Man believes what he must, when he must...

Jan 6, 2015

- By Bill Bonner

Bill Bonner
London, England

Dear Diary,

The Dow fell hard on the first real day of trading in 2015 - down 331 points.

Oil fell below $50, too, as pumpers pumped more and more to try to keep up with their debt service.

We don't know whether this heralds bad things afoot for investors in the year ahead, or not. But it reminds us that in the struggle between Mr. Market and Ms. Janet Yellen, Mr. Market will have his way - eventually.

Most likely, the 'buy the dip' reflex of last year will assert itself again. Stocks will go back up. For a while. But they must go down sometime. And when they head down in earnest, Ms. Yellen will panic. She will promise investors more money...and set the stage for the final act of this economic tragi-comedy.

"Historical determinism," we explained at a dinner party last night. "Marx was right. What must happen will happen. Events in macro economics and politics are largely path dependent. Once on the road to 'Hormegeddon,' in other words, you don't get off. There are no 'solutions.' "

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This view proved as unpopular in Paris as it is with our own dear readers. Objections followed. We are a clever race; surely we can find our way out of our over-sized debts without a crash or depression. No?

Larry Summers thinks so. He and 5,000 other economists spent the weekend in Philadelphia, offering diagnoses and prescriptions.

Oh, dear reader, what an opportunity. So many economists in one place...the quacks were heard as far away as Baltimore and New York.

Larry Summers said he foresaw a long period of stagnation in the developed world. But he felt that this was an economic psoriasis or ADD...and that he was qualified to treat it. Other economists disagreed. Summer's diagnosis was wrong, they said. The developed nations were not in a prolonged period of stagnation, said they. Instead, thanks to the drugs already administered by others of their metier, the economy was recovering towards growth and growth and 'normalcy.'

Another great triumph for man! Mission accomplished.

"Mankind has been able to surmount enormous problems," continued our Parisian host. "Take slavery, for example. It was around for thousands of years. And yet, in the 19th century, people came to realize that it was not an honorable or just thing to do. By collective and conscious action, slavery was eliminated."

"Ah, but you are wrong," we were ready for him. "Slavery was not abolished because man was suddenly more enlightened...or more 'Christian.' It was eliminated because the industrial revolution made it no longer profitable. People had, as you say, thousands of years in which they might have done away with it. They only did so when it was convenient for them...that is, only when it no longer paid.

"You can see that by just looking at the history of America's War Between the States. Slavery never paid in the Northern states, because the land doesn't lend itself to large scale field crops. So, the northerners were mostly against slavery; it was a righteous and uplifting opinion the yankees could hold at no cost to themselves.

"In the border states, slavery barely paid. The cost of keeping slaves was high; they could fairly easily run off to the North. So, people had mixed feelings about it. That was true even in Virginia, where Richmond was the capitol of the confederacy. Robert E. Lee freed his slaves, partly out of highmindedness and partly, we suppose, as an economy move.

"And in the Deep South slavery was still a profitable way to grow cotton and tobacco. If you were opposed to slavery, you had to give up the opportunity to run a large, profitable plantation, with a huge mansion and lavish Scarlet O'Hara parties. Naturally, most people were in favor of slavery there."

Our dictum: a man comes to believe what he must believe when he must believe it.

And today, if he is a conscientious, right-thinking citizen in a developed economy he must believe six impossible things before breakfast and another half dozen after dinner.

He must believe that 5,000 economists crowded into a hotel in Philadelphia can do what no single economist has ever done - improve an economy.

He must believe that 'money' can be created out of thin air...dead presidents brought to life by electronic shocks...and that his 'money' can make people wealthier, if is it distributed correctly.

He must believe new wealth can be created with neither sweat nor savings...but by the grace of 'stimulus' and enlightened central bank management.

He must believe that he and others can borrow to their hearts' content and never have to pay it back.

And he must believe that markets go up...and never come down.

Of course, these things will not be true forever. But will they appear to be true in 2015? Maybe. If that is so...should an investor forget the truth?

Tune in tomorrow.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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