Bill Bonner, Three Out of Four Economists are Wrong

I haven't posted anything by Bill Bonner recently. Here are some:
Government Spending Induces Counterfeit “Expansion”
The Zombie Economy
How to Enjoy an Economic Depression
Depression Causes a Shift in Economic Models

An accurate picture of France?

Or of the U.S., for that matter? From "Dark Side of the Boom" by Bill Bonner:

Driving along in rural France things look like they 'ought' to look. There are neat houses of stone, with shutters and woodpiles. There are open fields and hedgerows. You see stately oaks…fat cows…and well-tended gardens. There are no strip malls, almost no shopping plazas, few stop lights, and little traffic. It looks the way we think it should look, in other words…the way we want it to look.

"Remember our friend Isabelle, in Paris," Elizabeth went on. "She took a trip across the U.S. She said she was shocked to see such poor people - you know, she drove through some bad sections of town…and down through rural Mississippi. I explained to her that America is extremely varied. And that a lot of people who look very, very poor in America nevertheless will have a car, a TV and even air-conditioning.

"But she was appalled, and I can see why. In France, even poor people live in a way that seems…as the French say, "correct." Their houses are well maintained. They sit down for real meals. Out here in the country, they stack their wood up nicely and have these impeccably well kept vegetable gardens. They may not have any money at all, but they still live in a way that seems okay to us…we can imagine ourselves living that way. There's nothing shocking about it.

"But America is so big…and so many people in America have such different ideas about how you should live. Their aesthetic vision is so completely different…say from a prim New England town to a New Orleans slum…that there is no one 'correct' way to live. I can perfectly well imagine living in the New England town…it's part of my culture…it's part of my family history…and it's part of the way I think things ought to be. But I couldn't live happily in a New Orleans slum…or in West Virginia with junk cars in the yard and broken out windowpanes. And when you see people living like that…if you're not used to it, I guess it is a shock. But it's not a matter of money…or certainly not just a matter of money. It's more a matter of aesthetics…which is why they really are important."

Bill Bonner, Clowning Achievements

Clowning Achievements

Mother Jones: The Last Empire: China's Pollution Problem Goes Global

The Last Empire: China's Pollution Problem Goes Global

cited by Bill Bonner in his post today--The China Effect

CHINA
The value of property and financial stocks dropping
Investors are concerned about government moves in these sectors to fight rising inflation. Stakeholders wonder what Beijing will do. Tighter bank lending might cut liquidity to small enterprises, which are the engine of the economy. Experts propose raising salaries to deal with the situation.

World Bank: the Chinese economy is overvalued by 40%
The new estimate doesn't consider the gross domestic product, but actual "purchasing power", which is believed to be more realistic. The Chinese economy "loses" 3,486 trillion dollars, but remains in second place in the global rankings. Experts: these data demonstrate how serious the problem of poverty still is in the country.

Mgr Jia Zhiguo freed, should be back in police custody very soon
Catholics in the diocese of Zhengding say the bishop was freed because of his family’s repeated requests. An uncle is very sick and wants to see him before he dies. But the prelate is set to be rearrested in a few days, but it is unclear whether it will be before or after Christmas.

From Asia Times:
China rubber demand
stretches Laos
Chinese investors are pouring money into developing rubber plantations across Laos. Local farmers benefit, earning as much as eight times the profit they would get from opium production. At the same time, forests are being cleared in an unsustainable manner, land-use rights are trodden on and control over the industry is left in the hand of foreigners. - Brian McCartan

More from Bill Bonner on the GDP

No Market for Bulls:

Which brings us back to numbers - we have become suspicious of them. There are only ten basic digits…but just look at them. Since we gave up Roman numerals, our numbers aren't straight. Who can trust the number 5, for example? The squiggly little humbug! It is crooked. It has a straight bar across the top, which makes it appear on the up and up…but then it stabs down and then hooks around to the bottom. Very devious.

Still, when they are on their own, numbers - like men - seem to be fairly reliable and decent. You have one dollar. We have three chickens. The team scored nine runs. But mix 'em and match 'em…put 'em in a crowd …and you can get any combination and any scammy result you want.

We mentioned yesterday that after the feds got finished scrambling the GDP numbers, they revealed growth of precisely 3.9% per year. We pointed out that "growth" itself doesn't mean much. Life imitates academia; we begin to act like dead economists say we should act. The professors tell us that digits are important. The next thing you know people are worrying about their cholesterol count and their return on investment. Not only that, but they're putting their wives to work in order to increase the digits in their household incomes…and watching the Fed to see what it will do with the digits in short-term interest rates.

