Governments and central banks can fix anything. Now sleep tight...
DID YOU EVER read the classic book The Little Prince (Le Petit Prince), published in 1943 by the great French writer and aviator Antoine de Saint Exupery? asks Byron W.King for Whiskey & Gunpowder.
In this gem of a book, the king claims that he has the power to order the sun to rise and set. But this power can be exercised only at certain times of day.
Cute, right? It's a children's story, after all.
Saint Exupery's tale illustrates that an obsession with control may be only the illusion of control. You can try all you want to "plan" things to happen. But you still may not be able to accomplish anything that was not going to occur in any case. And it's the same thing with the US and new European bail-out legislation.
That is, Congress has worked to pass a large-scale bailout of Wall Street and the bankers. The justification is that the credit system is seizing up. Banks don't trust other banks, and interbank lending is grinding to a halt. People and institutions are having trouble accessing even their own funds on deposit – allegedly on deposit, in some cases.
Short-term commercial paper is drying up, meaning you might have trouble getting a car loan, despite your own stellar financial background. So Congress is empowering the Treasury to do something.
Do what? We'll cross that bridge when we get there, apparently. But the "control" faction within the nation wants to shape the national economy, if not alter the national destiny. These control freaks also want to avoid the Darwinian consequences that would normally befall individuals, firms and governments that have collectively made a whole lot of bad financial decisions.
Will the bail-out work? "Don't fight the Fed," goes the old saying. And who am I to argue with that? But what's that other famous old bit of advice?
"You can't fool Mother Nature."
The tide is going out on a large chunk of the US economy. For several decades, the United States has been a nation that favored net consumption over net production and savings. The US imported oil, autos, electronics, food...you name it.
US consumers bought it all up and went into debt to do so. The US paid for its imports with dollars – lots of dollars. And foreign banks accumulated the dollars and returned them to us via purchasing US bonds, stocks and other kinds of assets.
The US economy continually leveraged itself. Prices for a lot of things went up. And people called it wealth creation. You know what I mean – on Main Street, houses went up in price as if by magic. Okay, it was financial wizardry. But the price increases came with nary a new coat of paint or a single yard of fresh concrete. On Wall Street, people swapped financial instruments back and forth, and everyone booked a profit.
How does that work again? It was fun while it lasted. But it's coming to an end now. Things are starting to change, and they will probably change in ways that few of us can truly anticipate.
So what do you do with your money, especially your investment funds? Take it all out of the market? Put your money in the bank? Stuff the mattress with cash? Buy Gold? Move offshore and wait it out? These are just some of the ideas that I've seen in reader e-mail to us here at Whiskey & Gunpowder recently.
I sure don't blame anyone for being totally defensive. But you don't want to lose sight of the larger picture, either. We're at the edge of a deep ditch. It's going to be tough getting through the ditch. But over time, we'll get to the other side and climb out. And then you are going to have to deal with the previous issues – overshadowed by recent events – of depleting energy and mineral resources.
We'll be back to a world of energy and natural-resource scarcity. In fact, we will never leave that world. We'll just be distracted along the way.