We live in a fantasy world - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 25 November 2014
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We live in a fantasy world A  A  A

New York, New York

Dear Diary,

Things are slowing down. This is Thanksgiving week. People are leaving work early...trying to beat the holiday traffic rush.

Stocks and gold were both flat yesterday.

We're still in New York, taking care of business...and we'll head back down to Maryland on Wednesday, getting an early start. We have a lot of young men coming for the holiday, friends of our sons. Your correspondent does not like to see young men with idle hands. A strong back is a terrible thing to waste! So, he has a project: to save an old tobacco barn, using the soft hands of these future lawyers and financial managers.

The trouble with most young people, we've observed, is that they don't know how to use their hands. They've spent their entire lives in school. Few have had any contact with tools or hard work.

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Our plan - for the benefit of readers interested in tobacco barn preservation - is to turn an old fashioned oak-frame barn into a pole barn. The sill is rotten...as are many of the main supporting posts. We will dig holes, plant treated 12-inch poles in concrete and bolt them to the uprising posts above the rot. And we will hope that the barn doesn't fall on our heads when we start banging on it.

"You're gonna do this with a bunch of college boys," asks Tommy, a much weathered local man who has spent his whole life 'movin' dirt.' "You're gonna put a hurtin on 'em."

Yes. That's the plan.

We'll let you know how it works out.

Meanwhile, as Chris pointed out yesterday, in both politics and economics we live in a fantasy world. The feds claim to improve our economy. We pretend to believe it.

Did a central bank ever add one single centime, one peseta, one zloty or one fraction of a mill to the world's wealth? Not as we are aware. But all over the world, central bankers pretend to sweat and toil on behalf of mankind, correcting...adjusting...nullifying the decisions of honest men and women going about their daily business. Interest rates are too high! Inflation is too low! Not enough demand! Too much savings! They are omniscient as well as all-powerful.

In Japan, back in recession, Prime Minister Shinzo Abe has taken off on a kamikaze mission. Victory...or death! He will either revive the Nippon economy...or the economy will die! Of course, he may succeed; but our money is happily on death.

Our Trade of the Decade hopes to capture the disaster in dollars and cents. Abe, and his delusional co-pilot, Haruhiko Kuroda, have their flight jackets on. They're about to take off...creating incredible amounts of new money and credit. The economy expects it and depends on it. But, when word gets around...that there is no way the government can ever repay its debts...there is sure to be trouble. Investors will dump Japanese notes and bonds...leaving the Bank of Japan as the one and only source of financing for the government's deficits. This will put Japan in roughly the same spot as Zimbabwe in the early 2000s and Argentina in the '80s. Stocks will soar, as investors seek safety in productive assets. Bonds and yen will crash.

And from Europe, Bloomberg reports:

    Mario Draghi strengthened his stimulus pledge for the euro area by saying the European Central Bank can't hold back in its fight to revive the economy.

    "We will do what we must to raise inflation and inflation expectations as fast as possible, as our price-stability mandate requires," the ECB president said at a conference in Frankfurt today. Some inflation expectations "have been declining to levels that I would deem excessively low," he said.

    "Draghi is sending a clear signal that more stimulus is coming," said Lena Komileva, chief economist at G Plus Economics Ltd. in London. "If the ECB's current measures prove underwhelming and inflation expectations fail to recover, the ECB will act to expand QE."
In the Old World, people expect stable prices. 'What's wrong with that,' we hear you asking. But it's a problem, says its chief banker. "Excessively low" is how he describes the public's fear of inflation. He vows to do something about it. What? The same thing the Japanese are doing.

And in the New World...the real economy continues to deteriorate. But the stock market floats along like a hot-air balloon in a children's cartoon. The Fed has turned off the QE gas. But it has its hand on the valve, ready to turn on the jets as soon as prices sink.

More to come 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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