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Table of Contents

How to put the great into A Depression | Bill Bonner4

Downsizing America| Barry Ritholtz6

the collapse of 09 | Gerald Celente9

Depleting Resources, Leaping Population | Byron W. King12

real heroes | Bill Bonner14

The Failed Intervention: A Morality Play in Three Parts | Addison Wiggin 18

The Decay of Paper Currency| Chris Mayer22

The idea of America| Bill Bonner25


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How to Put the Great into aDepression

by Bill Bonner

April 3, 2009

The facts are extravagant enough; the theories take our breath away

The Great Depression in the United States, wrote Milton Friedman, is a testament to how muchharm can be done by mistakes on the part of a few men when they wield vast power over the monetarysystem of a country.

What a wonderful time to be alive! We get to see things we had only read about in the historybookssuch as a Great Depression. A depression, of course, is a natural and recurring feature of capitalism.

But a Great Depression usually requires lobbying.

The grubby facts are not in dispute and are hardly worth recalling. The Fed dumped on the fertilizer.Asset prices grew like weeds. Investors got carried away. Consumers let themselves go. Wall Street and theCity lost their heads.

Then, the capitalists lost their money. Big deal. Thats the way its supposed to work. Capitalism isinherently dynamic and unstablefull of sturm and drang, boom and bust, creativity and destruction. Itsalways prone to blow itself up just when people count on it most.

As for the present crisis, even a central banker could have seen it coming. When you lend money topeople who cant pay it back, you have to expect trouble. But that doesnt stop capitalists from whining to

the authorities when trouble comes. Half fool, half-knave, governments mobilized; $14 trillion, orthereabouts, has been put up to prevent capitalism from correcting itself. Protectionism is on the increase even while heads of state rail against it. Banks have been bailed out. In Europe they are shortening the lifeexpectancy of automobiles. In America, the feds are effectively running the largest automobileindustrythe largest insurerand the largest mortgage finance business too. Soon, they may have a chainof hamburger joints. More mistakesmore chicanery in other words, just what youd expect.

Even their supposed friends say free markets have been exposed as a failure and a mountebank. That iswhy the G20 met in London yesterday they are meant to decide what to do about it. Peter Thal Larsenin the Financial Times:

The global financial system as we know it was forged by deregulation underpinned by a belief in freemarkets. That approach failed. The task now is to prove it can be set running again with better brakes andsteering By the end of the week, the world will have a clearer idea whether the system can survive.

William Pesek at Bloomberg: Theres no doubt the world that Reagan envisioned didnt work out. TheWashington Consensus of free markets, small government and unfettered globalization that characterizedthe 1990s also is over.

Meanwhile, over in the other camp, they are sitting around open firesrealizing that they are lost in thewoods. The Nation magazine has a feature on Re-imagining Socialism, in which Barbara Ehrenreich and

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Bill Fletcher write: Do we have a plan, people? Can we see our way out of this and into a just, democratic,sustainable (add your own favorites adjectives) future? Lets just put it right out on the table: we dont.

With no ideas from the usual do-goodersthe world turns its lonely eyes in a novel direction. Who cansave capitalism? The communists!

Market forces, if left unchecked, will lead to asset bubbles and ultimately a disastrous market clearing inthe form of a financial crisis like the current one, says a report from the Chinese central bank.

Everyone wants to be Chinese. Because the Chinese have money. And because they dont have freemarkets. It is widely believed that the Middle Kingdom can more effectively fight a downturn withoutdemocratic, consensus-driven institutions staying its hand.

But here is where we gasp for air. What theory holds that central planning whether by Chinesecommunists or American Democrats can do a better job of allocating capital than the people who own it?

There is none. That is why the worlds leaders and most of its economists too permit themselvesa luscious fib; they say they dont need theory at all. Pragmatism was the word on every pair of lips in

London this week. Free from chains to dead economists, they say they will try whatever works. Oh, theloveable lunkheads! Nave enough to believe anything; receptive as a trashcan. Pragmatism in economicsis as phony as the men who preach it. Every one of them has a dog-eared copy of Keynes General Theoryof Employment, Interest and Money in his briefcase and an ace up his sleeve. And every supposedly new,pragmatic idea they come up with is merely a version of the same quack cures that kept the economy in thehospital last time.

Perhaps you can paint a bridge pragmatically. If you dont like the color, you can change it quickly. But ifyoure building a bridge, an airplane or an economic system, you cant make it up as you go along. You haveto have an idea of how it works before you start. Besides, results from fiscal, monetary and regulatorypolicies dont happen overnight. The feedback loop takes years. It took the Bolsheviks seven decades before

they realized theyd been had. Friedmans critique of Americas Great Depression policies didnt appear until30 years after the event. In Japan, they still dont know what they did wrong. And by the time the fedscatch on this time, they will have turned an ordinary depression into a great one.

Regards,

Bill Bonner

The Daily Reckoning


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downsizing americaby Barry Ritholtz

March 24, 2009

For the past couple of years, I have been giving a speech at conferences titled Downsizing America. Itdiscusses a fact of life: Americas economy is getting a little smaller. This shrinkage is likely to be a secular as opposed to cyclical set of changes.

But thats a touch of an exaggeration. What it really means is that US consumers are going to engage inless-conspicuous consumption than they used to. The days of consumers making up 70% of US GDP arelikely to fade. I expect to see the economy move back toward consumers being 65% a sustainable levelthat existed prior to the credit and housing boom of the 2000s.

Out goes the conspicuous consumption of the 1990s and 2000s Lean and green is in; grotesque and

self-indulgent are out. Downsize that McMansion! Replace the SUV with something fuel-efficient! Save,instead of consuming!

This is much more than a philosophical view its what all of the economic data over the past yearhave been practically screaming.

This will have a significant impact on the overall economy. And businesses are going to have to pick upsome of the slack. Capital expenditures are going to have to do their part as the balance between consumerand business consumption reverts to more normalized ratios.

The present environment makes it likely that businesses will focus on investments that can pay forthemselves quickly. That means expenditures on items like business intelligence software, ways to become

more energy efficient, and the like.

