Bill Bonner in true holiday spirit ! <g/ng>
dailyreckoning.com
The Daily Reckoning
Ouzilly, France
Friday, 26 December 2003
The rest of the world somehow knows.
They know it is all a fraud. The recovery....the consumer economy...the Bubble Reloaded...something tells them that it is not going to turn out the way people think.
And so, day after day, they sell the dollar. Every U.S. company...and every U.S. asset...every paycheck...and every bottle of booze is calibrated in dollars. Selling the dollar takes them all down a notch. And people scarcely notice. At least, not at first.
The dollar is the 'Way Out' for everyone - or so it appears.
President Bush could do the honest and honorable thing. He could go on national TV and explain to voters that the nation is spending more than it can afford. "We're all going to have to cut back," he could say. "And we're setting the example here in Washington by cutting Federal spending by 15% next year...
"Plus, I'm sorry to have to tell you this, but we're going to have to raise taxes, too. Otherwise, we're just getting ourselves further into a hole that our children and grandchildren will have to deal with."
You have not yet heard George W. Bush say such a thing?
Well, have you heard Alan Greenspan tell Congress that he has "reluctantly decided to raise interest rates in order to reduce consumer spending, lower debt levels, and protect the dollar?" You haven't?
No, and you're not likely to. Voters want lies, not the truth. They want to believe that they can continue to borrow, spend, and eat all they want without any ill effects. They know they cannot eat all they want; they see the results for themselves. But economics is confusing. If Alan Greenspan says the economy is in great shape, who are we to argue with him? If George W. Bush says the nation is better off with a $500 billion deficit, how could we know any better?
Bush supporters point out that the extra spending was made necessary by the War on Terror. But more than half the additional slop has gone directly into the usual domestic trough.
The president must know as well as everyone else that someone, somewhere, somehow will have to make up these deficits. Just so long as it's not his problem, now! And Alan Greenspan knows perfectly well that someday this whole consumer debt/paper money economy will blow sky high. He just wants to be sure it's not while he's on the job...or not in any way that people notice.
The charming thing about the dollar is that it can fall...and the voters don't seem to mind. In fact, they rather like it. For while all America's assets have dollar signs in front of them...so do America's debts. A 50% decline in the greenback, for example, wipes out more than $4 trillion worth of foreigners' claims on U.S. assets...while Americans think they are still whole!
Voilà! There goes a big slice of America's debt problem...stuffed down the gullet of foreigners. What an elegant solution! What a delightful outcome! The foreigners don't vote. They can't even complain - for it's clearly their own damned fault. Fed governor Ben Bernanke said right out loud that we would destroy the dollar rather than allow the consumer economy to slow down. We reported it right here in the Daily Reckoning. Weren't they paying attention?
But wait. Is it really that simple? That easy? The foreigners are wising up already. Day by day, the value of everything American goes down - its houses, its stocks and bonds, its hourly earnings and dividends. How can Americans continue living in the style to which they have become accustomed? Without foreign lending...where will they get the money? Where will the federal government get the wherewithal to continue squandering cash at the present rate? How will consumers go further into debt when no one will lend them money? What will the consumer's house be worth when neither he nor many of his neighbors can afford to make the monthly payments?"
We cannot wait to turn the page and find out. |