And lo! Their interest in digits…in making money and spending it…causes the digits in the GDP to go up. Instead of cutting their own lawns or baking their own cookies, our new digitally-enhanced citizens pay someone else to do these things so they can spend their own time making more digital money.

Ah yes…dear reader…we've come to that. Even those 'paper' dollars are often not even paper. They are computer fantasies. Your bank tells you that you have a certain number of dollars in your account. You take it for granted that the dollars are there. But there are no dollars…just a spectral trace of dollars in digital form.

So, you tell someone that you have 10 dollars and 22 cents. What do you have? Ten what? It sounds precise…but the precision is as much a fantasy as the money itself. You don't know what you have. Maybe you have nothing at all…or something that could become nothing pretty darned fast. Ten dollars was what we earned for two days' hard labor in the tobacco fields when we were 15 years old. Now, it is what we earn every five minutes. Yes, we are older and wiser…and people pay us more money today than they did 40 years ago. We're not the same person we were then…and the money isn't the same either. While we gained value in the workplace, our money lost value.

The feds say the inflation rate is less than 3%. How could inflation be running at less than 3% per year while prices on the most important things in commerce - food and energy - are increasing 10 times as fast? We don't know; it's one of the reasons we've lost faith in digits. They lie.

The only way the feds could get the inflation rate down was by smashing it on the head. And guess what happened? The GDP rate popped up. Yes, dear reader, real output is calculated by subtracting the inflation rate from nominal output. The lower the inflation rate, the higher the GDP number. So, if you can beat down the inflation number, that GDP number will get bigger. Neat, huh?

John Crudele, writing in the New York Post:

"The trouble is, the GDP only grew that much because the government somehow manufactured a big drop in inflation.

"According to the Commerce Department report, inflation was only 0.8 percent in the third quarter.

"When you look at real economic growth - meaning, after inflation - every tick down in inflation causes a tick up in economic growth.

"The rate of inflation was 2.6 percent in the second quarter of 2007 and 4.2 percent in this year's first quarter. Wall Street was expecting 2 percent inflation this time.

"Inflation at a slow 0.8 percent rate would certainly be welcome - if only it were credible.

"But even less believable is the fact that the inflation rate nose-dived at the same time oil prices were heading toward $90 a barrel - which it now exceeds.

"So, in reality, economic growth is probably much slower than is being reported. And inflation is a lot higher."

We're convinced; reality and digits don't hang together anymore. Maybe they never did.

And then on Walmart and the digital divide:

Here's something interesting…this week, Wal-Mart says it has crossed the 'digital divide,' by offering a computer for less than $200. Yes, dear reader, this is a big day for us here at The Daily Reckoning. Now every yahoo with $200 in his jeans can read what we write. This is a big step forward for society, too, say the commentators, because now we will have 'digital equity,' meaning everyone can have access to all the digital information, news and opinions they want.

Of all the crackpot notions to come along in recent years, the idea of the 'digital divide' was among the looniest. If you didn't have access to the Internet, they said, you would be left behind…doomed to live in poverty and obscurity all your life.

But what do people actually do when they get a computer? Do they go onto chat lines to exchange interpretations of Kant's "Critique of Pure Reason?" Do they begin to read Posidonius's account of the battle of Pydna…or search for solutions to Poincare's last theorem? No, they play poker…watch stupid videos…or visit porno sites. In other words, digits don't actually improve people; they just make it possible for them to indulge more abundantly in whatever shiftless pursuit they take up.

The list of famous and successful people who never even laid eyes on a computer is as long as the Encyclopedia Britannica. And even today, many of the smartest and most successful people in the world view them as time-wasting distractions.

Bill Bonner on number crunching

From Adding Up the Asset Boom:

Here's good news, dear reader. The U.S. economy grew at a 3.9% rate in the third quarter. Numbers don't lie, do they?

Ha! Numbers are the biggest liars on the planet.

Have you noticed how the whole world has been taken over by numbers? We live with them every day. They seem so precise…so confident…so sure of themselves. The U.S. economy did not grow "a little bit." It did not expand "slightly." It is not now just "somewhat larger" than it was a year ago. And it's not even growing at a 3% rate…or a 4% rate. It's growing at a 3.9% rate.

