Empire of Debt Empire of Debt: Eternal Sunshine of the Thoughtless Mind
by Bill Bonner and Addison Wiggin
The Rude Awakening
Wall Street, New York
Tuesday, November 22, 2005 In an excerpt from their book Empire of Debt, Bill Bonner and Addison Wiggin discuss the economic difference between the Reagan years and today. ------------------------- - Trading with the big guns in the New York Board of
Trade pits...hope you brought your earplugs,
- They lend, we spend...look who just bought you
another item on credit and,
- Your sneak preview of the book that has Oprah's book
club in a tizzy and - an Empire of Debt excerpt.
------------------------- Joel Bowman, reporting from the sweaty pit of the New York
Board of Trade... Fierce men are eyeballing each other from their perches on
all sides of the cauldron. Their neck and temple veins are
bulging and beads of sweat build on their forehead and
around their noses. The weak have been pushed to the back
and the level of noise and activity in the pit intensifies.
The time is 11:57 – three minutes before the close of sugar
trading at the New York Board of Trade. Kevin Kerr, famed editor of the Resource Trader Alert and a
veteran trader himself, leans over my shoulder. "This is when the men are sorted from the boys, Joel. It's
just about to get interesting." A young bloke in a crisp, starched shirt and too much gel
in his hair is shoved to the back and almost trips over
himself. He shoots me a sheepish glance and walks around
the other side of the mass of yelling bodies to find a
better position. "What happens if they don't hear you call out?" I ask
Kevin. "Bad luck buddy. If you don't stand up to be counted in
there, these guys will eat you alive." 11:58 – two minutes until close. The cacophony of hoarse throats and bellowing calls
heightens and arms are waving about furiously. The whole
scene resembles a mosh-pit at a summer music festival and I
half expect to see someone stage-diving or crowd-surfing to
the front. I look over to Kevin to ask another question but he is busy
studying the screens, his eyes moving from one panel to the
next, mind racing. I decide not to disturb him. By now the air is filled with arms holding, ripping and
hurling tickets across the floor. The noise has again risen
and a few of the younger guys are starting to become a
little panicked. The loud men grow louder and the louder
men are now screaming. 11:59 - one minute to close. This last minute seems like ten seconds. The screens are
flickering with green and red numbers, changing every
second. It seems the quicker they change, the louder and
more discontent the mob becomes until they are a hum of
white noise. I count the close in, unable to hear my own voice... 5,4,3,2...1. A man standing next to one of the clocks puts his hands to
his mouth and calls the close of trading for the day. The
wave of noise recedes and, after a short while, the traders
begin to disperse. They are chatting amongst themselves and
laughing and comparing order forms and numbers. The men are
visibly relieved and equally thrilled. I decide it would be a good idea to find Kevin, before we
head over to the gold pit. Looking back, I see a bunch of
traders, still red in the face and breathing heavily,
shaking Kevin's hand and patting him on the back. I mosey
over, feeling pretty excited myself, to hear them talking
at 26,355 words per minute and laughing at all manner of
odd acronyms and trader lingo. This is another language to
me. On our way over to the gold pit, I ask Kevin what was going
on back there. He starts to explain and I'm lost after 30
seconds. Maybe that's why he is one of the foremost
authorities in trading resources and I am but a lowly
junior editor, roaming the country? You can get in to the pit action with Kevin's Resource
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By Bill Bonner and Addison Wiggin [Joel's Note: Be sure to check out Bill and Addison's
roaring new bestseller: Empire of Debt: The Rise of an Epic
Financial Crisis. It has Oprah's book club shaking in it's
boots...which is always a good sign. Learn more here: Empire of Debt: The Rise of an Epic Financial Crisis Read on for an excerpt below...] Under Ronald Reagan, Americans thought they had
rediscovered their youth. They couldn't remember ever
feeling more confident or more optimistic. Then, 12 years
later, in George W. Bush, Republicans thought they saw
their hero reincarnate, with another 20 years of prosperity
ahead.
And why shouldn't it be morning in America again?
We answer the question directly. It is not morning in
America because it is evening. There is no bull market
because there is a bear market. People are not getting
richer because they are getting poorer. It is not 1981
because it is 2005.
Readers who find this an unsatisfying explanation are
reminded that it is not your authors who set the planets in
motion around the sun and created man — such as he is — out
of the dust of the earth. Morning often looks a lot like
evening — if you face the wrong way at the right time. But
it is the opposite end of the day's cycle. Empire of Debt: A Has-Been Economy in 1982 In 1982, interest rates were high and stock prices were
low. In 1982, there were a few people who wanted to buy
stocks, and many who didn't. In 1982, America, Inc., looked
like a has-been economy. Its currency was widely considered
near-trash and its bonds were described as "certificates of
guaranteed confiscation."
You could buy nearly the entire Dow for just one ounce of
gold. Now it takes 22 ounces. The trend of the time, in
1982, was down. Then, as now, smart people considered it
eternal. BusinessWeek proclaimed that equities were not
just in a cyclical downturn, not just sick, but dead.
As the moon looked down in the summer of 1982, it shone on
a wall of worry so high that only a knuckleheaded
contrarian would think of climbing it. Every headline
seemed to give another reason the bear market would last
forever. Every poll showed that consumers expected it.
Every price seemed to confirm the everlasting trend; the
sun had set forever; the black of night was permanent. Sign Up for The Rude Awakening Start your mornings off with a dose of Rude news. The Rude Awakening is dedicated to highlighting phenomena in the financial markets that others may not see. Let the Wall Street Journal and the New York Times "break news." Sign up FREE Today! We will not share your email address with anyone else, period.
