Lost in fantasy

Following up my Parthian shot about Waldsiedlung in the previous post, I looked up Erich Honecker and discovered that one of his slogans in the 80s was "Vorwärts immer, rückwärts nimmer" ("Always forwards, never backwards").

Perhaps you remember Tony Blair's "Forward not back" in 2005? Or his "the People's Princess" (I thought I heard his throat tightening in a desperate attempt to stop the awful phrase coming out - Diana was an Earl's daughter - but maybe it was only a stage sob). And how about "In the years to come, wherever I am, whatever I do, I'm with you", weirdly echoing Matthew 28.

A schlock PM, turning eclectic sources into a mishmosh of gibberish less meaningful than Queen's Bohemian Fantasy, for the sake of a momentary, meretricious glamour. An extension of the "Spacematic DISCO with LIGHTS!!" of his Oxford student days.

Did he ever understand what he was playing with?

Locking the doors

The dethroning of the US dollar as the international trading currency is under way. New bonds issued by the International Monetary Fund in the form of "Special Drawing Rights" are related to a basket of currencies, thus diluting the dollar element and reducing America's opportunity to cheat the world by devaluation.

The same article describes a Chinese proposal to start issuing bonds denominated in renminbi, so that if the dollar does drop against the Chinese currency, all that will happen is that the dollar cost of the capital debt will increase.

It occurs to me that such extra security for lenders may help interest rates to remain lower than they otherwise would be. So the threat to borrowers is not that interest rates will increase, but that debt outstanding will continue to feel heavy, since inflation won't lighten the burden. In fact, the burden of foreign debt could get worse, if the dollar weakens in this new foreign-currency-mortgage era.

Another factor, which may be a deliberate strategy with an eye to the above, is China's own expansion of credit. If monetary inflation goes global - including in the East - then there's less hope that Western businesses could use relative currency devaluation to increase the demand for their goods and services. Manufacturers here will still be unable to compete and debt will grow. Our creditors will own us - we'll "owe our soul to the company store".

It's time to grasp the nettle - bust the banks who got us into this, have a tremendous clearout of debt from the system, reset wages and prices at lower (more internationally competitive) levels, get the people back to work and shrink the dead weight of government and its dependants.

That, or see what's left of our wealth leak away, and then suffer all the above as well - at even lower levels of per capita assets and income.

Doubtless the politically-favoured option is the latter - "Let it all happen on someone else's watch, after we've made ourselves into the New European Aristocracy and gone to our country estates." This would be a mistake. The palace of Versailles didn't protect Louis XVI, nor Waldsiedlung the East German communist elite.

Belling the cat

Karl Denninger calls again for the fat cats to "eat their own cooking", i.e. accept responsibility for the ruinous debt that will otherwise put a brake on the American economy for a decade. Good luck with that. Now, who's going to make them do it?

This is a test, not of the economy but of democracy.

Signs and portents

Over at Financial Sense University, Jim Willie paints a frightening picture. He claims that the US Federal Reserve has been secretly giving dollars to foreigners to buy US Treasury Certificates, so (temporarily) supporting US bonds and the dollar. Meanwhile, big banks are waiting for smaller banks to suffers losses on commercial loans, at which point they will gobble up their smaller competitors. But the big banks are insolvent, so rather than a healing juncture, it'll be a vampire puncture.

Studying the US Dollar Index, Willie uses a measure that Karl Denninger has previously cited, namely, a comparison of two trends: the 20-week moving average with the 50-week moving average. When the first crosses the second, the second will eventually follow - in this case, downwards.

In my previous post, I referred to signs and portents. This is because when big things are happening, the fog of lies thickens, so we have to look for betraying details and use our intuitions. Art is often the canary in the mine - you hear the coming conflict in the discords of Stravinsky's 1910 "the Rite of Spring". The disturbed children that I teach have recently been exploring zombies. Some also play computer games at home, that involve stabbing opponents in the eyes or genitals. One child's graffiti tag is JABZ.

Doodling, they draw pistols, rifles, knives, swords; but still read Postman Pat and Spongebob Squarepants. Gossiping, they talk of their mother's vibrator, their father's merkin, but (at age 11) don't quite understand and are looking forward to learning the facts about sex next week, which our curriculum now requires me to deliver. They come in shadow-eyed from gaming, but also from (in one case) accompanying their father late at night as he hunts down and savagely beats people who tied up and soaked with petrol an uncle suspected of stealing a motorbike. Where are the police? you may ask; the father is an ex-policeman. The Monarch's writ does not run where our underclass have to live; to have normal social inhibitions would be dangerous in such an environment.

Some may accuse me of moral panic; but I didn't grow up with the currently prevailing sense of moral ambiguity, despair and social collapse. Are we breeding a nation of future child guerrilla-band soldiers? And how tragic, how culpable, that the entertainment industry is playing its part in this; and that the Government hopes to shore up its vote by perpetuating the financial dependence of its claimants.

But it won't happen to us, will it? "Wat geht dat mik an?" as the mediaeval Germans would say: "What's it got to do with me?" Years ago, my Prussian grandmother described Der Flucht, the flight from the Red Army in 1945. They would come to a farm and be very grudgingly permitted to sleep in the haybarn; two days later, the owners would be on the road themselves.

We are in this together; but I cannot see how the present political arrangement can tackle the challenges. There are too many ways for our leadership to be distracted, to be suborned and to escape consequences personally.

Crash, cash, gold stash

Max Keiser is emphatic that there will be another huge banking crisis within the next 6 - 9 months, and says that the Chinese are "aggressively" buying gold in anticipation of a currency collapse. His talk (esp. with regards to Goldman Sachs) is intemperate, as his French co-guest diplomatically points out, but he may be correct.

I don't know how it is for you in the US, but here the jewellers have recently been fielding TV ads offering to buy your gold. What a favour they are doing for you.

PS

Barry Ritholtz shares in a strange, ecstatic group experience.

This, I suggest, is a sign. Norman Cohn's mediaeval history "The Pursuit of the Millennium" notes that at times of great societal stress, there were mass outbreaks of spontaneous frenzied dancing, singing, visions.

Unconsciously perhaps, Ritholtz connects the two, for just before he describes the happening he says, "The multitudes were slowly moving thru the mass transit walkways like cows being led to slaughter." The people are feeling the fear and reaching for joy.

