Tyranny of the Living

 

Tradition… is the democracy of the dead.

K. Chesterton

 

[ed note: this article is from Bill Bonner’s archives, originally published June 20, 2003]

 

Yesterday’s news brought word from Deputy Defense Secretary Wolfowitz that U.S. troops would be in Iraq for the next 10 years. Also came an estimate of the cost: An extra $3 billion would have to be added to the defense budget for Iraq… and an extra $1.5 billion for Afghanistan.

“Avoid foreign entanglements,” cautioned the father of the country. But corpses have no voice and no vote, neither in markets nor in politics. They might as well be dead.

 

My WolfieWolfie, back when still protected

Cartoon by Steve Bell

 

George W. Bush is undoubtedly better informed than George Washington. And heck, it’s a new era. Having foreign entanglements is just what the times seem to call for. George W. Bush may not have the wisdom of a Washington… but at least he has a pulse.

Few people complain about this tyranny of the living. Most accept it as a fact of life. They do not want people to be excluded from the pleasures of life because of an “accident of birth.” But they are perfectly happy to have the oldest and wisest of our citizens systematically barred from the polling stations and the trading floors by an accident of death.

The departed shut up forever, leaving behind them their car keys, their stocks, and their voter registrations… That is all there is to it. Goodbye and good riddance.

 

Mr WolfieNot much later …

Cartoon by Steve Bell

 

It is as though they had learned nothing useful… noticed nothing… and had no ideas that might be worth having, as if each generation were smarter than the one that preceded it… and every son’s thoughts – even in the present “culture of the moron” – improved upon those of his father.

 

The Cleverest Humans

Oh, progress! Thou art forever making things better, aren’t thou? Throw out the sacred books – for what are they but the thoughts of imbeciles? Forget the old rules… the old wives’ tales… the traditions… habits of generations… the old-timers’ superstitions… the old fuddy-duddies’ doubts!

We are the cleverest humans who have ever lived, right? Maybe. But today we convene a council from the spirit world; we invite the dead to have their say. Our aim is not to kvetch on behalf of our ancestors but to warn the living: The corpses may have a point.

Many times have we referred to old-timers’ wisdom in these letters. The old-timers wanted more from a stock than just the hope that someone might come along and pay more for it. They wanted a stock that paid a dividend… out of earnings. That was what investing was all about.

But by the 1990s, the old-timers on Wall Street had almost all died off. Stock buyers no longer cared how much the company earned or how much of a dividend it paid. All they cared about was that some greater fool would come along and take the stock off their hands at a higher price.

 

SPX-dividend yield-1A tale of two eras: one in which dividends mattered, followed by one in which the greater fool principle began to matter more … – click to enlarge.

 

So, they did. And now the market is full of them – greater and greater fools who think the stock market is there to make them rich. In the space of 20 years, the character of the U.S. economy and its markets changed so dramatically the old-timers would scarcely recognize them.

In the mid-1980s, the U.S. slipped below the water line separating the net creditors from the net debtors. But almost no one noticed or cared. By then, the old-timers were already in Florida shuffling along… waiting for someone to adjust their medication.

 

Inevitable Destruction

“In 1981,” Gloom, Boom & Doom report publisher Marc Faber explained, “stock market capitalization as a percentage of GDP was less than 40%, and total credit market debt as a percentage of GDP was 130%. “By contrast, at present, the stock market capitalization and total credit market debt have risen to more than 100% and 300% of GDP, respectively.” [Today, the stock market is 109% of GDP, and debt is 346% of GDP.]

We have wondered how this ends. Not well is our guess. Too much debt and credit, too much capacity, too many dollars, too many bad investments, too much spending, too many deficits, and too much confidence. What is the solution?

“Less” is our recommendation. “More,” said Bernanke, Greenspan, Bush, and everyone else in a position to do something about it. So, the whole thing rolls forward… toward its inevitable destruction. Because – and here the dead back us up 100% – all paper currencies sooner or later come to grief.

The “if” question is settled. “When” and “how” remain open. So, we turn to ancestors… and ask for advice.

