 | | The Daily Reckoning | Friday, October 21, 2011 |
- The enormous cost of ensuring failure, both in Europe and the US,
- Identifying “disruptive technologies” and learning to profit from them,
- Plus, Bill Bonner on the “misery index,” declining standards of living and why 1981 was everything 2011 is not...
-------------------------------------------------------
Obama’s Burning Shame Revealed Here...
This is the unspoken, burning shame that could kill Obama’s presidency...
It could spell the end of his short political career...
It’s all revealed in this extremely urgent and controversial documentary report.
|  | | | Missing the Big Picture | | Why “Constructive Inaction” is No Longer in the Feds’ Lexicon | |  | | Eric Fry |
Reporting from Laguna Beach, California...
Question: How many finance chiefs does it take to perpetuate a monetary crisis?
Answer: Twenty...and all of them convened in Paris last weekend.
The finance chiefs from the “Group of 20” nations convened to propose and discuss various bailout schemes for the euro zone.
Many of the chiefs urged their European peers to amass even larger bailout firepower than the $605 billion European Financial Stability Facility (EFSF). Other chiefs suggested that the IMF play a much larger role than it has to date.
But no matter the precise proposals, all 20 chiefs agreed that the key to halting the crisis in Europe was more government action...and certainly not less.
“I think [the Europeans] have come to recognize that, if you underdo it, it’s going to be more expensive,” said US Treasury Secretary, Timothy Geithner, expressing the consensus viewpoint that government intervention is the solution to this — and every other — financial hardship.
But “under-doing” is probably not the greatest risk of the moment. Overdoing might be.
After all, isn’t overdoing it the very thing that brought us to this fiscal precipice? The governments of the West have become so active in all facets of Western society that they are utterly hyperactive.
Tuesday’s Congressional Hearing of the Senate Homeland Security and Governmental Affairs helps to illustrate the extent of the government’s intrusiveness.
The witnesses in attendance included a bevy of federal officials with ominous, absurdly long titles like Homeland Security Undersecretary for Science and Technology, Assistant Homeland Security Secretary for Health Affairs, Assistant Secretary for Preparedness and Response, Assistant Director, Weapons of Mass Destruction Directorate and Senior Director for Biological Defense Policy.
During the repartee, the Assistant Secretary for Preparedness and Response extolled the government’s post-9/11 success in making America safer against bio-warfare:
“Critical to the success of the whole Public Health Emergency Medical Countermeasure Enterprise — or the PHEMCE, as it’s called — is an integrated approach with a formal government structure, and he should know that this includes all the components of HHS plus DHS, VA, DOD, USDA. So it’s truly an interagency effort — and that all parts now of HHS, CDC, FDA, NIH, BARDA work together with companies from the outset of the contract rather than at the end of the pipeline... Yet as we all know from the Weapons of Mass Destruction Terrorism Research Center report card, while we’ve made important progress...our preparedness is not yet sufficient...Without continued support and funding for our public health and medical systems, the infrastructure will degrade...” Maybe all these bureaus, agencies and directorates are as essential as their Undersecretaries, Assistant Secretaries and Senior Directors would have us believe. Maybe not.
But two things we know for certain: all this government-sponsored hyperactivity is very expensive and very intrusive. It costs a lot of money to stick one’s bureaucratic nose into every citizen’s business.
After Sept. 11, America’s intelligence, surveillance and counter- terrorism agencies basically got a blank check to fund their efforts. The CIA got a billion dollars right away. So did the National Security Agency (NSA). “What we found in the years immediately after Sept. 11 was that the existing agencies grew enormously,” observes Dana Priest, a reporter for The Washington Post. “They doubled in size, many of them, and new organizations were created as well, big ones.”
In 2002, for example, there were 34 new federal organizations created to work at the top-secret level. In 2003, government created 39 more; in 2004, 30 more; in 2005, another 35; and more each year since. “Every year [since 9/11],” Priest goes on, “more than two dozen, sometimes three dozen, entirely new federal organizations dedicated to counterterrorism [were] being created.”
Do we really need all these agencies? Will any of us really notice or care if we lose a few government acronyms along the way?