Prepare

Realistically, growth was far above where it should have been for close to seven years because of the Fed induced lending boom, insane lending standards, and extreme leverage and risk taking everywhere epitomized by "liar loans" and zero-percent down housing. Now is the payback time. We should be expecting growth to be below trend for the next seven years, with a few outliers tossed in for good measure to keep everyone excessively optimistic.

- Mish

1 And it came to pass at the end of two full years, that Pharaoh dreamed: and, behold, he stood by the river.

2 And, behold, there came up out of the river seven well favored kine and fatfleshed; and they fed in a meadow.

3 And, behold, seven other kine came up after them out of the river, ill favored and leanfleshed; and stood by the other kine upon the brink of the river.

4 And the ill favored and leanfleshed kine did eat up the seven well favored and fat kine. So Pharaoh awoke.

5 And he slept and dreamed the second time: and, behold, seven ears of corn came up upon one stalk, rank and good.

6 And, behold, seven thin ears and blasted with the east wind sprung up after them.

7 And the seven thin ears devoured the seven rank and full ears. And Pharaoh awoke, and, behold, it was a dream.

8 And it came to pass in the morning that his spirit was troubled; and he sent and called for all the magicians of Egypt, and all the wise men thereof: and Pharaoh told them his dream; but there was none that could interpret them unto Pharaoh.

- Genesis, Chapter 41

The East is [in the] Red

Here's an interesting one: the Contrarian Investor reckons a credit bubble could be brewing in China.

For now, a cloud no bigger than your fist on the horizon; but sometime... This is how we ourselves started, back in the 80s.

Masters of the Universe vs. the Lord's Elect

A bright gleam has caught the helmets of our bankers. Goldman Sachs is set to pay an average £500,000 bonus to its London traders. This modest lagniappe is the equivalent of merely 20 years' median annual remuneration for NHS nurses. It is heartening to see that amid the gloom of an economy wrecked by... well, anyway, I'm sure we all agree that they deserve it. Indeed, more; but we must hope they may reasonably expect further such emoluments in the years to come. Nothing is too good for our money-boys, or for the politicians whom they will accommodate when put out to grass.

On an unrelated note, I've suddenly recalled the episode in Evelyn Waugh's "Decline and Fall" where Paul Pennyfeather meets a madman in prison:

"Well, one day I was just sweeping out the shop before shutting up when the angel of the Lord came in. I didn't know who it was at first. "Just in time," I said. "What can I do for you?" Then I noticed that all about him there was a red flame and a circle of flame over his head, same as I've been telling you. Then he told me how the Lord had numbered His elect and the day of tribulation was at hand. "Kill and spare not," he says."

Fortunately, the nutter's victim is a Modern Churchman, not a vitally important, wealth-creating banker.

Many market "shorts" are due to expire on Friday, I understand. Perhaps the market - a free and unmanipulated market, you may be sure - will change its mood next week.

PS

The S&P 500 closed above 900 points yesterday. "Mish" has said that it could easily fall below 500 points, or stall for years. He is against "buy and hold." So who profits if the poor layman is persuaded to stay in the market?

Regardless of what strategy one uses, it is a horrible idea to hold stocks throughout recessions.

Why Is Bad Advice So Common?

Clearly, stay the course is bad advice. So why is it so common? A personal anecdote might help explain things: In January of this year, an investment advisor from Wachovia Securities called me up and stated "Mish, I am sitting on millions because I see nothing I like". I told the person I did not like much either and that Sitka Pacific was heavily in cash and or hedged. His response was "Well, I do not get paid anything if my clients are sitting in cash".

I called up a rep at Merrill Lynch and he said the same thing, that reps for Merrill Lynch do not get paid if their clients are sitting in cash.

Massive Conflict of Interest

Notice the massive conflict of interest possibilities. Reps for various broker dealers have a vested interest in keeping clients 100% invested 100% of the time, even if they know it is wrong. And so it is every recession, bad advice permeates the airwaves and internet "Stay The Course".

We own you

The Big Picture selects several articles for us on US debt.

This one points out that to balance the US budget with borrowing, new bonds must be sold totalling 3 times the amount issued last year. Bearing in mind that there's less money around, and that people are getting nervous about America's credit rating, inflation and the value of the dollar on the international market, it seems very unlikely that this new debt auction would succeed; and if it did, it would have to be on the basis of higher interest rates, to factor-in the various increased risks.

Alternatively, it's time for the repo man - with a twist. Nassim Taleb and Mark Spitznagel suggest that banks could take part of homeowners' equity in exchange for lower interest rates. But if houses continue to decline in price? I bet the banks have thought of that, so if such a scheme were introduced, they'd want a bigger share than most homeowners would be willing to give them. My guess is that when houseowners realize that the market isn't going to turn soon, there'll be more voluntary bankruptcies and doorkeys in the post. That, plus rising and lengthening unemployment could set off the domino chain.

But returning to the Sprott analysis, note that late last year, 28% of US debt was foreign-owned. Look out for some form of debt-for-equity here - if not the sale of equities, then in the form of favours and concessions. He who pays the piper calls the tune.

It's just the way things are?

UPDATE: The Big Picture begs to differ with the no-blame angle, and names names...

I've asked several times before, whether any country could have played it differently and avoided getting involved in The Crash. Then I read this article (htp: Jesse) about ex-BIS economist William White, and near the end there's an indication that maybe it's not simply about baddies and goodies:

White is more concerned about the things he doesn't understand. New Zealand is a case in point. Interest rates were raised early in the crisis there, and yet the central bank was unable to come to grips with the credit bubble. Investors were apparently borrowing cheap money from foreign lenders.

This is the sort of thing that worries him. "That's when you have to ask yourself: Who exactly is controlling the whole thing anymore?"

Perhaps his model has a flaw in that regard. Could it be possible that central bankers today have far less influence than he assumes?

The thought causes him to wrinkle his brow for a moment. Then he smiles, says his goodbyes and quickly disappears into a Paris Metro station.

...this time it vanished quite slowly, beginning with the end of the tail, and ending with the grin, which remained some time after the rest of it had gone.

They

Lots of people now muttering darkly. But if we think we know what They are up to, and think we can't thwart Them, there should be some way to exploit the situation. For example, if They are manipulating the price of gold to keep it down for as long as possible, then surely it's a great time to buy it before They run out of possible.

Can't we do better than call vainly for somebody to restore justice to the world? Because that's the one thing that won't happen.

So, any ideas?

For example, what to do about the New World Order coinage unveiled by Medvedev the other day?