But thats just guesswork. In terms of actual data, here is what the new, leaner American economylooks like:

Asset Deflation: Equity portfolios are on average down about 40%. Dividends are being slashed, stockrepurchases canceled. Even with the recent rally, stocks are off more than 40% from their peaks. Andon a national basis, home prices are down 25%

Consumer Spending: Down significantly, after the US had its worst Christmas retail selling season in40 years. The paradox of thrift people saving at a time when the economy needs them to spend has turned the savings rate positive. Conspicuous consumer consumption has been replaced with

conscious capital conservation

Retail Stores: Have been extremely hard hit. Many of the big chains are filing bankruptcy like CircuitCity, Linens n Things, The Sharper Image, Steve & Barrys, Tweeter, Mervyns, and Fortunoff. Thesurvivors like Starbucks, Macys, Sears, and Office Depot are closing stores left and right. In manycases, the surviving chains will see as many as 10-20% or more of their existing stores close. By thetime we finally emerge from this recession in 2010, retail shopping will have a much smaller footprintthan before

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Employment: Over 4 million jobs lost already, with anywhere from 24 million more to go, the workforce and labor pool are also being downsized. Unemployment broke through 25-year highs, to tag8.1% last month. U-6, the broadest reading of unemployment (including part-timeunderemployment), was just under 15% in February; this is the highest reading in decades.

The only age cohort seeing employment gains is the 55-plus group. This is due to their ugly realization

that the market collapse means they cannot retire. Hence, its back to work for the silvered-hair crowd

Finance & Wall Street: The Street has been hard hit look for much smaller revenue, with staff cutsof 2535%. The asset managers that get paid a percentage of assets under management have seen thevalue of their assets drop 4550% and with that comes a revenue drop of the same percentage.Who are the safest players? Those with green profit and losses, and/or substantial assets undermanagement. And who is at risk, besides finance employees? Everyone else

Autos: US auto sales have simply plunged. Annual sales are down 3750%, depending upon thenameplate from an annual US rate of 15 million to barely 10 million cars per year. Its not justDetroit, either Toyota, Honda, BMW, Lexus, Nissan, and Mercedes are also suffering

University Endowments: The intellectual engine of Americas brain trust has just taken an enormoushit to the frontal lobe: Harvard, Yale, Stanford, MIT, and others are down 2530%-plus over the past6 months alone. These big endowments fund professorships, grants, student scholarships, and pureresearch. The loss will be deeply felt over ensuing years, and even decades

Wages: US wages have been punished by globalization. They have been stagnant over the past 10 years.We are likely to see contractions in wages over the next 12 years or longer. This is consistent with ourthesis of the downsizing of the US consumer

Media: Circulation and advertising dollars at major newspapers are falling. Its likely that 50% of printnewspapers will be gone, or web only, in 5 years. The Seattle Post-Intelligencer just went web only, the

biggest such paper to do so yet. Will Fox Business channel, which launched at the peak of the stockmarket in 2007, manage to survive this onslaught? Id say its less than even money

Pharmaceuticals:We witnessed huge 1520% R&D cuts at several major pharmas (Pfizers huge researchlayoffs most recently). That means staff cuts also. This doesnt bode well for new drug development andcures; the misallocated resources over the past decade have led to lots of dead ends. I expect to see a lotmore consolidation in the pharma area, and more mergers between pharma and biotechs.

What is the sum total of all this? US GDP will contract 57% in 2009 Q1 and Q2, 24% in the secondhalf of 2009, and will flatten in 2010. Back in 2001, we forecast the US economy could hit $15 trillion by201011; that now gets pushed back to 201517.

There is a silver lining to all of this: First, the unhealthy reliance on credit seems to be going away. Wecannot grow by borrowing and spending but we can grow by producing and spending.

Second, the massive misallocation of capital in society has also been revealed. Out goes financialengineering, in comes making money the old-fashioned way earning it.

Lastly, for those of you who managed to avoid the worst of the bloodshed you may have moved tocash in early 2008 or (God bless) you were short for some of the run downward this is a target-richenvironment. Whether you are looking for value stocks, artwork, rare collectible automobiles, or vacationproperties there is many a deal to be had.


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Those contractors who didnt return your calls in 2005? They are begging for work. Toxic paper at 1020cents on the dollar aint all that toxic. And the owner of that 40-foot sports cruiser who cant makepayments is a motivated seller.

Note that this isnt being heartless or greedy. Recessions end when values become so compelling thatactivity begins to pick up. We are not quite there yet, but we are much closer than we were a year ago.

Distressed sales create opportunities for the cash-rich buyer who was cool enough not to chase the top orget panicked at the bottom. Make a low-ball offer and see what comes of it.

Who knows, you might even help turn the economy.

Regards,

Barry Ritholtz

For The Daily Reckoning

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The Collapse of 09by Gerald Celente

March 19, 2009

The Panic of 08 will be followed by The Collapse of 09. In 2008, when the worlds largest financialfirms and equity markets crumbled, Wall Streets woes preoccupied the media.

In 2009, the focus will broaden to include a range of calamities that will leave no sector unscathed. Next inline is retail, which accounts for some 70 percent of consumer spending, 26 percent of which is holiday sales.

After the numbers are tallied to reveal a dismal retail Christmas, more big chain bankruptcies will follow.Besides leaving masses unemployed, defunct retailers will leave behind thousands of empty stores. Who willrent them? Nobody!

Add to these empties commercial space vacated by defunct financial firms and an array of troubledbusinesses, from restaurants to architectural firms, to high tech operations, to offset printers, etc., etc. Theinescapable result (that we predicted over a year ago and is only now being discussed in the business media)is a commercial real estate bust that will be costlier, wreak greater havoc and prove more intractable thanthe residential market decline.

Because most people dont live and shop on Wall Street, the Panic of 08 was viewed by Main Street asif from afar even though many were losing money. But when commercial real estate crashes it will hitmuch closer to home. The depressive atmosphere of thinly shopped, half-vacant malls will strike emotionalchords and all the senses.

In office buildings, vacant floors and empty cubicles will dampen the workday spirit of the still-employed;

ever present reminders of laid-off friends and colleagues and of the fragility of employment.

Abandoned, untended business and industrial parks will highlight the already mournful scene. In citiesstudded with soaring towers and new construction predicated on eternal economic growth, streets linedwith For Rent/For Sale signs will complement stilled cranes and uncompleted buildings.