The older we get, the more suspicious of numbers we're becoming.

A man today knows his PIN number, his telephone number, often his fax number, his PSA number, his cholesterol number, his street number, his zip code, his Social Security number…digits, digits, and more digits! He's likely to know batting averages of his favorite players…and how much his portfolio increased last year…not to mention the standard numbers of a general education - how many states are there, how many members of Congress, what is the boiling temperature of water, what is the speed of light…how many times can you get a speeding ticket in the state of Georgia before they take away your license…and so forth.

Some of these numbers are useful. Many are empty frauds.

When the feds give us a number for GDP growth, for example, what does it mean? Why, it means the economy is expanding…growing…getting bigger. Oh…and what does that mean?

We apologize to long-suffering Daily Reckoning readers, but we will bring out a familiar example: If we cut our own lawn, the GDP is unchanged. If we hire a lawn-cutting service to do the work, the GDP expands. So, what does it really mean to say the GDP grows? In both cases, the end result is exactly the same: the grass has been cut. The only difference is that an amount of money - a number - has changed places, from our pocket to someone else's. The world has no more money. The world has no more goods or services. The world is unchanged. So what does GDP growth really mean? And how could a precise number - 3.9% - ever hope to describe what has really happened?

To make matters worse, government statisticians - and corporate ones too - typically "crunch" numbers into the shape they want. Numbers get punched, beaten, hammered, bullied, and bamboozled. When the torture session is over they'll admit to anything. That is how we get a "consumer price index" of only 3%…when everyone knows prices are rising a lot faster.

Bill Bonner, Humpty Dumpty Investors

Humpty Dumpty Investors

Why do we care about the Dow? We don't really. Only a fool would buy the Dow at today's levels. Still, there's a fool on every corner…and they're fun to watch.

Buying the Dow is a gamble on an entire asset class - large-cap stocks. Whether they will go up or down, we don't know. But if we feel like gambling, we'll go to a casino. There, at least, we'll get drinks and pretty girls to look at too.

Investing in a particular stock is a different matter altogether. You can always find one or two decent stocks - even in an over-priced market. If you do your homework - the way Warren Buffett does, for instance - you'll be making an investment. We leave it to others do that kind of heavy lifting. Here at The Daily Reckoning, we just point and laugh.

We laughed at the dotcom buyers in the frenzy of the late '90s. Then, we laughed at the subprime buyers in the 2001-2006 house price bubble. We still laugh at anyone who 'invests' in a hedge fund. And we love laughing most at the 'sophisticated' institutions - including many hedge funds - that put money into derivative contracts composed of subprime mortgages. Investors in these funds must have had enough willing suspension of disbelief to hold up a bridge. They thought that, by some mysterious transubstantiation never explained, loans to people who couldn't pay them off could be sliced and diced and turned into Triple A credits. What's more, they were willing to give up 2% of their principal and 20% of their gains to the fellows who offered to let them in on the deal!

Ha…ha…ha…

But you've got to hand it to the Goldman crowd. They gave investors what they wanted - good and hard. They securitized these dicey mortgages…sold them to their customers…and then, in order to protect themselves from the inevitable losses…sold them short!

Bill Bonner, The Broken Rungs of the Housing Ladder

The Broken Rungs of the Housing Ladder

Foreclosures in the yankee state are running three times last year's level. And losses are working their way up the socio-economic ladder. Goldman Sachs' (NYSE:GS) Trust 2006-S3 is a sophisticated investment instrument containing 8,274 mortgages. One out of every six of those mortgages is in default - only 18 months after the thing was put together. When that many people stop paying, it wipes out the entire capital value of the derivative. And since speculators usually take leveraged positions, the losses can go much further.

We don't know whose mortgage is going unpaid…or who invested in the trust…but according to former colleague Adrian Ash, after Goldman created the derivative and sold it to its customers, it then sold its own monster creation short in order to protect itself.

Goldman is a smart operator. The typical fellow has no obvious way to protect himself. His house falls in value…his earnings go down in value…his living costs go up…and he's out of luck. And not all the big players are as smart as Goldman. There always has to be someone on the other side of these trades. Also last week, two major financial companies - one in London, the other in Düsseldorf - defaulted on $7 billion worth of debt.

What is going on? Time will tell.

