Hurt

A eulogy for Johnny Cash…may he rest in peace.

There’s a man goin’ ’round takin’ names An’ he decides who to free and who to blame. Everybody won’t be treated all the same. There’ll be a golden ladder reaching down When the man comes around.

– John R. Cash

"I was just sitting here, wondering what they would say in my obituary," said my friend Michel at lunch the other day. We arrived at the restaurant and found him with a book explaining the grammar of an ancient Tuscan language, long forgotten. "I’ve read almost all the classics…I read all the time. I know an extraordinary amount about an amazing number of things. I read a book of Norse sagas yesterday. And then a book about Greek inscriptions. And then an analysis of the art of Michelangelo and Titian. But who cares? My obituary will probably say I was an eccentric publisher with a keen interest in Bombay films."

Long-time readers of this space know that we are pulled to the obituaries like mountain apes to a shiny new motorcycle. We can’t seem to pass a dead man without studying him a bit, trying to figure out what this strange human thing is…and how it works. We stare, without a clue…and wonder.

Some will say that we have a morbid fascination with death. Instead, it is a lively one. We read an obituary and look down at our own two legs. How happy we are to still be upon them…and reading someone else’s death notice! What a cheerful thought: the gravediggers are tossing clods on someone else’s face! How delightful. We still see…we still breathe; we still have wit enough to laugh at life’s absurdities…heart enough to cry. What more would a man ask for than to be able to go down to the Paradis, hobnob with jolly old whores, and drink enough cheap wine to float a barge? Or, in a sentimental moment, we can pick up our guitars, howl out a blistering lament…and drive off the neighbors.

Johnny Cash’s Death: Enjoy Life

We like the appeal of heaven and fear the threat of Hell as much as anyone, but are not sure we can trust them. So we take Pascal’s wager and play it in reverse. Maybe we will get our reward in Heaven, but that is what worries us; so we are determined to enjoy life – just in case.

Obituaries are like every other spectacle of life: at some, you laugh; at others you weep. Few sensible men shed tears, for example, when a tax collector makes his last seizure or a politician gives his last stump speech. Most people are wisely indifferent. A few wail…for they have lost their champion. But most chuckle to themselves…even as they lower the putrefying flesh into the grave; they are glad to be rid of him.

When the Grim Reaper comes around for a politician of consequence…a Roosevelt or a Lincoln, for instance…apologists make a great effort to turn him into a kind of plastic archangel. A few opportunists and cranks take their parting shots, pointing out that he was sleeping with his secretary…or that he plagiarized a speech or two. But as the corpse grows cold, eulogists use even the alleged flaws to make the stiff seem larger than he was. Over time, the sordid, the silly, and haphazard elements are pumped out of him – like decaying bodily fluids – and replaced with solid concrete. The lucky hack becomes a monument, a milestone in history, seemingly guiding the way towards a better future for us all.

An honest man, on the other hand, ought to get an honest send off.

John R. Cash brought dew to our eyes when he died a couple of weeks ago. We held off saying anything; we wanted to think about it. Not that we had any special connection with the Man in Black…but we had come to appreciate his music over the years. He had provided our informal and unrehearsed band with inspiration and material. Friends even said that your editor sounded a little like Johnny Cash, when his jaw was broken.

Johnny Cash: Better than Abraham Lincoln

Now that the man is dead, we feel poorer. We have lost something. Not a fulminating vote-getter, but a real man with decent instincts and genuine feelings. Here was a man who had had his share of trouble. He was a sinner, like the rest of us. His health was bad. When Johnny sang a cappella, you could hear the pain. His interpretation of Hurt, a Nine Inch Nails song, is one of the finest pieces of vernacular music we’ve ever heard.

But the obituary writers ran right into a dramatic roadblock when they reported the remark of Kris Kristofferson. "I like to think of him as Abraham Lincoln," said Kris Kristofferson. Obituaries, like the rest of life, are either comic or tragic. Here was an element that didn’t seem to fit. It would seem more than a stretch to measure a hick singer against the Great Emancipator; it seems not only preposterous, but outrageous and almost libelous. The Cash family should demand an apology.

