We spent Saturday looking at a certain part of the male anatomy. Big ones. Little ones. We had never seen so many.
Our guide at Pompeii told us that the masculine protuberances in front of us were seen as "a symbol of fertility, abundance and good luck," said Carla, "So, as you can see, it is everywhere here. Even sticking out of the walls."
There was one poking out over a doorway. Another was carved into the stone of the roadway itself, pointing the way to a brothel. Others were on the walls, some of mythic size. One man had his pride and joy on the scales. Others used them in more traditional ways…
But today is a working day. So, we set to work and leave our discussion of 2000-year-old dongs for later.
These are the times that try our confidence. Stocks and gold are going in opposite directions — opposite, that is, to the direction we think they should be going. Stocks seem to want to go up. Gold has wanted to go down for a long time; now it is doing so.
But if our guess is right — ‘flation is inevitable in the financial system. And our guess is that this ‘flation will show itself in rising prices for gold, commodities, and emerging markets…but lower (relative) prices for stocks, property and financial assets, generally.
‘Flation is inevitable because there are billions…no, probably trillions…of dollars worth of financial mistakes in need of correction and a world full of financial authorities trying to prevent it.
"A lot of people made a lot of mistakes," says former Treasury Secretary, Former CEO of Goldman, and now chief of Citigroup’s executive committee, Robert Rubin. Rubin made one himself, says today’s International Herald Tribune, by failing to rein in Citigroup’s excessive risk taking over the last five years.
But just because a lot of people made a lot of mistakes, it doesn’t prevent the authorities from making more. They’ve bailed out banks in Britain…and Wall Street brokers in America. The Fed has cut rates 6 times already…and is ready to cut a 7th time this week — bringing the key Fed lending rate to about half the level of consumer price inflation.
The result: money and credit flood the system…but many investors still drown.
Ours is not a common view. Most analysts think the authorities will either succeed or fail. If they fail, everything goes down. If they succeed, everything goes up.
Of course, no one really knows. We’ve never been in this financial situation before…so it is almost all guesswork. All we can do is to try to strip it down to the essentials to see if we can make sense of it.
"Is finance’s economic role ebbing?" asks a Wall Street Journal headline.
Yes, is our answer. Wall Street made money by "financializing" the economy. Businessmen, for example, ceased thinking about how to produce better products at better prices; instead, they became much more interested in mergers, acquisitions, stock options, asset shuffling, IPOs and buybacks. Some of these activities may have added value, but not many. But for Wall Street, these were the glory days. Billions in fees could be charged…and, as long as prices were rising, few people complained. But when prices began to go down, lenders looked at the collateral and discovered it wasn’t worth what they thought it was. The triple-A credits were marked down…banks teetered and had to beg for more capital…the government stepped in to protect the rich and, so they said, avoid a meltdown.
Wall Street also helped turn homeowners into speculators. Instead of buying houses to live in, people bought them — often with no money down —in the belief that they would go up in price. What is a no-money-down mortgage but an option to buy a house later? And now that house prices are going down, the mom-and-pop options are expiring worthless. Housing speculators are putting the keys in the letterbox, dumping cement down the toilet, and walking away.
"The bright new financial system," said Paul Volcker a couple of weeks ago, "has failed the test of the marketplace."
Volcker is right. Wall Street has peaked. The credit cycle has peaked along with it. Volcker told Addison Wiggin, "Right now we are in a very difficult circumstance in a financial world with a lot of excesses and lending, and particularly in the infamous subprime mortgages.
"A lot of the excesses are coming home to roost, and it puts a lot of pressure on economic institutions, and the question is how much pressure it will put on the economy as a whole. We’ve got a very good run of economic activity and a lot of success in the financial world in the past 20 years, but now it reached a point, I think, of excess and maladjustments and tensions that have to be corrected. And it’s gonna be a little bit painful."
Instead, the current leaders of the Fed seem inclined to try to avoid pain at all cost. This week, they are expected to announce another quarter point rate cut. The smart money considers another 25-bps cut in the bag. The smart money is not wondering what the Fed will do…but what it will say. If it signals the end of the rate cuts — what more will investors have to look forward to?
But here at our mobile headquarters in Rome, we’re still trying to look at the essentials. And the essential condition is this: the boom in the financial industry and things that depend on it is over. Now it is time for painful but necessary adjustments. The only question is how those adjustments will be made — by inflation or deflation, or — our guess — both.
• Before we return to our trip to Pompeii, news comes that Americans are hoarding food. The big discount stores are apparently rationing rice, for example.
"Sam’s Clubs, Costco limit bulk rice purchases," said an AP story last week.
Today, the New York Times talks of a "recession diet," in which shoppers try to switch to cheaper foods. And there is talk of a drought this year, further reducing the supply of available grains.
"We’ve reached the peak for grain production," says Resource Trader Alert’s Kevin Kerr.