"It's funny because you can see it is a big problem," said our cousin yesterday. "People have bought these huge houses. They don't really need so much house, and they never intended to pay for it. They just figured that they'd stay in it for a few years…and then sell out at a big profit. The bigger the house, the more money they'd make. So they bought these McMansions, which really aren't very well built. Everybody thought the same thing, so everyone was buying more house than he needed. That's why the whole housing market went up…people were all pushing up to the next level.

"But now, no one is coming up. The pressure from the bottom has gone away. And these people are left with a lot more house than they can really afford, or that they even want. They have to keep it clean…and maintain it…and pay taxes on it. And property taxes are so high in Maryland now…especially for waterfront property…that you never really own your house; you just rent it from the government. I was going to build a house down on the bay…but the property taxes alone would have been between $15,000 and $20,000 per year. I said, 'Forget it'."

What will happen next? What happens when people say 'forget it' to new purchases? What happens when the bottom rung of the property ladder breaks? When happens to an economy that depends on consumer spending when consumers have no more money to spend?

We don't know, dear reader, but we don't think it'll be pretty. And if you'd like to spare yourself from the ugliness that will ensue, you might want to check out this report.

For the moment, time is keeping its mouth shut. We have our opinions, of course. You can probably guess what they are. But we'll keep our mouth shut too - at least until we get back from the ranch.

In the meantime, we pass along this from Julian H. Robertson, one of the smartest people in the hedge fund industry. The economy is headed for one "doozy of a recession," says he.

Colleague Steve Sarnoff adds his two cents on the latest market happenings, saying, "Stocks slipped sharply on Friday and this morning, as disappointment, worry, and fear over housing, credit, currency, recession, and inflation spread like southern California wildfire. The financial media fans investors' fear through the markets like Santa Ana winds funneling fire through dried out coastal sage and chaparral canyons.

"Prices move naturally from resistance to support and that is simply what is going on here. The pressure is on over the near-term, but watch how the news will change (sudden easing of fears) once technical support (demand) comes in."

We'll have to wait and see if what Steve says proves to be true…in the meantime, he's found an aluminum play for his Options Hotline subscribers - and for a limited time, we're offering an opportunity for new subscribers that you won't want to miss!

Until tomorrow, Tuesday, October 23 at midnight, you can get 6 months of one of the oldest, and most respected options trading services in America - free of charge. But you have to act fast:

Options Hotline - 6 Months FREE Until Midnight Tomorrow!

Here's our old Fed chief, Alan Greenspan, commenting on the effects of the credit bubble that he, more than anyone, created:

"The financial crisis that erupted on August 9 was an accident waiting to happen," Greenspan said in a speech yesterday. "Credit spreads across all global asset classes had become suppressed to clearly unsustainable levels.

"Something had to give."

Well, yes. Something has to give. We've said as much ourselves. Then again, we didn't control short-term interest rates during the long period in which pressure was building up. We weren't the ones with our hands on the credit throttle, shifting the lever to 'Full Speed Ahead' - even as the rivets began to pop. And we weren't the one who reassured the public that all would be well, either.

But Alan Greenspan is a marvel. We admire him. Who else would have the chutzpah…the gall…the cheek?

He continued: "If the crisis had not been triggered by a mispricing of securitized U.S. subprime mortgages, it would eventually have erupted in some other sector or market."

He makes it sound as though he played no part in it…as if it were an act of God when a credit expansion comes to an end. And then, he adds a warning:

"If the pernicious drift toward fiscal instability is not arrested and is compounded by a protectionist reversal of globalization, the current account adjustment could be quite painful for the United States and our trading partners."

That Greenspan! What a character! If the authorities don't get control of this thing, he says, it could hurt.

We've come to the ranch to count the cows. Unfortunately, the cows are spread over thousands of acres.

But let us back up and tell the new, dear readers how we got here.

Until we were nearly 50 years old, we scarcely ever left home. We lived only a mile or two from where we were born…and where our mother's family had lived since the 17th century. We assumed we would die there too.

But in our 48th year, we began to wonder. Our area had completely changed. Rural Maryland was not nearly as rural - or as nice - as we remembered it from our childhood. The landscape had changed; tobacco fields had been replaced with housing developments. The roads were full of commuters. The people changed too - gone were all the old families with their local accents and local customs. The new people spoke in different tongues and worshipped different gods.

It was not so much that we disliked this new world. It's just that we had no attachment to it. We had stayed put. But the world we knew and felt close to had left us. We looked around and realized that we weren't at home anymore.