If you have a son or daughter, would you advise him/her to join GS and their ilk? Or McKinsey? Or emigrate?

KBO

From Colwyn Bay to Kettering
They're sobbing themselves to sleep,
The shrieks and wails
In the Yorkshire dales
Have even depressed the sheep.
In rather vulgar lettering
A very disgruntled group
Have posted bills
On the Cotswold Hills
To prove that we're in the soup.
While begging Kipling's pardon
There's one thing we know for sure
If England is a garden
We ought to have more manure.
Hurray-hurray-hurray!
Suffering and dismay.

Noel Coward.

... ho.

An astrologer writes

Russell Grant is trenchant in his criticism of feckless governments and financial advisers.

Next market peak due in... 2018 - if society's still around by then

See here. Back in November, I figured that inflation-adjusted Dow took 16 years to decline from 1966 to 1982, and my guess is that we're on a similar inflation-fuelled ride, so starting with the last peak in 2000, we might think about hitting bottom in real terms in 2016.

On the other hand, history doesn't repeat, it rhymes. In 1966 China was... a disaster area. The world economy is much more interconnected now, and the tide is Eastwards, and big business is global. The company you invest in, if US or UK-based, may still be making good profits on its overseas earnings, even if domestic workers are all on the dole.

A recovery for the investors may happen sooner, and the market bottom may not be so deep in nominal terms (currency-adjusted is something else: look at what has happened to the dollar and pound; and what may yet happen). I think there's a big disconnect between the markets and Joe Average, since the extra wealth from 1980 on has mostly accrued to the top layer of society.

The concentration of money into fewer hands means that investment issues must inevitably give way to considerations of maintaining (repairing) the social and political fabric of our democracies.

Ho, ho

Where did the funny money go?

A few days ago, I charted American public debt in the 2oth century. I also wrote to the Spectator (they didn't publish) to point out that Ronald Reagan and the Bushes were far from conservative when it came to fiscal matters, and that this did not result in benefit to the average American.

Now I come across a graph that makes it plain:

I suppose much the same happened here in the UK. So that's why we got all those posh-cooking and property-in -Provence TV programmes. We were encouraged to dream about the top echelon, not try to join them. As Eva Peron said, "I am taking the jewels from the oligarchs for you"; but somehow we never got to wear them ourselves. Not unless we went into hock for them.

This Wiki entry on the Gini coefficient remarks "Overall, there is a clear negative correlation between Gini coefficient and GDP per capita; although the U.S.A, Hong Kong and Singapore are all rich and have high Gini coefficients." Perhaps there is going to be a reversion to the standard international model: a poorer USA with a high Gini coefficient. Or (same source) a reversion to the social stratification of 1929:

"Gini indices for the United States at various times, according to the US Census Bureau:

1929: 45.0 (estimated)
1947: 37.6 (estimated)
1967: 39.7 (first year reported)
1968: 38.6 (lowest index reported)
1970: 39.4
1980: 40.3
1990: 42.8
2000: 46.2
2007: 46.3"

This blog projects a Gini convergence between the USA and Mexico - perhaps it makes sense, on the reversion-to-mean basis:

The sun also rises

Jesse:

... the governance of Britain which as we have said is semi-feudal, ruled by a few corporations and the wealthy elite in partnership with essentially a one party government.This will go a long way in helping to understand the "British disease" of economic stagnation. You start by crippling the middle class through debt indebtedness to a corporate elite.

So sorry, an error in transcription: for Britain and British, I should have written Japan and Japanese. Gomen nasai. But an understandable mistake, you may think. How much difference will a regime change in the UK make? The inclusion of Ken "fags and Bilberberg" Clarke on the Opposition team seems a deadly marker to me.

Returning to our muttons... Jesse has been focusing on the Land of the Rising Sun recently. He's pointed out that an ageing demographic structure is a major brake on the economy, especially with tight controls on immigration (though we in the UK may have have drawn the wrong conclusion from this); and today he looks at how the Japanese have organised themselves to reduce energy costs and oil dependency.

Especially the car: "I have long thought of cars as vampires sucking the economic life out of every household in the US. And the risk of death and serious injury from car accidents is about half what it is in the US (although the statistics may not be directly comparable)." And considered from a coldly economic point of view, think of the enormous overall costs of those deaths; and the possibly far greater costs of medical care and other support for the vast and growing army of injured and permanently disabled.

It's well worth reading the whole letter from Jesse's friend in Japan - not just about energy, but preventive healthcare etc. They walk to McDonald's - not waddle. They're organising themselves; so can we.

Faber: correction, then inflation

Cash for now, while we wait for the second half selloff; then stocks and gold to hedge against inflation, says the good Doctor.

Dow 400?

Tim Iacono quotes the Elliott Wave people:

For the record, EWFF also shows a "grand supercycle," beginning in January 2000 and ending at 400. Yes, that was FOUR HUNDRED.

And I thought I was being Eeyorish at 2,000.

Approaching the three-day week?

It begins; dig out the loon pants and beads. "If you're going to San Franciscooooo..."

Mr Schwarzenegger also issued an executive order mandating that many state offices close the first, second and third Friday of each month until June 2010 in an attempt to save money.

Market support

Denninger:

... a handful of banks, most specifically Goldman Sachs, constitute the majority of NYSE trading volume... This "back and forth trade" between a handful of institutions is nothing more than the old "pump and dump" game that has been played in the OTC market forever - and almost always screws the individual investor.

This is no different than you and I selling a house back and forth between us repeatedly, each time at a higher price. We both appear to be geniuses as we're both making a "profit", right?

Well, no. One of us is destined to take a horrifying loss if we do not find a sucker to make the final transaction with.

I wondered what was keeping it all up. And sooner or later...

P.S. Rob Kirby strongly suspects that similar manipulation is going on in oil and gold - one kept up, the other down. (For an update on the latter, click on the goldcam.)

The dolorous stroke

Another letter to The Spectator

Sir:

Irwin Stelzer (“No more consensus: this time there is a choice”) holds up Ronald Reagan as a model of a Conservative working for the ordinary voter. He could hardly have chosen a worse exemplar.

From 1947 to 1981 (the year in which Jimmy Carter left, and the Great Communicator took office), US public debt outstanding had fluctuated between $2 – 2.5 trillion (inflation-adjusted to 2009 dollars). Carter ended his Presidency with the debt no worse than it had been when he began. Under Reagan, the debt doubled in real terms (average 9.7% p.a. increase). Bush senior continued this trend (7.3% p.a.); the next two terms under Clinton showed a significant slowing (1.8% p.a.); but Bush junior picked up the pace again (6.3% p.a.) America now has $11.4 trillion public debt around its neck, approximately 5 times the equivalent in 1980, when Reagan asked voters, “Are you better off than you were four years ago?”