As retail and commercial real estate collapse, the credit card sector and all its interrelated processing andback office support businesses will suffer and be forced to scale back. Hordes of consumers who have beenliving off credit cards and racking up debt to the limit will lack the funds to service their debt much lesspay it off, and they will be forced to default. Given the nearly $3 trillion in consumer debt at risk(excluding auto and mortgage) an inevitable default snowball will add momentum to the in-progress

Collapse of 09.While we alone predicted the Panic of 08 (and even took out the domain name Panicof08.com on 7

November 2007), we are not alone in predicting a Depression.

The D word is being uttered in some cases by those who have the most to lose and whose bestinterests are not served by spreading gloom and doom. The world and country are in a depression, saidcelebrity tycoon Donald Trump. He then later softened the blow, downgrading it to a virtual depression.

Virtual to the few who will never have to worry where the next dollar will come from, it will bepainfully real and hardly virtual to the multitudes who are and will be worrying. The virally proliferating


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Greatest Depression is the Trend of Trends for 2009.

Even so, beware! Over the course of free-falling 2009, the word from most official sources will berecession, and from the few mainstream trophy pessimists, deep recession.

For example, the oft-quoted naysayer, Nouriel Roubini, New York University professor of economics,

forecasts a two year recession not Depression. On the sunnier side of Wall Street, the Federal Reservepredicts the US economy will contract only through the middle of 2009 and pledged, In any event, theCommittee agreed to take whatever steps were necessary to support the recovery.

What steps? The Bernanke Two-Step? Adjust interest rates or print more money? Neither stopped thecredit crisis from worsening, the real estate market from tanking or the stock markets from crashing.

It was Fed finagling, Washington deregulation and Wall Streets compulsive gambling that created thecrisis. To trust or to seriously consider pronouncements, analyses and predictions made by any of thesesources is an exercise in willful self-deception. Yet, with pensions, IRAs, 401ks, stocks and mutual fundsevaporating, many of those most affected deny reality and take hope that forecasts made by provenincompetents will miraculously restore their losses.

Throughout the many years leading up to what we term the Greatest Depression, The Trends ResearchInstitute provided copious data and Globalnomic analysis to support our forecasts of economic upheaval. Inthe past year alone, we have provided so much hard evidence (housings starts, home sales, foreclosures,bankruptcies, bank failures, unemployment figures, stock indices, leading economic indicators, retail sales,etc.) that further elaboration should be superfluous.

Those waiting to hear the D word from economic experts, talking heads and TV anchors before takingaction will most certainly regret their indecisiveness.

Absent from the economic scenarios ranging from second quarter recovery, deep recession and virtualdepression are the multiplicity of social, environmental, health, political, emotional/psychological andgeopolitical factors that point beyond just Depression. They point to The Decline and Fall of Empire America.

Well before Inauguration Day, Barack Obama was cast as the next Franklin Delano Roosevelt. If hefollows in FDRs footsteps he could freeze deposits by declaring a holiday to stop a run on the banks.While FDIC insurance may cover deposits, even after banks reopen, withdrawal amounts may be restricted.(As the Argentine government did in 20012002.)

Authors Note: Suspicious of the soundness of the banking system, I requested to withdraw a substantialsum from our Key Bank account, leaving funds sufficient to cover ongoing business operations. First theytried to dissuade me, then they stonewalled me, and finally they turned openly hostile.

I was forced to sign a series of documents, including one acknowledging that since I was carrying a largesum I could be the target of a robbery. To enhance that possibility, the teller slammed down the bag of cashon the counter and publicly announced the sum.

Despite repeated requests in the days preceding my withdrawal to get the cash in hundreds, they gave itto me in twenties, making for a bag five times the size and more robber-friendly. When I complained to thebank manager who had processed the request, the response amounted to take it or leave it.

This will not be an isolated event. If you attempt to withdraw a large chunk of money from youraccount, negotiate the details in advance and anticipate possible hassle and obstruction.


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Weve heard similar accounts from clients and Trends Journal subscribers who, over the past severalmonths, tried to close out mutual funds, 401ks and assorted sinking equities. They were dissuaded, cajoled,belittled and arm-twisted by brokers desperate to keep their accounts. Many caved in under the pressure,didnt close them and lost most of what they had.

So, we leave you with a Greatest Depression consideration: How safe is your money? How sound is your

bank? At the end of November, Citigroup, once Americas largest bank, was on the rocks. Fifty-twothousand employees were laid off. In just three days its stock lost more than half its value. Rumors swirledthat Citi was so desperate they were looking to sell or split up the company.

Is your money deposited in a local bank whose reputation you can bank on? Are you with a teeteringgiant or a poorly-managed regional? If either of the latter, it would be in your best interest to assess the risks.

Take some out if you think there is risk; take it all out if you think theres high risk. You may considerspreading it around and even banking abroad after all, this is the Global Age.

Regards,

Gerald CelenteFor The Daily Reckoning


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Depleting Resources,Leaping Population

by Byron W. King

February 12, 2008

The immigration debate is a hot-button issue to say the least. Byron King points out, in the essaybelow, that if this debate wasnt so tied up in terms of race and focused more on resource depletion perhaps we would make some headway.

A story in USA Today reports that The US population will soar to 438 million by 2050. Most of thepopulation growth will be driven by immigration and live births to immigrants. How depressing. And itought to make you mad, so that you want to do something about it like build a wall or something.

Really, why is it that the so-called immigration debate in the United States is often tied up with termsof race and seldom tied into the discussion of depleting resources and declining infrastructure? If theimmigration debate was framed in the latter terms of resource depletion and infrastructure, people wouldfocus on the point that the nation is full. The irrefutable fact is that the US resource base is fast-depletingand the infrastructure system is overloaded. There is no more room at this inn. Its time to hang out theequivalent of the No Vacancy sign for very some practical reasons.

The United States is already a net food-importer, yet the nation will now according to the PewResearch study grow its population from 300 million to 438 million within the next 43 years? In whatsoil will the food grow? How much food will be imported, and from where, and how will the nation pay forit? With the national credit card, that is now broken?

And while we are discussing eating, lets wash it down. Water is in critical shortage in many regions ofthe United States, so what will all of these new people drink? For that matter, what will the existingpopulation drink? At the other end of the alimentary canal, the US infrastructure of sewers and pollutioncontrol systems has long been inadequate. Water and sewer system construction has traditionally laggedpopulation growth even in the best of times. It is both expensive and politically difficult to gain approvalseven for replacement sewage systems, let alone new build construction. Really, who wants a sewagetreatment plant in their back yard? Cmonraise your hand.

