He was born into the teeth of the great depression but because his grandfather owned a farm he never went hungry but he was 20 before he ever owned a new pair of shoes. My dad would talk to us about the depression and we would ask childish questions. I remember once asking, “Why didn’t people just sell some of the stuff they had?” I’m sure your wondering by now, what is he prattling on about? Because, that childish question goes to the heart of the financial crises that we face today.
My father explained it to me, “People tried to sell, but nobody had any money to buy anything, until the prices went down to almost nothing.” Ever wonder why the Germans sold Chrysler? They saw the writing on the wall, you can call the Germans a lot of things but stupid isn’t one of them. They got out while the getting was good, the forecast for North American auto sales is abysmal.
I read the newspapers from Australia because when its Sunday morning here in sleepy Powder Springs it is noon on Monday in Sydney. I found this interesting little tidbit, “Bonds issued by Centro Properties Group's American shopping centre business have been downgraded to lower-order junk status, with predictions "significant asset sales" would be necessary to reduce its debts.” Anyone want to buy a shopping centre?
“The ratings move was made after the resignation of Andrew Scott last Tuesday and simultaneous disclosures about problems regarding the classification of debt on its balance sheet and falls in currency hedging. Centro's problems started last month, when it announced it was unable to refinance $3.9 billion in debts. It is working towards a February 15 deadline imposed by its financiers.” It would seem that in this case dead means dead unless one or two of you out there pony up to buy a shopping center or two. Come on, they’ve got over 465 centers to choose from all across America, one of them has got to be right for you.
What did the administration tell us after 9-11? Why to go shopping of course! What is the administrations current remedy for our economic malaise? Why to give every one checks and tell them to go shopping of course. What would you expect from a man whose answer to bankruptcy is to ask some of dad’s friends to bail him out? You don’t have to be an economist or financial expert to understand what is going on, in fact it might even be a hindrance. If you ever set up a lemon aide stand or played monopoly as a child it obvious. After you made the lemon aide and sold a glass to mom, and the mailman and the lady across the street and your best friend you didn’t know anyone else who had any money. Of course unlike Centro you didn’t go to the bank and borrow 3.9 billion dollars to open up a chain of lemon aide stands coast to coast. The moral is however the same, people without income make lousy consumers.
Remember playing Monopoly? How after the money is past out? That for the first few times around the board there is a buying spree? Then after everyone’s cash is exhausted there is a lull while the players recoup their finances. In the real world they just borrow the money from the bank. The end of the game becomes clear long before it comes, the winner has the great properties loaded with hotels and one by one the other players drop out. But in the real world the point is to keep the game going, after you’ve bankrupted everyone you have no more customers! You end up like Centro properties and George W. Bush.
You have to sell all your property just to stay in the game, or as George says, “Here, don’t quit, I’ll give you some money just to keep you in the game. But as we all know, that’s only a temporary fix, it doesn’t change the fact that $200.00 dollars for a trip around the board precludes us from ever being able to succeed in a game that takes more than we can earn.
The game is over when the winners at the top have all the money. But it is over for the winners themselves as well. Without players there is no game and with out game the money becomes as worthless as the monopoly money. The foreign players will take their money and go home. Leaving us sitting in the hot sun with a pitcher of warm lemon aide.
The engine of prosperity that existed in post war America was predicated on strong currency with an emphasis on wage growth and price control. True, there weren’t as many millionaires created but then again millions weren’t losing their pensions, healthcare and homes either. The idea was to keep people in the game, the best for the most rather than the most for the least. To separate savings from speculation or as momma used to advise, you never gamble with money that you can’t afford to lose.
Ah but, I remember it well, George W’s plan to privatize Social Security, why should you settle for a paltry 3%? You could invest in the stock market and retire as a potentate! You could invest in Centro Properties or Ambac or Citi gambling with money that you can’t afford to lose. But W’s plan was defeated, but W needed more money for wars and tax cuts, the answer? Just print more! Even those who have shown a profit in this market are earning fiat dollars worth 40% less against the Euro than six years ago.
George had to keep printing money to keep the game going, a 7 trillion dollar trade deficit and 1 trillion more for wars and tax cuts left no money on the monopoly board, that money was percolating in foreign economies creating prosperity else where. But now the jigs up, Bernanke’s speech to Congress was an admission of that. Bush’s sudden willingness to work with Congress tells us just how serious it has become. The frenzied press conference with Treasury Secretary Paulson puts an exclamation point on it. When was the last time you saw a treasury secretaries press conference that looked like a Super Bowl locker room?
The good news? I wish I had some good news, I think about what my mother told me about black Thursday, “Stockbrokers were jumping out of their windows but to us it was just another Thursday. We were poor Thursday morning and we were still poor Thursday night.” I asked my dad what did you do for money? “I sold bottles to boot leggers for 5 cents apiece there’s always a market for hand guns and hard liquor.”