 | | The Daily Reckoning | Monday, October 24, 2011 | - Democracy and the problem with majorities getting what they want,
- Byron King: "Skip the rallies and protests, and buy gold and silver",
- Plus, Bill Bonner on the march of empire and the state of Athens, then and now...
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|  | | | | Getting What They Want | | A New Century of Mob Rule in Argentina |  | | Joel Bowman |
Joel Bowman, reporting from Buenos Aires, Argentina...
Cristina Elisabet Munter Fernández de Kirchner was reelected la presidenta of Argentina over the weekend.
Before we waste any more words on her victory, let's take a look at some more pressing local matters.
The sun is shining in Argentina today. It rained over the weekend. The weather tomorrow calls for clouds. Oh yes, and the tree out front of our office is beginning to grow up over the balcony. We'll need to trim it back soon.
Hmm...
Politics here in Argentina is a strange business indeed...even for the business of politics. Rarely in our travels have we encountered a more politically apathetic people than the Argentines. Yet, curiously enough, those who do care about what happens in the Casa Rosada and the halls of Congreso tend to hold their beliefs rather fervently, oftentimes bordering on a perverse fanaticism of the stripe usually reserved on this continent for the people's beloved game, fútbol.
We're generalizing, of course, basing our own opinion almost entirely on anecdotal evidence. But talk to most people here, those who don't attend political rallies, who are not paid piqueteros (professional protesters), and you can't help escape the feeling that they'd be quite happy to never hear a politician's promise again, nor suffer the consequences when that promise is invariably dishonored.
The cab drivers, shopkeepers and waiters complain ceaselessly about the sorry state of their country; the rampant inflation, the shuttered factories, growing poverty, a gutted agricultural industry, rail lines left to rot under the sun, about the good old days, now gone, it would seem, forever.
Not surprisingly, official statistics tend to disagree with the observable reality but, for the most part, the people seem to know what's what. They know they can buy less today than yesterday, both because of inflation (officially at 10%...realistically more like 25%) and strict controls on trade. They know too that Uruguay now exports more beef than they do, a quiet but national embarrassment. And they know that they can't travel like their grandparents used to, in grand, stagecoach style.
But then, come election time, the people line up at the ballot box to put another bum in another presidential seat. Not that they have much choice in the matter. Voting here is mandatory. A strange business indeed.
Argentina also has the dubious honor of being one of the world's only "first world" nations to have achieved "third world" status. For that, the people here have a half-century and more of political meddling to thank. We've traced this slow decline in past reckonings...
At the turn of the 20th century, Argentina was ranked as the 8th most prosperous nation on earth. Only Belgium, Switzerland, Britain and a handful of former English colonies - including the United States – were more favorably positioned, economically. In 1913, Argentina's bustling, cosmopolitan capital, Buenos Aires, had the thirteenth highest per capita telephone penetration rate in the world. Her per capita income was, around this time, 50% higher than in Italy, almost twice that of Japan and five times greater than its northern neighbor, Brazil. Argentina's industry churned out quality textiles and frigorificos (refrigerated ships) carried her prized beef, first introduced in 1536 by the Spanish Conquistadors, from the fertile plains of the pampas to the farthest reaches of the known world.
As the century wore on, protectionist policies at home and increased competition from the post-WWII, export-led economies abroad colluded to undermine Argentina's international edge. From 1900 through to the beginning of the new millennium, Argentina's real GDP per person grew at a rate of 1.88% per year. Brazil outpaced her handily, clocking a 2.39% annualized growth rate. Japan, starting with a real GDP per person of just over $1,500 (2006 dollars) at the turn of the twentieth century, grew an average of 2.76% per year. By the middle of this decade, Japan's real GDP per person was double that of Argentina.
War, currency debasement, civil unrest, military rule and the usual catalyst of politicians, equally corrupt and inept, all conspired to stultify Argentina's vast potential. The great Argentine poet and essayist, Jorge Luis Borges, described one such retarding factor with characteristic flare and wit: "The Falklands thing was a fight between two bald men over a comb."
To be sure, the latest presidential race was one for the record books, a victory by a landslide margin. While the winner picked up more than half of the total votes, her nearest rival managed less than one fifth. Not that majorities – however overwhelming they might be – ought to inspire confidence of any sort. Usually the quite the opposite. Here we recall theologian Douglas Wilson's Gadarene Swine Rule: Just because a group is in formation, doesn't necessarily mean it knows where it's going. The Argentine people have spent the better part of the last century proving this maxim...as have majority voters in modern democracies around the world.
