“Tradition…is
the democracy of the dead.”

~
G.K. Chesterton

Yesterday’s
news brought word, from deputy Defense Secretary Wolfowitz, that
U.S. troops would be in Iraq for the next 10 years. Also came an
estimate of the cost: an extra $3 billion would have to be added
to the defense budget for Iraq…and an extra $1.5 billion for Afghanistan.

“Avoid
foreign entanglements,” cautioned the father of the country. But
corpses have no voice and no vote, neither in markets nor in politics.
They might as well be dead.

George
W. Bush is undoubtedly better informed than George Washington…and,
heck, it’s a new era; having foreign entanglements is just what
the times seem to call for. George W. Bush may not have the wisdom
of a Washington…nor the brain…but at least he has a pulse.

Few
people complain about this tyranny of the living. Most accept it
as a fact of life. They would not want people to be excluded from
the pleasures of life because of an “accident of birth.” But they
are perfectly happy to have the oldest and wisest of our citizens
systematically barred from the polling stations and the trading
floors by an accident of death. The departed shut up forever, leaving
behind them their car keys and their stocks, and their voter registrations…that
is all there is to it. Goodbye and good riddance. It is as if they
had learned nothing useful…noticed nothing…and had no ideas
that might be worth having, as if each generation were smarter than
the one that preceded…and every son’s thoughts – even the
present “culture of the moron” – improved upon those of his
father.

Oh,
progress! Thou art forever making things better, aren’t thou? Throw
out the sacred books – for what are they, but the thoughts
of imbeciles? Forget the old rules…the old wives’ tales…the
traditions…habits of generations…the old timers’ superstitions…the
old fuddy-duddies doubts! We are the cleverest humans that have
ever lived, right?

Maybe.
But we convene a council from the spirit world; we invite the dead
to have their say. Our aim is not to kvetch on behalf of our ancestors…but
to warn the living: the corpses may have a point.

Many
times have we referred to old timers’ wisdom. The old timers wanted
more from a stock than just the hope that someone might come along
who was willing to pay more for it. They wanted a stock that paid
a dividend…out of earnings. That was what investing was all about.

But
by the 1990s, the old-timers on Wall Street had almost all died
off. Stock buyers no longer cared how much the company earned or
how much of a dividend it paid. All they cared about was that some
greater fool would come along and take the stock off their hands
at a higher price. And so they did. And now the market is full of
them…greater and greater fools who think the stock market is there
to make them rich.

In
the space of 20 years, the character of the American economy and
its markets changed so dramatically, the old-timers would scarcely
recognize them. We mentioned yesterday how, in the mid-’80s, the
U.S. slipped below the water line separating the net-creditors from
the net-debtors. But almost no one noticed or cared. By then, the
old-timers were already in Florida shuffling along, like the Mogambo
Guru, waiting for someone to adjust their medication.

“In
1981,” Marc Faber explains, “stock market capitalization as a percentage
of GDP was less than 40%, and total credit market debt as a percentage
of GDP was 130%. By contrast, at present, the stock market capitalization
and total credit market debt have risen to more than 100% and 300%
of GDP respectively.”

We
have wondered how this ends. Not well, is our guess. Too much debt
and credit, too much capacity, too many dollars, too many bad investments,
too much spending, too many deficits and too much confidence…What
is the solution? “Less” is our recommendation. “More,” say Bernanke,
Greenspan, Bush, and everyone else in a position to do something
about it…

And
so the whole thing rolls forward…towards its inevitable destruction.
Because, and here the dead back us up 100%, all paper currencies
sooner or later come to grief. The “if” question is settled. “When…and
how” remain open.

And
so, we turn to ancestors…and ask for advice.

“The
state’s need of money increased rapidly,” says one of them, Bresciani-Turroni,
describing the scene in Germany 80 years ago. “Private banks, besieged
by their clients, found it impossible to meet the demand for money….”

As
the situation heated up in the summer of 1923, there were some who
gave our advice: “Less,” they said.

But
officials were in roughly the same situation as Bernanke and Bush
today. “More,” said they.

One,
named Helfferich, the finance minister, explained:

“To follow
the good counsel of stopping the printing of notes would mean
– as long as the causes which are upsetting the German exchange
continue to operate – refusing to give economic life to the
circulating medium necessary for transactions, payments of salaries
and wages, etc., it would mean that in a very short time the entire
public, and above all the Reich, could no longer pay merchants,
employees, or workers. In a few weeks, besides the printing of
notes, factories, mines, railways and post office, national and
local governments, in short, all national and economic life would
be stopped.”

When
an economy comes to depend on more and more credit…it must get
more and more of it…or it will come to a stop. A man who has borrowed
heavily to finance a lifestyle he cannot really afford…must continue
borrowing in order to keep up appearances. Or else he must stop.
In market manias, love, politics, war…people rarely stop until
they are forced to.

In
Germany, once the Great Inflation got started, there was no stopping
it until it had run its course. In 1921, a dollar would buy 276
marks. By August of 1923, it would buy 5 million of them. Middle-class
savers were wiped out.

If
only we could roust Herr Helfferich from his eternal sleep! We would
like to shake the dust off his wormy cadaver and ask some questions.
(And here, we think not of praising the dead, but of tormenting
them.) What fun it would be to show him what his policies –
the same, by and large, as are now put forward by Greenspan, Bernanke
and Bush – provoked. How gratifying it would be to see the
little kraut squirm under an intense interrogation: what was he
thinking, after all? Why did he think that more of the dreadful
printing press money would undo the harm that had already been done
by too much?

Bresciani-Turoni
continues:

“The inflation
retarded the crisis for some time, but this broke out later, throwing
millions out of employment. At first inflation stimulated production…but
later…it annihilated thrift; it made reform of the national
budget impossible for years; it obstructed the solution of the
Reparations question; it destroyed incalculable moral and intellectual
values. It provoked a serious revolution in social classes, a
few people accumulating wealth and forming a class of usurpers
of national property, whilst millions of individuals were thrown
into poverty. It was a distressing preoccupation and constant
torment of innumerable families; it poisoned the German people
by spreading among all classes the spirit of speculation and by
diverting them from proper and regular work, and it was the cause
of incessant political and moral disturbance. It is indeed easy
enough to understand why the record of the sad years 1919–23
always weighs like a nightmare on the German people.”

There,
the dead have had their say.

June
21, 2003

Bill
Bonner [send
him mail] is the founder of The
Daily Reckoning and the author of Financial
Reckoning Day: Surviving The Soft Depression of The 21st
Century (John Wiley & Sons) due out in September.