• This past Sunday’s edition of The New York Times featured an article, “Believing (and Believing and Believing) in Bullion.” The writer, Stephen Metcalf, describes his trip to the Federal Reserve Bank of New York’s vault that holds the world’s largest stash of gold — totaling almost $100 billion.
Metcalf was given a tour by a Fed spokesperson, and he tells of an interesting exchange that went on in the vault when Metcalf remarked that gold represented an “anachronism.”
The spokesman agreed emphatically — until Metcalf commented, “And yet, all these nations, they hold on to this anachronism, just in case…”
“At this,” Metcalf writes, “a light chill entered [the Fed spokesman's] voice.
“‘I don’t think anyone in a policy-making position,’ he explained to me politely, ‘seriously believes that everything else of value could disappear, leaving only gold.’”
Maybe the “policy-makers” over at the Fed don’t believe that gold is ultimate monetary insurance…but we’ll still hold it — just in case. Like we wrote yesterday, we don’t want to get caught in a downpour without our umbrellas.
[Note: The NY Times piece takes a look into the gold community... and picks the brain of our favorite gold enthusiast/libertarian — Addison Wiggin.
• It's the "end of free spending" here in Britain, says today's International Herald Tribune.
Retailers are feeling the pinch. Shoppers in England are pulling back after years of expanding credit. What's behind the slump in consumption spending is a slump in the house market. Britain's housing boom began years before America's. And, at least in London and the southeast of the country, prices are even higher than they are in most of the United States. But when residential housing began to peak out last summer, it seemed to cause a slow-down in the entire economy.
A commission appointed by the Conservative party, headed by Lord Griffiths of Fforestfach, a former advisor to Margaret Thatcher, looked at the economy this year. It concluded that personal debt had become a "time bomb," after a huge run-up in consumer spending since the late '90s. Consumer debt in Britain now totals nearly $2 trillion, which is a lot of money for a small island. Now, mortgage applications are down. Retail sales are down. And economists are wondering what to do about it.
As in America, manufacturing has declined steadily in Britain. Compared to Germany or America, British manufacturing has been in decline since the end of the 19th century. And in the last three decades, manufacturing has been falling in all three countries. This has left economies dependent on consumption. When consumers stop buying things, the clerks lose their jobs. With no strong manufacturing industry — often selling to foreigners — there is no offsetting strength in the economy, and no obvious way to increase consumer spending — except by luring consumers deeper into debt. This is the essential problem faced by all major Western economies — but especially by the Anglo Saxon economies, which have emphasized consumerism and debt more than in Europe. The economy can "grow" only by consuming more. But in order to spend, its consumers need incomes. How do they earn more money when they are no longer manufacturing? And they cannot manufacture because their labor rates are too high to compete in a globalized economy.
• The empire needs agents, administrators, engineers, proconsuls, and tax collectors all over the world. We had the impression we were witnessing a harvest of them when we attended Jules' graduation at the American School of Paris. Never had we heard the words "global," "international," "multi-national," and "multi-cultural" used so often or so favorably. The graduation ceremony left little doubt about what the 17- and 18-years olds were supposed to: go forth, go to college, and then take up jobs throughout the empire, using the language and cultural skills given to them at the ASP. Nor was there any doubt expressed about the empire or its aims. Every graduating senior was expected "to make the world a better place" by spreading American values, American culture, American democracy and American business over the planet, like a coat of grease on a tennis ball.
No one was encouraged to save his money. No one was urged to work hard...or study hard. No one was warned to stand up straight, say please and thank you, or remember the golden rule. No one was advised to mind his own business, get married, raise children, or learn to do something useful. Nope; it was all about the "challenges" of the big, wide world in 2005 and beyond.
Class of 2005: Good luck.
But we have some helpful advice of our own.
First, get rid of radios and televisions. You need a clear head if you're going to face real life. Then, throw away iPods and MP3 players, or at least put them away during business hours. Forget about the challenges of the 21st century. Focus instead on your own challenges. If you want to continue living at the standard of your parents, what are you going to do that will make each hour of your labor worth 20 times more than, say, that of an Indian or Chinese? Better yet, forget about how much you earn. Focus on how to deserve what you have. And forget also about having a good time. Forget about personal happiness. Instead, focus on taking out the trash and cutting the lawn...and helping your poor father when its time to cut firewood or put up tomatoes. Pull up those pants and put a belt on. And stop chewing gum. Get to work. You graduated on Sunday. It's already Tuesday. What, you don't have a job yet? When I was your age I had two of them. I had to cut tobacco all day in the hot sun for $5 a day. And my brother and I only had one pair of shoes between us...so we had only one shoe each. We'd switch shoes at noon so our feet wore out evenly. So stop complaining.
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century.