Nothing woeful about saving money

Mar 31, 2015

- By Bill Bonner

Bill Bonner
Gualfin, Argentina

Dear Diary,

An economy is like an eco-system. It is not the result of central planning; instead it evolves in ways the planners cannot even imagine.

What central planner would have imagined Instagram, SnapChat or Uber? And what planner would have put an exotic pink bird in the middle of a moon-like landscape...with only a strange tiny bug for food?

Yesterday, stocks came back strong. Investors bought the dip...as they always do. The Dow was up 263 points while the price of gold fell $18.

Buying the dip has been a very good investment approach for a very long time. It will continue to be a great way to invest, we predict, until it is disaster. When that will be...we can't say.

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In the meantime, we note that the economy is still struggling. Never in the last 60 years have we had such a weak run of GDP figures. And now, it looks like this funk is here to stay. The US economy depends on consumer spending. And consumers ain't spending. Here's Bloomberg:
    A booming job market and cheaper fill-ups at the gas pump should be giving millions of Americans more reasons to spend. Instead, they're salting away the extra savings.

    The saving rate jumped in February to 5.8 percent, the highest since December 2012 and up from 4.4 percent just three months earlier, government data showed Monday.

The Bloomberg report repeats the usual nonsense. Spending growth "woefully weak as incomes rise."

Woefully? You know better, dear reader. There's nothing woeful about saving money. Spending doesn't make you wealthier. It's saving and investing that makes you wealthier. Spending is not woefully weak; saving is gloriously, wonderfully, happily strong. Americans are saving more - despite the authorities' efforts to stop them.

The feds pay them no interest on their savings. They threaten higher levels of inflation. They offer the cheapest credit in history. And still consumers resist. Why?

They know that solvency matters. Household finance is not just a matter of liquidity. Besides, they also know that the economy is not nearly as strong as the feds say it is. The first quarter, for example, showed the worst sales and profits since 2009. Wall Street may be on a tear. But most people are struggling to make any forward progress at all. They sense, correctly, that they will need more than just the feds' easy credit in the coming months; they will need real savings.

More about our trip to the puna...

Even with 4-wheel drive it is fairly easy to get stuck in the sand. The wheels turn. You go lower until the body carriage rests on the sand and the wheels spin.

We carry a shovel in the back of the truck; you never know when you might need it.

And when the truck sank into a soft spot on Saturday, we thought we might have to spend a long time digging it out. Luckily, we were close enough to hard ground that we were able to get out fairly quickly and get back underway. Then, we drove around on the valley floor admiring the many strange and striking things nature had prepared. There was no plant life, except in a few spots where it looked as though water gathered, perhaps temporarily. There were a few clumps of grass - like the pampas grasses you find at lower altitudes - mostly dried and yellowed.

After lunch, we drove up towards the mountains. The landscape changed quickly. First, we passed over hills covered with small stones, and a dried-out bush that looked as though it might come to life once every few years, after a freak rainstorm. Some of these bushes were black. Others were white, about the size and shape of a small rhododendron but without leaves. Higher up, there were valleys with a tiny bit of yellow grass and herds of vicuna. These animals are a protected species here in Argentina. They are the size of a small deer with long narrow necks and small heads. Like guanaco and llamas, they are members of the camel family, with a gait more like camels than like deer.

"They have two layers of wool," Luis explained. "The inner layer is very fine. It keeps them warm. It gets down to minus 20 or minus 30 degrees here. The outer layer of hair protects the inner layer."

We kept going up, over rocky trails, for about 2 hours. Then, we came to a series of lakes. The wind blew hard. There was not a blade of grass anywhere. Mountain peaks, some snow covered, surrounded the lakes. Astonishingly, for the place was so inhospitable to life, the lakes were home to thousands of pink flamingos, standing in the shallow water.

"Don't touch the water," Luis warned. "It has high levels of arsenic. The arsenic doesn't bother the birds. They must be adapted to it."

"What are they doing here? What do they eat? Why are they standing in this freezing, poisonous puddle hundreds of miles from anything that seems remotely appealing?" we wondered.

"This just goes to show what a remarkable level of adaptation and specialization natural selection can achieve," he replied, sounding like a professor of natural history.

"There is only one animal in the lake - a tiny form of algae. The flamingo has evolved to come here, wade in the water and eat it. When it gets enough strength and fat on its body, it flies away for the winter. It goes down to Cordova. The old ones though can't make the flight. They stay all year round."

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

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