By funding this proliferation of intrusive government agencies — all in the name of national security — we taxpayers are paying to be groped by strangers, metaphorically speaking. Maybe we could do with a little less groping. And certainly, we could do with a lot less “protecting” and “rescuing.”
Less is more, as the saying goes.
Thus, the one solution to the euro crisis — and also to the economic malaise here at home — is the one solution that no one seems to be considering: Benign neglect.
Doing nothing at all may be the very best thing to do, as Jim Grant suggests in a recent issue of Grant’s Interest Rate Observer. “Constructive inaction” is the term Grant uses to describe the government’s response — or rather, non-response — to the economic contraction of 1920.
“90 years ago,” Grant explains, “in the teeth of a slump much deeper than our Great Recession, the government did what today would be unimaginable.”
It did nothing.
“The US government — the Wilson administration through March 1921, the Harding administration thereafter — met the emergency mainly by getting out of its way,” Grant relates. “To most of the policymakers of the day, it was, indeed no ‘emergency,’ but essays of the business cycle, unpleasant but inevitable.”
Importantly, the government of 1920-21 did not stand aside because it had no idea what to do; it stood aside because it had some idea what not to do. The administrations of Wilson and Harding stood aside because they trusted market forces to resolve the crisis more effectively that the government could.
“Market forces didn’t fail in 1920-21,” says Grant. “They were virtually the only forces in play... The Federal Reserve in 1919 was celebrating its fifth birthday, while the welfare state of finance — too big to fail, TARP, TALF, etc. — was not only unborn but also unimagined.”
Anticipating the deep recession of 1920-21, the Ben Bernanke of his day, Benjamin Strong, governor of the Federal Reserve Bank of New York, had this to say in 1919:
[“There will be] a considerable degree of unemployment, but not for very long, and... after a year or two of discomfort, embarrassment, some losses, some disorders caused by unemployment, we will emerge with an almost invincible banking position, prices more nearly at competitive levels with other nations, and be able to exercise a wide and important influence in restoring the world to a normal and livable condition.”
Therefore, in anticipation of both an imminent deep recession and also at a rapid, vibrant recovery that would restore the world to a normal and livable condition, Strong proposed neither bailout plans nor “stimulus measures” to alter the economy’s natural course.
He simply watched. And as he watched, he saw his predictions fulfilled. The economy did contract, fiercely so. But shortly thereafter, the economy launched a powerful recovery. The whole thing lasted less than two years.
“The point cannot be overstated that the slump did end,” Grant points out, “and that the post-1921 labor market mounted a powerful recovery and that the incumbent Republicans remained in power until Herbert Hoover decided to meet the Great Depression, not through inaction but through an aggressive intervention.”
But constructive inaction is not even a topic of discussion among the G-20. Today’s discussion is all about destructive action. In the name of “stabilizing the system,” the G-20 wishes to amass hundreds of billions of taxpayer dollars into a kind of economic funeral pyre.
“The supposed lessons of the Great Depression, as interpreted by the former Princeton economics professor who now directs the nation’s destiny at the helm of the Federal Reserve Board, constitute the guiding light for today’s policymakers,” Grant explains. “Intervene early and often... print money, run up the federal debt, slash interest rates, extend jobless benefits and soften the sting of foreclosure...”
Accordingly, the leaders of the EU and IMF are planning to “save the system” by sending money to governments that overspent foolishly and banks that invested foolishly. Why bother saving that system?
The system that deserves saving is not the one that rewards incompetence and reckless risk-taking. The system that deserves saving is the one that rewards prudence. That’s the very same system that permits bankrupt investments to go bankrupt...that separates fools from their money.
The system that deserves saving is not the one that tries to slap green paint on every piece of dead wood and call it “healthy.” The system worth saving is the one that respects the power of market forces — that allows the dead wood to rot and decompose right where it sits, so that it may fertilize the next generation of productive enterprise.
“The bailout funds [in Europe] — no matter how large they grow — will merely slow the march toward inevitability,” we observed several weeks ago. “The destination is certain; the timetable is variable.”
Greece will default...eventually. Why not let it happen? And if the euro fails, the euro fails. Why not let that happen too?