The state’s need of money increased rapidly,” said one of them, Italian economist Costantino Bresciani Turroni, describing the scene in Weimar Germany 80 years ago. “Private banks, besieged by their clients, found it impossible to meet the demand for money.

 

Bresciano TurroniItalian economist (and later minister of trade) Costantino Bresciani Turroni, who wrote the definitive account of the Weimar hyperinflation episode

Photo via Hesperides Press

 

Less Is More

As the situation heated up in the summer of 1923, there were some who gave our advice: “Less,” they said. But officials were in roughly the same situation as Bernanke and Bush today: “More,” said they. One, Karl Helfferich, who had been Secretary for the Treasury of the German Empire during World War I, explained:

 

“To follow the good counsel of stopping the printing of notes would mean – as long as the causes which are upsetting the German exchange continue to operate – refusing to give economic life to the circulating medium necessary for transactions, payments of salaries and wages, etc.

“It would mean that in a very short time, the entire public– and above all, the Reich– could no longer pay merchants, employees, or workers. In a few weeks, besides the printing of notes, factories, mines, railways, and post offices, national and local governments, in short, all national and economic life would be stopped.”

 

Karl HelfferichGerman lawyer, economist and politician Karl Helfferich, treasury secretary of the Empire from 1915-1916, then minister of the interior (1916-1917). During the Weimar inflation he proposed the introduction of a currency indexed to the price of rye and other agricultural products, a plan that was rejected. Nevertheless, Hjalmar Schacht eventually incorporated a number of Helfferich’s proposals when launching the new Rentenmark.

Photo via Bain News Service

 

When an economy comes to depend on more and more credit, it must get more and more of it… or it will come to a stop. A man who has borrowed heavily to finance a lifestyle he cannot really afford must continue borrowing to keep up appearances. Or else, he must stop. But market manias, love, politics, and war are things people rarely stop.

 

Tormenting the Dead

In Weimar, Germany, once the hyperinflation got started, there was no stopping it until it had run its course. In 1921, a dollar would buy 276 marks. By August 1923, a dollar would buy 5 million marks. Middle-class savers were wiped out.

If only we could roust Herr Helfferich from his eternal sleep! We would like to shake the dust off his wormy cadaver and ask some questions. (And here, we think not of praising the dead but of tormenting them.)

 

German_mark_kids_playing_withA famous picture of children in the Weimar Republic playing with money that had become worthless

Photo via hstry.co

 

What fun it would be to show him what his policies – the same, by and large, as are now put forward by Greenspan, Bernanke, and Bush – provoked. How gratifying it would be to see the little kraut squirm under an intense interrogation.

What was he thinking? Why did he think that more of the dreadful printing press money would undo the harm that had already been done by too much? The late Bresciani Turroni continued:

 

“The inflation retarded the crisis for some time, but this broke out later, throwing millions out of employment. At first, inflation stimulated production… But later… it annihilated thrift; it made reform of the national budget impossible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty.

It was a distressing preoccupation and constant torment of innumerable families; it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbance. It is indeed easy enough to understand why the record of the sad years 1919-23 always weighs like a nightmare on the German people.”

 

There – the dead have had their say.

 

papermarksvsgoldmarksThe exchange rate of the paper mark vs. the gold mark from 1918 to 1923

 

Charts by: StockCharts, Constantino Bresciani Turroni

 

Chart and image captions by PT

 

