street Journal. Nowhere was there the slightest hint at the real problem. Nobody’s interested in the real problem. There are two aspects to humans, said the ancient Greeks. There is the “appetite” — which is the rational mind figuring out how to get what it wants. And there is the “spirit” — concerned with intangible things, like honor, status, religion and so forth. It may be the appetite that builds wealth...but it’s the spirit that fuels revolutions. People have an innate sense of what’s right and what’s wrong...what’s fair and what’s not fair. When they feel they are being cheated...they join the revolution. The press talks about how the rich got richer. Here’s The Washington Post: From 1973 through 1985, as Simon Johnson, former chief economist of the International Monetary Fund, documented in 2009, American banks never earned more than 16 percent of domestic corporate profits. By the mid-2000s, that figure rose to 41 percent. As with profits, so with pay: For more than three decades, from 1948 to 1982, pay levels in finance ranged from 99 to 108 percent of the average of private- sector pay. By 2007 they had reached 181 percent. But why? How? “Wall Street greed” is the reply given by both the protestors and the press. But wait. Wall Street was just as greedy back when it made 10% of corporate profits. Wall Street is always greedy. So is everyone else. But it wasn’t Wall Street’s greed that tilted the world’s playing field in the direction of the rich. Nope. It was the feds. You’ve heard our explanation before. We’ll give it again...below...and at where this popular revolt might lead. But first, let’s look at the news... Friday, the Dow rose 166 points. Stock market investors are ahead for the year. And look at this: oil is trading at $87 a barrel. And gold is moving up too. Is the correction in the gold market over? Looks like it. How about stocks and oil? Are they going back up? Looks like it. But who knows? According to our way of looking at things, they all should be going down. We’re in a period of de-leveraging, which is on the verge of tipping into a worldwide depression. This is not the time for oil, gold and stocks to be going up. But Mr. Market doesn’t listen to us. He doesn’t care what we think. He has plans of his own! Why the warning behind this image could... “Forever change the way you think about the stock market... Open your eyes to what you can and can’t expect from the United States government... And even change the ease at which you’re able to buy and sell things... Click the image play button to first learn the warning...and some simple ways to prepare for the uncertain times ahead. The Daily Reckoning Presents False Prophets Chris Mayer Every morning, I start my day by reading my newspapers over a mug of hot tea. (Yes, I still get my newspapers delivered!) Sometimes I just have to shake my head at the absurdity of it all. I don’t get mad or annoyed — I just laugh. One day, the President wants to reduce the deficit he created by hiking taxes — especially on “the rich.” The next day, the G-20 wants to “save the euro” by funneling taxpayer dollars from around the world into the deadbeat countries of Europe — famous for not paying taxes! Both schemes flow from the same flawed ideology: The key to prosperity is redistribution of wealth! Of course! It’s worked so well in other eras... Then there is the bumbling of the Federal Reserve. I laughed out loud when I read inThe Wall Street Journal about Charles Evans, a member of the Federal Reserve Board, who laid out his beliefs. He wants the Fed to maintain zero short-term interest rates “until the unemployment rate moves below 7.5% and as long as inflation doesn’t top 3%.” Oh, my! Where to start? A line from Shakespeare often repeated by my late grandfather comes to mind — “What fools these mortals be!” Evans presupposes three things, all ridiculous. First, that we can accurately measure the unemployment rate to the decimal point. Second, that we can accurately measure the inflation rate in the same manner. And third, the mere mortals at the Federal Reserve can navigate the economy between these two imaginary posts. If you believe Evans’ trifecta, then you are halfway to Alice’s practice of believing six impossible things before breakfast. The fact is such statistics come with huge error rates and there is much debate about how to properly calculate them. No joke, two earnest and well-intentioned economists can reasonably come up with vastly different numbers for unemployment and inflation. And if the Federal Reserve were as powerful as its hubris-filled bankers believe, events like 2008 should’ve been impossible. Finally, let’s turn to the stock market. There are funny things about the stock market tucked in the paper every day. Whole columns full of words that mean absolutely nothing yet are treated with the utmost seriousness. I read in The Wall Street Journal that “In some ways, predicting the direction of the stock market many months in advance is more art than science...” Then the writer goes on to cite Wall Street strategists and their targets and methods. Let me tell you this: Predicting the stock market many months in advance is in no way a science. And it is an art only if one takes a very low view of art as being utterly useless. I am amused that Wall Street firms pay these strategists good money for their opinions. We may laugh at our ancestors who consulted their own oracles that cast bones or read tea leaves or whatever. But modern society has equally absurd oracles, merely in different guises. I keep a “You Can’t Make This Up” file, which I usually unleash on the Vancouver attendees every summer. It holds stuff I find in real news outlets that makes you think you are reading The Onion (the great satirical news site of our age that has been poking fun at human vanities since 1988). Today, I have a new entry for the file, courtesy of The Financial Times: “News Analysis: Experts are finding it difficult to make accurate forecasts at present.” I read that to my wife and she laughed out loud. The headline seems so obviously absurd — as if predicting the future is ever easy. It’s always uncertain, and experts routinely get it wrong. But we like to pretend, somehow, that now is more uncertain than usual. But that uncertainty is not a bad thing. It’s what creates opportunities in the market. No one knows where the stock market will go. Some may make a right call now and then, but it is a hard road to follow. History is littered with busted oracles and their broke followers. Still, it is fun to guess, and there is nothing wrong with having a hunch and engaging in foolishness from time to time. Opinions are the stuff of life, as Nassim Taleb says. Taleb wrote The Black Swan, which includes good advice on forecasters and how to deal with them. “Avoid the big subjects that may hurt your future,” he writes, “be fooled in small matters, not in the large.” You can indulge your passion for guessing and