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Thread: I B Back, with salutations...

  1. #1
    Senior Member Uncle Bill's Avatar
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    Default I B Back, with salutations...

    ...and some sad tidings for the post WW II generation, via the musings of Mr. Bonner.

    After getting my ears filled by some bimbo on cable explaning like she is someone we can trust and believe in about how well the economy is rebounding, and it's time to empty the 'matress storage' and send it off to her favorite broker for huge gains. Funny how the MSP and their followers make it sound so easy and rosey.

    Do what ever you like, but puhleez...don't bet the farm. UB

    The Boomers are Out of Time - and Out of Money
    by Bill Bonner
    London, England


    Clowns to the left of us...jokers to the right...

    The Simpleton's Analysis:

    Consumers cut back. The economy sank.

    Now, government must take action. It must help people out and take up the slack.

    The downturn took $12 trillion off Americans' net worth. The feds have pledged about $12 trillion to fix the problem.

    But wait, where does government get any money?

    Hey, they borrow it, just like consumers did. And besides, it's ultimately the same money - taxpayers' money. So what's the big diff?

    The big diff is the subject of today's Daily Reckoning.

    The first big diff is that the feds don't spend your money the way you would. Private citizens spend money they don't have on things they want but don't need. The feds spend money that doesn't belong to them on things that the rightful owners don't even want.


    At least as practiced by the leading macroeconomists of our time - such as Ben Bernanke, Tim Geithner and Larry Summers. It's just a show-off sport...the idea is to impress the world with some fancy data-heavy formula...win the Nobel Prize and save the world. That way, you get what all men crave...money and power.. Why do men (and women) want money and power? Aww, c'mon...we explained it already. Because it improves their chances of survival and procreation. In a DNA study, for example, they found that Genghis Khan, today, has something like 6 million male descendants. Is that success or what?

    The great Khans of today are no longer the steppe warriors on horseback. They're basketball players, rock 'n' roll stars, actors, and hedge fund managers...and, oh yes, occasionally - economists.

    The link between economic theory and procreation is probably very weak; but that doesn't stop economists from wanting to strut around and show off. And the way for an economist to show off is to get himself appointed to the President's Council of Economic Advisors...or to the central bank...or get a professorial post at Princeton...etc. etc. This you do by producing tomes, formulae and hypotheses. And, don't forget to write a piece for The Wall Street Journal from time to time.

    Another important hint: your work has to suggest that you can manipulate the business cycle, control the credit cycle, or generally make things turn out the way people want.

    If you are a Daily Reckoning-type economist, you can forget fame and fortune completely. Who wants to hear from a macroeconomist who tells people to leave well enough alone...and to let the forces of natural economics sort out their own problems? No one...at least no one who is running for public office. Instead, they want someone who will promise to "Save the World."

    Save the world from what? Why...from the damage done by other economists!

    Two generations of American economists thought the way to bring prosperity was to encourage consumption. On the face of it, the idea is absurd. Classical economists...and Daily Reckoning commentators...laugh at the idea. You don't really get rich by consuming; you get rich by saving and investing.

    But they had their charts and graphs...their theories and their jobs teaching economics at prestigious universities. Naturally, they had the feds' ears too - since every politician wants to promise more consumption. The feds favored home ownership, for example...even by people who were bad credit risks. They set up Fannie and Freddie to make it easy for people to buy houses. They even passed a law requiring banks to lend to people who weren't likely to pay them back; that was the origin of the sub-prime mortgage market! They kept interest rates low, too, so people could borrow at affordable rates. And they inflated the currency, so consumers would want to spend their money rather than save it. They also opened the world to free trade, so Americans could buy more, cheaper stuff made by foreigners. For 50 years, they cultivated consumption and let production go to seed.

    And now...wouldn't you know it...Americans have over-consumed. Personal expenditures per capital rose 25% between 2003-2005. Personal debt soared to over $13 trillion...about $124,000 per household. Total debt/GDP tripled since 1980.

    And now, it's payback time. The private sector has cut back. Consumers need to under-consume to make up for the over-consumption of the bubble years. Savings rates are rising. Spending is falling...

    And so what do the simpletons do? Private citizens are unwilling to consume...so they push the government to consume their money for them!



    Gold futures tapped the $1,000-an-ounce mark, a level the precious metal hadn't reached since February.

