- Published on Monday, 23 July 2012 15:10
- Written by Bill Bonner, Founder and President, Agora Inc
- Hits: 735
Until the market gods get their way, it's not inflation we need to worry about... it's deflation.
The Dow dropped 120 on Friday. Looks as though U.S. stocks remain in a bear market, but one that is in no hurry to go anywhere.
Last week we were in Madrid on a tour of Europe's chipped edge. It was quiet in Spain. Sunny. Pleasant. But beneath the surface, temperatures were rising. Here's the latest report:
Spanish police fired rubber bullets and charged protestors in central Madrid early Friday at the end of a huge demonstration against economic crisis measures.
The protest was one of over 80 demonstrations called by unions across the county against civil servant pay cuts and tax hikes which drew tens of thousands of people, including police and firefighters wearing their helmets...
Some threw bottles at police and set up barriers made up of plastic bins and cardboard boxes in the middle of side streets leading to the square and set them on fire, sending plumes of thick smoke into the air.
Riot police then charged some of the protestors, striking them with batons when they tried to reach the heavily-guarded parliament building.
"There's nothing we can do but take to the street. We have lost between 10% and 15% of our pay in the past four years," said Sara Alvera, 51, a worker in the justice sector, demonstrating in Madrid.
Spain is struggling with its second recession in four years and an unemployment rate of more than 24%.
"There isn't a shortage of money -- there are too many thieves," read one sign hoisted in the Madrid crowd.
We'll second that!
The U.S. faces the same problems. And if properly calculated, it may have almost the same unemployment rate.
But how come Americans aren't howling in the streets too? What does Spain lack that the U.S. has? A printing press! The U.S. can print up dollars on demand. So lenders are sure to get their money back. No need to cut back on government employees, malingerers, chiselers and other parasites. The U.S. can print money to pay them.
This is, of course, a big deal -- especially now. The world is in a period of deleveraging and debt liquidation. This is when we find out what assets are really worth. Who can pay his bills and who can't. This is when the tide goes out... and when we find out who's been swimming naked.
The biggest fear lenders and investors have now is losing money. So, governments that are able to print money -- Japan, Switzerland, the U.S., Britain -- become like mattresses. You can put your money in; you're sure to get it back.
You're probably thinking, Yes, but what will the money be worth?
Don't worry about it. In a period of deleveraging and debt destruction, inflation is not a problem. It's deflation that is the big worry.
In Spain, the falling tide has exposed the banks and the builders. They went wild during the boom. Now they are broke.
The builders can't pay the banks. The Spanish banks can't pay the French banks that lent them money. The Germans depend on the French for support in holding Europe together. So, the Germans bail out the Spanish banks so they can pay the French banks.
But the Germans aren't chumps. They want to make sure the Spanish are cutting back on expenses -- which is why so many of them were on the street over the weekend. The demonstrators think something is fishy.
And they're right.
If the market gods had their way, this story would have been over long ago. They'd probably have wiped out banks all over Europe. Governments, too, would have been cut off from borrowing more money... and forced to balance their budgets.
You'd have deflation -- bringing prices down to a more reasonable level. You'd have massive debt destruction -- wiping out debts that will never be repaid. You'd have quick bankruptcies... and fire sales of broken assets.
It would be exciting! Quick! And effective.
Instead, too many thieves have their hands in too many pockets. They want bailouts... cheap loans... subsidies... and sinecures. None of them wants to find out who's naked and who's not. They delay... they hesitate... they make excuses and kick the can as far down the road as they can...
Meanwhile, the market gods will toy with us. They will laugh at us. They will tease and provoke us. They will pretend to go along with our central bankers and policymakers...
But in the end they will have their way...
And more obiter dictum:
The Lost Generation
"Something has happened. I don't know exactly. But it makes me feel sad for my children. I mean, they sleep together... and it doesn't mean anything to them..."
A neighbor in Paris was describing a social trend.
"There's something very unromantic about it. They just have friends. They describe them as "f*** buddies." I'm not kidding. That's what they say. They don't seem to take it very seriously...
"And I'm talking about the girls. They don't want to get married. They don't want to have families. What's going on?"
The next generation -- the "millennials" -- seems to be singing from a new songbook. Gone are the old love songs. The young don't seem to expect "true love." As for marriage -- forget it. The new songs are strange... and a little grotesque... at least to a man of retirement age.
What's behind it? Economics? Maybe.
Young men can no longer expect to be breadwinners. Women are already more educated. Experts say they will earn more money than men as soon as 2020. This leaves both men and women in need of new roles and models.
And both men and women of the new generation face grim prospects. Newsweek and the Daily Beast report:
[B]etween 2005 and 2010; those over 65 took only a 13% hit.
The wealth gap today between younger and older Americans now stands as the widest on record. The median net worth of households headed by someone 65 or older is $170,494, 42% higher than in 1984, while the median net worth for younger-age households is $3,662, down 68% from a quarter century ago, according to an analysis by the Pew Research Center.
The older generation, notes Pew, were "the beneficiaries of good timing" in everything from a strong economy to a long rise in housing prices. In contrast, quick prospects for improvement are dismal for the younger generation.
One key reason: their indebted parents are not leaving their jobs, forcing younger people to put careers on hold. Since 2008 the percentage of the workforce under 25 has dropped 13.2%, according to the Bureau of Labor Statistics, while that of people over 55 has risen by 7.6%.
"Employers are often replacing entry-level positions meant for graduates with people who have more experience because the pool of applicants is so much larger. Basically when unemployment goes up, it disenfranchises the younger generation because they are the least qualified," observes Kyle Storms, a recent graduate from Chapman University in California.
Overall the young suffer stubbornly high unemployment rates -- and an even higher incidence of underemployment. The unemployment rate for people between 18 and 29 is 12% in the U.S., nearly 50% above the national average. That's a far cry from the fearsome 50% rate seen in Spain or Greece, or the 35% in Italy and 22% in France and Britain, but well above the 8% rate in Germany.
The poor young people are lost in every sense. Socially and economically. The lower rungs have the economic ladder have been removed. The first steps toward family life too.
There's a time for everything. But if you can't get on the ladder when you're supposed to, how will you ever climb to the top? This next generation is missing the opportunity to start careers... and start families.
What will happen to them as they grow older?
We will have to wait and see...