We have to pinch ourselves occasionally...and remind ourselves that it is real.
Yes, after the real estate bubble burst, we thought the fun might be over. But no! In come the feds. As you know, what brought about the housing bubble was a sort of madness that caused people to do the damnedest things with their money. But now, the feds are doing even stranger and crazier things!
Actually, we were happy to see the bubble blow up. Spending more than you make is hardly a formula for wealth-building. All in all, we figured our countrymen would be happier, over the long run, if they started saving their money rather than squandering it. Besides, we liked seeing Wall Street getting whacked - those clowns deserved it.
The savings rate in the United States is rising quickly. We reported the falling balances in credit card debt last week. And the last figure we saw showed the savings rate had jumped from about zero to over 3%. Our guess is that it is headed back to about 10%. That's about where it is "supposed" to be.
But thank God for the feds. While the imperial citizens sober up...their government builds a still. While citizens save 3% of GDP, their government spends 15% - and more.
The feds' budget deficit for March alone would have been enough for an entire year during Reagan's...or even Bush's...term. At $196 billion, it is the monstrous fruit of crashing tax revenues and soaring government expenses.
Just a few months ago, we were talking about a $1 trillion budget deficit. When the discussion began, most people refused to believe it. How could the government - in good conscience - spend $1 trillion it didn't have? Here at The Daily Reckoning, we guessed that the deficit would go to $2 trillion. Not that we'd done any calculations...it just seemed to us that people consistently underestimated both the downward pressure from the bear market and the upward pressure from the politicians. The bear taketh away. The jackasses giveth. Well, at least they're trying, right? Of course, we'd all be a lot better off if they didn't do anything. But then, it wouldn't be so much fun to watch.
The total committed to this bailout campaign is now said to be about $13 trillion. Let's see, that's more than $100,000 per family. Better start working on your own 'personal bailout' sooner, rather than later. We have all the tools you need to get started in our "Emergency 'Personal Bailout' Bundle" which you can find here.
It's the "Theft of a Nation" says Stewart Dougherty:
"The United States of America, or, more precisely, the American people, are said to own 261 million ounces of gold, supposedly stored in the same Fort Knox vault that Goldfinger found so appealing. At $1,000 per ounce, the people's gold has a value of $261 billion dollars. TARP 1 alone has cost 270% of the entire value of that singular, tangible American asset. The total $13 trillion bailout cost thus far is 4,980% of the value of America's gold asset. Fort Knox has been robbed..."
They're squandering $13 trillion...or nearly 49 times the U.S. gold supply. But heck, it's worth it. The whole thing is very entertaining now...and will be hugely instructive in the future. When this is over, the next two are three generations are sure to say: well...we won't do THAT again!
And with that, we turn to Addison, who tells us of a strange new trend for the greenback:
"Last week, stocks market capped off their best rally since 1933," writes Addison in today's issue of The 5 Min. Forecast.
"The S&P 500 rose for the fifth straight week, now 27% off its low in early March. You'll have to go back to the Great Depression to find a 23-day rally that sizable.
"Thursday alone, the Dow ended up 3.1% - back above 8,000 for the first time since early February.
"And with this historic run, we see a peculiar new trend for the US dollar. Observe:
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"On Thursday, however, the dollar rallied big right along with top stocks. Today, the Dow opened down 100 points...and the dollar index dropped nearly a point. It's a curious trend developing with this 'sucker's rally'. When it sputters...and the dollar plays along...look out below."
Each weekday, Ian and Addison bring readers the The 5 Min Forecast, an executive series e-letter that provides a quick and dirty analysis of daily economic and financial developments - in five minutes or less.
The 5 is a free service to subscribers of our paid publications, including the newly relaunched Richebächer Letter. Dr. Kurt Richebächer could often be found in the pages of the DR, or his newsletter, The Richebächer Letter, calling for the demise of the dollar...along with the collapse of the housing market and the end of the over-extended American consumer, as far back as 2000.
Many of you felt the void left by Dr. Kurt Richebächer when he passed away in 2007, so in his honor we've formed a brand new 'wealth protection' society. For a short time, we'll waive the membership fees to the Richebächer Society - but only to those who act before April 20, at 5 PM. Get all the information here.
And back to Bill, with more thoughts:
We are still a bit stuck on the $13 trillion price tag for these bailouts.
Makes you wonder where former Fed chairman Paul Volcker, who was tapped back in November by Obama to head the President's Economic Recovery Advisory Board, is in all this.
Our friend Barry Ritholtz was pondering the same thing in a post on his blog, The Big Picture.
"If you want to know why the administration's approach to the credit crisis has been lacking, and why the Obama bailouts looks surprisingly like the Bush bailouts, consider this: No Volcker."
Barry mentions an interesting WSJ piece that points out that Paul Volcker was put at the head of an advisory board that has yet to meet. Says the WSJ:
"'Paul was surprised' at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently."
"To review," writes Barry, "You have access to the greatest Fed chief in history, and you are choosing not to use him during the greatest crisis since the Great Depression."
Our sentiment exactly.
A dear reader poses a question:
"...if you were a single mom, with a little cash & metal in a QRP, who had cut her expenses very, very low, who is staying home to take care of her own children and do contract work to get by AND save a little...what else should I be doing? Move to the country or should I move out of the states?