So, we decided to leave too.

Bill Bonner, Inflation, and the Downfall of the Shopping Mall

Inflation, and the Downfall of the Shopping Mall

It did not pay to save dollars in the '70s. Inflation rose to 12% and made them worth less and less. In a way, this was the lesson Americans most wanted to learn. They didn't want to save anyway…they wanted to spend. Gradually, the economy shifted from one in which people made things at a profit to one in which they bought things at a loss. Households turned their attention to how to consume what they had never earned. And business turned its attention to how make money by selling to people who didn't have any money. The economy itself shifted to one based on manufacturing to one that emphasized marketing…and then finance. Factories rusted. But shopping malls and housing development proliferated.

In 1967, Henry Kaufman was made a full partner at Solomon Bros. in New York. His compensation: $25,000 a year.

Forty years later, the average hedge fund manager is taking home nearly $24,000 PER WEEK.

Meanwhile, the average U.S. weekly pay is only $841 - a figure that is about the same, in real terms, as the average 30 years ago.

And here is the question to which we keep returning, a question that is purely rhetorical:

How can people who don't earn more money still spend more?

Not only do we know the answer, we've given it to Dear Readers countless times:

They borrow.

Total U.S. credit debt rose during the Greenspan years alone from $9.8 trillion to $37.3 trillion - a 400% increase. That is the weight now pressing down on the U.S. economy. That is the burden that must be lightened.

And it is being lightened - in two ways. Many debts are going bad. House foreclosures in September doubled from the year before, for example.

The other way it is being lightened is by inflation. Every day, people add more debt…and inflation takes a little more off. In the last 30 years, consumers, business and speculators were able to add debt a lot faster than inflation took it off. But now, debtors are already stretched to their limits…and creditors are getting persnickety. A Reuters report tells us that consumers have switched to credit cards in order to continue spending. Home equity lines and mortgage refinancing has fallen from favor.

Eventually, inflation will wipe out debt. The 1,000% inflation rates in Argentina in the '80s eliminated most debt. Still today, the country has very little debt.

Is it hard to get a mortgage? We don't know, but if anyone is lending money in Zimbabwe, he should probably seek medical attention and bankruptcy protection; with an inflation rate of 100,000% per year - he will be wiped out overnight.

In America, the process has a long way to go. Official inflation rates are only 2%-3%, though consumers report price hikes much greater than that. Still plenty of excitement ahead!

Stay tuned…

Who's worried about inflation? Stock markets are booming all over the world…

In the United States, stocks have doubled in the last five years. That's an annual rate of increase of 15% per year. But the New York Times tells us that the U.S. gain is small potatoes. Almost every other stock market has done better. Of the 83 major stock market indices, since 2002, 78 of them did better than the United States. The top performer was Peru - with an annual gain of 87.5%. Right behind Peru were the Ukraine at 83.7% and Bulgaria at 77.1%.

The stock markets highlight the differences between old economies and new ones. The places that are doing the best are the 'emerging' markets - where people are actually making things and selling them at a profit. Among the "old" economies, only Germany was a top performer - with an annual stock growth of 34%. Russia rose at 43.8% per year. The Shanghai composite rose at 32.6% per year. And take a look at Vietnam! The Ho Chi Minh index rose at an annual rate of 42.6% over the five-year period.

"I spent 18 months over there, getting shot at…" says a visiting cousin. "I might just as well have stayed home…"

2 from Bill Bonner

Moving to Cheaper Pastures

America is a cheap place to live. Especially if you don't live in the major metropolitan areas on the two coasts. According to USA Today, you can buy a four bedroom, 2½ bath, 2,200 square foot house in Killeen, Texas, for only $136,000. That's less than 100,000 euros - a price that would be unheard of in Europe. That's not only the cheapest price in the United States…it might be the cheapest price in the entire world. Even in Granada, Nicaragua, the price for a similar house would be about $150,000. In Mexico City, you'd pay $277,000. And in London…well, don't even think about it.

The USA Today report tells us that there is a huge, regional difference in housing prices in the United States. The price for the equivalent four-bedroom house is over $2.2…not nearly as much as you'd pay in central London, but still getting up there.

Meanwhile, other cheap alternatives in the U.S. are Minot, South Dakota, where the house would cost you $139,000…or Canton, Ohio, with a $146,000 price tag.

