Worse Than 2008

Worse Than 2008

Stocks still not finding bottom’ warned a headline at Investor’s Business Daily.

On Wednesday, the Dow ended down 255 points – or 1.6%.

The index is down by almost 9% since the start of the year.

These developments, if they prove persistent, could weigh on the outlook for economic activity…’ proffered a nervous-looking Janet Yellen in her testimony on Capitol Hill yesterday.

She was signalling to investors.

‘Don’t worry about us,’ she may as well have said. ‘If we can get away with a big U-turn, we’re not going to raise rates anymore.

‘Massive Deterioration’

On Tuesday, Maersk Group, the world’s largest container shipping company, said it was suffering a “massive deterioration” in its business.

It is worse than 2008’, its CEO, Nils Andersen, told the Financial Times.

But this is not even near the bottom for the world economy.

Hedge fund manager Kyle Bass warns that the other shoe is a big one…and it hasn’t dropped yet.

China’s economy is heavily dependent on capital investment. It puts its money into building factories, highways, offices, apartment blocks, railroads, ports, and airports.

What do all these projects require?


Concrete is reinforced with steel bars. As the pace of building slows, the price of rebar goes down.

In 2008, a ton of rebar cost about 5,500 renminbi (US$836). Now, it costs barely 2,000 renminbi (US$304) – the lowest price in at least 15 years.

Compared to the size of its economy, China has two to three times the debt the US had in 2008 – a total of $34 trillion, said Bass.

As the Chinese economy slows, more steel mills, real estate developers, and manufacturers can’t pay their debts.

Total losses from debt defaults could be four times US losses in the 2008 crisis. And that is just the beginning.

Next week, we’ll explain why… and why Trump and Sanders are getting so much of the millennial vote.

In the meantime, here’s an essay from the archives…

Convenient Beliefs

Originally published August 2, 2005

People come to believe whatever they need to believe when they need to believe it.

Recent studies of voting patterns confirm the obvious. Zombies vote for higher taxes. Cronies vote for lower taxes. All believe they are voting for matters of principle.

Alan Greenspan believed strongly in gold – until he became a central banker.

Then he believed he could do a better job than gold. Or at least he pretended to.

It was a job requirement.

A priest who didn’t believe in the resurrection would be useless. So would a plumber who didn’t believe in using a wrench.

$19 Trillion and Counting…

In public life, people generally believe the dominant myth of the system in which they live.

We are all democrats in the U.S. We believe in electing our leaders.

But there is no particular reason why this method should be superior to choosing our leaders by lottery or hand-to-hand combat.

Throughout most of history, people believed in other systems.

If we lived in a kingdom, we would probably believe strongly in monarchy. If we had a dictator, we’d probably have his name on our bumpers. And if we lived in a theocracy, we would kneel for prayer at the appointed hour.

Are we so much smarter now?

Maybe not.

Circumstances change. Ideas change with them.

The US became an empire without anyone noticing. But now, Americans believe in empire… So much so that they are willing to spend trillions of dollars to maintain it.

The national debt of the US is $19 trillion. At least $5 trillion of that can be traced to the costs of empire.

We have military bases all over the world. We believe we must meet challenges in Iraq, Syria, North Korea – all around the periphery of the empire.

We may just as well leave the poor Iraqis, Syrians, and North Koreans to take care of their own problems… But the thought wouldn’t be compatible with the imperial purple.

An empire acts like an empire.

Parasites of the Affluent Class

And a rich person acts like a rich person. He cannot get richer and richer forever. So he must find ways to get rid of his money.

Trees do not grow to the sky. There is no yin without a yang…no day without night…no boom without bust.

Everything regresses to the mean – including the wealth of an individual or a group.

Even our own lives regress. No one was ever born who was not destined to die. The mean is the grave – for which we are all bound.

When a man gets a certain amount of money, he takes up the beliefs of a man who needs to spend it.

He believes he needs a bigger house. He believes that more expensive wine is better than the cheap stuff. He may even take a course on wine…and bore his friends and neighbours with his sophisticated palette.

He believes a Mercedes-Maybach is superior to a Chevy. He believes he needs a mistress. Or a yacht.

Wealth brings duties, as well as advantages.

When a man makes some money, he finds himself the subject of attention of what Gloom, Boom & Doom Report publisher Marc Faber calls ‘the immediate parasites of the affluent class.

As Faber puts it, these are the ‘real estate agents, stockbrokers, financial planners, investment bankers, fund managers…economists, derivative traders, salesmen of high-end cars, pleasure boats, and private jets, art dealers, diamond merchants, mistresses, second, third and fourth trophy wives, spoiled children, estate and tax planners, and lawyers.

Then there are the ‘secondary parasites.’

Faber again… ‘They include life coaches, cosmetic surgeons, personal trainers, dog walkers and pet sitters, personal assistants, beauty consultants, massage therapists, and wedding planners.

Too Many Zombies

A rich man’s duty is to believe these people give him some advantage.

But all these things come at a price. They are handicaps.

When he is engaged in a quarrelsome divorce, a rich man has less time to devote to his business. He forgets to study his sales figures when he is at wine school. And much of his fortune could be easily separated from him by clever financial planners.

He gives himself these handicaps until he is able to get his wealth down to more reasonable levels – closer to the mean, that is.

If he dies before his work is done – while he still has some change in his pockets – he can be sure that the next generation will finish what he began. In a few years, the family will have average wealth rather than extraordinary wealth.

So, too, does a rich society need to give itself handicaps – so that its wealth and power can come back to a meaner level.

The US surpassed Britain as the world’s leading economy in the 1890s when Queen Victoria was on the throne and Benjamin Harrison was American president.

America’s lead gained over the next five decades – greatly aided by two devastating European wars…one of which it helped prolong and make far more disastrous for Europe than it otherwise would have been.

But along with its wealth, America’s handicaps increased. It now spends about as much on its military as the rest of the world combined.

After 9/11, it might have put a few more cops on the case…instead, it launched a ‘War on Terror’ – another costly, distracting handicap.

Over the years, the US has also increased its expensive social welfare programs, and the economic freedom that made its economy the leader of the world has given way to a rigged and heavily regulated economy.

GM – once the largest and most profitable business in the world – now has the handicap of having to spend thousands of dollars in health and retirement costs for every car it builds. Its competitors in China have almost none.

Eventually, convenient beliefs become inconvenient. Handicaps take too much time and too much money.

Too many zombies. Too many cronies. Too many pointless wars and futile government spending programs. Too many hobbies. Too many trophy wives.

Then the rich man, GM, and the empire – all take up more modest roles and more modest beliefs.


Bill Bonner,

For Markets and Money, Australia

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 MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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