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And yet, at that very moment, had an investor turned
around, he would have noticed a brightening in the eastern
sky. Over the next 18 years, the sun rose higher and
higher, until investors were so encouraged by the favorable
growing conditions that they scattered their seed like
confetti at a parade. Did anyone doubt that it would take
root in the hard concrete of lower Manhattan's financial
hothouse or the thin soils of the technology sector?
But the year 2005 is everything the year 1982 was not.
Today, there are many people who want to buy stocks and few
who don't. Interest rates are nearly as low as they have
been in half a century and stocks are as high as they have
ever been. Consumers — who were relatively reluctant to
spend in 1982 — pick their own pockets today. The latest
figures show consumer spending increasing at five times the
increase in wages and salaries.
Can these sunny trends continue forever? They never have
before. And no theory of economics explains how they might.
Instead, the typical pattern is for night to follow day. It
is also typical for the dumb things people did when they
were feeling flush to be corrected by recession and bear
markets. There is one more big difference...Foreigners have
been hot for U.S. assets for years — an attitude we have
come to count on, because we need $2 billion in capital
inflows every day to cover our foreign-trade deficit. What
happens as they cool off again.
Empire of Debt: Edifice of Debt Of course, they will cool off. Americans cannot expect
foreigners to support them indefinitely. Someday, perhaps
soon, they will realize that their main customers cannot
pay their debts; they will get tired of lending to them.
Then, the long, dark night will begin. It will not last
forever... Let us take a moment to stand back and gaze at America's
great Empire of Debt. It is the largest edifice of debt
ever put up. It sustains the most magnificent world economy
ever assembled It supports more people in better style than
any system ever before devised... In 2003, the American Enterprise Institute projected a $45
trillion shortfall; $47 trillion countered the
International Monetary Fund in 2004; the National Center
for Policy Analysis and the Brookings Institution came up
with $50 trillion and $60 trillion respectively in their
own research reports published in 2003. Those are all incomprehensibly large numbers, of course,
but the biggest of the projections came in 2004 from Social
Security and Medicare trustees themselves. They estimated
the unfunded benefit liabilities to have a current value of
$74 trillion dollars. As an empire matures, the imperial citizens believe more
and more extravagant things. By the opening of the twenty-
first century, Americans were spending more than they
earned. Each day brought more new debt than real new
wealth. Yet, between 2002 and 2005, every quarter showed
growth in GDP. Americans mistook this growth for progress.
They knew they had the world's best economy, its best
system of government, and its finest culture. They could
not imagine that they were growing poorer. The growth, such as it is, in the American economy, has
come about by virtue of increased emphasis on the present
tense. Americans came to despise the past and neglect the
future. The lessons of the dead and the desires of the
unborn were both ignored. Instead, all that seemed to
matter was consumption in the here and now. A dead man, F. A. Hayek, explains the consequences: "The economy in its entirety must continue to decline so
long as more is being consumed than produced, and some part
of consumption therefore takes place at the expense of the
existing capital stock." Without a theory, F. A. Hayek might have said, the facts
are as mute. But by the year 2005, both facts and theories
had become blabbermouths. The trouble was that the facts
had been corrupted so they no longer told the truth. And
the old theories that might have been used to interpret the
facts had been abandoned in favor of new, more convenient
delusions. Americans could now run up as much debt as they
wanted, said the new theorists. The American economy may or may not be "growing" in 2005.
But if traditional, time-tested theories about how wealth
and poverty are correct, thank God it is not growing more.
Every step it takes moves it deeper into debt and closer to
bankruptcy. [Joel's Note: Nowhere in the economy is this vast
separation between reality and delusion more apparent than
with the housing market. As real wages stagnate, debt piles
upon debt and savings drop in to the red, people continue
to borrow through the teeth. Where is all this money coming
from? A precarious situation is unfolding...and it's
effects won't be pleasant. Check out this special report
for the full story: Crumbling Castles of Debt
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news is kept. You've been to the website and discussed
recent and pressing issues with other Rude readers. You've
searched through the article archive to find the one you
missed last month and you've almost certainly sent your
wayfaring editor your comments, suggestions and holiday
photos. What? You haven't? Good God, man! Where have you been
getting your news? Alright, (deep breath) just check out the site now at
www.the-rude-awakening.com and write me an email letting me
know you are still alive at: aussiejoel@the-rude-awakening.com I'd love to hear from you about today's issue, or any of
the other Rude articles you find on the website. Cheers, jOEL ------------------------- And the Markets... | Monday | Friday | This week | Year-to-Date | DOW | 10,820 | 10,766 | 54 | 0.3% | S&P | 1,255 | 1,248 | 7 | 3.5% | NASDAQ | 2,242 | 2,227 | 15 | 3.0% | 10-year Treasury | 4.47 | 4.50 | -3.00 | 4.43 | 30-year Treasury | 4.67 | 4.67 | 0.00 | 4.62 | Russell 2000 | 679 | 672 | 7 | 4.2% | Gold | $491.35 | $485.80 | $5.55 | 12.3% | Silver | $8.16 | $8.05 | $0.11 | 19.8% | CRB | 313.63 | 312.74 | 0.89 | 10.5% | WTI NYMEX CRUDE | $57.62 | $56.14 | $1.48 | 32.6% | Yen (YEN/USD) | JPY 119.03 | JPY 119.13 | 0.09 | -16.0% | Dollar (USD/EUR) | $1.1727 | $1.1772 | 45 | 13.5% | Dollar (USD/GBP) | $1.7165 | $1.7180 | 15 | 10.5% |
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