Lets think about energy. The United States is already the worlds largest oil-using nation (21 millionbarrels per day) and the largest oil importer (13 million barrels), so again how much more oil will thesenew immigrants consume? While we are at it, the electricity system is strained to its limits in severalregions. Each year, the system requires more and more juggling and wheeling of power just to remain upand running. (For example, within the US power companies move electricity from Montana to California;from North Dakota to Illinois; from Tennessee to South Florida.) From where, and from what power plants(few are being built), will the nation obtain its electricity?

As things stand, the world is at the cusp of long-term oil depletion and output decline (and the highgrade coal reserves have been dug and burned as well). Thus the existing US population base will have itswork cut out just to maintain some semblance of an energy-based lifestyle for the current numbers. That is,the United States should expect the volumes of oil available on world markets to shrink. There will be less

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and less oil available to import, and at higher and higher prices. Ditto with coal. And as for alternativeenergy sources? Hey, these are great present investments. But they are lousy overall solutions to the futureenergy problems of 300 million people, let alone 438 million. Something is going to have to give.

Lets think of some other resource constraints in the United States as well.

Have you tried to find a parking space? The major cities are full-up, surrounded by sprawling suburbsand built-out exurbs. Roads are packed and traffic congestion is chronic. Yet few new roads are being builtanywhere for lack of space, let alone the NIMBY-ism that permeates the culture. The nation is havingtrouble maintaining its existing road and bridge infrastructure. Yet wont another 138 million people needa few more paved roads, bridges, tunnels and exit ramps within the next 40 years or so? Who will buildthose structures, and how will the nation pay for them?

Where would these roads go in any case? You can already get to most places that you want to go, using ahighway or road in some state of repair or another. But when you arrive at your destination youtypically find that much of the formerly rural landscape has been transformed into development and trackhousing, all of which uses energy and water in wasteful ways that will be untenable in years going forward

due to scarcity and high costs. While we are at it, for some strange reason, most of the US populationwants to live within 200 miles of a coastline. So lets add the majority of those 138 million new bodies tothe existing coastal bands. Tell me when you feel crowded.

How else can people move about? Not on trains. The US rail system is essentially maxed out with trains haulingfreight shipments, hence there is no room in or near any urban area to acquire new railway rights of way. So rail andlight rail which very few Americans currently use in any case will not grow in any big sense in future years.

Other US public infrastructure such as the hospital and public health system, court system, publicschools and higher education system are similarly maxed out. The United States can barely serve thepopulation base of 300 million with the existing sets of buildings and personnel. In many jurisdictions, thefact is that the public IS NOT being served in any adequate sense. And in many locales, people are being

treated, served and/or allegedly educated in trailers, for lack of space in the real buildings. Many of thereal public buildings in the United States are aged and long-past replacement. (In Pittsburgh, for example,no new public high school has been constructed since 1923.)

This does not even address the profound national issues of borders, language and culture that will beaffected by new waves of mass immigration. 438 million? That number is just too many to allow any sort ofsociety to function on half a continent, mostly near the coastlines. But one could also focus on thedepletion of the traditional American concepts of national boundaries, or the decline of the nationscommon English language and some semblance of an American culture based on a shared history. No, ifyou focus on that kind of thing, people will think that you are talking about immigration in terms of race.

So better just to focus on the fact that an increased US population from whatever source will leadto massive shortages of food, water and energy. And the public infrastructure will simply break down. Vastswaths of the country will become unrecognizable slums filled with broken-down housing, badtransportation, and hungry and thirsty people living on the squalid edge of human survival.

Now, lets talk about building that wall

Regards,

Byron W. KingThe Daily Reckoning


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REAL HEROESby Bill Bonner

January 5, 2007

And one was a soldier, and one was a priest,

And one was slain by a fierce wild beast

they were all of them saints of God;

and I mean, God help me to be one too.

A hymn we used to sing in church

Life is not like school. In real life you never know when the tests will come or what form they willtake. They come upon you unannounced and unlabeled. You dont even know when you are being tested.

We watched a scene in an immigration line recently. From near the end of the line, we saw a verypregnant woman she looked as though she might have been from the Middle East with two smallchildren, one in a stroller, the other tugging at her hand. The poor woman was having a time of it. The lineadvanced very slowly. The children were tired. She had more than she could handle. We hoped an agentwould step forward and take her to the head of the line. But none came. Nor did anyone in the line help.It wasnt clear how they could help. DO NOT USE CELL PHONES, said the posters. DO NOT TAKEPHOTOS. Could the woman leave the line? People were timid, a bit embarrassed. Most merely lookedaway. Finally, a young man with a bright smile and blond dreadlocks, near the front, signaled to her tocome ahead and take his place.

Another time on the subway in Paris a plump woman of about sixty years of age came into the car. Aman has to be careful about giving up his seat to a woman. He never knows whether she is old enough toappreciate the gesture. Unless the old girl is ready to fall down, she is likely to be insulted at being taken foran older woman. Besides, people dont want to give up their seats. So they tend to keep their heads down,pretending not to notice.

After only a moment of hesitation a young man got up and offered her a seat, which she gratefully accepted.

Neither of these small acts of kindness will make the history books. We call attention to them today notfor their grandeur, but for the grace of them. Today, we do not pause in sorrow and silence over the depthsof darkness in man; no, we rejoice in his rare moments of dignity and courage.

If life were like school, George W. Bush would have known that Iraq would test him and his administration.He might have done a little study before getting involved in the area. He could have begun, we wouldsuggest, by reading our own book The Essential Classics- from Les Belles Lettres available fromAmazon.com. There, he could have begun his research with the life of one of the worlds most successfulmen of action Alexander the Great. Alexander conquered the entire known world. But even Alexandercouldnt survive Iraq. He died in Babylon in 323 AD.

Or maybe he could have boned up on the history of the greatest empire ever Rome. He could haveread about Emperor Septimius Severuss attack on Ctesiphon, near present day Bagdad. At least, Severushad a plan. He captured 100,000 prisoners whom he sold into slavery. Back then empire was not only

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a source of glory but of profits.