The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • As the Madness Turns
      A Growing Gap The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.   US nominal GDP vs total federal debt (in millions of USD) – government debt has exceeded  total economic output for the first time in Q4 2012 and since then its relative growth trajectory has increased – and it seems the gap is set to widen further....
  • Bitcoin Jumps as Ordered -  Precious Metals Supply and Demand
      Digital Asset Rush The only part of our April Fools article yesterday that was not said with tongue firmly planted in cheek was the gold and silver price action (though framed it in the common dollar-centric parlance, being April Fools):   “Gold went down $21, while silver dropped about 1/3 of a dollar. Not quite a heavy metal brick in free fall, but close enough.”   Bitcoin, hourly – a sudden yen for BTC breaks out among the punters. [PT]   It also...
  • A Trip Down Memory Lane – 1928-1929 vs. 2018-2019
      Boom Times Compared It has become abundantly clear by now that the late 2018 swoon was not yet the beginning of the end of the stock market bubble – at least not right away. While money supply growth continues to decelerate, the technical underpinnings of the rally from the late December low were actually quite strong – in particular, new highs in the cumulative NYSE A/D line indicate that it was broad-based.   Cumulative NYSE A/D line vs. SPX – normally the A/D line...
  • Debt Growth and Capital Consumption - Precious Metals Supply and Demand
      A Worrisome Trend If you read gold analysis much, you will come across two ideas. One, inflation so-called (rising consumer prices) is not only running much higher than the official statistic, but is about to really start skyrocketing. Two, buy gold because gold will hedge it. That is, the price of gold will go up as fast, or faster, than the price of gold.   CPI monthly since 1914, annualized rate of change. In recent years CPI was relatively tame despite a vast increase in the...
  • Unsolicited Advice to Fed Chair Powell
      Unsolicited Advice to Fed Chair Powell American businesses over the past decade have taken a most unsettling turn.  According to research from the Securities Industry and Financial Markets Association, as of November 2018, non-financial corporate debt has grown to more than $9.1 trillion [ed note: this number refers to securitized debt and business loans, other corporate liabilities would add an additional $11 trillion for a total of $20.5 trillion].   US non-financial corporate...
  • Long Term Stock Market Sentiment Remains as Lopsided as Ever 
      Investors are Oblivious to the Market's Downside Potential This is a brief update on a number of sentiment/positioning indicators we have frequently discussed in these pages in the past. In this missive our focus is exclusively on indicators that are of medium to long-term relevance to prospective stock market returns. Such indicators are not really useful for the purpose of market timing -  instead they are telling us something about the likely duration and severity of the bust that...
  • The Effect of Earnings Season on Seasonal Price Patterns
      Earnings Lottery Shareholders are are probably asking themselves every quarter how the earnings of companies in their portfolios will turn out. Whether they will beat or miss analyst expectations often seems akin to a lottery.   The beatings will continue until morale improves... [PT]   However, what is not akin to a lottery are the seasonal trends of corporate earnings and stock prices. Thus breweries will usually report stronger quarterly earnings after the...
  • The Liquidity Drought Gets Worse
      Money Supply Growth Continues to Falter Ostensibly the stock market has rallied because the Fed promised to maintain an easy monetary policy. To be sure, interest rate hikes have been put on hold for the time being and the balance sheet contraction (a.k.a.“quantitative tightening”) will be terminated much earlier than originally envisaged. And yet, the year-on-year growth rate of the true broad money supply keeps declining noticeably.   The year-on-year growth rates of...
  • The Gold-Silver Ratio Continues to Rise - Precious Metals Supply and Demand
      Is Silver Hard of Hearing? The price of gold inched down, but the price of silver footed down (if we may be permitted a little humor that may not make sense to metric system people). For the gold-silver ratio to be this high, it means one of two things. It could be that speculators are avoiding the monetary metals and metal stackers are depressed. Or that something is going on in the economy, to drive demand for the metals in different directions.   As a rule the gold silver...
  • What Were They Thinking?
      Learning From Other People's Mistakes is Cheaper One benefit of hindsight is that it imparts a cheap superiority over the past blunders of others.  We certainly make more mistakes than we’d care to admit.  Why not look down our nose and acquire some lessons learned from the mistakes of others?   Bitcoin, weekly. The late 2017 peak is completely obvious in hindsight... [PT]   A simple record of the collective delusions from the past can be quickly garnered from...

Support Acting Man

Item Guides

Austrian Theory and Investment

j9TJzzN

The Review Insider

Archive

Dog Blow

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

Mish Talk

 
Buy Silver Now!
 
Buy Gold Now!