What’s new in the financial world?
Well, the Dow sold off a little yesterday. Gold rose another $12. Otherwise, not much new. Same scams. Same frauds. Same claptrap and bunkum.
The Obama Administration is engaged in three claptrap wars.
There’s the war in Iraq. There’s the war in Afghanistan. And there’s the war against depression.
As to the war in Afghanistan, we don’t know who he is fighting. One day it is Al Qaida. The next day it’s the Taliban. A few days later its ‘dissidents.’
Recently, a general who had led the Soviet Union’s troops in Afghanistan commented on Obama’s surge strategy. ‘Already been down that road,’ he said, or words to that effect. Trouble is, it’s a dead end. The more troops you put into Afghanistan, the higher your casualty figures. What’s more, dozens of countries have tried to subdue the Afghan tribes over the centuries – from Alexander I to George Bush II. All regretted it. If they survived long enough to see how it turned out.
But our beat here is money, not geopolitics. So, the unwinnable war that most interests us is the feds’ war against the depression.
We remind readers that, despite the headlines, the US and much of the world is in a depression. That is, it faces a long period of adjustment…in which the errors and illusions of the previous bubble period must be purged out. At the household level, that means reducing debt levels. Where debt can’t be paid down – such as mortgages that are just too high to manage – there are delinquencies, defaults, and foreclosures.
The rate of delinquencies on credit card debt went up in October. Unemployment went up too.
But most people…and most businesses…are coping with depression. They’re cutting back as necessary. Savings rates are edging up. Consumer spending is down.
While the private sector does what it ought to do, the public sector does what it ought not to do. For there is no health in it. The feds fight the correction with every weapon in their arsenal. Typically…predictably…they fight the wrong war at the wrong time for the wrong reasons.
Hyper low interest rates discourage savings – when savings are just what most households need.
They props up failing banks and brain dead companies – when these zombie institutions should be buried, so new firms can take their places.
They borrows trillions – when the money is desperately needed in the private sector in order to correct bubble-era capital investment mistakes.
And they shackle future generations to trillions in debt – when the next generation will have a hard enough time coping with its own problems.
But you already knew that, didn’t you?
What’s new is that the feds think they have won this fight against the depression. The Wall Street Journal says they’ve turned their guns around. The Fed is a “Bubble Fighter” now, it reports. And Tim Geithner says the end of his $700 billion bailout program is coming to an end soon.
Do you believe it, dear reader? We don’t. This is another claptrap war. The depression will take many years to sort itself out. During that time, the feds in the US will do almost exactly the same thing their counterparts in Japan did – wasting ammunition on bailouts, subsidies, boondoggles and stimulus. They will fight until they are down to their last cartridge. Then, they will spike the canon, go broke and surrender.
It’s beginning to look a lot like Christmas…everywhere we go.
Last night, at a Thai Restaurant here in London, the waitresses wore red Christmas stockings on their heads. At the tables were Christmas ‘crackers.’ You pull both ends; the things make a popping noise; and then you take out a paper crown you can wear to liven up the evening and make yourself look like a fool.
This morning we went for breakfast with our old friend Addison Wiggin at the Hilton Hotel. There, in the breakfast area, the music selections varied between lounge rap and Christmas carols.
“Addison, what’s going on in the US economy?” we asked.
“I don’t know. But someone keeps stealing my firewood. Maybe he can’t afford electricity. Or maybe he’s just having outdoor barbecues. I don’t know.”
“You should do what Uncle Remus would do.”
“What’s that? I never read Uncle Remus. I’m too young. They were banned from the schools when I was growing up.”
“Well, Brer Fox was stealing fence posts and using them in his kitchen stove. So Brer Rabbit hollowed out a fence post and put some gunpowder in it. When Brer Fox put it in the stove, his house blew up.”
“Oh…I don’t know,” said Addison. “I don’t think you can do things like that anymore.”
Until next time,
for Markets and Money