But glory is our subject today, not profits. We wonder who gets it and who deserves it. Generally, wenote, they are not the same people.

In retrospect, George W. Bush might have spent a few hours studying more recent conflicts between

Christendom and the Muslim world. Just as Lyndon Johnson could have taken a little insight from Franceswar in Indo-China (later known as Vietnam)Americas current president surely could have learnedsomething from reading a little about Frances war in Algeria. The French are always ahead of us; nomilitary campaign or political project is so stupid that the French havent already tried it.

It was after World War II that an independent movement in Algeria took hold. France sent its braveyoung men to put down the uprising, but after fighting for a few years, the French had had enough. Theycould win the battles, but they could never win hearts and minds by killing Algerians. Only when theFrench had withdrawn, did the real killing begin and the real heroes appear.

Hundreds of thousands of local Algerian soldiers had fought next to the French. These Harkis had beenloyal to the French for many years. But when the time came for the French to leave, the Harkis were to beleft behind. What awaited them was vengeance.

An article in Le Point from February 2002 noted that were 200,000 Muslim Harkis who had foughtwith the French. And after the French left, approximately 50,000 of them including many entirefamilies as well as civilian authorities that had cooperated with the French were murdered. Whether theFrench saw it coming or not, we dont know. But a few officers realized that their men if they were leftbehind would be massacred.

The killing was often barbaric. Victims were crucified. Their limbs were torn off. They were butchered,mutilatedtortured in ways that plumb the darkness of the human spirit. A mayor was buried up to hisneck; honey was smeared on his head. He suffered hours of agony, being eaten by flies and ants, before

finally passing out and dying.Some of the French military officers were outraged that they had been ordered to abandon their men

under these circumstances. Brave men follow orders. But braver ones have the courage to disobey.

We recall our neighbor, Francois, who fought in Algeria telling us:

One colonel didnt want to abandon his men. He marched them up to Oran where the ships were takingthe French back to France. He went up to the ships captain and demanded that he load on his troops who were not French, but local Harkisyou know, Arabs. The captain of the ship said he was notauthorized to take the Harkis. The colonel pulled out his pistol and put it up to the captains head. Takethem all, or Ill blow your brains out, he said. He got them back to France. But I think the colonel was

arrested. And the Harkis were sent back.

Still a few officers such as Daniel Abolivier were able to organize an underground railway to getthe Harkis to France. A few survived. The others were lucky if their throats were cut.

George W. Bush likes to be thought of as a man of action. But there is a time for thought and a timefor action. A married man who has fallen in love with his secretary, for example, has already gone too far.He should have thought about it earlier. And when George W. Bush decided to invade Iraq, too, a crucialopportunity for reflection, for study and for preparation was missed. Now, he has to wonder what willhappen to his own Harkis when he leaves.


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In the Vietnam War, Johnson and McNamara sent hundreds of thousands of brave young men on afools errand. More than 58,000 of them didnt make it back alive. They all got medals and were all calledheroes by their families and by the politicians. But the rest of the nation didnt quite believe it. Those whoserved in Vietnam were certainly brave a man has to be brave to face death. John Kerry certainly wantedvoters to see him as a war hero when he showed off his medals. But the medals sagged a bit when they were

hung around John Kerrys neck.Dying is easy for brave men. It is living that is hard living with dignity and courage. It doesnt take a

lot of courage to give up a seat on the subway but there are times when the tests are more important andthe stakes are much higher.

When asked to serve his country in Vietnam, Muhammed Ali famously said No. The media brandedhim a coward. But Ali faced no threat in going into the army in 1967. It had already offered him a cushyjob teaching boxing and acting as a PR man for the Pentagon. The war in Vietnam was already veryunpopular. Ali could have served his time in relative safety and luxurymaking appearances for thecameras and the clowns talking up the war effort.

On the other hand, if he didnt gothe punishment would be severe. He would be stripped of hisboxing title. He wouldnt be able to box; he would have a hard time earning a living, let alone paying thelegal fees that would be needed to keep him out of jail. Plus, he would be called a traitor.

But Ali still said No. It was against his Black Muslim religion. And he added: I aint got nothinagainst them Viet Cong and No Viet-Cong ever called me a nigger.

No medals were pinned on Muhammed Ali. They give you medals for helping the politicians with theirpublic spectacles. They dont give you medals for standing in their way. Sophie Scholl and her brother stoodup to Adolph Hitler. They were among the few in Germany to protest the Nazis campaign of conquest andextermination. They were hanged for it.

Most brave Germans did their duty and won their medals. In his book Ordinary Men, ChristopherBrowning tells the story of the Hamburg Policemen who were sent to Poland to round up and murder Jews.At first, the men were reluctant to carry out their mission. Some were sickened by it. And at least one manrefused Lieutenant Heinz Buchmann. He announced that in no case would he participate in suchaction, in which defenseless women and children are shot. The others considered him too weak to do thework that had been given them. They saw him as a shirker and a coward.

We dont know what happened to Lieutenant Buchmann. The record says only that he was re-assigned.We only regret that there werent more like him.

Of course, not all heroes are in the military.

On January 13, 1982 at 3:59 in the afternoon, Air Florida Flight 90 took off in heavy snow fromWashingtons National airport, now known as Reagan National Airport. The pilots were not accustomed tosnow. One had failed a flight simulator test earlier in the year. The planes wings had been de-iced. Butthere was a long line waiting to take off from the airport that day. The wings should have been de-icedagain, but the pilots decided not to spend the time. Instead, they took off. Heavily. A few minutes later,the black box recorded this brief conversation in the cockpit:

Stalling were falling

Larry, were going down Larry.

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I know it.

Silence.

Where they were going down was right onto Washingtons busiest highway, US 395, and just at the 14thStreet Bridge. The plane smashed into the bridge and bounced into the Potomac River. Most of the crew

and passengers were killed immediately, but seven survived and were thrown into the river then, icy cold.They couldnt last long a fact that must have been obvious to Roger Olian, who jumped from his truck,into the water to try to save them. Unfortunately, Olian wouldnt last very long either. He had almoststopped breathing and turned blue by the time a helicopter came to his rescue.