The leading policymakers of the European Union would like to halt the crisis in its tracks. Not gonna happen. These guys and gals should probably stop practicing their speeches into a mirror. They are forgetting that the images before them are flip-flopped. Left is actually right. Right is actually left. Rescue plans are actually failure plans. Failure is actually the first part of any enduring rescue.
[Joel’s Note: If you missed yesterday’s edition of The Daily Reckoning, you would also have missed Part I of Eric’s “Farewell Euro Tour.” Mr. Fry was recently in Holland, Switzerland and Italy, where he took the opportunity to ask a few “people on the street” what they think of the Greek bailouts, the eurozone in general...and what they see coming next.
Here’s the video again, in case you didn’t catch it the first time around. Just click on the image below to begin viewing...and stay tuned for Parts II and III in future issues of The Daily Reckoning. Enjoy...]
| | | | 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...
|
| |
| | The Daily Reckoning Presents | | Break On Through | |  | | Patrick Cox |
One of the most naive idioms of all time is that the world will beat a path to your door if you build a better mousetrap. In fact, you’re more likely to be charged with endangering some previously unknown subspecies of rodentia.
Readers of my investment letter, Breakthrough Technology Alert, know that historically, the media, the public and the financial community have resisted big changes. Great ideas have a way of succeeding, but they do it without the help of “the world.” Inventors and scientists routinely spend more time and effort defending their ideas than they spent making their discoveries.
A good example comes from this year’s Nobel Prize for chemistry. The recipient, a scientist at Israel’s Technion Institute in Haifa, used electron microscope technology to discover an entirely new molecular structure now known as quasicrystals. In 1982, while on sabbatical at Johns Hopkins, Dan Shechtman discovered metallic quasicrystals. For nearly three decades, however, he was mocked for saying so. The very notion of metallic, five-sided, nonrepeating crystal structures was ridiculed.
Nobel Laureate Linus Pauling mounted what has been described as a personal “crusade” against Shechtman. “There is no such thing as quasicrystals,” Pauling claimed, “only quasi-scientists.” The scientific team Shechtman was working with gave him the boot for “bringing shame” to his colleagues.
Today, however, scientists all over the world are exploring the potential of nonstick, rust-free, heat-resistant quasicrystals.
Other breakthroughs are even more difficult to recognize. They may involve an unproven superior marketing, distribution or presentation technology. Sometimes, breakthroughs happen when something new is applied to an older and seemingly dated technology. We’ve written here, for example, about new materials that have radically improved flywheels. These energy conservation devices are currently used in high-end race cars and have the potential to save energy and add automobile performance in a more cost-effective manner than batteries.
This is just one example of a new technology revolutionizing an old design and industry. Consider a somewhat less obvious example, Amazon.com.
Healthy retail mail-order businesses existed long before the founding of the Seattle-based company in 1994. Over a hundred years ago, Sears, Roebuck and Co. built a successful business based upon rapidly improving mail delivery service and printing technology. Sears, Roebuck catalogs were common in urban as well as remote rural homes. Customers all over America bought mail-order tools, piano rolls, coca wine and even tape worms for weight loss.
In the ’90s, I was consulting at Netscape, where the truly interactive and open Internet came into existence, along with the encryption technologies that enable secure e-commerce today. In retrospect, Amazon.com’s success seems almost inevitable given the emergence of those tools, but that’s not how people saw it at the time. Enormous skepticism about the practicality of the new technology existed. Mockery was far more evident than belief that the world would change radically due to network technologies.
If the potential and benefits of the Internet and e-commerce had been obvious at the time, we could assume that Sears and other existing mail-order businesses would have taken advantage of the opportunities. With plenty of capital and established supply and distribution networks, it would have been far easier for Sears to build a Web version of their catalog.
The “smart money,” however, considered the Internet a fad with limited practical application. “Trust us,” the experts said, “the real action will always be in the catalog business model.”
Amazon astutely exploited both the shortsightedness of established businesses as well as the emerging electronic communications technology, eclipsing catalog marketers by pushing retail where it had never gone before. Creativity and vision proved more important than the advantages held by pre-existing mail-order businesses. Today, Amazon is the world’s largest online retailer and the premier online shopping destination. Recently, they have even begun to compete with television networks and movie rental businesses via online streaming.
