What we see now are unfaithful shepherds

Sep 8, 2011

Baltimore, Maryland

For the shepherds have become stupid and have not sought the LORD; therefore they have not prospered, and all their flock is scattered (Jer 10:21).

The unfaithful shepherds...and the jackasses...

A big day up yesterday. The Dow rose 275 points. Gold dropped $55.

What's the matter with investors? They should be selling gold AND stocks.

Why? Because we're in a Great Correction. Not a boom. Not a recovery. Not anything except a Great Correction.

What does that mean? It means Mr. Market is correcting the errors of the past. We don't know exactly which errors - it depends on how rambunctious he gets - but we know we won't ever go back to where we were in 2007. We have to go on. Forward. Adelante, to give it a certain latin sashay.

But where to?

C'mon...you don't seriously think we know, do you? Of course, we don't...nobody knows the future. But just wait until Mr. Obama gets on the TV screen. He'll tell us where he wants us to go.

We'd like to tell him where to go too...

But, heck, he's the POTUS. We're just a lowly scribe...a miserable molder of mediocre memes. A financial Jeremiah...always warning...worrying...predicting doom and gloom.

But wait. Didn't we tell you the bubble would pop in 2007? Didn't we tell you that real estate would go down 30% or more? Didn't we warn you to get out of stocks and into gold 10 years ago?

Sometimes right. Sometimes wrong. Always in doubt.

But what we see now is an unfaithful shepherd...

A central bank that has turned its back on the currency it is meant to protect...

A government that has betrayed the principles it was set up to defend...

And an economy that has turned into a zombie. It's somewhere between alive and dead... Pretending to be a capitalist system...but a capitalist looking for a handout.

Consumer confidence numbers continue to sink...

Housing prices continue to fall...while housing starts bump along at depression levels...

More and more people are moving into long-stay motels...more and more are on food stamps.

An ABC poll tells us that Obama's DIS-approval rating has increased to 60%...with most Americans convinced that his jobs proposal (to be announced today) will not work.

The output gap - roughly the difference between what the economy should produce and what it actually does produce - is at 7%. It's never been this high at this stage of the business cycle.

Had enough?

Well, it gets worse. Because the effect of the unfaithful shepherds' bailouts has been to shift more and more wealth to the people who were wealthiest already. Business profits - especially in the financial sector - soared. Wages fell.

And now, even old people can't pay their mortgages...so they're stuck in jobs, leaving the young with nothing to do. The youth unemployment rate is one in four; it's a wonder they are aren't burning cars and rampaging through cities. But they live in the suburbs and probably can't afford the bus fare to get into town.

This is becoming a dangerous situation. Former Labor Secretary Robert Reich explains:
The 5 percent of Americans with the highest incomes now account for 37 percent of all consumer purchases, according to the latest research from Moody's Analytics.

During periods when the very rich took home a larger proportion - as between 1918 and 1933, and in the Great Regression from 1981 to the present day - growth slowed, median wages stagnated and we suffered giant downturns. It's no mere coincidence that over the last century the top earners' share of the nation's total income peaked in 1928 and 2007 - the two years just preceding the biggest downturns.

Starting in the late 1970s, the middle class began to weaken. ...The middle class nonetheless continued to spend, at first enabled by the flow of women into the work force. (In the 1960s only 12 percent of married women with young children were working for pay; by the late 1990s, 55 percent were.) When that way of life stopped generating enough income, Americans went deeper into debt. From the late 1990s to 2007, the typical household debt grew by a third. As long as housing values continued to rise it seemed a painless way to get additional money.

Eventually, of course, the bubble burst. That ended the middle class's remarkable ability to keep spending in the face of near stagnant wages. The puzzle is why so little has been done in the last 40 years to help deal with the subversion of the economic power of the middle class. With the continued gains from economic growth, the nation could have enabled more people to become problem solvers and innovators - through early childhood education, better public schools, expanded access to higher education and more efficient public transportation.

Of course, Reich goes on to mis-understand everything. He thinks the rich got richer because government was not ambitious enough. The real problem was that the rich were able to use ambitious, activist government to their own ends.

The unfaithful shepherds rigged the game in their favor.

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*** Last night we watched TV. There was a show called "Killing Bin Laden."

We do not normally react to political commentary, except to laugh. But the "Killing Bin Laden" show gave us the creeps. We laughed. But it was a bitter, worried laugh.

The show describes, with evident pride, how a group of American soldiers trained carefully...and used the latest gee-whiz military hardware to murder unarmed, apparently completely innocent people. Encountering bin Laden's wife, for example, the soldiers made no attempt to protect her...or to rescue her. They just gunned her down. As appalling as this was, what happened next almost took our breath away.

An "expert" appeared on screen. In a single sentence, this jackass excused the killing by saying "it was permissible" or some other claptrap. What exactly was his rationale, we don't know. He didn't say. Even in times of war, soldiers are not supposed to kill civilians. Heck, these soldiers probably shot his dog too. You may be allowed to kill enemy combatants (which is a huge stretch for Bin Laden)...but what kind of army kills their wives and children too? If this 'expert' doesn't go to Hell we'll be disappointed in the whole structure of Heaven.