It was a bad day in Washington. The snowstorm had caused a train wreck too. And traffic wasgridlocked. Emergency services had a very hard time getting to the scene. Helicopters, trying to operate inthe heavy snow, were having a rough time too. People on the bridge saw the plane go down. They saw thesurvivors in the water. But what could they do? They fashioned a line out of scarves and belts and tried toget it to those in the waterbut it didnt work. Olian jumped in. But that didnt work either. Finally, ahelicopter arrived and began to pluck the passengers out of the water. But by that time, the survivors

were barely alert.Then, one of them took the lifeline, wrapped it around himself, and was pulled to safety. Coming back

for other passengers, the line came to Arland D. Williams, Jr. Arland had not expected a test that day. Buthe passed with glory. Instead of taking the line himself, he gave it to flight attendant Kelly Duncan. Then,on the next trip, he passed it to Joe Stiley, who was severely injured and to Priscilla Tirada and PatriciaFelch. Ms. Tiradas husband and baby had just been killed in the crash. She was so hysterical she fell backinto the water too weak to hold onto the line. And here, another hero appeared. Lenny Skutnik took offhis coat and boots and swam out to help her. The two were rescued.

That left the sixth passenger, Arland D. Williams Jr., still in the river. The helicopter rushed back to gethim. But he had been in the freezing water too long. When the helicopter got there he had slipped into

the rivers icy embrace forever.

Skutnik, Olian, and Williams (posthumously) were given the Coast Guards Gold Lifesaving medal.

Regards,

Bill Bonner

The Daily Reckoning


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The Failed Intervention:

A Morality Play in Three Partsby Addison Wiggin

APRIL 24, 2005

CAST OF CHARACTERS:

A.W. (a.k.a. Renter #1)

T.D. (Renter #2)

K.I. (Renter #3)

L.S. (Unwitting Speculator #1)

C.D. (Unwitting Speculator #2)M.N. (Real Estate Investor)

A.P. (30-Year Fixed Rate New Homeowner)

Chorus: Caf patrons and waitresses

TIME and SCENE: Mid spring 2005 A.D., our great nation is in the throes of a tenacious housingbubble. Whole cities have been tantalized, wooed and seduced by this Siren song of easy wealth; entirepopulations rendered giddy by profits on paper. Nearly every conversation heard around the dinnertable across the bar in a cab is focused on one subject: the housing market.

The scene opens in Caf Hon, a locally famous Baltimore eatery in the trendy suburb (sic) of Hampden,where big hair and gaudy make-up are curiously in vogue and admired. Seven colleagues from The DailyReckoningsHQ are seated around a Formica-topped table.

Lacking an additional 30-yr fixed mortgage holder, the table less-than-fairly represents the breakdown ofmortgages nationwide: roughly 60% fixed rate, 40% ARM 25% of all new mortgage originations in2004 were real estate investors.

LS (Unwitting Speculator #1) is closing on a house the following day. Mere hours stand between herand the single biggest financial transaction of her young life. Can those stalwart pessimists (Renters #1,#2 and #3) lash her to the mast in time to save her from the Sirens tantalizing tune? We shall see, dearreader below

ACT I A MORTGAGE BROKERS WET DREAM

Renter #1: Hey, LS Im going to ask you one question. Your answer will determine how much I speakfor the rest of this meal. Is your loan an adjustable-rate mortgage?

Unwitting Speculator #1: Not at all. Its interest only.

[A gasp is heard. Ominous Lon Chaney-style horror music rises from the background.]

Renter #1(face wincing):Why why?! [Screams of horror coming from the kitchen.]

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Unwitting Speculator #1:What?! I was tired of throwing away money on rent every month. I wanted toinvest in something real and build equity. Besides, were going to sell in five years, anyway. So were cool.

[Somebody snickers.]

Renter #2: That doesnt make sense. You are still throwing away money. The only difference now is you

pay a finance company instead of a landlord.

Renter #3:And what if you cant sell in five years doesnt that make you nervous?

Unwitting Speculator #1: [muffled unintelligible remarks something about the location of thehouse a leafy street children on bikes speed humps shiny happy people yada, yada]

Renter #3:Answer the question. What if you cant sell?

Unwitting Speculator #1:Well I am a little nervous. (nervous laughter) Were risking a huge amountof money more money than Ive ever known. But hey, you only live once!

Unwitting Speculator #2: Oh come on LS, dont listen to them. I have an interest only mortgage, too.

[More gasps of horror. Another burst of Lon Chaney music.] These guys are all gloom and doomers.Remember, they work for the Daily Reckoning.

[Renters heads snap in unison to glare at Unwitting Speculator #2]

Renter #1:Andwhat about you, ARENT YOU nervous?

Unwitting Speculator #2: Nope. I try to take life one day at a time. I dont look that far ahead. Imdoing okay right now and besides, in 5 years, I hope to be married.

[Unwitting Speculator #2 holds up both hands with her fingers crossed. Smiles.]

All (in unison):Awwww.

Unwitting Speculator #1: Dont you know its bad luck to cross your fingers with BOTH hands?

ACT II UNSEEMLY PROFITS

Real Estate Investor:What about you Addison, why do you rent?

Renter #1:Well, we live down by the water in the neighborhood we want to live in and to tell youthe truth, I just dont understand the market anymore. Let me give you an example.

When we lived in the same neighborhood before moving to Paris back in 2000, the house across thestreet went on the market for $97,000. The price was so high, everyone thought the owners were nuts.It was a different time. A friend finally bought the place for $87k, gutted it and started renting to

college students.

We moved to Paris for four years. Last year, when we were moving back, we looked for a place to buy inFells Point low and behold, we saw the same property on the market. Guess how much?

All (in unison): How much tell us!

Renter #1: $357,000. [Renter #1 moves his hands to his hips in disgust. Nods around the table.] Afour-fold increase in just as many years!? Tell me, what market any market can sustain that kindof growth?


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Real Estate Investor: Hey, a lot of people I know would say thats still cheap. Besides, it sounds like youwere a damn fool to move to Paris. You should have held on for the ride. Still, I think youre right. Themarket is getting frothy thats why I just sold my Baltimore properties.

[Puzzled looks of intrigue.]

Renter #1:Yeah, thats probably a good move. You bought in nice and early, and now youve sold nearthe top. Then you put the proceeds into a resort property in West Virginia everyone knows thats anundervalued market.

[Fiddle-heavy blue grass music wafts from the kitchen. More nods of agreement around the table.]