Among all the frauds and humbugs of American politics, Lincoln falls near the top in our rankings. Had he not been on hand in the run-up to the War Between the States, the costliest war in American history might have been avoided. The American states might still be sovereign. Of course, we cannot know what would have happened. But while John R. Cash enriched the lives of millions, we are not sure Abraham Lincoln brightened the life of a single one.

Some would say that Lincoln had a simple eloquence, like Cash. But Lincoln’s eloquence was as trumped up as his war. In his celebrated Gettysburg address, to cite an example, he claims to be fighting to preserve the ideals of the founding fathers. But the guiding principle of the early republic was that people had a right to decide for themselves who would govern them – the very principle that Lincoln was determined to crush.

Johnny Cash: Poseurs, Imposters, and Villains

Every serious politician is a poseur, and imposter, and an ultimately, the worst kind of villain. This is no less true of Clinton or Bush…as it was for Mussolini, Hitler or Stalin. When pushed, a real politico must be willing to shove his fellow men into the grave; it is part of the métier. Mussolini had his rivals killed…and then went off to war, killing people in far-off cities on some pretext or another. Hitler and Stalin started with a few…and ended up killing millions. And even Bill Clinton was willing to gas and fry innocent women and children when their leader resisted service of an arrest warrant for a penny-ante firearms violation. That is why Dante placed his politicians in Hell; he knew where they belonged.

And so we sneer, snigger and guffaw at the political class. Maybe it is a character flaw, but we cannot read Hilary’s book without harrumphing and gurgling…nor can we read George W. Bush’s lips without wanting to giggle. So amused and appalled are we by their simpleton delusions and ambitious dissembling…we can hardly wait for the eulogies.

But, at 71, Johnny Cash’s obsequies came too soon.

The hurt was bad enough before his wife died in May; after that, it was intolerable.

"I don’t hardly know what to say tonight about being up here without her," he said to a crowd at the Carter Family country music festival in Hilton, VA, "The pain is so severe there is no way of describing it." We did not hear him say those words. But we can imagine it; the lines delivered with sincerity and simplicity. There was no conceit in them. No spin. Just hurt.

Bill Bonner

September 25, 2003

Bill Bonner is the founder and editor of The Daily Reckoning. He is also the author, with Addison Wiggin, of "Financial Reckoning Day: Surviving The Soft Depression of The 21st Century" (John Wiley & Sons).

Mortgage rates fell below 6%.

Home sales hit another near-record in August. Last week’s unemployment claims fell below 400,000, but cynics pointed out that many government offices were closed because of rising water brought by Hurricane Isabel.

How can so many people afford new houses? They are already so deeply in debt. Their incomes are barely rising. They are losing their jobs. What gives?

Behind each new house is a line of credit that stretches out from the California coast all the way to Japan and China. Those wonderful people in Asia lend the money…and ask only a pittance in return – at interest rates so low you’d think these were the Eisenhower years.

Once again, we thank the kindness of strangers. Why do they do such a thing? Because they are nice? Because they are shrewd? Or because they are dumb? They have faith in the U.S. dollar…the U.S. economy…and the American dream. They also want to keep the dollar low so they can sell more products and provide jobs for their people.

But the recent downward move of the dollar may lead many Asians to think that they are being less shrewd and more dumb than they thought:

"Asian countries’ apparent willingness to trade-off jobs for a bad investment begs a better question," writes Bill Gross, manager of the biggest pile of bonds in the world.

"If Asia is subsidizing its growth by purchasing dollars and Treasuries at a premium price, what about all the rest of us? What ancillary benefits do we get by purchasing a rich dollar-denominated bond? Surely PIMCO and others get the same interest rate and (absent money management alchemy) we get the same return as do Asian investors. We therefore are getting the short straw, the hind teat, in short, a bad deal.