Well, how much better-off is Joe Average now? In the latest issue of Harvard Business Review, Gary Pisano and Willy Shih conclude that “average real weekly wages have essentially remained flat since 1980.” Instead, the “trickle-down effect” has turned out to be a torrent for the upper stratum only: in a 2006 speech reviewing hourly wage rate increases from 1973 – 2005, the economist Janet Yellen, of the Federal Reserve Bank of San Francisco, said “... the growth was heavily concentrated at the very tip of the top, that is, the top 1 percent”. The rest played catch-up by taking on extra personal debt: an investment analyst quoted in The Economist (22 January 2009) says “... the share of household and consumer debt alone went up from 100% of GDP in 1980 to 173% today, equivalent to around $6 trillion of extra borrowing.” Naturally, this process was much to the advantage of bankers, brokers and others in the top 1%.

In short, America has been pretty nearly busted by and for its elite. So much for the party of smaller government; so much for supporting the core Conservative, hard-working average wage-earner; not so much clear blue water, as a tide of red ink. One can only hope that the next British Conservative government, if there is one, will seek not to emulate Reagan and the Bushes.

Yours,

Down

Read Brad Setser on the USA's deterioration in the net international investment position.
The left-hand scale is in $billions.

To quote Status Quo, "down down, deeper and down".

Seen on "Capitalists At Work"

Bill Quango submits this cheeky number.

Cash vs the stock market: an inconvenient truth

Mish looks at certificates of deposit vs returns from stocks. Investors, take note.

The folly of buy-and-hold may also apply to houses.

"Holding stocks, you have to hold your breath, as the smell may be fatal" - wepollock (htp: Jesse)

Inflation, not deflation

Jesse today, maintaining that inflation can indeed happen...

Our own view is that a serious stagflation with further devaluation of the US dollar as it is replaced as the world's reserve currency is very likely, after a period of slackening demand and high unemployment. A military conflict is also a probable outcome as countries often go to war when they fail at peace.

Tips?

From my own readings in this area, the people who tended to survive the Weimar stagflation the best were those who:

1. Owned independent supplies of essentials including food and shelter and were reasonably self-sufficient.
2. Had savings in foreign currencies that were backed by gold such as the US dollar and the Swiss Franc
3. Possessed precious metals
4. Belonged to a trade union and/or had essential skills or government position which guaranteed a wage
5. Were invested in foreign equity markets, and even in the domestic German stock market for a time

A gold brick in the wind

Truly a sign - gold by machine dispenser.

US public debt since 1945 - inflation-adjusted

Sources: Treasury Direct, Robert Sahr. Click to enlarge.



Presiding over indebtedness... or as helpless as King Canute?

A samizdat on Europe

How many Internet users in the UK, with their own printer at home or permitted some private use at work?

So, never mind the Lisbon Treaty, that sly strategy to get us into the bedroom on some basis other than the consummation of marriage? Is it not time to seek democratic legitimation of the UK's membership of the EU per se?

Why can we not design and post up a form - a petitition for a referendum, for printing-off and taking round for signing by work colleagues, friends and neighbours? With a request that everyone follows suit - downloads, prints, distributes and posts into a central address?

Or even an unofficial, but fairly-worded referendum itself?

Or are we indeed "entering a post-democratic age?"

US Public debt vs. gold

Still trying to see the debt mountain in context... So let's see how hard it would be to pay off in gold, assuming that in 1791 a single "bag" of gold would have cleared the account.

For the first 70 years, the gold-priced public debt was always less than twice its 1791 level, and often below the starting point.

Now to see the progress of the public debt since 1860:

... and second, since 1945:

These pictures seem to indicate the influence of:

(a) two world wars

(b) the closure of the "gold window" in 1971

(c) monetary expansion since the 1980s

(d) the Grand Bust of 2000, NOT 2007, and the consequent flight to commodities

- and on this way of measuring the catastrophe, we're 50% worse off than at the end of WWII - plus we're not rebuilding the economy, we're doing the reverse.

Glory days

How did they do it? How can we do it again?

Perhaps staying out of wars, and quickly jailing greedy bankers, would be a start.

US Public Debt - annual rate of change

And the rate of change in the past has been frightening at times.

Here's the overall view from 1791 onwards:

Next, from 1945 to now:

Before that, The Roaring Twenties up to the end of World War II:

1900 - 1920:

1835 - 1900:

And from 1791 to 1835:

US Public Debt - the long view

The figures in the following graphs are from Treasury Direct. They are not adjusted for inflation, population size or GDP - all three of which would make interesting bases for comparison. But perhaps these pictures will show that the USA has come through equally bad, or worse, times before now.

US Public Debt since 1997

Data source: Treasury Direct

The new debt in perspective

Figures are inflation-adjusted. Source: Barry Ritholtz. Htp: Bearish News. Click to enlarge.

Any more inconvenient truths?

"Only now can we afford the truth," concludes this book review . The book admits that the French Resistance made no significant difference to the course of the war, but the myth of the Maquis helped De Gaulle resist Allied attempts to break up the French Empire.

Do you believe that there is a right time for the truth to be revealed?

Can you give examples of any truths that should be revealed, or myths dispelled, now?

Chinese SWF: a subtle assault on the US dollar?

Jim Willie (a notable gold proponent) submits an interesting essay on China's influence in the currency and commodity markets.

Gold bugs say that the price of gold and other commodities has been held down by parties interested in maintaining the credibility of the US dollar. Willie thinks that the entry of a large Chinese sovereign wealth fund may foil such market manipulation in future, especially since the Chinese can back their hedge fund loans with their US Treasury holdings. An attempt to break a Chinese-held commodity position, if successful, could lead to a selloff of Treasuries and so crater the bond market, leading to raised interest rates and/or a drop on the dollar.

Between a rock and a hard place. This is what it is to be a debtor.

Commercial real estate to crash?

Giant retailer Tesco has just sold and leased back 12 stores, netting £430 million (£458m, according to another source). This comes on top of another such move 10 months ago, which brought in another £605 million from 13 properties.

There's various ways you could interpret this - e.g. it could be a way to deflect criticism of Tesco's powerful position in the retail commercial property market, which some say has been used to prevent competitors setting up near their own outlets. But there are cheaper ways to deal with critics.