"World farmland planted with grain has declined since 1980, mostly due to environmental factors such as soil erosion, waterlogging and salting of irrigated land, air pollution and water shortages."
"We are also running out of crop varieties and have ridden fertilizer as far as it will take us. Thus, world grain output has been holding flat at around 1.6 billion tons and may begin to fall."
The LA Times mentions consumers "coping with soaring prices." And the Boston Globe reports that drivers are trading in their gas-guzzling SUVs in favor of smaller cars. Maybe that is why Toyota is now the world’s leading automaker — selling more vehicles than General Motors.
Gasoline is at about $3.60 a gallon. Milk is even higher, at more than $4 a gallon. Consumers have no choice — they have to cut back. That, too, is one of the essential verities of today’s economy. Ours is a consumer economy in which consumers have less money to spend.
• Everyone should spend some time amid the ruins. It cultivates a sense of humility. "Look on my power," the old stones of Pompeii seem to whisper, "and weep."
The city of Pompeii sits on the coast of Italy, near Naples, about two hours’ train ride south of Rome. It also sits beneath a volcano — Vesuvius. It was this latter detail that brought it to an abrupt end…in 79 AD…and earned the city a notable place in history. In late August, Mt. Vesuvius began to rumble. The people looked up at the mountain and noticed a strange cloud over the peak — it was orange, and the shape of a typical pine tree from the area. Some Pompeiians took to boats to get away. Others went by land. Then, nothing happened. Pliny the Younger says his uncle returned to town, confident that it was nothing to worry about, and took a nap. Others, came back to town to get valuables and other properties. Still others just seemed to go about their business.
Rumbles were nothing new to them. An earthquake and tidal wave had hit the city 17 years before. The city had already been rebuilt. Worse case, people figured they were in for another shaking up.
Instead, the mountain blew up. The explosion took the top off Vesuvius and sent it flying. A wave of burning gas and hot ash hit Pompeii. People were knocked over, burned and smothered. Wood was carbonized. Ceilings collapsed under the weight. The whole city was covered up with volcanic dust, ash, and lava; Pompeii was extinguished.
"You see," said Elizabeth, "you’re wrong. It’s not always better to do nothing. When the mountain began to smoke, these people would have been better off if they had panicked and ran."
The people she meant were the people we were looking at. They were not people at all, but plaster casts of what had been people — sometimes with their bones and teeth still intact. In the 19th century, when serious excavations of Pompeii began, the archeologists on the case learned to pour plaster into the cavities in the rock left by flesh and wood. As the ash covered people, it was shaped by their bodies; then it hardened. The bodies disappeared, leaving a hole which could be filled with plaster. We were looking at a young woman, obviously pregnant, lying on her stomach, just as she was found. We can see the folds of her dress. Her arms are up over her head, trying to protect herself from the cloud of hot gas. Dozens of these "bodies" have been found…some in touching positions, such as a small family, where the father was trying to protect his wife, while she tried to protect the children.
"The city was founded in the 6th century BC, we believe," said Carla. "It was not a Roman city, but a Greek city. The whole Mediterranean rim is dotted with Greek cities…colonies of Greeks who were setting up trading stations or just trying to get away from the wars between the Greek city-states. This city didn’t become a fully Roman city until about the time of Caesar."
The city was built of stone and carefully laid out, with two major East-West axes, and many streets running North-South. The streets are in stolid stone, with wagon ruts showing that they had been used for centuries before the place was obliterated. The streets have curbs, sidewalks, and stepping stones to get across from one to another without having to walk in the street itself.
From what we can tell, Pompeii was a more agreeable place to live than most modern cities. It was compact, easy to get around, and beautiful. Looking down one street, we see Vesuvius. Looking down another, there is the blue sea. The houses were substantial…and very pretty, with extensive wall paintings, frescoes, interior gardens, and mezzanines. They had running water…fountains and drains.
Most impressive is the town square. It is a place of statues and columns…a place for elections and town meetings…with a market area…and a place for getting together to discuss the issues of the day. And it is all beautifully built and symmetrically designed. It seemed to have so much that modern cities lack — harmony, permanence…stability.
"It is a wonderful thing that Pompeii was covered up," Carla continued. "Because now we get to see a city exactly as it was 2000 years ago. There were public baths, lunch counters with huge amphorae for wine, and whorehouses. The whorehouses are the most popular place for tourists now…because there are frescoes on the walls that show the various positions or services you could get. Remember, this was a port city, so many of the customers came from other cities. Often they didn’t speak the same language. So, they could just point at what they wanted."
"When they began excavating in the 19th century," Carla explained, "they were shocked by what they found. They put all those things into a special museum, where women weren’t allowed to go. But now, everyone is much more relaxed. The trend is to try to put everything back where it was…so you can see it as it was."
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 and the co-author with Lila Rajiva of Mobs, Messiahs and Markets (Wiley, 2007).