    "As long as the Federal Reserve and the US government take actions that debase the dollar, the dollar price of gold will rise," says GoldMoney.com's James Turk. "Similarly, as long as the Bank of England and the UK government take actions that debase the pound, the Sterling price of silver will rise. It is a certainty, just like night follows day.
    "Years from now we will look back at today's action with amazement at how low the price of gold and silver were, just like I can today look back to my college years when gold was only $35 and an ounce of silver could be had for 46 pence. It is a distant memory - and those prices will never again be seen. Eventually a three-digit dollar gold price and single-digit Sterling silver will never again be seen, as long as those currencies continue to be mismanaged and continue on the path to the fiat currency graveyard.


    "...the dollar and pound are being debased, and in the absence of any policy advocating sound money in the US and the UK, inevitably gold will hurdle $1,000 and silver will clear 10."




    "Frugality is the new normal," says an Associated Press report. One study suggests that consumer will spend 14% less - even AFTER the recession is over.

    Boomers are out of time. Out of money.. And they'll be out of luck unless they trim expenses and begin saving.

    They've figured it out. Personal spending has fallen in 4 of the last 6 quarters. It hasn't done that since 1947 - when they first began tracking it.

    Consumers' net worth has taken a big hit - down $13 trillion, from $62 trillion to $50 trillion.

    And so, the simpletons think the government has to rush in where fools foundered...that is, they rush in with more money.

    But where do the feds get any money? They have to borrow it...or print it. There's a big difference between federal borrowing and private borrowing. When the private sector borrows the risk is that people won't be able to pay back their loans. That is a risk that lenders live with. They know the risk; they factor it into their decision-making. Sometimes they're right. Sometimes - such as when economists mislead them with a lot of gibberish numbers - they're wrong. And when they're wrong, borrowers default...and lenders lose money.

    The feds, on the other hand, can't default. At least, not when their debts are calibrated in money they control. But there's the risk right there. And it is a different kind of risk. It's the risk that the feds may choose to pay back the loan in much cheaper currency. Or merely make a mistake that results in much cheaper currency.

    Imagine a private borrower who could print up a few extra bills in his basement to pay his monthly mortgage. He may not do so...perhaps his sense of honor would prevent him. Or maybe he would fear that he wouldn't be allowed to borrow again. But if his back were to the wall, there is little doubt that he'd soon be in the print shop.

    The feds are in the print shop already. They're printing up more dollars intentionally - to try to get inflation rates up....and to finance federal borrowing. It will be a miraculous thing if their new dollars don't eventually cause inflation. But the macroeconomists who run the print shop tell us not to worry. They've got it all under control. They're already talking about when and how to withdraw the dollars they so helpfully provided during the crisis period.


    The simpletons - who had no idea that the crisis would come...and then thought it could be easily contained...and then mistook it for a monetary, banking crisis...and then judged it over before it had really started...

    ...these same simpletons still do not understand that the problem is not a lack of money, it's a surplus of debt...

    ..they now reassure us that they know just how much money to put into the system...and just when to take it out.

    If you believe them...you might want to stay in stocks and US bonds. If not, you should head for cover.

    The country is being run "by a gang of clueless bozos," says Lee Iacocca, in his new book.

    Until tomorrow,

    Bill Bonner
    The Daily Reckoning
    When the one you love becomes a memory, that memory becomes a treasure.

  2. #2
    Senior Member Gerry Clinchy's Avatar
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    "You cannot help the poor by destroying the rich. You cannot strengthen the weak by weakening the strong. You cannot bring about prosperity by discouraging thrift. You cannot lift the wage earner up by pulling the wage payer down. You cannot further the brotherhood of man by inciting class hatred. You cannot build character and courage by taking away people's initiative and independence. You cannot help people permanently by doing for them, what they could and should do for themselves." Abraham Lincoln
    G.Clinchy@gmail.com
    "Know in your heart that all things are possible. We couldn't conceive of a miracle if none ever happened." -Libby Fudim

    ​I don't use the PM feature, so just email me direct at the address shown above.

  3. #3
    Senior Member Uncle Bill's Avatar
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    For those still hoping 'past' history won't repeat itself...here's a bit of news from another section of the world that also believes the stock market is once again on solid ground...but is it? Mr. Bonner thinks not, and his logic is too cogent to deny. UB

    The Undead of the Banking World
    by Bill Bonner
    Bedford Springs, Pennsylvania


    Hey, the economy is not only recovering....it's becoming better than ever before!

