Gary's Note: The protesters are ready to march and in Greece the revolts
have already begun. Bill Bonner says they may as well relax. The system will
collapse just fine on its own.
Whiskey & Gunpowder
By Bill Bonner
March 15, 2010
Mumbai, India
No Need to Worry: Collapse Is on Its Way
"Masked youths...attacked the head of Greece's largest trade union, who was
addressing the crowd, and hurled stones at the police. GSEE union boss
Yiannis Panagopoulos traded blows with the rioters before being whisked
away, bloodied and with torn clothes."
The Daily Mail account put the blame for these disturbances on Germany's
finance minister, who warned the Greeks that "the German government does not
intend to give a cent." At least Bild, a popular German newspaper, was
trying to be helpful. It suggested that Greece sell Corfu...and that Greeks
get up earlier and work harder.
Meanwhile, from Iceland comes news that every voter with an IQ above air
temperature has cast his ballot against a bailout plan. The Icelanders were
slated to make good $5.3 billion in bank losses. But why shackle common
voters to the banks' losses? The plan was so outrageous and so unpopular
that Iceland's normally compliant Prime Minister called for a referendum.
Given a chance to vote on it, 93% said no. The other 7% probably read it
wrong.
Insurrection is in the air. In England, government employees are preparing
the biggest strike since the '80s. In America, dissatisfaction with Congress
is at record highs; four out of five of those polled say, "Nothing can be
accomplished in Washington."
Herewith, an attempt to deconstruct the rebel yell. By way of preview, it's
not the principle of the thing, we conclude; it's the money.
There are more clowns in economics than in the circus. They invented an
economic model that has been very popular for more than 50 years -
particularly in the US and Britain. It began with a bogus insight; John
Maynard Keynes thought consumer spending was the key to prosperity; he saw
savings as a threat. He had it backwards. Consumer spending is made possible
by savings, investment and hard work - not the other way around. Then,
William Phillips thought he saw a cause and effect relationship between
inflation and employment; increase prices and you increase employment too,
he said.
Jacques Rueff had already explained that the Phillips Curve was just a
flimflam. Inflation surreptitiously reduced wages. It was lower wages that
made it easier to hire people, not enlightened central bank management. But
the scam proved attractive. The economy has been biased towards inflation
ever since.
Economists enjoyed the illusion of competence; they could hold their heads
up at cocktail parties and pretend to know what they were talking about. Now
they were movers and shakers, not just observers. The new theories seemed to
give everyone what they most wanted. Politicians could spend even more money
that didn't belong to them. Consumers could enjoy a standard of living they
couldn't afford. And the financial industry could earn huge fees by selling
debt to people who couldn't pay it back.
Never before had so many people been so happily engaged in acts of reckless
larceny and legerdemain. But as the system aged, its promises increased.
Beginning in the '30s, the government took it upon itself to guarantee the
essentials in life - retirement, employment, and to some extent, health
care. These were expanded over the years to include minimum salary levels,
unemployment compensation, disability payments, free drugs, food stamps and
so forth. Households no longer needed to save.
As time wore on, more and more people lived at someone else's expense.
Lobbying and lawyering became lucrative professions. Bucket shops and banks
neared respectability. Every imperfection was a call for legislation. Every
traffic accident was an opportunity for wealth redistribution. And every
trend was fully leveraged.
If there was anyone still solvent in America or Britain in the 21st century,
it was not the fault of the banks. They invented subprime loans and
securitizations to profit from segments of the market that had theretofore
been spared. By 2005 even jobless people could get themselves into debt.
Then, the bankers found ways to hide debt...and ways to allow the public
sector to borrow more heavily. Goldman Sachs did for Greece essentially what
it had done for the subprime borrowers in the private sector - it helped
them to go broke.
As long as people thought they were getting something for nothing, this
economic model enjoyed wide support. But now that they are getting nothing
for something, the masses are unhappy. Half the US states are insolvent.
Nearly all of them are preparing to increase taxes. In Europe too, taxes are
going up. Services are going down. And taxpayers are being asked to pay for
the banks' losses...and pay interest on money spent years ago. Until now,
they were borrowing money that would have to be repaid sometime in the
future. But today is the tomorrow they didn't worry about yesterday. So, the
patsies are in revolt.
Several countries are already past the point of no return. Even if America
taxed 100% of all household wealth, it would not be enough to put its
balance sheet in the black. And Professors Rogoff and Reinhart show that
when external debt passes 73% of GDP or 239% of exports, the result is
default, hyperinflation, or both. IMF data show the US already too far gone
on both scores, with external debt at 96% of GDP and 748% of exports.
The rioters can go home, in other words. The system will collapse on its
own.
Regards,
Bill Bonner
__________________ Well done is better than well said - Benjamin Franklin
