A Time of Contradictions, Paradoxes and Oxymorons

Sweden to GM/Saab: Drop Dead!

Finally, a nation with a little backbone…a little integrity…a little good sense. And guess what, it’s that dreary socialist refrigerator – Sweden. Asked to bailout its GM-owned automaker, Saab, the country’s Prime Minister just said ‘no.’ Good for him…

“Voters did not pick me to buy loss-making car factories,” he explained.

But it’s a time of contradictions, paradoxes and oxymorons. Up is down. Right is left. In is out. Good is bad.

The socialists are the only ones protecting the free market, now. Americans are scuttling it with every chance they get. The stocks of capitalist companies are going up in communist China…but in America, they’re going down. Since November, the Shanghai index has outperformed the S&P by 75%.

And back in the United States, projects that were considered too marginal to justify spending money a year ago are now thought to be indispensable. And the IOUs of the biggest spendthrift on the planet are the hottest item on the market. Ten-year Treasury notes are now priced to yield only 2.99% – just as the Obama administration announces a $1.75 trillion budget deficit.

Even crooks and criminals are flummoxed. A guy walks into a big downtown bank. He points a gun at the teller and says: “Give me all your money.”

The teller replies calmly: “You don’t understand. This is a bank. We don’t have any money.”

The only people with money now are the people who never earned any…the people who print the stuff.

But back to China:

All the things that used to convince pundits that China was hopeless now persuade them that it’s the hope of the entire world. “China’s autocrats can announce a stimulus – and get on with it,” writes John Authers, admiringly, in the Financial Times. They don’t have to beg and bicker with the dunderheads in Congress. They can just do it.

And China’s banks are more solid, too. “China’s are in good health, with both loans and deposits rising. American counterparts are not.”

But our irony cup runneth over when we read Auther’s next comparison:

“Finally, there is confidence in officialdom.” The markets have lost confidence in Tim Geithner and the rest of the feds, he says. “Meanwhile, hope…is pinned on the audacity of Chinese officialdom and is ability somehow to keep their economy on course.”

Everything is so topsy-turvy, dear reader, we think we’re going to throw up.

The whole world now turns its weary eyes…not to that bastion of free- market leadership, the United States of America, but to a country that has only had a quasi-free-market in goods and services for less than a quarter century…a country still run by Maoists. It is to them that we supposedly look to save the world economy!

What a great time to be alive! Practically every headline makes us want to reach for a drink. And we’re finally getting to see something that we only read about in the history books…yes, we’re going to find out what makes a depression so great.

Bankruptcy filings in the United States were up 37% in February, over the year before. House sales plunge, say the papers. Auto sales plunge, say the websites. Joblessness soars, says this morning’s news. Corporate America laid off 158% more workers this February, as compared to a year ago. Since the beginning of the year, layoffs are running 191% ahead of the same period in 2008. Almost a half a million people have lost their jobs so far this year…and there are 10 months left to go.

The Dow gained 149 points yesterday. Our “Crash Alert” flag is still flying…but the Dow is probably going to rally for the next few days.

Gold, meanwhile, continues its correction. It fell to $906 yesterday. Goldbugs, don’t despair. Have faith. The commies aren’t going to pull the world economy out of its tailspin. The bailouts and boondoggles in the West aren’t going to do it either. Buying gold is still the smartest long-term decision that you can make for your portfolio…and we suggest you take advantage of this correction. Buy some while the price is low – and even better, you can get the yellow metal for just a penny per ounce.

Remember, this is a depression, not a recession. Both America and Chinese economies have lived in a grand, symbiotic delusion for the last 10 years. America believed it could let the Chinese do all the sweating and saving. China believed it could make money by selling to people who couldn’t afford to buy. Now, both economies need perestroika. Both need to be refocused. China will turn its economy towards domestic consumption…and military spending, no doubt. America will have to accept a lower standard of living with fewer imports.

These adjustments take time. The last time the world went through a depression was in the ’30s. Every major economy – except Britain – fell backwards…all of them losing more than 20% of GDP. It took three years before they hit the bottom. Then, some bounced back quickly – Germany and Japan – thanks to military spending. Others – the United States and France – barely bounced at all.