"We have nothing to show for our investment prowess other than an under-yielding Treasury note denominated in an overvalued currency…" Gross continues, "But what oh what if it turns out to be true, or what if the PIMCOs of the world wise up to their subsidizing Chinese employment by holding an overvalued Treasury portfolio? And, lest I sound too apoplectic, the name of the next game doesn’t have to be Armageddon. A more likely course would posit reduced Asian and U.S. purchases of Treasuries, a diversification into Eurobonds, a stronger yen and yuan over the next few years, more expensive U.S. imports after a lag, a sapping of consumer spending power, gradually rising intermediate and long-term rates, a declining housing market and yes, a near body blow to America’s financed-based economy.

"I reiterate," reiterates Gross, "the stocks, bonds, and currency of a debtor nation in the process of reflating are not attractive investments."

They may not be attractive….but people seem to want them anyway – at least, for now. But like Chinese, Japanese, and bondholders everywhere….they could change their minds.

Right, Addison?

————–

Addison Wiggin, writing from Paris…

– "The hour of capitalism’s greatest triumph," wrote the prescient economist Hernando de Soto in 2000, "is its hour of crisis."

– We had the honor of running de Soto’s overhead projector at a small symposium he gave here in Paris last week. Not by design. In fact, we ended up sitting next to him at the table, because we were late. There were no seats left and the only place available to put up a folding chair was next to his projector. "Désolé," the shorter and (slightly) stouter of your Paris editors said; for the Peruvian was giving his lecture in French. He grunted…shook his head, then continued. The only way to redeem the intrusion was to offer to adjust his transparencies when they were askew and turn the machine on and off as he needed it.

– De Soto is doing with his brain and voice the work the neo-cons think they’re doing with their guns. "Over the past five years," he explains in his book, "The Mystery of Capital," which he was hawking at the symposium, "I and a hundred colleagues from six different nations have closed our books and opened our eyes – and gone out into the streets and countrysides of four continents to see how much the poorest sectors of society have saved. The quantity is enormous." Rather than invading and coercing with an $87 trillion army, de Soto and crew went out with backpacks and notebooks to talk to people.

– What he found is astounding. Trying to answer the questions: "why does capitalism only thrive in the West?", he and his researchers discovered that: "even in the poorest countries, the poor save. In Haiti, the poorest nation in Latin America, the total assets of the poor are more than one hundred and fifty times greater than all the foreign investment received since Haiti’s independence from France in 1804. If the United States were to hike its foreign aid budget to the level recommended by the United Nations – 0.7 percent of national income – it would take the richest country on earth more than 150 years to transfer to the world’s poor resources equal to those they already possess."

– But, if the poor are so rich…what’s the problem? Most of the capital they possess is what de Soto calls: "Dead Capital." Government regulations and unclear property rights keep most of the world’s ‘savings’ locked up in illiquid positions. Just one example: "In the Philippines, should a [bloke] want to build a shack to house his family, and do it legally, the process would take 168 steps, involving 53 public and private agencies and take 13-25 years to complete." De Soto discovered equally messy bureaucracy in Haiti, Egypt, Peru, Venezuela…and so on. The poor are kept poor because they’re unable to unlock the capital they already posses…

– "The fall of the Berlin Wall," observes de Soto, "ended more than a century of political competition between capitalism and communism. Capitalism stands alone as the only feasible way to rationally organize a modern economy." Yet, efforts by Russia, Venezuela and Malaysia, among others, to implement ‘capitalism’ as imagined by their leaders, have been met this past decade with "economic suffering, tumbling incomes, anxiety and resentment; of ‘starving, rioting and looting’ in the stinging words of Malaysian prime minister Mahathir Mohamad."

– The U.S. and European response to this "starving, rioting and looting" – prior to the invasion of Iraq – was to suggest that Third World countries should "stabilize their economies, hang tough, ignore the food riots and wait patiently for foreign investors to return." Now, they’ve added ‘regime change’ and ‘nation building’ to the vocabulary. And deficit spending of historical proportions.

– "Will debt buildup sabotage the recovery?" asks the IHT, here in Paris. Oh là là…if even these guys are cottoning on to the trend, we may be in for some serious trouble. Dan Denning calculates that a 1% increase in interest rates would roughly double the amount of interest the U.S. government would have to pay bondholders. (You’ll find an additional historical nugget from Mr. Denning below…).