predicting, just don’t bet money on that. When it comes to committing real dollars, make sure you have something sturdier than mere guesswork and prediction. And don’t argue with a forecaster, either. As Taleb advises, “Just ignore him, or try to put a rat down his shirt.” Regards, Chris Mayer, for The Daily Reckoning Joel’s Note: “Stocks...in case the world doesn’t end.” That was the title of the speech Chris delivered at last week’s emergency Survival Summit, hosted by Agora Financial, in Baltimore, MD. If you weren’t in attendance, but still wish to hear all of the presentations, in full, don’t worry. We recorded the whole thing. Grab your set — which includes words of wisdom from Chris, Addison, Eric and a few other AF luminaries — on MP3 right here. Chris Mayer’s Special Situations Warns... Without it, you’ll die. We’ll all die. It’s more precious than oil, gold, or the dollar. Whether the market is going up, down, or sideways has no impact on it. It’s so important that China just allocated$608 billion to save it... Click here and find out more about this life-essential resource and the ONE tiny, little-known company that could solve this spreading crisis...and make early-in wealth builders retirement-rich. Bill Bonner Favoritism in the Monetary System Bill Bonner Want to know how the rich got richer? Want to know how Wall Street made so much money? We didn’t think so. But we’ll tell you anyway. The post-1971 US dollar-based monetary system permitted an explosion of credit, which naturally favored the credit industry directly, and the entire financial asset-holding investoriat, indirectly. At the expense of the middle and lower classes. In other words, the expansion of credit, caused by a flexible, expandable money regime, set the whole economy ablaze. The middle and lower classes went deeply into debt to buy things. The “rich” — or at least those who owned stocks and bonds — got richer, as consumer spending lit up the business world, and particularly the financial industry itself. Profits from the financial industry were only about 10% of the total profits on Wall Street in 1970. By the time the credit bubble blew up in 2007 they had grown to 40%. Wages for working stiffs were flat for 40 years. But earnings on Wall Street soared. In 1970, the typical salary in the financial industry was about the same as for equivalent positions in the rest of the economy. But, by the 21st century, Wall Street salaries were nearly twice as high. People who complain about “greedy” executives and rich people miss the point. People — rich and poor — are always greedy. But they don’t always have a monetary system that encourages debt and favors investors over working people. This money system was created in 1971 by the Nixon Administration, which probably didn’t know what it was doing...and it was later perfected by subsequent Federal Reserve chairmen. In addition to stretching the gap between rich and poor, the non- gold monetary system had one other notable consequence. It undermined the working classes’ ability to compete in the modern world. This it did by moving more and more production to the emerging markets. In pre-1971 days, nations had to settle up on their trade balances. That is, when one nation sold more to a neighboring nation than it spent with it, the nation in surplus ended up with an excess of the neighbor’s currency. This surplus currency was then presented to the deficit country. The accounts were settled by transferring gold — the monetary system’s reserve at the time — from the deficit country to the surplus country. As the gold left, it had a chilling effect on the deficit nation’s economy — either because investors caused interest rates to rise or because the central bank pushed them up. This resulted in slower economic growth and less spending, thereby correcting the outflow of funds to the neighbor. It was precisely this self-correcting mechanism that the feds were determined to stop when the Nixon Administration “closed the gold window” at the Treasury department in August of 1971. The US had spent too much on the Vietnam War. French banks, which were still very active in Vietnam, tended to be the recipients of the money...which flowed to the Bank of France. The French, anticipating a problem with the dollar, wanted to exchange dollars for gold. This was the proximate cause of the Nixon Administration’s reaction — an actual default on its financial obligations. It was also the cause of the subsequent run up of the price of gold...which was followed by a bust in gold...and thereafter, a huge boom, in which ordinary Americans were lured into debt and coaxed towards poverty. The rich got richer; the poor got poorer. The middle classes got poorer too. Between 1975 and 1992, the wealth of the richest 1% rose from 22% of total national household wealth to 42%. Why? Were the richest more productive? Had they become smarter? Of course not...the playing field had been tilted in their direction! The “ciompi” revolted in the 14th century. They were wool carders in Florence...the “popolo minuto” — the little people — without power or money. They rose up in June 1378, attacked government buildings and by July they were in control of the government. But then, other trade groups got jealous. In August, the butchers attacked them at the Piazza della Signoria. After that, the power of the ciompi declined...until things were back to normal. This was just one of many uprisings of the lower orders in Europe. In France, a peasant named Jacques led a revolt against the authorities in the 14th century. That was just the beginning of a long list of uprisings — Jacqueries — that didn’t end until the 18th century. One of the most wrongheaded ideas of the entire 20th century came from Francis Fukayama, who asked — apparently in earnest — if we had reached “The End of History?” He thought modern democracy and modern capitalism had reached such a point of perfection, after the fall of the Berlin Wall, that no improvement was possible. History had come to an end. Jacqueries — he believed — were no longer necessary. Because modern democracy adapted naturally to the challenges it met. If the people had a grievance, all they had to do was to put in a call to their elected representatives. The politicians would discuss the matter and come to a solution, right? Ha, ha, ha....Fukayama misunderstood everything. Democracy. Capitalism. History. Politics. Everything. As an institution matures, little by little it shifts from serving its original purpose to serving the ends of those who control it. It becomes rigid — digging in its heels and resisting any change that would diminish the power and wealth of the controlling groups. The longer the institution remains unchanged, the more parasitic and arthritic it becomes. It drains resources away from honest production and redirects them towards favored groups of leeches. Then...history returns. Then cometh the revolution. Regards, Bill Bonner, for The Daily Reckoning