Real Estate Investor:Yup. The price is up already. We only put ten percent down, but by the time ofclosing we had accumulated enough equity, the bank said they werent going to require mortgageinsurance. Wed already amassed an additional 10% of equity!

30-Year Fixed: Hell yeah! We made over $30,000 on our house before wed even slept there!

Unwitting Speculator #2:Yeah same here my house is way up already, so I have a good margin ofsafety. And when I get married

All (in unison):Awwww.

Renter #1: Hey, 30-year fixed, I know youve already made money on your house, but what do you seein the future?

30-Year Fixed: I have a response, but first Id like to make a comment

There are some neighborhoods that will always hold value. [muffled remarks something about the locationof the housea leafy streetchildren on bikesspeed humps shiny happy people yada, yada]

Renter #1 (with much enthusiasm):Au Contraire! (after all, that is THE motto of the The Daily Reckoning)Baltimore is a case study of good neighborhoods gone bad. Look at Druid Hill beautiful row homes.Back in the 20s F. Scott Fitzgerald and Gertrude Stein held garden parties and entertained Europeanroyalty up there. Now look at it. Hell might offer better refuge for a family of four.

On the other hand, in the 70s respectable folk wouldnt let their children go down to Fells Pointunchaperoned. It was a haven to bikers, neer-do-wells and urchins of the night. Today, theyre buildingspec homes on the water that start at a million plus

Renter #3: Too bad the harbor smells so bad

All (sighing):Yeah

[Pregnant pause. A moment of quiet reflection.]

Chorus:At this point, its not clear what conclusion, if any, can be drawn from the play.

When will the housing bubble burst?

Is it a bubble at all?

Or will prices keep rising for five years, handing the interest-onlys the last laugh; leaving the renters,humbled once again with egg on their faces and feeling like chumps? Well, dear reader, this is what

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makes a market.

Still, the renters bumble on

ACT III THE INTERVENTION

Unwitting Speculator #1 (jolted with excitement turning to Renter #1): Oh, that reminds me, can Ihave the day off tomorrow? Im closing on my house. [Turns to the table.] Should I wear a suit?

30-year Fixed: Nah you dont have to wear a suit for those yahoos.

[Snickers]

Renter #1: Sure, you can have a day off. But I forbid you to use one of these.

[Renter #1 holds up a pen. Renter #2 and Renter #3 smile at each other.]

Renter #3 (smugly):Ahhh No pens, no signing.

Renter #2 (smug and grinning):Yeah no pens.

30-year Fixed(Gesticulating expansively, raises his voice): Ah, dont listen to THEM (mutters tohimself) for crissakes.

[Check arrives. Curtain falls.]

Regards,

Addison wiggin & your playful playwrights at The Daily Reckoning

DISCLAIMER: Any and all events in this dramatic reenactment are purely non-fictional. Any

resemblance to real life is intentional; not at all coincidental. Some liberty may have been taken with thefacts, but we swear it was in good faith. We may have been embellished a tad for dramatic effect.

AUTEURS NOTE: It goes without saying, if this reality play had been written in 1999, the object ofdesire would have been tech stocks instead of houses.


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THE DECAY OF PAPER CURRENCYby Chris Mayer

March 24, 2005

Inflation, as it is commonly known, has not always been the normal state of affairs. As James Grant,editor of Grants Interest Rate Observer, has pointed out, From George Washington to the A-bomb, pricesalternately rose and fellAs Alan Greenspan himself has pointed out, the American price level registeredlittle net change between 1800 and 1929.

The basic nature of our money assures it will lose value over time. It can be created nearly at will and itis left in the hands of government officials, who routinely spend more than they have. In such a state, anations paper money has a shelf life like a fresh egg or a jar of mayonnaise. It doesnt last forever. Unlikethese foodstuffs, paper money has no printed expiration date.

According to economist Felix Somary, who experienced firsthand the devastating monetary inflationsthat destroyed the German mark in the 1920s, it took Rome four centuries to destroy its currency.Germany and Austria reached that point in just nine years, ending in the famous hyperinflations of the1920s, and before that, Russia managed it in only five years. Everyones experience is different, but ourcollective experiments in paper money have not created a currency that increases in value over time.

The life and value of a monetary unit has less to do with the wealth of a country than with the simplefacts of supply and demand. As the great Austrian economist Ludwig von Mises noted, Even the richestcountry can have a bad currency and the poorest country a good one.

For some interesting insights into the flight of the dollar, I want to share some thoughts I recently readfrom Justin Mamis, author of several investment books and a longtime market adviser. Mamis was bornduring one of the great turning moments in stock market history 1929.

Mamis talks about the experience of the dollars immediate predecessor as cock of the walk, the oldBritish pound. The pound, the currency of choice for a long stretch of time before the American dollar, wasthe product of the British Empire. Imperial ambition and sound money, though, never mix, and the poundprobably peaked somewhere before World War I. After World War II, Mamis notes, The Empire peeled offlike an onion into a grab bag of different independent countries the Bretton Woods Agreement of July1944 signaled the end of the British pound as the worlds reserve currency.

The British pound continued to weaken against the dollar over the ensuing years. Mamis notes:

Weakness, in a long-term sense, begets weakness, like the flaws in an incestuous genetic pool.

The dollar has been the worlds reserve currency, or currency of choice, since at least Bretton Woods.From this short collection of historical vignettes, we can make one safe assumption. As Mamis puts it, thestatus of being a reserve currency is not a permanent appointment.

To pinpoint when the dollars status as the worlds currency of choice will end is an impossible task.These things tend to unfold over many years, and there does not appear to be any immediate contenderready to ascend to the throne. But that should not deter the investor from making the basic assumptionthat the dollar of a decade hence will buy less than a dollar of today.

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Ill include one last quote from Mamis, who advises us not to expect long-term trends to always beimmediately apparent or obvious. We must warn not to turn the next centurys global changes intosomething that has to be evident in its entirety all at once or else denied. Nor will our concerns beproven instantly wrong because the dollar finally has its oversold rebound. Well said.

This situation the whittling away of the dollar creates the need for sound investing. Basically,

investors look to survive the ravages of inflation (and taxes of which inflation is a most insidious type).Like the biting winds of nature that sculpt rock and carve stone, inflation and taxes will grind the greatestpiles of fortune to dust over time. Preserving it, making it grow essentially investing well is theinvestors difficult art.