I think this billion-pound bet may be a straw in the wind - or perhaps an uprooted tree in the mighty gale - portending a significant fall in commercial property values.

A fish rots from the head down

A month ago, we learned that Tony Blair's receipts have been "accidentally" shredded, so that we cannot examine his financial behaviour as keenly as his hapless ex-colleagues. Yet Guido's blog shows that the shredding was paid for, receipted and claimed as an expense.

Are there some people who just get away with it, for ever?

Survival

In a Dublin talk last week, Dmitri Orlov bears out my repeated theme of diversity, dispersion and disconnection - the way in which efficiency and survival are at odds. It's also a theme of James Howard Kunstler. Even Rob Kirby's latest post refers to a "financial ecosystem" and asserts that the concentration of power at the top threatens the structure.

Big changes are on the way. Jesse reports on how the world is weaning itself off the dollar; the Contrarian Investor notes how China is cornering the market in rare minerals vital to modern technology.

There is a power struggle - a host of power struggles - going on. The good news is that life goes on, too. The bad news is that not everybody makes it.

Don't be the doughboy this time.

Flouncealikes

What the blackbird said

Every morning, a blackbird in our neighbourhood starts to sing. It begins with two distinctive melodies, and then (like Eric Clapton in his Cream days) improvises beautiful, complex variations on these themes.

We do the same. We complain of encroachments on our liberty, the debauching of our currency and national wealth, the weakening of the bonds that tie society together, and so on. And we do it many times, passing judgment with our "wise saws and modern instances", like Shakespeare's magistrate.

We're not alone. In a well-worth-reading article today, former Tory minister Neil Hamilton tells it like it is now with our rulers: democracy is dead (not that it was ever much alive). It's especially disturbing that senior politicians will say this now, not just the cranks among the public.

But why are we singing? Simone de Beauvoir said, "Every good book is a cry for help"; who do we hope will make speed to save us? And why does he have a sword and sceptre in his hands? Because to ask for help is to surrender power.

So let us combine against the oppressor. But who will lead us? And how will they mutate as they convert our assent into fresh authority? Is a libertarian party ultimately doomed by its oxymoronic essence?

George Orwell said, 'All historical changes finally boil down to the replacement of one ruling class by another. All talk about democracy, liberty, equality, fraternity, all revolutionary movements, all visions of Utopia, or "the classless society", or "the Kingdom of Heaven on earth", are humbug (not necessarily conscious humbug) covering the ambitions of some new class which is elbowing its way to power ...'

Like charity, liberty, wealth and happiness begin at home. Let us waste no more of our dreaming time on the puppets that wish to master us; in a Berkleian way, they are created and maintained only by our perception. Neither vote nor revolt; ignore. Trying to change society is like sending flowers to a soap opera wedding.

The revolution is personal. How much of your time and money could you save, reorganise, invest to make you and yours happier? "Il faut cultiver notre jardin."

And in our garden, the birds will sing.

Giant US slush fund?

Karl Denninger continues to reflect on a story that hasn't had much coverage - two Japanese have been caught in Italy, attempting to smuggle $134 BILLION in bearer bonds. KD thinks it's part of secret additional financing for the US.

This is not quite as ludicrously James Bond-ish as it seems. Bear in mind that some time ago, Brad Setser studied Treasury bond purchases by China and the UK and concluded that the latter country was acting as an additional conduit for the former's loans.

Good news for the Italians - their law says they'll take 40% of the contraband.

The housing market: qualifying my comments

Like many others, I'm in the habit of talking about "the housing market" in general terms. Surely this is no more helpful than talking about the average person's health, or the average temperature and climate of the Earth. In reality, there's a host of niches and scenarios - it's a sort of ecological system.

The London-based retiree looking for a bungalow in the South or South-West; the cereal packet family-of-four headed by a breadwinner; the pair of teachers deciding whether one can afford to go part-time; the buy-to-renter who sold out in time; the one who didn't; the rich guy dashing off a cheque for a Park Lane house to add to his international collection; the divorcee who bought out her ex-husband's share of the family home because she just can't let go; the car worker who's just lost his job; the Last Of England emigrant; the oldie looking for a sheltered housing apartment.

Houses sold by estate agent, by private treaty, by auction; houses sold, repossessed, swapped, abandoned, divided, combined, left as legacies, sold for care costs, seized by the law, occupied by squatters; flats, terraced houses, semis, detached dwellings. Brick and mortar, cruck, stone, straw bale, genuine and mock Tudor, eco.

Houses in central London, the London boroughs, the Home Counties, the provinces, Wales, Scotland and South-West; houses in thriving, decaying and recovering cities; in towns, villages, hamlets, lonely moors, islands; even a house on a pair of rocks on Newquay's beach.


How can one generalise meaningfully?

Why I think house prices must continue to fall

The West doesn't save enough and has borrowed too much, so it's going to be a moneylender's market. So, either:

• Interest rates go up, to make it worthwhile for lenders to continue financing us. This will cut into take-home pay and make it more difficult to service large mortgages. House prices will drop, and so, eventually, will rents.

However, high interest rates will be very painful. The other way is:

• The government will continue pumping cash into the system, one way or another. Our currency will depreciate further. Imports will become more expensive - and we import essentials like food and fuel. Since we have let our industries wither, we cannot quickly turn to providing for our own needs. So prices will soar and remain high for a long time. This will cut into take-home pay and make it more difficult to service large mortgages. House prices will drop, and so, eventually, will rents.

"Eventually" is happening now, as it happens. We were looking for a place to rent, found one on the Internet at £595/month, looked round it last week and the agent handed us a details sheet with the asking rent: £450.

Return of the spiv

Schiff's on a roll - read him. It's long, but worthwhile, epecially the predictive part at the end. An Eastern credit strike, a collapsing dollar, rapid inflation, price controls and the development of a black market.

Unless we bite the bullet and accept high interest rates and a further, bigger crash in house and share prices.

Charles Hugh Smith agrees.

Want to escape?

Try moving to Uruguay, for a "sustainable" lifestyle.

Or if you regard murder and suicide rates as indicators of general unhappiness, note the countries with low rates. (Also note how statistics is plagued with problems of accurate information, though.)

Euro and EU doomed?

Justice Litle thinks so.

