In Today's Daily Reckoning:
*** No news is probably good news...
*** Debt...debt...debt...a fool and his borrowed money are
soon parted
*** Thank God for Harry Potter Greenspan
*** Nothing to report from Wall Street yesterday. It was
closed for the holiday. No widows were robbed, no orphans
became wards of the state, and no fools were parted from
their money. But it's back to business as usual today.
*** It is not at all surprising that Wall Street separates
fools from their money. That is its role in life. What is
more puzzling is how the fools got together with their
money in the first place.
*** A lot of it is, of course, borrowed money. Bill King
tells us that the average U.S. household now has 13 credit
cards and a balance of $7,500. "Non-financial companies,"
he says, "borrowed an additional $4.5 trillion, or an
increase of 67%, in the last 5 years."
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*** IBM, for example, illustrates both the trend towards
corporate debt and the fraudulent nature of delivering
"shareholder value" on a short-term basis. The company
earned $31.1 billion over the last 4 years. But it spent
$34 billion just to buy back its own shares.
*** Over this same period, IBM's revenues rose only 5%.
Gross profits rose barely at all - only 1.3%. But debt rose
from 31% of capitalization to 54%. Thus, while the stock
price rose, the net value of the company actually fell.
*** Which is what has happened in the entire market. Money
that might have been used to build up balance sheets - by
paying off debt or buying capital assets (such as new plant
and equipment) - was instead thrown into stocks - many of
them new ventures that could never reasonably be expected
to produce satisfactory earnings.
*** The result? Lower earnings. And weaker balance sheets.
In a cyclical downturn, may I remind you of the obvious,
stocks go down in value. Debt does not.
*** And yet, we are told, almost daily, that the American
model - with its quest for 'shareholder value,' its debt,
its free spending consumers, and its own Harry Potter
Greenspan who is able to conjure up whatever miracle the
economy requires at precisely the right moment - is
superior in every way. How is it then, that the stodgy,
rigid German economy has managed higher levels of
productivity growth for almost 20 years - 1.9% vs. 1.4% for
the years 1977 to 1995? Only recently has the U.S. economy
outpaced the Germans in productivity...and then only after
the statisticians at the Bureau of Labor Statistics stopped
crunching numbers and began extruding them.
*** According to a '96 GAO audit, reported recently by
Richard Russell, Alan Greenspan - America's most beloved
bureaucrat - commands a staff of 25,000 employees, with its
own air force of 47 Lear jets and cargo planes, a fleet of
cars that includes personal cars for the 59 Fed bank
managers, a full-time curator who oversees the Fed's
collection of paintings and sculptures and a budget of $2
billion.
*** Thank God there is the Fed, though. Its main job is to
protect the value of the U.S. dollar - which was stable for
the entire 19th century. Since the Fed has been in business
the dollar has lost 95% of its value. But who knows what
would have happened without the Fed.
*** "June normally produces the best return of the Summer
Rally," Bill King tells us. Everything went as well as it
could, King believes - "Easy Al" did not raise rates,
inflation, productivity and other numbers were as
flattering as the BLS could fudge them, polls showed Bush
with an increasing lead over Gore. Still, the June rallies
were unimpressive.
*** To get our bearings after the holiday...the Dow is down
9% so far this year. The S&P is down 2%.
*** The Saudis announced that they would pump more oil and
the price of oil fell $1.55 on the news.
*** Japan's Tankan report said that business was picking
up. Could it be that the sun is finally rising in the land
of the rising sun...after 11 years of darkness?
*** "In all technological revolutions from the railways to
the Internet," says a recent article in the Economist, "the
only sure long-term winners are consumers who gain from
lower prices and hence higher real wages."
*** An Arkansas panel of judges is trying to get our
president disbarred. They claim he lacks "overall fitness"
and has "damaged the legal profession" by lying in his
Paula Jones testimony.
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* * * * * * * * * * * * * * * * * * * * * * * * * * * * *
"I have just one question," asked a representative of the
John Birch Society many years ago. "Do you love this
country?"
