Americans are running out
of money
Bill Bonner
The Daily Reckoning
14 Jul, 2006
...The US trade gap grew in
May to $63.8 billion. But take away oil imports, and the gap
actually fell. This is what we expect. Americans are running
out of money...
There is theory. And there
are the facts. And often, the twain do not meet. At least not
nearly as often as they should.
We note, for example, that Nanjing Automobile, owner of what
used to be MG of Birmingham, England, has decided to build a
manufacturing plant in Ardmore, Oklahoma. Nanjing joins Toyota,
Honda, Nissan, and Hyundai with auto manufacturing plants all
over the US. We have written more than once that high US labour
costs make manufacturing a losing business in America. But US
labour costs only seem to be a problem for US companies. Apparently,
everyone can make money building cars in America - except Americans.
We don't know what to make of it... so we will leave it alone
and return to facts that are more convenient.
The US trade gap grew in May to $63.8 billion. But take away
oil imports, and the gap actually fell. This is what we expect.
Americans are running out of money. They can't afford to continue
buying oil... and buying more junk too. Something's got to give
and it will be junk. Consumer spending, at least on the more
frivolous items will fall, we are sure.
More evidence of this comes from Las Vegas which, according to
Reuters, is feeling the pinch of higher fuel prices and squeezed
family budgets. Las Vegas is a playground for Middle America.
When the lumpen run short of money, Las Vegas shrivels.
We find that Disney, also nourished on the blood of the middle
classes, is "slashing jobs."
And now comes news that commodities are rising across the board;
that nickel has hit a new high of $26,600 a metric tonne, oil
is over $74 and gold is trading over $650 an ounce. Corn and
wheat are at 10-year highs. This, too, fits nicely into our theory.
While Americans run out of dollars, foreigners have plenty of
them. They're bidding up prices on the things that are not easily
Made in China.
We see also that the yield on the 2-year note is higher than
the yield on the 10 year. This inverted yield curve also suggests,
foretells, or perhaps even creates a weakening economy. In America,
the Bernanke Fed has already cranked hard on the tap. Rumour
has it that it will give it another 25 basis point twist next
month.
How does Ben Bernanke know exactly what rate the world needs?
If he could know such a thing, why not ask him to set the price
of sugar, copper, and iPods too? No, neither the chairman of
the Princeton economics department nor the chairman of the Fed
can know what isn't knowable - the exact rate at which lenders
would lend and borrowers would borrow if they didn't have the
Fed fixing prices. Of course, that is not really what the Fed
chief is trying to do, either. He is not figuring out an unknown
but fighting an unseen. Instead, of letting the economy blow
whither it lists, Bernanke has a theory of his own about
whither it should be listing. He is simply not going to go along
with the trend, whatever that might be. He's fighting it, whatever
it is, he's determined to deliver a knockout blow to inflation,
before it even appears to reassure bond buyers, mortgage lenders
and overseas dollar holders of what he himself is unsure of and
then, as soon as his flanks are covered, to march his army down
to face deflation.
But if our theory is right, the poor man will succeed all too
well in his first battle and lose his second. America, finally,
will follow Japan into a 'lost decade.' Maybe more than a decade.
Maybe a lost generation.
***We are headed back to Paris this morning... riding on a trainline
funded by unhappy investors. The EuroTunnel cannot make its debt
payments. According to reports this morning, its collapse is
imminent. Junior lenders can expect to get back only 4 cents
on the dollar.
The England-France train connection - the Eurostar - has become
a critical part of our lives. We make the trip almost every week.
It is comfortable. Convenient. Even pleasant, when it is not
crowded with tourists.
So, we would like to thank all those hundreds of thousands of
investors who saved and then sacrificed their moneyso that we
can ride back and forth under the English Channel at less than
the actual cost. Heck, we don't even pay for it; instead we trade
advertising space in our English financial magazine.
And we would like a moment of silence... to remember all those
millions of dollars spent building this money-losing colossus.
They have all gone to money heaven. RIP
*** Remember 'crop circles'? We read about them many years ago,
but this is the first time we have actually seen one.
If we recall correctly, back in the 1970s people began to notice
spots in the middle of wheat fields - in Britain - where the
crop had been cut away in a perfect circle. Often, there were
many circles and sometimes other patterns. Many explanations
were offered including that the circles were made by extraterrestrials,
but we never saw a definitive conclusion.
This morning, about 45 minutes after leaving London's Waterloo
Station, we looked out to our right, and there was a crop circle,
about 20 feet wide, in the middle of a field of what we took
to be wheat. It was striking in that it seemed to have been perfectly
executed, with looping arcs of petals coming off the circle at
regular intervals. Around it, there was no sign of damage or
passage. Whoever did it, did it well.
We don't recall anything nearly so well-executed in the modern
art world.
*** More to the head-butting story: French philosopher Bernard-Henri
Levy has made a reputation for himself by writing claptrap. BHL,
as he is known, is a regular on TV and in magazines. And now
he explains Zinedine Zidane's World Cup attack on Marco Materazzi
as an "interior revolt" - the "suicide of a demi-god."
We should ask him opinion on the bond market.
Regards,
July 13, 2006
Bill Bonner
http://www.dailyreckoning.co.uk/
 Bill Bonner is the founder and editor
of The Daily Reckoning.
He is also
the author, with Addison Wiggin, of The Wall Street Journal best
seller Financial
Reckoning Day:
Surviving the Soft Depression of the 21st Century (John Wiley
& Sons).
In Bonner and
Wiggin's follow-up book, Empire
of Debt:
The Rise of an Epic Financial Crisis, they wield their sardonic
brand of humor to expose the nation for what it really is - an
empire built on delusions.
321gold
Inc
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