"Invest in shoes and underwear for my kids now pre-inflation, prepare for self defense, food storage, learn to grow vegetables...I am doing these things, but I just can't get myself to feel 'safe.' I am scared witless because I am afraid, not of a depression...that I can survive...I grew up really poor, but I am scared of the chaos that will ensue and the political/military escalation that will follow that...now that is what keeps me up at night
"What would you tell your Mom or your sister to do? I am really not feeling very well about all of this. How can I get to where I feel safe? I am thinking maybe the Appalachian Mountains or something. The government terrifies me."
What would we say? "Hmmm..." we would probably begin. "As to the financial crisis, we can provide some ideas."
But our reader seems to have already gotten the gist of them already. For the benefit of other readers, the central banks of the world have failed to do their jobs - to provide the world with sound, reliable money. This means that we each have to be our own central banker - stocking a supply of gold against the inevitable collapse of paper currencies. It is as if we couldn't trust the power company to provide electricity. We have to have a portable generator on hand - just in case. We like to have some gold...just in case.
But our reader has an even deeper fear: that we can't trust our government to provide security either. Security is the main reason governments exist - that, and larceny. Nevertheless, they don't always do a good job of providing security. In fact, they tend to fall down on the job often - usually when security is most needed. Most of the time, not much security is called for. People get along, more or less. Most people wouldn't kill their neighbors - even if they thought the cop on the beat could be bought. But occasionally, they get an evil urge and you need someone to step in with a blackjack and a pair of cuffs.
But government can be a source of insecurity, too. One security team attacks another from time to time. And occasionally, the security providers attack the people for whom they are supposed to be providing security. Here in Argentina, for example, there have been few genuine threats from the outside - at least not since the emperor of Paraguay, goaded by his Irish mistress, made a mad bid for control of the country in the mid-19th century. But in the 1970s, the government decided it had quite a few people it would rather not have. They were "disappeared." No doubt, many who were not disappeared were glad to be rid of them. They were troublemakers. But our reader seems to be afraid that she may among those who are disappeared from the United States in the next go-round of violence...or maybe just that she will be caught in the crossfire.
The odds are probably against it. But who knows?
"America: a super-power no more," says a headline at the Christian Science Monitor. Empires come and go. They don't always go easy.
Lately, we've been thinking: There are only three important decisions you make in life: what you do; whom you do it with; and where you do it.
Buenos Aires is a big city with many different neighborhoods. Your editor is staying in the Palermo Soho area.
We have lived in many different places and visited many more. We don't recall ever seeing a place that seemed so delightfully lively and convenient. The cobblestone streets are flanked by buildings of only one or two stories. Some have Belle Epoque or classical facades. Most are more modern with all manner of style - but leaning towards the contemporary chic. It's a neighborhood blessed by a lack of urban planning. Houses, apartment building, high-fashion shops, bars, supermarkets, restaurants, auto repair garages - you can find them all in a single block. The sidewalks tend to be rough; they've been patched, neglected, repaired, and overlooked for many, many years. There are also many trees - from the stately old sycamores on Thames Street, to many smaller, newer varieties we can't identify.
Within a block or two of our hotel there are dozens of eateries - from simple pizza parlors to very serious restaurants. The weather is perfect this time of year, so people sit outside all day long. They take their coffee in the morning...then lunch slides into mid- afternoon...and dinner slips all the way to 10 PM. Nightclubs open after midnight. By the time your editor is waking up, the revelers are still wandering the streets.
We went to lunch on a street corner near the hotel. The place was what Argentina is famous for - a steak restaurant. The restaurant had put a roof over the sidewalk and placed tables and chairs under it. We dined on white tablecloths...and watched people ambling along...mostly families with young children and some tourists. It was so agreeable...we wondered why we remained in Europe, where it is twice as expensive...and the weather is twice as bad.
Day and night, people walk the streets...shopping...going to cafes and art galleries...
This morning we heard a flute. It sounded like Pan calling to the water nymphs. A man rode slowly down the street on a bicycle onto which he had fashioned a grinding wheel for sharpening knives. The flute was his way to let people know he was in the neighborhood.
A woman washed the sidewalk on the other side of the street. She has a shoe store, with a big blue arch on the roof. The window displayed what we would call "tennis shoes," even though they're not really for playing tennis. They're replicas of the kind of shoes we wore in the '50s and '60s...Keds...or Chuck Taylor's All Stars...with rubber soles and canvas uppers. Now, they must be in demand. Every shoe store has thousands of them, in all colors - from fuchia to silver lame.
"Why not move to Buenos Aires?" we posed a loaded question to Elizabeth. It went off immediately.
"Are you crazy? We moved from the United States to Europe. We've already gone through that once. Have you forgotten how hard it was to figure everything out? Finally, after all these years, we have friends...we have things to do...we have things set up the way we want. Well...almost the way we want. Even after 15 years, we're still not totally settled.
"Why would you want to go through all that again?"
"I'll get back to you when I have a good answer," we said in retreat.
One final thing. We're headed up into the mountains. You won't hear from us for a week, but we leave you in the hands of Kate Incontrera and the rest of the DR contributors.
