Lenders benefit at the cost of savers - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 19 March 2013
Lenders benefit at the cost of savers A  A  A

Gualfin, Argentina

"You think Cyprus is bad," said an Argentine friend yesterday. "You should have been in Argentina a little more than 10 years ago."

We came up to the ranch in Northwest Argentina about a week ago. But the 'sustainable' power system we installed turned out not to be very sustainable. The juice was off.

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So were we also cut off from foolish opinions. Spared nonsense news. We didn't know what was happening in the big world of politics, economics and show biz. It was good while it lasted.

Our power system is a marvel of modern technology. It takes the sun's intense, high altitude energy and turns it into nothing at all. Where does all that energy go? It seems to defy the first law thermodynamics. No one seems to know. It is supposed to produce heat and electricity. In practice, it produces little of anything...unless you spend a lot of money...and use a lot of fossil fuel...to bring parts and technicians up from Salta city, about 5 or 6 hours away. They fiddle with it. They replace parts. They tell us how bad the system is. And somehow, at great expense and aggravation, they get the juice flowing again.

Thus were we cut off from news, opinion, and claptrap for a few days...when our friends Doug Casey and John Mauldin arrived for a visit.

With time on our hands and no 'news' in our faces, we sat around the fire and talked.

"What do you think will happen," was the subject, along with a few empty wine bottles, on the table.

"Well," said John, "of course I don't know any better than you do. But what I see is a very long period in which the bug heads for the windshield, but doesn't hit it. Japan shows us how long and how far you can run down this road without a major accident. And America is a richer country. And now we have plenty of energy, so we don't have that to worry about. We could have a major bull market on our hands, as people switch out of bonds and put all this extra money to work in the stock market.

"Overall, I'm not pessimistic. This is not to say there won't be a major disaster down the road. But it could be a long way down the road."

"I don't know either," Doug replied. "But I see this whole thing blowing up...I mean really blowing up. And it could happen any time. We all talk about the central banks and what they are doing as if they really were a fact of life. They're not. They're an embarrassment of modern life. People think they know what they are doing...or at least that they won't make a major mistake. But they clearly have no idea. These are the same guys who thought the collapse of subprime debt was nothing to worry about. And now they're doing things that used to be illegal and shameful. And they are going to lead the developed world's financial system to a huge catastrophe.

"Of course, I'm optimistic too...because when that happens a lot of people will realize that we don't need these central bankers manipulating things. A few years from now, I don't think there will be any central banks. And that's a good thing."

"I'm with you guys," we joined the discussion. "Deleveraging has to end sometime. We've been steering towards Tokyo for the last 4 years - since Lehman Bros. bit the dust - with very little of the Fed's money getting into the real economy...

"But at some point, we're going to change course...and head for the pampas. It's going to be the kind of 'crack up boom' that Mises wrote about. Or like Argentina in the '80s. Prices went crazy as people tried to protect themselves from printing press money."

Here in Argentina, what they don't know about a financial crisis is not worth knowing.

"Everybody's talking about how Cyprus stole money from its savers to pay off its lenders. That's what Argentina did too... It froze bank accounts and forcibly converted dollar accounts to pesos... But instead of ripping off savers for 10% of their money, like the Cypriots, the Argentines took 66%.

"Governments do not go out of business. They do whatever they have to do to keep the lights on and the payoffs flowing."

Right now, we all agreed, the governments of the developed world are doing the same thing as Argentina and Cyprus, but in more sophisticated form. Artificial and ultra-low interest rates penalize savers. Who benefits? Lenders...bankers...and the zombies.

More to come from Finca Gualfin...where the power is back on!

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

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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