The last time this nation witnessed such a decisive presidential victory was 1983, when Raúl Alfonsín's election saw democracy restored to the nation after seven years of military dictatorship. Alfonsín's new government attempted to stabilize Argentina's already struggling economy with the creation of a new currency, the austral. But new currency brings with it new temptation: the temptation to print more of it.
Although unemployment remained relatively steady under Alfonsín's government, real wages actually fell by almost half to their lowest levels in nearly half a century. Inflation, which had already reached between 10 to 20% per month before the austral's introduction, soon spiraled out of control. By July of 1989, the rate of inflation had reached 200% per month. By the end of the year it had topped 5,000% annually. The hyperinflationary episode opened the door to a decade of earnest political action (the worst kind)...which in turn opened the door to even more borrowing, more corruption, more money laundering and more crises to come.
Before the century was done, Fernando de la Rúa took the helm as president, handily defeating the ruling party's candidate. But by 2001 people were back on the streets, making runs on the banks, banging their pots and pans up and down Plaza de Mayo, torching private property and calling for the overthrow of the government. Fernando de la Rúa eventually escaped from the roof of the Casa Rosada by helicopter as riots engulfed the capital city around him.
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| | | | | | | The Daily Reckoning Presents | | Occupy Gold | |  | | Byron King |
Lately, commodities and natural resource stocks have been through a pretty rough patch. But I'd be wary of NOT being exposed to a market that's been beaten down so hard. In other words, don't panic out of your positions.
Whatever daily disaster leads the news cycle, the fact is that people everywhere still want their world to work. People want food and clean water. People want housing, and they want the lights to come on when they flick a switch. They want gasoline for their cars (and they want cars!). Basically, people want stuff, and that requires a resource economy to deliver the energy and minerals that the world needs.
Invest in it.
You create wealth by digging or pumping something out of the ground. Then you refine it and process it, adding value along the way. Then you turn the product into a finished good that somebody else needs or wants. The idea of "finance" is OK to facilitate the foregoing, but not as an end in and of itself.
That's why I pound the drum so hard for you to "occupy" the resource space, so to speak. Banks come and go -- although many of them don't go fast enough, in my view. But the resource industries endure. Occupy that.
The investment ideas in my letter, Outstanding Investments, are based on companies that control solid resource assets. I mean oil, natural gas, uranium, gold, silver, copper and much more. These are real things, not vaporware.
The companies I recommend not only have great assets, but also great management and excellent business plans. These companies are building themselves over time and creating new wealth. Over the long haul, I'm not overly concerned about these companies. When the smoke clears, they'll be standing tall.
Still, in the short and medium term, the declining stock markets hurt. The markets reflect the world's economic and political issues. Thus, it's fair to say that the world is hurting us.
We're living through some serious history right now.
The welfare-warfare state is broken...and broke. The West doesn't have the overall economic capacity, or the future population of young, educated workers, to make it all work. The wheels are coming off, and we're in for a romping ride on a rocky road.
Since the 1960s or so, politicians everywhere made too many promises that the long-term economy could not afford to pay. Whether it was defined-benefit pensions for government retirees or "free" medical care for everyone or "long wars" that transcended generations, there was simply not enough money to pay for it. And no, you can't tax the "millionaires and billionaires" and make the numbers work.
Face it. Whether you're liberal or conservative, or anything else, you can't deny that most politicians in the West have spent their national treasuries deep into debt. Most national obligations -- the U.S., the EU, the UK and many more -- are far beyond the ability of their respective national economies to support the debt service, let alone to re-pay the original funds.
Greece speaks for itself. As does Italy. And Spain and Portugal. And the U.K., to get blunt. And of course, the U.S., with its $14 trillion national debt -- a year's worth of GDP. Hey, can a whole country work for free for a year, just to pay down debt? No way.
So if things are so bad, what can you do? What will you do? Go to a Tea Party rally? That's nice, but will that alone secure your future? Or how about going to an Occupy Wall Street (OWS) protest? Yeah, right. A lot of good it'll do you.
Here's my plan. Skip the rallies and protests, and buy gold and silver. Which gets back to the point that I'm bullish for precious metals because I'm bearish on the prospects for the dollar, as well as the euro and most other national currencies. Long term, it's just a question of which ones will decline the most, and in what order.
