How's your investing going?
Hope you are making as much as you can...NOW...so you'll be able to weather the storm later. And for those that believe the storm is over, my condolences.
Looking Out for Number One
by Bill Bonner
Ireland is nearly broke. Its debt was downgraded a couple weeks ago.
Unemployment is near 14%. Deflation is at 5.4% -- the highest since the Great
Depression of the '30s. And it's not over. It's "too early" to talk about recovery,
says Finance Minister Brian Lenihan.
It's too early in England too. Financial Advisor Peter Hargreaves says that talk
of 'green shoots' gives rise to illusions. People think they see the light of dawn
when the sun is still going down. And forget about a V–shaped recovery.
There won't be any simple bounce-back. Nor even a W-shaped double
decline. "There could be a quadruple dip in my opinion," he said.
And what about California? This week's Economist magazine gives us a new
measure for California' budget deficit -- $26 billion, up from the $24 billion
last reported in this space. A widely published photo shows Arnold
Schwarzenegger smoking a cigar...apparently confident that the state's
problems will work themselves out somehow.
Of course they will. They always do. But not necessarily the way people hope.
California is the world's 8th largest economy. It can print IOUs when it runs
out of money. But there's no law that says banks have to take them. They
stopped taking them last week...which leaves the Golden State in a jam.
What is ailing California is ailing the entire United States of America –
and much of the rest of the world, especially that part of the world that
speaks English. Politicians have promised too much...without being willing to
raise the money to pay for it all. Solution: spend less. Or tax more. Or a little of
Hey, Arnold should have asked us. It's so simple.
But wait. California is a democracy. And the democracy is a flim-flam. As
we've explained in these reckonings: there are two parts to it. One part is like
professional wrestling – full of bullying, humbug and hollow gestures. One
group wants to stop its neighbors from smoking. Another wants a flag with
yellow trim. Still another wants revenge on a neighbor because it feels
disrespected. There is no accounting...or predicting...what direction the mob
The other part of democracy is more rational. The citizen wants to know not
what he can do for his government, but what he can get out of it.
This second part is a time bomb. Once citizens realize that they have the
power to vote themselves the contents of someone else's pocket, the system
is doomed. They don't let up until they've bankrupted it.
A man may vote for a candidate who promises a yellow flag. No harm done.
But when he votes for the candidate who promises more "benefits" at someone
else's expense, he is on the road to Hell.
"Democrats in the House propose setting a 1% extra tax on couples earning
more than $350,000," reports the Financial Times this morning. The money is
to be used to pay for other peoples' health benefits.
If you earn less than $350,000, you feel that you are getting something for
nothing. But that money – had it not been confiscated – wouldn't have
disappeared. It would have been put to work in one way or another – added to
the nation's capital formation, lent to the government, used to buy a new car or
take a vacation. Instead, it is to be sucked out of the benefits of the willing
economy and used to give people something they couldn't afford or didn't
want to pay for themselves.
In order to get elected, politicians have to promise more and more of these
'benefits.' There is no backing up...no turning around. Even when the
government is clearly headed to bankruptcy. If a politician hesitates, some
other clown will just take his place. He may even be overcome – in a weak
moment – with a desire to level with the voters. He may imagine himself going
on TV and putting it to them straight:
"Look, we'd like to continue these programs; but we don't have the money."
Then, he comes to his senses: 'I might as well say I've fallen in love with a
woman from Argentina...or a man in a public bathroom; either way, I'm dead,
Now, Dear Reader, you may object. 'The American political system draws
forth the best and the brightest from the entire nation of 300 million," you may
say. "Surely these people are capable of doing the right thing for the good of
They are surely capable of making rational decisions. But what is rational for
them – ducking serious issues...nourishing the illusion that voters can get
something for nothing -- is fatal to the republic.
Of course, the same thing could be said for a business...as well as a country.
Why did GM go broke? It was the largest company in the world. It could pick
and choose the very best managers ...the smartest businessmen...the greatest
investors...the most far-sighted engineers... the most wonderful of the
wonderful. Surely, these fellows could add and subtract, right? Surely one of
"Hey...if we keep adding costs, we're not going to be competitive any more.
And if we're not competitive, we're not going to be able to sell cars at a profit.
And then, we're going to lose money and go broke.'
How come the best talent money could buy couldn't change course at
GM? How come all those smart people in the California legislature can't
balance the budget? Well, that's just the way it is. An institution matures...and
the parasites take it over.
Retirees, executives with their golden parachutes, the halt, the lame,
employees, managers, hangers on, lawyers, accountants, businessmen...
everyone has an interest in keeping the hustle going. The executive wants his
bonus...the retiree wants his pension...the lawyer wants his retainer... All can
see that the old place ain't what it used to be. They all know that the gravy
train won't go on forever...but that just makes them more eager to get it while
the getting's good. So they jiggle the numbers so each quarter doesn't look so
bad...jive the news so it sounds almost as if the institution had a future...and
they juke up the whole system so that no one even mentions that they're going
GM "sets out on a fresh start," says the Financial Times. "From this point on,"
says its top man, "our efforts are dedicated to customers, cars..." and repaying
What were they dedicated to before they had to turn to the feds for money?
Answer: to looking out for number one.
What are they dedicated to now: refer to the question above.
This from our old friend, Adrian Day:
"I've been called a cynic—and worse—but, as Winston Churchill told us, if
you don't know the future, look to the past. So if we want an idea how long the
government might be subsidizing GM and Chrysler, let's look to the
experience with railroads. In 1970, Penn Central, America's largest rail
company, filed for bankruptcy, and Congress created Amtrak. The government
passenger rail monopoly was confidently expected to be paying its own way by
1974. Well, 38 years and $33 billion later, it has still to turn a profit. So this
year, congress has voted another $14 billion for the next five years."
From our perspective – because we hate taxes and we like trains – it would
have been better if the railroads had gone broke...and been bought up by
whomever could make a go of them.
And from our perspective – because we hate taxes and we like cars – it would
be better if GM had been allowed a death with dignity. Then, other
automakers could have salvaged the wreck for spare parts.
Of course, this formula applies to all the crippled banks, bankrupt households,
reckless insurance companies, greedy Wall Street...and all the rest of the
flotsam and jetsam of the Bubble Epoque.
As Yu Faz, who anticipated the 'laissez-faire' economists by 500 years, said:
"A man lives under the roof of his own making. If it falls on his head, so be