Once again this week, Iâ€™m bringing you yet another opinion to the mix you have read in this column. It serves as another indication of why I remain so bearish about the domestic stock and bond markets despite what seems like a rally in Dow 30 stocks. My hope is that youÃll see that I’m not alone in my thinking, and, with some very credible people doing very analytical work, you might begin to see the way things really are â€” in time to make any needed changes in your portfolios.
One of the several web sites I subscribe to is the “Hat Trick Letter,” produced by Jim Willie. You can find him at (ahem) www.goldenjackass.com. ( Hey, I didnâ€™t name the site!) Actually, Willie does some interesting work, and this past week, he claimed locating those elusive Weapons of Mass Destruction that weâ€™ve heard so much about from the Bush camp. Well, that was until they couldnâ€™t find them and then tried to change the subject.
Actually, Willie canâ€™t locate the WMD that led Bush into his war of choice. But helping to bankrupt the country through massive spending are Bush’s two wars and, now, this past week, even more tax cuts! This move, of course, flies in the face of responsible fiscal policies, but weâ€™re talking about leadership from a man who may be the least bright of the bunch. Any bunch.
The WMD found by Willie are not of the military sort; rather, they are financial. Willie says that â€˜â€™they are many, and the United States is in firm possession of most of them. We have a corner on this market, a monopoly of sorts…
Space is limited to list them all, but the major weapons which have succeeded in gutting the U.S. economy can certainly be cited.â€™â€™
Willie continues, with an emphasis on these words, â€˜â€™The United States has put itself in a predicament with over three decades of serious dedication to monetary inflation as a means to wealth accumulation. In the process, real workers have suffered as the Manhattan Made Men have pilfered riches from their corrupt close connections to the Ruling Elite.â€™â€™
For example, consider how workers at manufacturing companies have fared when compared to their managers and investors. Think about workers at G.M., for instance.
Willie adds, â€˜â€™Now we find ourselves in a jam, with labor uncompetitive in its wage, with our commodity deposits (energy and minerals) mostly depleted, with our dependence on foreigners staggering and overwhelming (commodities and capital), with our legitimate wealth engines (manufacturing) largely vanished, with reliance on asset bubbles our chosen way of economic life and with constant raids on our home equity deemed normal.â€™â€™
But his opinion doesnâ€™t come close to squaring with what you hear on CNBC or from all 29% of all Americans who remain Bush supporters, does it? Willie continues, â€˜â€™An entire generation of economic counselors has preached heretical principles, strayed from proven principles that have stood the test of time, and adopted absurd mythologies which spring up in order to justify the reckless path they have led us toward.
To say that the current system is unfixable is an under-statement. We are so lost.
My country has to resort to coercion, bullying, fraudulent accounting, deceptive statistics, double talk communication, now pre-emptive attacks with flawed intelligence in order to protect itself, or is it to supply ourselves? We have morphed into a nation of pathetic financial drug addicts, hollowed to the core. Our weapons of mass destruction have set the stage for our own annihilation.â€™â€™
As I’ve said while quoting other bears, “And you think Iâ€™m gloomy?!” Willieâ€™s diatribe agrees that our leaders at the Fed have printed money so fast â€” that even Jim Cramer sees a comparison with the German Weimar Republic. In those days, the Germans, in an effort to pay the large bills dictated by the Treaty of Versailles, simply printed massive amounts of currency and offered it to creditors.
“So you want millions more? No problem, here you go â€” freshly printed this morning! You want more? No problem, weâ€™ll print more!â€™â€™ And there seemed to be no limit on how much money the Germans could print, until so much of it was in circulation that its value met its true value â€” close to zero.
And no one since has tried to print so much money so fast â€” until now. And the world is now flooded with U.S. dollars, owing to the massive trade deficit, now running in the $60-70 billion range monthly. And this trend began more than 30 years ago, so imagine how many dollars are floating around the world. And can you guess what its intrinsic value really is? Donâ€™t forget, the dollar is backed by 100 pennies, nothing more. It is paper printed with pretty ink, at virtually no cost.
Willie proposes that the best way to manage in a time like this is buying gold. And Iâ€™ll add commodities like energy and other metals, which look good, too. But I think the best part of his thinking deals with how an “entire generation of economic counselors has preached heretical principles.â€™â€™ As in: how did we get into such a mess, with incredible debt and unfunded liabilities, never to be paid, inflation so high that dollars in your pocket are worth less than half of their value 20 years ago, and a manufacturing sector just a shadow of its former self?
After all, this didnâ€™t happen overnight. This process began shortly after World War II, when reasoning prevailed that recovering economies like Japan should have access to U.S. markets, while protecting its own manufacturers from intense foreign competition. And this was done in the interest of â€˜â€™free trade,â€™â€™ right?
But we heard that this policy would be good for the U.S. too, making imports cheaper, thus leaving more money for buying other things. And while this sounds good in an economics class room, like many other economic theories, it falls apart in the “real world” laboratory.
One sure thing about economics is there is always another side to consider. In this case, if Japan gains market share, we know the benefit enjoyed on our end: cheaper consumer products. But at what cost? While we can now buy televisions from Asia at much lower cost than those made here, what is the possible downside of this bargain? We can consume more for less money. And that forms the basis of where our economy has been directed.
In The Great Betrayal, a book written almost 10 years ago, author Pat Buchanan covers this topic. â€˜â€™Putting consumption first goes against the grain of common sense, as well as inherited wisdom. Before consumption comes production. Before production comes investment. Before investment, savings. And before savings, income â€” the reward for work. Before a family consumes bread, a farmer must plow the ground, sow the seed, till the field, wait and watch. Before an athlete becomes a champion he must exercise, train, discipline and deny himself.
No athlete ever consumed his way to an Olympic medal, and no nation ever consumed its way to greatness or prosperity. As Aesopâ€™s fable of the ant and the grasshopper teaches, he who puts consumption first has put his foot on the road to ruin.â€™â€™
According to both Willie and Buchanan, we are happily walking down a ruinous path, led by the â€˜â€™best economic minds in the country,â€™â€™ perhaps the same people claiming that BushÃs tax cuts have worked as promised. So itâ€™s only logical that more tax cuts will be even better. And while cutting consumer taxes makes sense on paper, the latest edition puts almost every saved tax dollar into the pockets of people who need it least and those least likely to spend or invest it.
So what we get is more debt, piled onto the old debt, already so high, that we will never be able to pay it back. Yet the economists and Bush people consider the plan close to sheer genius, since all we have to do is print more money, make credit more available, and the economy will keep growing. Economic nirvana! Yeah, sure!
One thing is for sure in economics, as in life itself: there is no such thing as a free lunch. Another thing to argue: you canÃt routinely get something for nothing â€” or you canÃt simply print wealth. Yet these concepts, so obviously true, are ignored or even refuted by the â€˜â€™best economic mindsâ€™â€™ in our country, always so ready to justify the latest attempt to enrich the regal few at the long-term expense of the rest of us.
Yes, those pesky WMD have been found, all right! And we are swimming in them: trillions of newly printed dollars, trillions in consumer debt and trillions more in unfunded liabilities for Social Security and Medicare. Add to that a manufacturing sector paying so little that servicing our debt becomes nearly impossible. And as these components speed up and grow, the chance that one or more will explode becomes even greater.