Beg to differ on one point:

If the Brown government fails, Britain will be left rudderless in the midst of the worst fiscal storm in decades. In a worst-case scenario where bad events lead to worse decisions, opines Stephens, the domino chain could even lead to a British exit from the EU.

"Worst-case"? Au contraire, the sooner the better, and for the reasons he has given in his exploration of Europe's problems.

What slows us? Not just the dollar; demographics, too

F. William Engdahl argues that a key factor in future economic performance is demographics, and there are foreign countries with younger populations that will come into their own.

Off with his security pass!

Jim Fedako argues that the point of democracy is not to serve the people, but to allow ousted leaders to lose their jobs while keeping their heads.

Does liberty mean no more than this?

Life is a duck race

A few weeks ago, we watched a duck race in the Wye Valley. The ducks were emptied out of a big bag off the bridge at the same time, but at the finish a mile lower down, the winner was 20 minutes ahead of the second. Others had formed little groups and convoys, with stragglers and outliers.

Seems like a metaphor to me. The winner certainly didn't paddle any harder or smarter than the others. How much of a part does luck play in our lives?

Investment cataclysm?

The Mogambo Guru points out that the Standard & Poor's 500 Index stands at $940, but the earnings last week were $7.21, a price-earnings ratio of 130.

Historically, the p/e ratio of the S&P 500 has averaged less than 20 - whether you measure from 1881, 1900, 1945 or 1970.

If the earnings don't improve dramatically and soon, the implication is a super-crash. But even if earnings triple from last week's level, that would merely put us back to where we were in December 1999, when the S&P's p/e ratio stood at its highest-ever (up to then) level: 44.2. And as you know, the market went on to halve in value by 2003.

So the S&P earnings have to become three times better than they are now, just to match the pre-Millennium crash conditions.

The dominant feeling I have now is a diffuse sense of denial.

A winning move for New Labour?

What if New Labour's next General Election manifesto were to contain a pledge to hold a straightforward, binding referendum on British membership of the EU?

Call out the instigator

We are in one of those “generational revolutions” that Jefferson said were as important as anything else to the proper functioning of our democracy. We can no longer pretend that our collective behavior as a nation for the past 25 years has been worthy of us as a people.

I suggest you read this op-ed piece in the NYT (htp: Jesse). Revolution is in the air - here, too. That's why we need radical reform, instead.

He who pays the piper calls the tune

A couple of stories catch my eye:

China is requiring new PCs to come with factory-installed Internet filters (don't tell our government)...

... and may be buying American military secrets from the US Government (I believe I suggested this as a possible development quite some time ago, but I'm still looking for the reference.)

Recession - not even halfway there

Karl Denninger "does the math" and reckons that as Americans retrench, the economy will contract far more yet - at least 20% in total.

So anyone who has real money wants out: "The Chinese, Saudis and others with actual money that we are attempting to borrow to kick that can once again have figured out our scam and they are headed for the exits."

Coming soon: austerity, a devalued currency and high interest rates. And in the UK, it'll be worse.

A good time to save money, while you're still able to; and to bet against the crippled Anglo-American horses. No point piling up savings in our rotten fiat cash.

The Mogambo Guru continues to chirrup his commodities song.

Return of the Mighty Marmite Machine

They've put a new fuse in the Large Hadron Collider and found a few more shillings to run it on off-peak through the coming winter. Ex-D:Ream bandmember and nucular scientist Brian Cox has said "Anyone who thinks the LHC will destroy the world is a twat".

I've often suspected that those who employ the ad hominem strategy do so because they are on dodgy ground. I'm not a fan of logical proof by abuse, but it has its adherents.

Nevertheless, surely handsome, trendy Cox has heard of the possibility of a "Vacuum metastability event", explained thusly in Wikipedia:

"If our universe is in a very long-lived false vacuum, it is possible that the universe will tunnel into a lower energy state. If this happens, all structures will be destroyed instantaneously, without any forewarning."

How could this happen? A further link in the infallible Wiki universe considers the possibility of cosmic annihilation by particle accelerator:

One scenario is that, rather than quantum tunnelling, a particle accelerator, which produces very high energies in a very small area, could create sufficiently high energy density as to penetrate the barrier and stimulate the decay of the false vacuum to the lower energy vacuum. Hut and Rees,[3] however, have determined that because we have observed cosmic ray collisions at much higher energies than those produced in terrestrial particle accelerators, that these experiments will not, at least for the foreseeable future, pose a threat to our vacuum.

"...at least for the foreseeable future": a phrase to treasure, when set beside the earlier phrase, "...without any forewarning."

Not that I'd mind. After all, we'd know nothing about it. And it'd end the debate about global cooling / global warming / climate change - no guilt, either. And it'd make the Bible a nice bookend for both ends of the history of the universe, starting with "Let there be light" and ending "the day of the Lord will come as a thief in the night."

Throw that switch, Twatfinder General.

Selling off the family... gold?

A disturbing piece by Rob Kirby argues that the supposed reduction in the US trade deficit is partly accounted for by surreptitious exports of gold. Worrying on two fronts: first, that the real economic situation is worse than reported, and secondly, that when the gold market takes off, there won't be much left in the US. What will happen to the dollar?

Waiting for the turn...

I note that the Dow is creeping stealthily back up towards 9,000.

"What's the time, Mr Wolf?"

It's not going to be over by Christmas

Charles Hugh Smith thinks the current crisis will turn into a worse depression that the one of the Thirties. Citing Galbraith's study of the latter, he thinks inequality is a driving factor:

...the proximate cause was a vast income disparity which placed much of the prosperous era's profits in the hands of a small wealthy class, who then mal-invested the profits...

- in the "non-real" economy:

The financial Plutocracy, observing that actually producing goods is not very profitable unless you can fix prices [...] sinks its capital into the FIRE economy (finance, insurance and real estate), eschewing real-world investments as comparatively unprofitable.

Though rarely noted, this is a longstanding trait of capitalism stretching back to 1400-era Venice. When trade became less profitable than mainland farmimg, the Venetian Elite stopped funding trading and bought farms on the mainland. As a side effect, Venice ceased to be a military and trading power. But the Elite remained immensely wealthy.

Watch that Gini coefficient rise.

Education: wha' happen'?

Gervase Phinn, retired longtime primary schools inspector and author, has admitted (I was there) that teacher lesson ratings are a lottery; Chris Woodhead, former Chief Inspector of Schools, has recently said that OFSTED is a waste of time; primary heads have this year overwhelmingy voted to get rid of SATS.