As the current, bloated structure of the Western Welfare State comes to an end, so will the currencies issued by those Welfare States.
We're going to have to come up with other ideas for how to transact business. Maybe people will go back to trading seashells and wampum. But I'm inclined to think that the next financial revolution will bring competition to government-issued currencies. The next useful currencies will be backed by real assets -- gold, silver, energy and more. So owning an interest in oil, uranium, precious metals and more will be like owning the "banks" of the future.
Every household ought to have, at the very least, a well-stored stash of bullion coins and small ingots. Keep the loot in a bank safe-deposit box if you can't ensure security at home.
Gold is money. So is silver. If you're reading this, I hope I don't have to explain it. If you're reading this, consider yourself part of the monetary resistance.
How much of your portfolio should be in precious metals? At least 10%. That's the absolute bottom-line number. Any less, and you're really taking your financial situation for granted. In my view, metal holdings of 15% or 20% of your total portfolio are better. Or hold more, if your circumstances warrant it.
People have been telling me that "gold is risky" and "silver is risky" for at least 10 years. That is, I've heard the warnings since I was buying gold at $290 per ounce and silver for under $4 per ounce.
But what if you didn't buy gold and silver, starting 10 years ago? What if you're just starting now? Well, there's more downside than before. If you buy silver at, say, $30, it can drop to $20. Heck, it might fall to $10 -- but not for long, in my view.
Gold and silver prices have been rising for ten years because politicians and bureaucrats across the planet, who control the world's money supply and public spending, have messed things up. So unless you think that the political classes are all about to have a huge epiphany and begin governing responsibly, gold, silver and most other hard assets are a buy...still.
Regards,
Byron King,
for The Daily Reckoning | | | |
And now more from Byron King's Outstanding Investments...
When Will Obama Confess to the Secret "Timebomb" Event Ahead?
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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.
Click Here to Continue Reading...
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| | | | And now over to Bill Bonner with the rest of today's reckoning from Nicosia, Cyprus... | | Back Up, Empire! | | Simple advice beyond the reach of modern day planners and politicos |  | | Bill Bonner |
What's Bill doing in Cyprus...?
We'll get to that. First, what happened in the markets? On Friday, the Dow rose 267 points. Gold went up too -- $23.
A big move to the upside. And why? No apparent reason. Gaddafi bit the dust, almost literally. And the Europeans seemed to be stumbling to yet another solution...in which they borrow more money to help fund the troubles created by borrowing money in the past.
Nothing new, in other words...
Your editor brought his wife here to Cyprus on a weekend get-a-way. Besides, he wanted to see where Solon died. Whether or not Solon, the great Greek lawgiver, died in Cyprus or not is a matter of some dispute. And what he was doing here is unknown. But Herodotus says his body was ‘consumed in Cyprian fire.' So this is the place he must have gone back to ash.
Solon was in charge of Athens in the second part of the 7th century BC. Then, as now, the people had gotten themselves into a jamb. They owed too much money. The burden of debt was so great that the economy was apparently being crushed by it.
But Solon was no dope.
"The Athenians were in the habit of disguising the unpleasant aspects of things, giving them endearing and charitable names," wrote Plutarch. "They refer to whores as mistresses, taxes as contributions, garrison cities as guards and the common jail as a residence."
So, according to Aristotle, Solon figured the thing to do was to organize a "shaking off of burdens." Solon "made a cancelation of debts, both private and public...they shook off the weight lying on them."
The problem with today's solons is that they do not shake off the weight lying on the public. They add to it. The problem in Europe is government debt. But every government in the EU continues to go further and further into debt.
And next week – on Halloween – the US is supposed to pass the point where it has national debt greater than 100% of its GDP. And at the present pace, each year's deficit adds about another $1.5 trillion.
If we are really following in the footsteps of Japan – as we think we are – we'll see the feds double their debt over the next 7-10 years.
But wait. Japan has an advantage. It has no military expenses of any consequence. The US has them up the kazoo. The cost of its wars and foreign meddling is more than $1 trillion a year. It cost a million a year just to maintain one soldier in Afghanistan. These expenses could be cut without much pain or suffering in the US itself.