Our "History of the Jews" book has made us think. It has a lot of instances of mass murder masquerading as military action. And then, when the Jews had been massacred, their cities destroyed, and their wives and children sold into slavery, they asked why their God had forsaken them. The prophets answered: 'because we forsook Him.'

It was a good answer. They argued that the Jews had been corrupted by politics...and then they became its victims. Those who lived by the sword, perished by it. Rough justice, administered by God himself.

So, what's in store for a nation that makes heroes of killers? We don't like to think...

*** And herewith, since we're on the subject, from Rutland Vermont, a look at what the War on Terror has wrought.

A decade later

August 28, 2011
By Haviland Smith

... Although a decade is an insufficient period for most historians to comfortably draw firm conclusions about anything, it is possible to look at our world today and see how it appears to have been affected by that disastrous event and the ensuing decade.

It is critical to remember that terrorism is not designed to overwhelm. It is designed to undermine. In that context, whatever it does to cause or initiate anxiety in targeted populations and governments, it relies on the reaction of those populations and governments equally as much to achieve its final goals. And America has reacted in ways that have haunted us and will continue to haunt us for decades. Al-Qaida could not have wished for more.

Domestically, we have seen major changes in our lives. Think of our color-coded terrorist warning system, our current airport controls, our paranoia over anyone who "looks like a Muslim" (whatever that is), or "acts differently." What is that paper bag doing in the subway? Airport? Train station? Movie?

In the aftermath of 9/11, Americans were clearly prepared to and ultimately did surrender their civil liberties and individual rights in the hope that doing so would add to their own physical security. We forgot Benjamin Franklin's injunction that "they who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety."

The Patriot Act, where it was designed ostensibly to increase our security here at home, did many other things that have negatively affected the way we lead our lives. It increased the government's ability to spy on us, to monitor our activities in a very broad and general way. It introduced warrantless wiretapping and the monitoring of fund transfers and Internet communications. It also initiated the national security letter process that required any person or organization to turn over records and data pertaining to individuals without warrant, and all this without probable cause or judicial oversight.

The other major domestic impact of the decade has been financial. During that period, we have gone from what was verging on a national surplus to a deficit that is now approaching $15 trillion and increasing at the rate of $3.95 billion every day. We got there through a combination of factors, including tax cuts, the "War on Terror," and unfunded military operations in Afghanistan, Iraq, Pakistan and now Libya. Brown University's comprehensive June 2011 "Costs of War" project, factoring in all the costs associated with the decade, arrives at close to $4 trillion. Tax cuts add $2.8 trillion. There seems virtually no doubt that in the absence of our reaction to 9/11, we would be fiscally relatively healthy.

In addition to the foregoing difficult domestic situation, which we largely created for ourselves in the aftermath of 9/11, the changes we have seen in our foreign policy will haunt us for years to come. In that arena, our move to military-based, unilateral policy was a radical change. Yet our invasion and defeat of Iraq and the ascendance to power of the Iranian-allied Iraqi Shiites will likely prove to be our most egregious blunder.

It's not that Saddam Hussein's Iraq was in any sense enlightened; it is very simply that Saddam's Iraq was the only effective impediment to Iranian control over the Persian Gulf. From 1980-88, Iran and Iraq fought a war for supremacy in the gulf. In the absence of a clear resolution of that conflict, the fact that Iraq survived served as a critical deterrent to Iranian dreams for hegemony there.

Our invasion and defeat of Saddam's Iraq was something the Iranians could never have accomplished on their own. With Shiites now assuming power under our new order in Iraq and Iran threatening the old Sunni positions in the Gulf States, Iran has come even closer. We have destroyed the last real impediment to Iranian dreams for the gulf.

We have had our chances to deal with 9/11 in ways that would have better favored our own national interests. Instead, we panicked, invoked questionable practices at home and became involved in military adventures abroad that will almost certainly ultimately be viewed as disasters.

Without the active, witless involvement and acquiescence of our government and Congress over the past decade, al-Qaida terrorism would have caused us far less pain than it ultimately has and we would be a great deal safer, richer, wiser and internationally more powerful and respected than is now the case.

Haviland Smith is a retired CIA station chief who served in eastern and western Europe and the Middle East and as chief of the counterterrorism staff. He lives in Williston.

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

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2 Responses to "What we see now are unfaithful shepherds"

Arun Saoji

Sep 8, 2011

Just a few days ago, Bill had predicted that Gold and DOW would converge at about 3000. Now he predicts Gold could go down upto 1000 $/ounce and then take the greatest bullish leap; but that it would take a very long time, which he cant predict. In the meantime, he damns everybody and everything in the way. I now look to these writings as hilarious and a good pastime, to say the the least.


Rustom Billimoria

Sep 8, 2011

Your assesment of American Policy is absolutely correct, but why is President Obama not listening to such advice, especially when it comes from an ex CIA chief I wonder.????

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