Amazon.com, however, ranks well behind the world’s largest retailer, Wal-Mart. The success of Wal-Mart Stores Inc. is worth discussing here for a number of reasons. One is that Wal-Mart’s stock has increased in value more than 160,000% since its public offering in 1970. It is widely reported that $1,000 of that IPO equity would be worth more than $1.5 million now. Another reason is that it is not obvious that Wal-Mart is even a breakthrough transformational company.
From the outside, Wal-Mart appears just like any other big-box brick-and-mortar retailer. It is not. Inside the wrapper is the founding vision of the Eagle Scout and entrepreneur from Kingfisher, Okla., Samuel Moore Walton. Very early, he realized the power of emerging information technologies. Rather than wasting time telling others about this potential, he implemented it himself.
Walton leveraged emerging IT to boost the efficiency of his logistical supply chain. Other retail companies wasted resources by warehousing goods and then delivering them to stores as need was perceived. Walton did something entirely new. He bought goods only when they were needed imminently and had them shipped exactly where they were needed. He could do this because he had computerized his entire enterprise.
Goods on shelves are not simply idle. They cost money. They tie up capital and shelf space, consuming and wasting resources. Walton realized that he could sell goods for less not just by negotiating better wholesale prices. With new inventory and data mining tools, Walton was able to determine precise location-based needs. He could determine even where within the store a product sells best.
He lowered his real price of the acquisition of goods by reducing storage, financing and transportation costs via IT. Because of those better prices, he sold more. The sales volume he generated then allowed him to negotiate better wholesale costs. Because of superior in-store computerized communications, he could spread information throughout his corporation and deal with problems in record time.
In each of the examples cited above, pioneers of industry were ridiculed and mocked for their ideas...ideas that would become revolutionary breakthroughs in their respective fields. As investors, we can learn a lot from their successes.
Change, after all, is nurtured at the fringe. Embrace it.
Regards,
Patrick Cox,
for The Daily Reckoning
P.S. Recently I tipped readers of my Breakthrough Technology Alert research service to a company that stands to meet with plenty of mockery and derision for work they are doing right now. Their claims are truly game changing...and bound to raise a few skeptical eyebrows.
In fact, they’re working on developing a panacea of sorts, a “cure all” that could not only deliver vastly improved health for us all, but also generational wealth building opportunities for early investors. Sound crazy?
Decide for yourself when you review the details of what I call “Panakeia 604” in my latest report, right here.
| | | | Patrick Cox’s Technology Profits Confidential Explains... |
Only 62 People Know Exactly Why These Four Companies Could Change the World
Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth.
This could go down in history as the story of our era. Click here for all the details.
|
| | | | Bill Bonner | | The New American Standard of Living | |  | | Bill Bonner |
Reckoning from Paris, France...
In 2005, few people on the planet could afford Americans’ standard of living. Not even Americans.
But now the wheel has turned. The US is facing financial reality. And yesterday, we gave you our most audacious forecast ever: the popolo minuto are headed for the barricades. Yes, dear reader, prepare for revolution, repression, and ruin. Buy stocks in companies that make police batons and pepper gas...prisons and window glass...drones and bandages.
The Christian Science Monitor:
A Long, Steep Drop for Americans’ Standard of Living
Think life is not as good as it used to be, at least in terms of your wallet? You’d be right about that. The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the US government began recording it five decades ago.
Bottom line: The average individual now has $1,315 less in disposable income than he or she did three years ago at the onset of the Great Recession — even though the recession ended, technically speaking, in mid-2009. That means less money to spend at the spa or the movies, less for vacations, new carpeting for the house, or dinner at a restaurant.
In short, it means a less vibrant economy, with more Americans spending primarily on necessities. The diminished standard of living, moreover, is squeezing the middle class, whose restlessness and discontent are evident in grass-roots movements such as the tea party and “Occupy Wall Street” and who may take out their frustrations on incumbent politicians in next year’s election.