But empires don't back up. Certainly, the Greek empire didn't. After Solon sorted out their debt problems, they were soon back in the empire business and back in debt. That's why much of the history of Cyprus is the story of one Greek misadventure after another. Sometimes the Athenians were fighting the Persians and the Phoenicians. Sometimes they were fighting other Greeks. Sometimes they were fighting the Cyprians. Sometimes they were fighting alongside the Cyprians. Like the Americans, they had troops all over the place...making enemies wherever they went.
A stele was discovered that recorded the names of the Athenians of the Erechtheid tribe who fell in the years 459-458 BC.
"Of the Erechtheid tribe, these are they who died in war, in Cyprus, in Egypt, in Halieis, in Aegina, at Megara..." Inscribed are the names of 177 soldiers.
Athens didn't back up. It kept going until it had gone too far. In 431 BC Pericles gave the kind of speech that Mitt Romney just gave at the Citadel. (No presidential candidate can talk openly about managing the process of decline....that would be political suicide.)
Pericles praised his forefathers for their efforts:
"They dwelt in the country without break in the succession from generation to generation, and handed it down free to the present time... And if our remote ancestors deserve praise, much more do our own fathers, who added to their inheritance the empire which we now possess, and spared no pains to be able to leave their acquisitions to the present generation.... You may reflect that it was by courage, sense of duty and a keen feeling of honor in action that men were enabled to win all this..." .
Then, he vowed to stay the course:
"You cannot decline the burdens of empire and still expect to share its honors."
He should have backed up. Under his guidance, Athens continued to make war on just about everyone...until the Spartans invaded it, laid wasted to the city and enslaved its people. Pericles died of plague.
Don't expect the US to back up either.
Threatened with budget cuts, Defense Secretary Leon Panetta reacted not with thoughtful reflection, but with Greek-like lunacy. As to the budget cuts, he called them a "doomsday mechanism." They would be ‘catastrophic.' We would be "shooting ourselves in the head," he went on.
These would be the effects, said he, of spending only as much as the whole rest of the world put together.
Of the people who propose to put on the brakes, they are like the Nazis at Bastogne, asking Patton to surrender. "Nuts," says he replied.
Spending cuts are intolerable...so is any talk of "decline" or backing up. The armed zombies who run the defense industry won't permit it.
But imperial decline doesn't have to be such a bad thing. Gideon Rachman, in the Financial Times, explains:
What the UK discovered after 1945 is that a decline in national power is perfectly compatible with an improvement in living standards for ordinary people, and with the maintenance of national security. Decline need not mean the end of peace and prosperity. But it does mean making choices and forging alliances. In an era of massive budget deficits, and rising Chinese power, the US will have to think harder about its priorities. Last week, Hillary Clinton insisted that America will remain a major power in Asia – with all the military expenditure that this implies. Very well. But what does that mean for spending at home? Few politicians are prepared to have that discussion. Instead, particularly among Republicans, they fall back on feel-good slogans about American "greatness".
Those who refuse to entertain any discussion of decline actually risk accelerating the process. A realistic acknowledgement that America's position in the world is under threat should be a spur to determined action on everything from educational reform to the budget deficit. The endless politicking in Washington reflects a certain complacency – a belief that America's position as number one is so impregnable that it can afford self-indulgent episodes such as the summer's near-debt default.
The failure to have a proper discussion of relative decline also risks leaving American public opinion unprepared for a new era. As a result, the public reaction to setbacks at home and abroad is less likely to be calm and determined and more likely to be angry and irrational – feeding what the historian Richard Hofstadter famously called "the paranoid style in American politics".
These days the British have learnt almost to revel in failure. They buy volumes with titles like the "Book of Heroic Failures" in large numbers. It is quite common for the supporters of a losing English soccer team to chant, "We're shit and we know we are." This is not a habit I can see catching on in the US. When it comes to managing decline, self-abasement is optional.
And here's another piece from the Financial Times, describing America's "Eclipse" :
...In this challenging new study, Arvind Subramaniam of the Peterson Institute for International Economics writes of the next transfer, that from the US to China. This one is surely closer. While Americans were prating of the "unipolar moment", its economic foundations were crumbling away. Properly measured, he argues, China is already its economic equal. Very soon it will be far more powerful, economically, and ultimately, also militarily.
The book's most striking prediction is that the renminbi will match, or replace, the dollar as a reserve currency by the early 2020s, far sooner than most now suppose. This is largely because China will emerge as far and away the world's largest trading power: currency follows trade.
Regards,
Bill Bonner,
for The Daily Reckoning |
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