*** More bubbles ready to burst. In the United States, public pension systems are under-funded by about $1 trillion. Firemen, teachers, policemen, municipal workers…state bureaucrats. Every one of them is looking to the feds for a bailout.

Oh…and AIG is getting its FOURTH go-round of rescue money. The fifth one will come around soon enough. And there’s Detroit…California…student loans…commercial loans…the banks…the homeowners…the unemployed…the sick…the halt…the lame…the blind…the plain stupid.

Where will the feds get the money?

They’ll continue to borrow it. Then, when lenders get tired of lending, they’ll print it. That’s when gold will really fly…but that might not be for another few years.

For the moment, lenders like buying U.S. government IOUs. It’s the only thing they feel they can trust. One way or another, they’re sure Uncle Sam will make his payments.

But, as we’ve been saying, we live in an upside down world. If and when the fear subsides, investors are going to look elsewhere for yield. Prices will begin to rise again. So will yields. So, the U.S. government will have to pay more to borrow. Thus, as things get better for the economy…they will get worse for the U.S. Treasury. It will find itself with higher and higher interest costs…and no way to pay them.

What will they do? Throw up their hands and admit they can’t make their payments? Or print money? We’ve already made our guess; they will do the wrong thing.

*** What is the right thing to do?

“Leave it to time to affect a permanent cure by the slow process of adapting the structure of production…” said Friedrich Hayek.

“Depressions are not simply evils, which we might attempt to suppress,” added Schumpeter, “but forms of something which has to be done, namely, adjustment to change.”

The economy needs to be restructured. The dead wood needs to be burnt off. But the feds are trying to stop the fire.

Alas, said Schumpeter, “most of what would be effective in remedying a depression would be equally effective in preventing this adjustment.”

Bradford Delong explains:

“…certain investments should not have been made. The best that can be done in such circumstances is to shut down those production processes that turned out to have been based on assumptions about future demands that did not come to pass. The liquidation of such investments and businesses releases factors of production from unprofitable uses; they can then be redeployed in other sectors of the technologically dynamic economy. Without the initial liquidation the redeployment cannot take place. And, said Hayek, depressions are this process of liquidation and preparation for the redeployment of resources.

“As Schumpeter put it, policy does not allow a choice between depression and no depression, but between depression now and a worse depression later: ‘inflation pushed far enough [would] undoubtedly turn depression into the sham prosperity so familiar from European postwar experience, [and]… would, in the end, lead to a collapse worse than the one it was called in to remedy.’ For ‘recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead.’

*** We got on the Paris metro this morning. In the car, there were two fellows…bums…in worn-out jackets…scuffed-out shoes, without socks. They didn’t seem drunk or drugged, just very tired. One bent over with is his head on his knees. The other was bent over too but uncomfortable…swaying, as if he was about to be sick. Both had an eastern European …or Turkish look. Maybe they were gypsies…dark complexions, but European features…rough, course…with thick hands and dirty fingernails. Occasionally, they exchanged words in a language we didn’t understand. The older one seemed less well than the younger man, who was probably in his 40s. As they tried to sleep, the younger one fell off his seat. Catching himself…he put his head back on his knees…and then, a minute later, he fell off again…this time right onto his head. Then, he picked himself up and sat down…and dozed off again.

Until tomorrow,

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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2 Comments on "A Time of Contradictions, Paradoxes and Oxymorons"

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Hopefully, the Chinese stimulus package will fare better than similar efforts in the U.S. The two countries have opposing problems too little consumption in China, and too little saving in the U.S. China has chosen to focus on stimulating investment while the U.S. is again trying to stimulate consumption. There has to come a point where Americans learn to save money.

I have just completed paperwork for my *cough* Debtor’s Petition for Bankruptcy and I feel such a failure as a potential bankruptee. Question 18 asks: What do you believe is the main cause of your insolvency? (tick one cause only) A. Unemployment or loss of income B. Adverse legal action C. Liabilities due to guarantees D. Gambling, speculation & extravagance in living E. Ill-health or absence of health insurance F. Domestic discord or relationship breakdowns G. Excessive use of credit facilities including losses on repossessions, high interest payments and pressure selling Dayum, I SOOOO want to tick “D” because insolvency… Read more »
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