So I thought I'd revisit the notion of corporal punishment, too. Here in the UK, we had a tiny but influential pressure group called STOPP (Society of Teachers Opposed to Physical Punishment). Its spokesman was a Tom Scott*, who used to teach in London. What do I find in the Guardian online?:

One of the leading figures in the campaign to abolish corporal punishment was Tom Scott, then a teacher in Tower Hamlets, east London, who helped set up Stopp, the Society of Teachers Opposed to Physical Punishment. Scott is believed to have quit teaching since, and retrained as a theatre director.

I've watched it all happen. The replacement of CSEs and O levels by GCSEs; the move towards, then away from continuous assessment; phonics as obligatory, then phonics as career suicide, then phonics as essential again; book-burning by heads of English in secondary schools (literally) to ensure that coursebooks could never again be used, followed by the fay ce que voudras English curriculum; then the "we'll sort the teachers out" National Curriculum; then the exploitation of the need for new textbooks by commercial publishers; then the teaching of sciences coalescing into a general science, the withering of maths, combined with introduction of PC characters in the SATS assessments to mix-in multicultural social issues...

Tosspots.
___________________________________________________

*I don't know whether he's the same Tom Scott who ran the Eye Theatre and/or later joined the BBC's whizzy digital department...

One too many

Fight

James has posted on liberty recently - an issue that underlies and will outlast all the economic turmoil of the recent and soon to come years. The prophets foretold this a century and more ago - the langorous and progressively enfolding embrace of the octopus...

Would it even be possible to hold the American revolution today? The Boston Tea Party? Imagine if George III had been able to sit in his palace across the ocean, look at the security-camera footage, press a button, and freeze the bank accounts of everyone there. Oh, well, we won’t be needing another revolt, will we? But the consequence of funding the metastasization of government through the confiscation of the fruits of the citizen’s labor is the remorseless shriveling of liberty.

Read more from the excellent and usually sharply funny Mark Steyn.

History Revisited?

I have just finished re-watching Jacob Bronowski's wonderful 'The Ascent of Man' series, which I first saw as a teenager.

In his segment on Isaac Newton, he notes that Newton couldn't get the attention of the rich and influential in his middle years. The reason was that there was little interest in science and technology, since so many were making fortunes in the South Sea Bubble scam.

It struck me at that moment that the disinvestment in science and technology in the US and UK for the past 30 years may be due to a similar set of cicumstances, since so much money was being conjured out of thin air, first in the dotcom bubble, and then in artificial housing prices.

Welcome, the Gurkhas

If we're not a country fit for heroes, we're a country fit for nothing. By righting this injustice, we have recovered a little of our honour.

The next Mr Speaker

Vince Cable? Frank Field?

The biggest bubble: human population

I've been watching BBC1's "Countryfile" and there was a reference to some CO2 reduction target, required because the world's population will be 9 billion by some date.

This is cart before horse. If we don't want the world to become composed solely of (a) people (b) things we need for food and drink c) weapons and (d) radioactive and otherwise polluted and barren desert, we need to:

1. limit human population growth...
2. ... without creating demographic gender imbalance
3. ... or demographic age imbalance

I read "Blueprint for Survival" in a Penguin edition in the 70s. One point it discussed, which had not occurred to me, was that the deceleration - population stabilisation/reduction - has to be slow and planned, otherwise we will develop serious imbalances that will destroy the economy and trigger a crash - a real, lethal one, not just the loss of some savings.

Time - time long overdue - for a plan to tackle this super-bubble. Wind farms and CO2 targets are near-irrelevancies.

The memory hole

From The Grumbler, but strangely, on page 9 in the dead tree version, rather than the front page:

Tony Blair dodged possible fire over his housing deals after hundreds of expenses claims were 'accidentally' shredded.

Documents itemising some of the then Prime Minister's receipts for 2001-02 were destroyed by Commons officials 'by mistake'.

Raising his voice above the shredders' roar, a source close to a former Prime Minister bawled that he was a pretty straight kind of a guy. Your correspondent made his excuses and left, pursued by an alcoholic pugilist making dark references to discoveries in woods.

Still stuck on the 'B' Ark

At the university where I work, we have a few good science programs, and a well-respected engineering college.

In the past few years, we have seen significant increases in enrollment. I attribute that to:

a) the fact that there are fewer good jobs out there

and

b) while the typical 18-year-old is lazy and ignorant, they are not stupid. Consequently, they are flocking to the analytical fields (where the jobs are), including mathematics and science education.

However, our student services people are convinced that it is because of the advertisements, 'student appreciation days', and the like, not the teaching that we do.

Accordingly, they recently brought in management experts to help us in recruitment and retention efforts.

And where did these experts come from, to help out academia? The Disney corporation!

I must really work for a Mickey Mouse operation.

Dow 4,000 yet again

The Mogambo Guru is off on one of his comedy riffs again, and reiterating his devotion to gold, but here's a statistic he quotes midway:

“the price-to-earnings ratio for the Dow Jones Industrial Index is now a hefty 43.1! It should be, historically, less than 20!”

Do the math, as they say. In fact, I'll do it for you now: take the Dow at close the night before Mogambo ranted (8,469.11) and multiply by 20/43.1. Result: 3,929.98.

I gues the question is, is the current low level of company earnings a temporary matter caused by recent dislocations, or is it set to continue as the economic climate darkens?

Plus, as we all know, the market can stay irrational longer than you can stay solvent. But I still think that, adjusted for what now seems inevitable high inflation, we're going to see Dow 4,000 sometime, as I graphed back in December:

Why inflation is going to hit us

Scott Burns at MSN Money (htp: Michael Panzner) calculates that unfunded government programs for social security and Medicare ($46 trillion) represent a debt equivalent to around 90% of all consumers' net worth ($51.5 trillion). If Americans' net assets decline by a further 10%, then effectively the American citizen is bust.

Can anyone provide equivalent information for the UK?

Return of The Great Stink

Chinese Yuan now challenging US dollar as trading currency.

See here.

A velvet revolution, or a concrete one?

In a recent post, "Paddington" compared us with our forefathers, to our detriment. Now, Jeffrey R. Nyquist does the same:

We think that we are more sophisticated than our grandfathers. But we are less sophisticated, by far. Our descent into darkness is best demonstrated by listing old artists beside new artists; by listing old statesmen beside new statesmen; by comparing the lives of our grandparents to our own. The sociologist notices that more children are born outside of marriage, that epidemic cheating has taken our schools by the throat, that we have incompetence in business and government, that we find banality and ignorance on all sides. What conclusion can he draw? The powers and advantages of modern life haven’t made us worthy. They merely serve to amplify and accelerate our unworthiness.