    "Banks recover to their levels before the fall of Lehman," is a headline in this Monday's El Pais from Madrid.

    "Public assistance enables the world's largest 15 financial firms to return to the capitalization they had in September 2008," the article continues. The largest of the largest, HSBC, is now judged to be worth $186 billion, according to the stock market. China's ICBC is on its heels, with a market cap of $178 billion. BNP Paribas is 7th at $87 billion.

    We will overlook the compromising detail that banks actually lost money in the last quarter - more than $3 billion. And let's forget that China's major banks are sitting on mega-losses from more than eight years ago (to say nothing of the more recent losses). Western banks, too, still have billions in assets whose real worth is an open question...and subject to quick reconsideration...

    El Pais goes on to report something intriguing: "The two big Spanish banks leave the crisis stronger."

    Ah. What doesn't kill you makes you stronger. The world economy is recovering, or so people believe. Stocks are going up - led by the banks. But are the undead of the banking world really stronger?

    Ha ha...don't make us laugh.

    But the world seems to believe it. The Wall Street Journal reports that just five big financial stocks are behind the stock market's rally. Fannie Mae, Citigroup, Freddie Mac, Bank of America and AIG account for nearly a third of market's daily turnover. Seems everyone is speculating on the banks...and moving them higher.

    You will recall, dear reader, the banks made a fortune during the bubble years. You may also recall that they made so much money that when the bubble years came to a close, that they were almost all broke. Without hasty action from the feds, it would have been the end of the road for every major bank on Wall Street. As it was, even with government help, none of them survived intact. They all either went bankrupt, were sold off, or got bailouts with strings attached.

    What busted the banks was too much of a bad thing. They made their money by peddling debt. In order to move the stuff, they convinced clients that their products were good safe investments - even leveraged derivatives backed by subprime mortgages! Such good salesmen were they that they even convinced themselves. When the crisis came, they realized that they had been buyers of the debt...as well as sellers of it. What could they do with it...except sell it to the feds?

    But the whole financial industry is coming back to life. According to El Pais, it's back...and it's better than ever.

    But wait? How could that be? Hasn't the world entered the worst recession since the great depression? How could lending money be such a good business? People don't borrow in a recession.

    Strategic Short Report's Dan Amoss is just as skeptical. "The banking system has no experience managing through the current 'negative home equity' environment," he tells us. "This is an environment in which mortgage rates are already about as low as they can get and consumer balance sheets are as stressed as ever. Due to the nonrecourse nature of mortgages, most borrowers have no financial incentive to keep paying. Many are choosing to mail the keys back to the lender.

    "This problem will cap the upside of bank stocks for years to come, so the sector will offer lots of short selling opportunities."

    [Dan predicted the fall of Lehman, months before it occurred - leading his readers to major gains. Now he has done the same with another big bank...and the opportunity to profit is still available.

    Borrowing by households has fallen off a cliff. Instead of borrowing, they're paying back debt at the fastest rate since the '50s. No money to be made there.

    How about commercial and business loans? Are you kidding? Businesses are cutting back too. Businesses borrow to expand...and there is no expansion going on. This is a contraction. Credit is contracting along with everything else.

    Then, how could the banks make money? Let's refer to that news item again. Oh...there are the magic words: "Public assistance enables..."

    The banks are making money the same way Detroit is making money...dishonestly and temporarily. Instead of doing honest deals with willing and able counterparties, the banks are pulling a fast one. Their money comes, ultimately, from the poor taxpayer...the poor sap who funds all the government's giveaways. The private sector lived far beyond its means during the bubble years. People wasted their money they didn't have on things they didn't need. Now, they try to save their money. But now the government wastes their money for them.

    Speaking of which...a quick note on the Cash for Clunkers program. Numbers to be released today are expected to show a peak in sales in August caused by the feds' incentives. President Obama calls the program a showcase, proving how effective government can be at getting the economy back on the road.

    But let's go back to basics. It's a sham when people waste their own money. It's a crime when they waste other peoples' money. Prosperity comes from accumulating (saving) capital...and using it to increase productive capacity. The formula is pretty simple: Save your money. Invest it in productive business. The Clunkers program encouraged people to do the opposite - consume capital, other peoples' capital..

    'Nuff said.
    When the one you love becomes a memory, that memory becomes a treasure.

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