– "The triumph of capitalism only in the West," de Soto suggested three years ago, "could be a recipe for economic and political disaster." Last month, bond sleuth Bill Gross indicated what that disaster might look like; he called it "Hegemonic Decay." "Dollar crash could wreck U.S. economy," is how a headline in the Detroit Free Press put it this morning. "A slide in the U.S. dollar," says the article, "spooked stock and bond markets this week, a reminder of the calamitous risk that a dollar crash poses to the U.S. and global economies."

– The Dow cracked a little more, dropping 81 points to 9,343. The Nasdaq shed 26 to 1817. The S&P lost 6 and closed the day at 1003. Gold, meanwhile sped ahead to fresh 7-year highs…

————–

Bill Bonner, back in Paris…

*** Oh no! Gold shot up above $390 yesterday. It looked like it was closing in on $400 before reversing and falling later in the day. The price remains in the upper $380s. Will it ever hit our $350 buy target again? Should we raise the target to $400? Maybe, dear reader…maybe…

*** Levi Strauss closed its remaining plants in the U.S.. And Indian Motorcycle closed down, too, after a valiant campaign to resuscitate the mark. There was a time when Indian motorcycles were the biggest-selling brand and people rode them in Levis that were made in America. Sic transit gloria mundus.

*** Our colleague, Dan Denning, sends the following note from his office in Paris:

"Who said: ‘There can be no other criterion, no other standard than gold. Yes gold, which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is eternally and universally accepted as the unalterable fiduciary value par excellence’?

"Alan Greenspan? No. It was Charles De Gaulle.

"In 1968, De Gaulle knew the dollar standard was a racket that favored American consumers. He said the dollar’s status as the world’s reserve currency was an ‘exorbitant privilege’ for the American economy.

"He took the American government at its word and began redeeming his paper dollars for the gold in Fort Knox. When De Gaulle did this in 1968, it caused a mini run on U.S. gold that forced Nixon to close the gold window three years later. De Gaulle didn’t restore the gold standard. In fact, by speeding up the end of the Bretton Woods agreement, he actually helped usher in the era of fiat money backed by nothing: the dollar standard we live under today.

"But he showed that it only takes a change at the margin to precipitate the demise of a currency regime. All it takes is one prominent seller to call the bluff behind the perceived economic strength that backs a paper currency. De Gaulle called the Americans’ bluff by forcing them to cough up gold. Nixon knew that real gold was worth a lot more than U.S. paper, so he shut the whole charade down.

"Fast forward to today and the dollar standard. What’s the backbone of the dollar standard…? It’s the unshakeable faith the world’s investors [particularly the Chinese and Japanese] have in U.S. bonds. The Administration apparently thinks it can engineer an ‘orderly’ devaluation of the dollar without causing foreign bondholders to sell their U.S. bonds.

"Currency markets rarely do anything in an orderly fashion, though, especially at the extremes, when one currency regime ends and another begins. Just ask John Major and the Bank of England about insulating a currency from market forces.

"Nearly 11 years ago to the day (September 22nd, 1992), the Bank of England tried to manage an orderly entry of the pound sterling into the European Exchange Rate Mechanism. But George Soros knew the pound was already overvalued. The market always knows. Soros figured, ‘Why wait?’

"He sold sterling in the futures markets, creating supply. Creating new supply has the effect of bringing prices down. The Bank of England countered by raising interest rates to support the currency. A higher yield, it figured, would create demand, offsetting the extra supply Soros was brining on line.

"Remember, the Bank knew the pound was too strong. But they intended to engineer an orderly decline. Radical adjustments are disruptive. Investors lose confidence if a currency loses too much value too fast. They start selling other assets denominated in that currency. Currency selloffs lead to stock-market selloffs. Stock-market selloffs lead to lost elections.

"Soros kept selling pounds, though, and by the end of the day, the Bank of England was forced to renege on the rate increase. The Bank was caught in the awkward position of admitting through its public actions that the currency it managed was not worth as much as it had said. And it couldn’t afford to support it any longer. But it was forced to abandon its position because Soros put money behind the opposite position, that the pound was overvalued and MUST correct.

"Soros made a billion dollars in one day."