The Staying Power of Debt

We have the grim task of attending a funeral near Pittsburgh, today. Our reckoning will be short and sweet.

The markets were enlivened yesterday by thoughts of the holidays. ‘Santa’s coming,’ said investors as the Dow rose 291 points.

The bright lights and garlands have started coming out all over Christendom.

The immediate focus of cheery thoughts was in Europe, where investors never seem to give up hope and never seem to grow up. Plan A didn’t work. Neither did plans b-z. But some people…no matter how many times you tell them Santa doesn’t exist…they keep believing anyhow.

The euro-feds are talking about a new fix. From press reports we can’t tell if this is the one Angela Merkel just rejected or just pledged to give fast-track handling. Nor do we care. Because debt is debt. You can shuffle it around. You can kick the can down the road. You can pretend it doesn’t exist and promise to deal with it.

It doesn’t matter what you say…too much debt is too much debt. And someone will have to pay for it.

All of the crisis and hoopla of the last 4 years has been just an attempt to avoid facing up to reality. Christmas comes but once a year…but investors have looked under the tree every day…hoping Santa paid an un-announced visit.

And what a time it has been for speculators! When Santa is seen heading for Rome or Athens, stock markets all over the world take off. When no Santa-sighting is reported, they sell. Up 200 points in a day…down 200 the next. Whee!

Wondering where it will all come to rest, dear reader?

We will tell you.

When all is said and done, the debt will still be there. Larger than ever. Every major government is running a deficit. The US, for example, only collects a bit more than $2 trillion in taxes. But it spends about $3.5 trillion. You can do the math later, dear reader. We’ll tell you what it means now — the US is headed for bankruptcy. The paltry and pathetic efforts of the super-committee and Congress notwithstanding.

In Europe, the situation is more fun to watch. They speak in different tongues but they all say the same things:

“Give me a bailout.”

“Drop dead.”

The authorities may or may not cobble together a stabilization program. If they don’t, the ride will get even wilder. If they do, markets will rise…possibly through Christmas.

Either way, the debt will still have to be reckoned with. And that means less government spending in Europe and less household spending in America. It is unavoidable. The European government can’t borrow more. And neither can US households. In both cases, less spending will lead to a slumpy, crisis-prone, Japan-like economy. In Japan, stocks and real estate lost 75% to 85% of their value. You can expect the same thing in the US.

Those 200-point upsurges will be rare. Two hundred points to the downside will be more common.

But what do we know? We’ve been right about some things…and wrong about others. So far, stocks have not dropped like we think they ‘ought’ to. But heck…we remember saying the same thing about the tech bubble. It didn’t blow up nearly as soon as we thought it should. Neither did the housing bubble. We urged Dear Readers to sell their houses and head for the hills back in 2005…when the housing bubble had two more years to run.

So, maybe we’re early again. Or dead wrong.

We’ll see.

But until we find out, we would stick to the program if we were you: sell stocks on rallies. Buy gold on dips.

And more thoughts…

“No, that couldn’t be George. He was about our age. Maybe a little older.”

Your editor had not noticed time’s wing’d chariot. Or not noticed how fast it was traveling. He was talking to his cousin after Thanksgiving. He was trying to recall a friend with a bulldozer. His cousin had identified a man, now 70 years old.

“No, it couldn’t be him,” we repeated.

“What are you talking about Bill? He is almost our age. Just a few years older.”

“You mean, he’s still operating a bulldozer at 70?”

“Yeah, he seems to like it. He’ll probably keep going at it for another 20 years. All that family live to be in their 90s. Funny people. They don’t talk much, but they live long.

“And ol’ Buster…he hardly says anything. His first wife ran off. She must have gotten bored. Actually, she ran off twice. The first time, she ran off with the fellow who sold Buster his bulldozer. But that didn’t work out. So she came home. And Buster took her back.

“I don’t think I would have taken her back. If she ran off once, she was sure to do it again. But she was pretty. And I guess Buster liked her.

“You remember her; she was one of the Stansted girls. They had five girls. Every one of them was pretty. But they weren’t all good. Ellie wasn’t so good. So she ran off again. And this time Buster had enough. He got another wife. He’s been married to Virginia for the last 30 years…at least. They seem really happy. She doesn’t talk either. But they’re both about 70…”


Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail Markets and Money.
Bill Bonner

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3 Comments on "The Staying Power of Debt"

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I heard Santa Claus Ben has swapped his helicopter for a sleigh and it is kinda pointed towards Europe, but I could be wrong Bill, you know what rumours are like.

And right on cue comes a massive bailout and huge market surge. Coordinated even. Anticipated by the well connected. I expect Wayne will soon be claiming he was contributing to the bailout too, if the news is positive for world’s best treasurer. Must have been a famous French bank about to fall over and cost the investors in it some profits. Can’t have that, let the poor people pay up. Anyway our despised political masters led by the ranga gave themselves another pay rise, as they are the best in the world, don’cha know. If you hate them as much… Read more »

The problem with “voting them out” , is who do you vote in – another career politician who will do anything to hold onto power ( which will most likely be another step towards bankruptcy ) – if you don’t like any of them – spoil your vote – let them all know they suck and its time for a new breed and a change ( personally I think all politicians should be limited in the number of terms / years they can hold office – worldwide )

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