Here's an obvious idea, dear reader: Sell the digs in Beverly Hills; buy in Killeen. But wait. You say there's nothing to do in Killeen? We don't know…we've never been there. Maybe they have no Starbucks…no TGIFs…no multi-plex cinemas…no super-shopping domes…no sports stadiums…no fancy restaurants. C'mon, use a little imagination. There must be something you can do. How about rodeos and bull riding contests? Maybe they hunt and fish. Maybe they spend long, slow Sunday afternoons rocking on the front porch. Or, maybe they just hang out at the local saloon. Hey…this is sounding like the sort of place we might like!

U.S. Gets a 'D' in Flation 101

"A fresh blow to the housing market," is how the Financial Times describes it.

The Daily Telegraph comes up with a more bodacious headline:

"US housing market in freefall as prices crash."

And follows up with this:

"Sales of new homes in the US plunged in August at the fastest rate since modern records began, prompting fears the economy is sliding into a full-blown recession…

"Total sales dropped 8.3% on the month and are now down 21.2% during the past year, a sign that the credit crunch has cut off mortgage funding for large numbers of people."

Both papers give us new data on house prices:

"The median home sale value fell 7.5% from $246,200 to $225,000, its lowest since January 2005," says the FT.

Two and a half years of price increase - wiped out.

But in go-go areas, even bigger gains have gone-gone. Miami was one of the hottest housing areas in the nation. Now, its condos are being marked to market. Here's the report:

"There are at least 50 buildings under construction or nearly completed in the downtown Miami area alone, consisting of about 20,000 units," reports David Sutta from CBS4.com in Miami.

"To move inventories along, developers have gone to the auction block to get them sold.

"On Thursday evening, at the Miami Biscayne Bay Marriott Hotel the gavel struck as auctioneers sold about 20 units in the 119-unit Platinum development owned by Alex Redondo.

"When it was all over, [one bidder] walked away with a two bedroom unit on the 19th floor. To put the price in perspective, a one bedroom priced at $350,000 sold on average at auction for $176,000, almost half.

"A two bedroom unit that sold for about $600,000 last year, sold on average for $295,000."

Yes, dear reader; if you are thinking of moving to Killeen, Texas, you better act soon. Those big housing gains are disappearing. In Miami, prices are being cut in half.

You might be thinking…well…one man's loss is another man's gain. But think again. While the bidders got apartments at half-price, the owners of other apartments saw their assets lose 50% of their value almost overnight. A week ago, they may have had an apartment worth $600,000. Now it is worth only $300,000 - and falling.

What happened to that $300,000? It vanished. Poof. That's what put the 'd' in deflation. Money d-isappears. Wealth d-issipates. Values d-ecline. The economy d-egenerates. People get d-epressed.

Meanwhile, stocks held steady yesterday. Stock market investors seem to think they've got a "Bernanke Put" on their hands - an option that will always protect them from losses; if stocks begin to go down…Bernanke will just cut rates.

But Robert McAdie, head of credit at Barclay's Capital, addressed the issue yesterday. He noted that though the Fed may cut rates, and may bail out a few large speculators, there is no guarantee that money will find its way into the hands of the people who really need it. A bank can borrow from the Fed at the Fed's rigged rates, but that doesn't mean it isn't going to be careful with the money. Rates dropped after the Fed funds cut last week, but long-term finance rates actually went up…and the gap between the Fed's rate and the banks' own interbank lending rates remained unchanged. What gives? Lenders are still worried. They're afraid they might let out some money…and not get it back. So, they demand a little extra return, as protection. In July, the spread between commercial paper and the fed funds rate was only four basis points. Now, it's 62.

Money is cheaper, generally, but as McAdie put it:

"Cheap money is now history. There are not going to be any more of the big leveraged buy-out deals for a long time because the CLO [collateralized loan obligations] market that financed them is effectively closed."

Oh my… The homeowners can't sell their houses. And the Wall Street hustlers can't sell their deals. How d-isappointing. How d-iscouraging. For example, the Bank of Montreal - Canada's fourth largest lender - announced that it couldn't get rid of its asset-backed paper. And the global mergers and acquisitions market got hit in the head with a brick. After setting a record in the first nine months of the year, the deals declined 42% in the third quarter.

What's an investor to do? Without 'deals on wheels,' what will keep stocks rolling? And without rising house prices, how will consumers keep spending? And without consumer spending (it is 72% of the economy…no economy in history ever depended so much on people spending money they didn't have on things they didn't need), what will prevent the U.S. economy from going into recession?