I doubted that I could give him an answer that would
satisfy him. He was looking for Patriotism. But not the
sort of patriotism I am capable of. Fortunately, my friend
Jim Davidson was there at the time. As always, Jim had an
answer that satisfied us both:
Quoting John Milton, Jim replied: 'Wherever freedom is,
that is my country.'"
The John Birch Society representative, perhaps a little too
slow on the draw to distinguish freedom from nationalism,
went on his way.
Hearts swelled yesterday as bands played the Star Spangled
Banner. Voices, stretched to their limits, choked or went
dumb, depending upon the key...and people all over the
nation...and the world...celebrated their sentimental
attachment to the Stars and Stripes.
And such an odd attachment it is. America never really was
a nation state - despite the efforts of the public schools
and the 1950s nationalists to make it one.
It is a powerful state. But there is no nation of
Americans. Instead, there are groups of immigrants from
various places in the world with very different ideas about
how the world should work.
Culturally and genetically, I probably have more in common
with most Europeans than Americans. I feel at home among
the French, the English, the Germans, Swiss, Austrians and
the Irish. I feel safer on city streets in any of these
countries than I do in Baltimore. I enjoy the music, the
food, and the architecture on the east side of Paris more
than on the east side of Washington, D.C.
This makes me a bit footloose. But wherever I go, I am
still an American.
Americans are not united by blood, not by territory.
America began as a group of colonies on the East Coast of
North America. But the land itself meant nothing. Over the
years, America has taken many different shapes - spreading
out to the west all the way to the other side of the
continent...and then hopping over 4,000 miles of the
Pacific Ocean to the Hawaiian islands.
No particular land or climate characterizes the U.S. You
can find almost any variety you like.
Nor are the America people a "nation" in a tribal sense.
Unlike, say, the Scots, the Irish, or the even the French,
there are no over-riding blood links with other Americans.
Any individual American might have more in common,
genetically and culturally, with a tribe in Africa or a
clan in Scotland than with the rest of the population of
the U.S.
We do not even have a language of our own.
Compare this to France, perhaps the best example of a
nation-state. The French are, with the exception of
immigrants such as I, related to one another, speak a
common language, have a common history, and inhabit the
same land - bordered by the Pyrenees on one side and the
Rhine river on the other - where they have lived for more
than a thousand years.
Frenchmen are rooted in France. They rarely leave it.
Though many will spend years working abroad, most
eventually return.
When I first arrived in Lathus, I was visited by the local
police.
"What are you doing here," they asked, putting the question
directly.
I explained my business rationale. France is centrally
located; it gives me a base of operations for Britain and
Germany. This would have been satisfying to an American,
but it seemed to have little effect on the gendarmes. They
seemed suspicious. There were rumors that the chateau had
been purchased by an American cult (I didn't know at the
time that I was a cultist). The police were eager to know
what was up.
Then I explained that my mother's family was of French
origin, from a nearby area, in fact, Deux Sevres. Suddenly,
their expressions changed. They almost smiled in relief.
Now it made sense to them. We were coming back home (after
two centuries in the New World!)
Neither blood nationalism, nor land, unites Americans. It
is only an idea that holds us together...an idea that is in
danger of disappearing all together, like the last Liberty
Tree that was cut down last autumn in Annapolis.
What makes America special is the idea of independence and
liberty. The Declaration of Independence established
America as the first and only country in which the
individual was free and sovereign - free to go where he
chose and do as he pleased...without having to get the
permission of the ruling class. And the new country was
open to anyone and everyone who liked that idea.
In came the huddled masses yearning to breathe free. They
brought ideas and energy...and made the country the most
dynamic place on earth.
Our hearts, too, swelled with pride...at the dinner table
yesterday...where we suddenly reflected on what being an
American was all about.
We, who live in the Old World again...and still yearn to
breathe free. We are still very much Americans.
Your patriotic, sentimental correspondent,
Bill Bonner
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Last modified: April 02, 2001
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