The more we think, the less we know. In fact, the only thing about which we become surer is that the people who think they know something are swindlers or hallucinators.
Not that we have anything against them. They are often charming, intelligent and persuasive. And who knows, they could even turn out to be right!
“Yes, but Delphi is an old, unionized industry,” came the answer from one of them.
It came in response, not to a question, but to an observation we made over dinner: Some of America’s most important industries are going broke. This fact did not bother the group of fund managers at the table. It merely confirmed what they already knew: It’s a new era. Old industries, old rules and old principles are no more interesting than day-old bread. That’s why the trade deficit no longer matters…why debt levels no longer count…and why people can get rich without making anything.
Delphi makes auto parts. It employs 180,000 people around the world. When Delphi went belly up, it signaled the beginning of, “inter-generational warfare facing much of the industrialized world,” says a Financial Times commentary. If old workers insist on being supported in the style to which they’ve become accustomed, it will put the younger workers out of a job. Our old industries cannot compete — not with the ball and chain of union contracts, health care and pensions attached to their ankles. But so what? They can get jobs as stockbrokers and real estate agents!
“What do they make in England?” one of the fund managers asked. “Nothing. And yet look around you…this city is booming. England is rich. It is prosperous. It is growing. Did you know that the City (equivalent to New York’s Wall Street) is now a quarter of the entire nation’s economy?”
The money shufflers are getting rich, we have no doubt about that. You can see it just by walking around South Kensington. But what do they add to mankind’s wealth? It is hard to say. And can an entire nation of people flourish by financing each other’s consumption?
“The trouble with you perma-bears,” our host continued, “is that you are like the Physiocrats of the 18th century. They believed that all value came only from the land…that is from agriculture. They could not believe that the Industrial Revolution would create a new kind of value.
“Well, now we have a new kind of value being created. You can see it. While the old, unionized industries in America — like the auto industry and the airlines — go bankrupt, there are new industries being invented all the time. They don’t need to build factories. Whatever they want to sell, they can design and put out for bids. They don’t need factories and they don’t need unionized labor. That era is gone.”
That may be, we protested, but that is the era that made the United States and Europe the richest part of the world. Now, you can talk about how inventive and smart Americans are all you want, but just look at the national chart of accounts. We lose money every day.
“The biggest mistake most economists make,” he continued, “is in treating the national accounts as though it were a company. This is the mistake that Buffett makes, too. He thinks that a nation with a current account deficit is like a nation that is in the business losing money. It is nothing of the sort. The deficit in America’s current account is merely a sign that people all over the world want to hold U.S. assets. Why do they want to hold them? Because they are safe.”
Some of the brightest people in the financial world believe it, including our companions at dinner last night. The world has changed, they say. You no longer need to save money, or to build factories, in order to prosper. Now, what you need is brains and information. And those are the two things that America has in abundance.
“The Anglo-Saxon empire has peaked out? Are you kidding? What would replace it? China? Not a chance. China is booming, but it is also ready to blow up at any moment. And smart people know it. That’s why they take their money out of China and invest in the United States. Yes, foreign ownership of U.S. assets may be increasing, but so what? We advise our clients to buy more assets in the United States and we’re very bullish on the dollar.”
This is why, dear reader, we turn to the essentials. Smart people can find good reasons for anything. Often, they are right. But which smart people are going to be right about which thing? And what is it that makes the dollar “safe” — except that a lot of smart people think so?
• And the news just keeps getting better for goldbugs.
“Gold has reached a 17-year high, its highest level since 1988 overnight with the overall weakening of the dollar,” our currency counselor, Chuck Butler reported.
“That pushes gold’s return this year to 9.1%. But my longtime friend, Doug Casey, believes that this is still just the tip of the iceberg with regards to the gold price increase!”
• After a series of natural calamities, the world is getting edgy. Avian flu could cause an economic collapse similar to the Great Depression, says one analyst. It might bring a period of, “chaos worldwide for over a year,” says an article in Foreign Affairs. We might have to impose quarantines, says President Bush.
• “What we admire about you Americans,” said a middle-aged French woman over the weekend, “is how fluid your society is. I mean, especially the educational system. You can go all the way through university without really deciding what you are going to do for a living. Here in France, we are much more rigid. There is less flexibility. People act the way they are supposed to.”
The occasion for these remarks was a dance party, held by parents so their teenage children would learn how to conduct themselves. Called ‘rallys,’ these events are similar to ‘cotillons’ in America. We had already run Jules through a rally or two and should have had enough experience with them to know better. But now it is Henry’s turn. So, we made the trip back to Paris last weekend.
Three of the mothers, including Elizabeth, had organized the event; the fathers, including your columnist, were on hand to wash dishes and toss out unwelcome intruders. Boys and girls — about 50 of them — arrived on time. The boys were all dressed alike, in blue blazers and ties. The girls wore dresses. All greeted the host parents politely and took their places on the dance floor, where a group of professional teachers were exhibiting the mechanics of the “French rock.”
They danced to the same music as Americans, but not the same way. As in everything they do, they dance in a way that is more rational, more stylized, more Cartesian. Hands are held in a way that would make a universal joint jealous. With each beat, the couple assumes a new posture — his arm over her head, then her arm behind his back, then her left arm under his right arm, pulled behind his head…in just a few seconds the knot is tangled. It would take a sharp sword or a chiropractor to straighten them out, we think to ourselves. But then, the complex figures are resolved.
Henry and the rest of the children seemed to pick it up pretty quickly. We did not even try.
After the dance, instructors left, the teenagers returned to nature, which is to say, they gathered in groups of boys and groups of girls and did not dare to talk to each other. The music continued, signaling to the entire quartier that a party was on. A group of older teenagers in jeans and sweatshirts appeared at the door. Your editor was drawn out of the kitchen to send them on their way; he has learned to be very intimidating to 17-year-olds.
“This is terrible,” said Elizabeth. “They’re not dancing anymore.”
“If you don’t invite one of these girls to dance, your mother and I are going onto the dance floor ourselves.”
Henry had a look of mortification on his face. He would have preferred at that very moment to have the entire planet destroyed by an asteroid rather than have his parents make fools of themselves by — dancing in the American style — in front of his friends.
“It’s true that American society is more flexible and more open,” Elizabeth observed. “But there is a lot to be said for restraints and manners. Liberty is fine, as long as you have strong cultural guidelines. These people have a very clear idea of how they should behave. It creates a very agreeable society — as long as you aren’t crushed by it.”
Bill Bonner [send him mail] is the author, with Addison Wiggin, of Financial Reckoning Day: Surviving the Soft Depression of The 21st Century and Empire of Debt: The Rise Of An Epic Financial Crisis.