I am amazed by those who think the U.S. economy is going to recover, that global peace is attainable, that American liberties are going to survive American barbarism. Look at our culture today: men are no longer men, and women are no longer women; capitalists no longer uphold free market principles; constitutional government no longer adheres to the Constitution; enemies are treated as friends. Nobody reads the signs. Nobody sees what is coming. Look at the birthrate among Europeans. Look at the abandonment of European culture. Look at the Muslim birthrate. Europe will be Islamic in fifty years. Long before that, the Russians and Chinese will achieve nuclear dominance of the globe. What do you think the investment climate will be in 2059?

Again and again, we are reminded that the issues are much bigger than mere money. I think that we could be on the verge of a social and political revolution, especially if whoever next takes on our nations' problems fails as signally as the present administration. To be clear, I don't welcome revolution, and don't expect its aftermath to be better than the state of affairs that preceded it. There must be effective reform, soon.

Us banks vs UK banks

We are now getting used to hearing that the UK is the worst-placed among the G20 countries to recover from the credit crunch. One reason is that we have few banks, and almost all of them in trouble.

By contrast, as you see here, the US has 8,500 banks, most of them in good condition. The problems are concentrated in their handful of giants. Over there, it would be possible to bust them and have others ready to take on their books of loans (discounted) and deposits.

Here, I think we'd have to create a new bank, if only to provide some competition for Barclays and HSBC.

A lighter moment

I wish I could embed this one, but please click on the link to see an outstanding and very funny example of hysterical greed:

http://www.youtube.com/watch?v=70wuAWxOEZA

... but the Revolution begins at home

We attended the memorial service for a friend yesterday, and the following quotation (Acts, Chap. 2, vv. 44-47 - King James version) was included in the readings:

And all that believed were together, and had all things common;
And sold their possessions and goods, and parted them to all men, as every man had need.
And they, continuing daily with one accord in the temple, and breaking bread from house to house, did eat their meat with gladness and singleness of heart,
Praising God, and having favour with all the people. And the Lord added to the church daily such as should be saved.

It's a big ask, as they say; and the more we have, the bigger an ask it is. Jesus' advice to the rich young man (Matthew 19, v. 21) is after the latter has confirmed that he already performs all the normal religious duties:

If thou wilt be perfect, go and sell that thou hast, and give to the poor, and thou shalt have treasure in heaven: and come and follow me.

It was too much for that trustafarian, and it's too much for modern us. So we try to explain it away, Philadelphia lawyer-style. Clever people will explain that if you give away all, you'll merely be a charity case yourself. Or they'll tell you that the advice was case-specific: the young man needed freeing from his attachment to material things (and, presumably, we don't).

Yet the history of the early Church clearly shows that these sophisticated glosses are plain wrong. They were far, far closer to the revolutionary events (and witnesses) of the New Testament, and we must assume that they understood the message better. "Such as should be saved" must join the project, and obey the project's rules.

Reportedly, 82% of Americans are Christians (even the Simpson family). Many sincerely try to follow the early example - think of the people who took in refugees from Katrina-devastated New Orleans, and how some of these good hosts were robbed and even killed as a result.

But writing comments on US blogs suggesting sharing resources (even in the bureacratic form of the NHS) will get sharp ripostes accusing you of socialism or worse.

It's still a big ask, isn't it? And still too big for me, at the moment.

The Revolution is beginning

This Parliament has now lost all moral and political authority and ought, by rights, to dissolve itself.

It is now not only the Government that has ceased to deserve our trust. So many members of the House of Commons have disgraced themselves so completely that their right to make laws for the rest of us has evaporated.

Read the rest of this extraordinary attack on our corrupted Parliament and broken democracy, in the Mail on Sunday here. The blogger-whingeing has now gone mainstream.

The gold bugs are chittering - but don't get over-excited

Jeff Clark at Casey Research (htp: The Mogambo Guru) plays with the numbers to estimate gold's potential.

One stat is created from a comparison of all the world's cash with all the world's gold: "Total central banks reserves (including gold holdings) = $4.8 trillion, divided by 929.6 million ounces total gold reserves held by all official institutions that issue currency = $5,246 gold price." Or about £3,500 per ounce.

HOWEVER: the World Gold Council estimates that all the gold ever mined to the end of 2006 is about 158,000 tonnes, or 5,079.7 million ounces. If we round down to 5 billion ounces (to allow for some permanent loss, but offset to some extent by new mining - esp. in China - since 2006) we get a gold price of $960 per ounce - not far off where we are today. Allow a bit of cash held outside banks, and gold would be worth - what? $1,000? $1,200?

Yes, there may be a spike like in 1980 - and there may not be. But speculation/panic aside, it would seem that, globally, the current gold-to-money ratio is not quite so wrong as might seem at first sight. So the story is not really about gold, but about the weakness of the dollar in a heavily unbalanced US economy. Priced in a different, stronger currency, gold may not zoom to the moon.

Gold, and theft by inflation

A killer graph here from Charles Hugh Smith. Interestingly, the steady real decline of average incomes begins at almost exactly the same time as Nixon shut the "gold window".

Smith's take is that "the speculative mania in housing was fundamentally a tragic last-gasp effort to make up lost ground via speculation in housing". And if housing reverts to mean, it has a long, long way to go yet.

Is it worth a shot?

Our Founding Fathers were not all professional politicians. They were farmers, writers, inventors, lawyers and surveyors. They had organized estates, led men into battle, built furniture, and written books.

By contrast, our modern elite have often never generated anything. I believe that is why they find it so easy to destroy things that they don't understand (which is a long list).

Petty officials in Brussels attack the British banger and English chocolate, not by relevant measures such as taste or safety, but using purely arbitrary scales.

In Britain, the well-educated New Labour, demonstrating their reverse snobbery, diminish the Peerage, and complete the destruction of a once-great educational system.

In the US, we have the legions of draft-dodgers who steer high-ticket military contracts to their friends, while our exhausted troops salvage from junk yards. The managers, accountants and lawyers have brought our economy to its elbows by equating the movement of wealth with its generation. Our fragile education system is battered by consultants and administrators who confuse good grades with competent teaching and actual learning.

Perhaps some of this could be improved by adapting some of the Japanese model, where management trainees first must try every job on the shop floor?