We don't know. But, as a dear reader remarks below, there are many things we don't know…

Bill Bonner, New Changes in Nascent China

New Changes in Nascent China

He writes: "Yesterday, we went to mass at the nearby Catholic Church…the poor priest had an uphill slog. The Bible reading was about money. "A man cannot serve two masters," he quoted the Nazarene. Clearly, there is a choice to be made. But put the question to a random group of Americans, French, or English…in 2007…we're not sure which way it will go."

So, Bill Bonner is Catholic? Or his wife?

Dr. Kurt Richebächer, RIP

From Bill Bonner, Paging Doctor Liquidity:

Our old friend Dr. Kurt Richebächer died last week, in Cannes, France. He was 88 years old, and his writings were a staple among many people's required reading list. As Chuck Butler puts it in today's issue of The Daily Pfennig, "Yes, I used to kid about how when you read one of his letters you need to put away all the sharp objects… But he told it like no one else…

"He didn't pull punches, and he was always ahead of all other economists with his thoughts. I will miss his writings… And the world has lost an economist that didn't cower to Washington…"

Dr. Richebächer, R.I.P. (More on the Good Doctor to come…)

Bill Bonner, Blinded by the Divine Light of ‘Capitalism’

Blinded by the Divine Light of ‘Capitalism’

by Bill Bonner

His new book:
Mobs, Messiahs, And Markets - Bill Bonner and Lila Rajiva

link at Agora Financial Publications; Amazon

Bill Bonner, Lifestyles of the Rich on Welfare

Lifestyles of the Rich on Welfare

The Daily Reckoning
Ouzilly, France
Monday, August 27, 2007

Bill Bonner, Living in an Investor's Paradise

Living in an Investor's Paradise

Meanwhile, no one seems the least bit interested in the really big news:

This boom is a fraud.

The Theology of Capitalism is a false god.

And the prosperity that Americans enjoy today is a swindle.

We've been saying so for the last eight years. (Yes, this month marks the eighth anniversary of The Daily Reckoning…which is why we're taking a two-week vacation; we're tired!) But now it's official - the New York Times said so - the average American earned less in 2005 than he did in 2000. Incomes went down only one single year in the last half of the 20th century. But never five years in a row! And this was when the housing boom was in full bubble mode.

Let's see, the average guy went further into debt during the period…while his income went down. If he isn't poorer, who is?

And yet, the average guy thinks he is getting richer. He's got more stuff…including a bigger house…and more cars. And practically the whole world thinks the United States has a dynamic, prosperous economy. But if the average guy gets poorer during the biggest boom in history…what kind of prosperity is that?

Allow us to answer our own question: It is flim-flam prosperity. It is the kind of prosperity you feel when you've just bought a doublewide trailer with a subprime ARM. It is the kind of prosperity you get when you take a trip to Europe on your credit cards, expecting to refinance your house when you get back in order to pay off the debt. It is the kind of prosperity that turns you into a pauper.

Not only is the average guy unaware that he is being swindled, so is the average investor. He sees nothing wrong. In fact, what he sees is that nothing CAN go wrong. (But he is ever in for a rude awakening…check out the full report on the lies Washington tells to keep us spending into oblivion here.

We were shocked yesterday when a fund manager, on vacation in France, stopped by the house to chat.

"Do you really think we can have a major correction?" he asked. "I think it is almost impossible. A major correction requires a fall in the supply of money and credit. But every central bank is putting out more and more money and credit. And they've shown that they will put out as much as is needed to keep things moving along. I don't think we'll have a major correction any time soon."

He has become a true believer in the Theology of Capitalism. He thinks the old-timed religion, with its fire and brimstone…the capitalism of delirious booms and cranky busts… has been replaced by a kinder, gentler variety…in which central bankers make sure no one suffers, ever.

An investor's Valhalla…a speculator's Elysium…a debtor's Eden…right here on planet earth. Gone is the nasty business cycle. Banished are bear markets. Forbidden are credit crunches, bank failures and rising unemployment.

Oh, dear reader…we can stop writing The Daily Reckoning right now… Our moment of rest has come. There is nothing more to be reckoned with.

*** Twice as many houses were foreclosed in July '07 as July '06. Default notices were sent to 180,000 people. Repossessions are up 93% from a year ago. House sales are at their lowest point in four years…and there are expected to be 2 million foreclosures this year.