Per capita disposal personal income — a key indicator of the standard of living — peaked in the spring of 2008, at $33,794 (measured as after-tax income). As of the second quarter of 2011, it was $32,479 — almost a 4 percent drop. If per capita disposable income had continued to grow at its normal pace, it would have been more than $34,000 a year by now. The misery index — which combines inflation and unemployment — is almost back to where it was 30 years ago — after inflation had reached 13% and stocks had been going down for 16 years.
But wait. Things didn’t turn out so bad after that, did they? In the early ’80s came “Morning in America” and a 20-year boom.
Don’t count on it this time, dear reader. 1981 was everything 2011 is not. Back then, interest rates and inflation were sky high. Stocks were low. And Paul Volcker had just taken over at the Fed. When he said he was going to turn things around, he meant it.
Today, interest rates are at a half-century low...stocks are still expensive...and Ben Bernanke is as confused as Volcker was clear- headed. Turn things around now and you get rising interest rates, falling stock prices...and more misery. Look out the window. You can see the sun on the horizon twice a day. But only once is it rising.
The world has turned. Against us. Mitt Romney may have God in his pocket. But from our perch here at The Daily Reckoning headquarters in Paris, it looks more likely that the gods have gone over to the other side.
Here’s more...from Atlantic Monthly. There are six million more ‘workers’ in the US than there were 10 years ago. Well, they would be workers...if they could get jobs. Trouble is, there are fewer jobs today than there were then. In other works, over the decade, the US economy backed up. Here’s more:
50% of All Workers Made Less than $26,000 in 2010
Today we get our first look at American wages in 2010 based on payroll taxes reported to the Social Security Administration. David Cay Johnston picks out the most important takeaways, including:
1) Half of all workers made less than $26,364, the median wage in 2010. That means the typical wage is at its lowest level since 1999, after adjusting for inflation.
2) The number of millionaires increased by about 20 percent.
3) The size of the missing workforce is 10 million. The number of working people fell by 5.2 million since 2007. But that’s not the entire job deficit, because, based on population growth estimates, 4.5 million more would have joined the workforce between 2007 and 2011. Add it up, and you get a 10-million-worker gap.
What you see in the graph above is that median pay took a nosedive after 2007, effectively wiping out all gains made in the previous eight years. Americans are getting poor faster than they got rich.
And more thoughts...
“Can you help me,” said the tall, attractive, dark-haired young woman.
We had just gotten out of the subway at the Auteuil stop. It is a strange station, where the metro trains only go in one direction.
“I want to go the other way and I don’t know how to do it.”
“Of course, Mademoiselle,” we began gallantly. Then, we explained how the system worked in this part of the underground railway.
But she looked off into the distance. She seemed to be puzzled, with a faraway look in her eyes. We explained the geography and the mechanics of it. We oriented her, pointing her to what we believed was True North. We would have been happy to explain the motion of the earth around the sun and the shifting of the seasons, too, for she was pretty and smiled. But she seemed to be looking for more practical advice.
“Come over here...here’s a map... Look... See how the subway line goes this way here...and that way there. Don’t you see how it works?”
“No...”
“Well...just look at this...see the pattern...?”
“I’m afraid not...” she said quietly, lowering her head a bit and raising her right arm. In her right hand, we hadn’t noticed, was a white cane.
“Oh...I see... But I guess you don’t see...do you?”
“No.”
*** One of the hardest things to understand is how come modern democracy could be so shiftless...and modern capitalism so unproductive. As to the first question, how come the feds bail out the banks, when the voters are clearly against it? And how come they continue to spend trillions on foreign wars...when the voters clearly cannot afford it? As to the second, how is it possible for the most sophisticated, high tech, hugely funded capitalist system the world has ever seen to allocate capital so badly? Over the space of its most recent, and most flamboyant decade, it actually made people poorer!
It scarcely seems possible.
But here we are. American democracy and America capitalism have been hijacked by zombies. Trillions of dollars are directed to sectors with negative real rates of return — education, heath, bureaucracy and war. Washington is the nation’s richest city. And government — along with its zombie clients — are America’s only thriving industries.
More to come...
Regards,
Bill Bonner
for The Daily Reckoning |
|
|
|
The Daily Reckoning U.S. Edition
Posts
