by
Bill Bonner
When a man gets married, even in the third millennium, he has no more idea of what he is getting himself into than did a Roman when he took to him a wife 2000 years ago. Nor when U.S. airmen drop bombs on Iraq, do they have any fuller knowledge of why they are doing it, or what is likely to happen as a result, than the lackeys and footmen of William, Duke of Normandy, when he set out for Hastings in 1066. The burden of today's reckoning is that the investor of 2005 is no better off either. Now as then, when he makes an investment, it could go either way. There are some things in life that are cumulative, dear reader, and others that are cyclical. Science and technology genuinely seem to deserve the word "progress." Each additional bit of knowledge adds to the whole, so that a young man who enters a university in the 21st century has vastly more to learn and to work with than one who took to books at the time of Christ. From the practical experience and theoretical thinking of others, he can build an airplane, or a radio, or a nuclear bomb. With modern telescopes, he can also peer into the far reaches of the universe and gaze at stars that his ancestors could never have seen, not even on a clear night. Perhaps this accumulation of learning could also help him avoid a spat with his wife...or a pointless and costly war...or a terrible financial loss? Alas, it does not seem to work that way. There are some sciences that are "hard." Others are pure mush. Yesterday came news that the U.S. trade deficit reached a new high of $66.1 billion, or an annual rate of nearly $800 billion. Exports dropped the most in four years. In the curious way the world's financial plumbing is put together, the money flushed out of American consumers' pockets and ran into the cisterns and cesspools of Asia, whence it was purified, recycled and pumped back into U.S. financial assets – notably interest-bearing ones. Everyone seems to come out ahead. Savings rates were negative again in the United States, for the fourth month in a row. There is no need to save, not when so much of someone else's savings is so readily available. And while credit floods the United States, rather than allow it to raise consumer prices, it is happily drained off to Asia. Then – hallelujah – it cometh back in a more appealing form...boosting asset prices and the dollar. The new Fed chief dauphin, Ben Bernanke, finds the whole scene to his liking. His colleagues also seem unconcerned about the situation. "Fed's Poole not troubled by U.S. current account deficit," says an AFX headline. Nor does the U.S. Treasury Secretary, John Snow, lose a moment of sleep. All of these "eminentistas" share the same thought, that this time it really is different. Now, the modernized methods of the U.S. Federal Reserve, along with the sophisticated instruments of today's financial markets, mean that market stability can be not just a passing phase, but also a permanent addition to mankind's accumulated patrimony. It is something we will enjoy all the days of our lives, and then leave, like an un-paid mortgage, to our children. "The Great Moderation," they are calling this quiet period. But is it really progress? The maestro seems to have succeeded in drowning out every menacing new noise by opening valves and letting more credit gush through the system. Does all this debt and derivatives really make the system more stable, dear reader? Or do they set it up for a worse disaster? We will see. • Poor G.M. It's stock has fallen from $94 in 2000, to $23 today. And now the company has been forced to admit that it overstated its profit by $400 million in 2001. What next for G.M.? Bankruptcy? • Alan Greenspan appeared in Congress recently. As usual, he noted that inflation was not a problem. Oh yeah, said our old friend Congressman Ron Paul. If that is so, how come the dollar has lost almost half its value since you've been Fed chairman? The maestro had no answer. • Here in London, the papers are full of buffooneries. We turn to the Daily Express for an eyeful. When people get married in England they go to the "Register office" to record the act. The office in Liverpool even had a couple of sentimental pictures on its walls – one of Romeo and Juliet, the other of a 19th century couple signing the register. But now the geniuses in Liverpool have decided to take down the decorations for fear they would offend gay couples.
November 14, 2005 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. Copyright © 2005 Bill Bonner |