Could it be that the poor, average American will be finally awakened from his dumb sleep by the sound of the housing crunch?

And some advice for Republicans:

Since few Republicans know what conservatism is, we will spell out a program for them:

1) Balance the Budget

2) Cut taxes

3) Don't meddle in anyone's affairs, domestic or foreign, unless you really, really have to

There, that's simple enough even for a Republican. And at least it would give voters a real choice.

Could this sort of program catch on? No chance.

Because too many people have come to expect something for nothing. No one wants to balance the budget, because then the government would have to curtail its program of bread and circuses. No one in government wants to cut taxes, because it would mean less money for the government to spend. And no one wants to stop meddling in other peoples' business - it would mean giving up too much power and money; what would all the lobbyists, consultants, lawyers and war-profiteers do?

But what about when the middle-class realizes it is getting poorer? Won't voters demand a change of direction?

Yes, they probably will. They will want "Relief!" They will want moratoria on debt collections and foreclosures. They will want lower rates from the Fed and higher spending from their government. They will probably want more war too; bellicosity is the traditional refuge of scoundrels and bankrupts.

Bill Bonner, Bailing out the American debt business

Bailing Out the American Debt Business
	By Bill Bonner "There was a time when the business of America was business… Now the business of America is debt. Americans buy things they don't need with money they don't have. Financing debt… is our most important industry."

Bill Bonner, The Real Boom's Evil Twin

The Real Boom's Evil Twin
By Bill Bonner "In order to fully enjoy a crack up boom you have to understand that a crack up boom is not all it's cracked up to be. It is fundamentally a feature of monetary inflation, not of real economic growth. Easy come; easy go."

Today's Guest Essay:
The Collapse of Collapse
By Bill Bonner "The world has never been want for some kind of crisis that tests its inhabitants. War, depression, economic hardship - all still occur. What has changed in the last quarter century is the way we approach these crises. Bill Bonner explores how the current global mindset is allowing trouble to take a holiday. Read on…"

From time to time, a young man will come to see us. He'll say he wants to get in the business. So, we warn him. You don't know what trouble is, we say, until you become a financial analyst. When your recommendations don't work out, your readers will despise you. And when you do well, they'll be disappointed you didn't do better. Worse, you might begin to think you really know what you're talking about. And then you're completely useless - and a danger to everyone, especially yourself.

So take our advice, we tell them. Go into law or dentistry. But if you decide to go ahead…remember, you can always come to us for advice and help. And if things really go badly for you, we always keep a loaded pistol in our desk drawer; we hate to see a financial analyst suffer.

I was going to say earlier, it seems that there are a lot of Austrian school adherents who go into financial advising. (I don't know if Mr. Bonner is one of them.) Is the Austrian school generally underrepresented in economics departments?

Bryon King, The Full-on Oil War of 2007

Mr. Bill Bonner makes a reference to this bulletin/advertisement in his latest.

The Full-on Oil War of 2007 :
Bloody New "Backlash" Set to Rocket Oil Past $150... and Send Gas Soaring to Over $6 per Gallon
Fri Jul 27 10:27:12 2007. US/Eastern
by Byron King, Editor

Well, Mr. King is one of many who make a living off making economic forecasts (including Mr. Bonner), so one might be skeptical about the claims made, especially as they are made of this year. I've read predictions about higher oil and gas prices since 2005, but the actual reality has not been as bad as those predictions. (Though they do offer explanations for why this is so--demand drops among poorer countries, and so on.) Nonetheless, are such financial/investment advisors more reliable than supposedly "neutral" and "scientific" economists sitting in their ivory towers, whether it be at the institutions of "higher" learning or at think tanks, or working for the MSM?

Bill Bonner, Cheap Oil Like Jonestown Kool-Aid

Cheap Oil Like Jonestown Kool-Aid
By Bill Bonner "Since the era of cheap oil is coming to a close…Americans will have to stop living in ugly, soul-destroying suburbs; they will have to stop their vulgar consumerism… They'll have to change, whether they like it or not."

Today's Guest Essay:
Don't Withhold the Don'ts
By Greg Guenthner "Do you sometimes feel as if Wall Street is not giving you all the facts? Well, that might not be too far from the truth. Greg Guenthner explores this idea through the story of one man and his guidelines for investing…or lack there of. Read on…"