So should you put your money in euros, perhaps, or some other foreign currency? The euro maystrengthen against the dollar, but I think the dollar and the euro share the same fate, like the passengerpigeon and the Carolina parakeet. The road to extinction may be of indeterminable length, but the finaldestination of that road is not in doubt. The same can be said of all our paper currencies, be they yen orpounds, pesos or ringgit. All of them are on the same slide.

But there are other ways to beat the decaying paper currencies that make up so much of our financialwealth. The idea of tangible asset investing, investing in stuff that has survived and prospered in a variety ofconditions, should meet the challenge in the years ahead.

Often, Ive looked at some great fortunes and drawn insights and lessons from those experiences.Recently, I came across an old book, originally published in 1907 and written by Gustavus Myers, calledHistory of the Great American Fortunes.

It is a mammoth study of American wealth over the previous 200 years and deals with fortunes in shipping,land, fisheries, railroads, trusts, banks and other industries. Ive only read a couple of the opening chapters,which happen to cover the shipping and land fortunes. But some of Myers observations got me thinkingabout the durability of some forms of investment over others. Shipping and land offer interesting contrasts.

Myers writes about the great fortunes of the shippers. Enormous as were the profits of the shippingbusiness, they were immediate only. In the contest for wealth, it was inevitable that the shipper should fallbehind. Their business was one of peculiar uncertainties. The hazards of the sea, the fluctuations andvicissitudes of trade, the severe competition of the times exposed their traffic to many mutations. In otherwords, shippers fortunes came and went, like the late-1990s boom in tech stocks, the 1960s conglomerateboom or any number of investment crazes of years gone by.

Many shippers were aware of the vicissitudes of their business and often invested some piece of theirfortunes in land, banks, factories, turnpikes, insurance companies and railroads. Those that didnt didnt last.

Contrast this with Myers observations on those fortunes built on land, primarily in commercial cities

of importance:

Fortunes built on land in the cities were indued with a mathematical certainty and perpetuity. A lotof the tendencies and currents of the times favored the building up of an aristocracy based on theownership of city property. With the progressing growth of commerce and population, with immigrationcontinuing every year witnessing a keener pressure for occupation of land, the value of this latter wascertain to increase.

An investment in land was an investment in something that was real and often increased in value


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despite what its owners did with it. It could be titled and its ownership made certain unable to becopied by a competitor.

One more quote from Myers, who draws this interesting conclusion:

A more formidable system for the foundation and amplification of lasting fortunes has not existed

And that it is pre-eminently so is seen in the fact that the large shipping fortunes of a century ago are nowgenerally completely forgotten, as the methods then used are obsolete. But the land has remained land; andthe fortunes then incubated have grown into mighty powers of great national, and some of considerableinternational, importance.

Now, Im not concluding that land is a new surefire investment bound to make us all rich in time. Butthe best characteristics of land provide insight into what makes a resilient investment, able to hold its valuein a variety of market conditions.

Land has some characteristics, such as its durability, relatively fixed supply and timeless qualities thathave often made wonderful investments and formed the keystone to later fortunes.

To survive and prosper in the years ahead while the dollar crumbles, look for real assets that sharethese qualities.

Regards,

Chris MayerCapital & Crisis

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The Idea of Americaby Bill Bonner

February 21, 2002

Elizabeth, I asked this morning, as my wife climbed out of the pool. How would you describe thatsea turtle we saw on the beach?

Pausing for a moment, she replied:

Rotating its slow and majestic flippers, it ground its way slowly and inexorably towards China

The sea turtle was headed east. Whether China was its destination or not, I dont know. I only know thatit was about to leave the Latin America isthmus, from the west coast of Nicaragua, and put out to sea whena muscular, brown young man picked it up and carried it back up on the beach. He and his friends had dug

a big hole in the sand where the turtle was placed.

At night we often see the dim light of flashlights along the beach. Its the locals looking for turtle eggs,Manuel explained. Its illegal to take them, but Manuel shrugged his shoulders.

Sea turtles are protected by international convention. But here in the wilds of Nicaragua they still end upin the soup from time to time.

This is America too but it is not the same America. It is the New Worldbut not as new as the world northof the Rio Grande. Here, the Old World has not yet been snuffed out. It survives in a semi-tropical paradise.

But the object of our attention in todays Daily Reckoningis neither the Old World nor the New one but the ever-changing, never-fully-explored idea of America.

Proud to be an American says one bumper sticker. One nation indivisible, says another. Americawas, of course, founded on the opposite principle the idea that people were free to separate themselvesfrom a parent government whenever they felt they had come of age. But no fraud, no matter howstupendous, is so obvious as to be detected by the average American. That is Americas great strength orits most serious weakness.

After September 11, so many people bought flags that the shops ran short. Old Glory festooned nearlyevery porch and bridge. Patriotism swelled every heart.

Europeans, coming back to the Old Country, reported that they had never seen anything like it. AFrenchman takes his country for granted. He is born into it, just as he is born into his religion. He may beproud of La Belle France the way he is proud of his cheese. But he is not fool enough to claim credit foreither one. He just feels lucky to have them for his own.

America, by contrast, is a nation of people who chose to become Americans. Even the oldest family treein the New World has immigrants at its root. And where did its government, its courts, its businesses andsaloons come from? They were all invented by us. Having chosen the country and made it what it isAmericans feel more responsibility for what it has become than the citizens of most other nations. And theytake more pride in it too.


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But what is it? What has it become? What makes America different from any other nation? Why shouldwe care more about it than about, say, Lithuania or Chad?

Pressed for an answer, most Americans would reply, Because America is a free country. What else canbe said of the place? Its land mass is as varied as the earth itself. Inhabiting the sands of Tucson as well asthe steppes of Alaska, Americans could as well be called a desert race as an arctic one. Its religions are

equally diverse from moss-backed Episcopalians of the Virginia tidewater to the holy rollers of East Texasto the Muslims of East Harlem. Nor does blood itself give the country any mark of distinction. Theindividual American has more in common genetically with the people his people come from than with hisfellow Americans. In a DNA test, your correspondent is more likely to be mistaken for an IRA hitman thana Baltimore drug dealer.

America never was a nation in the usual sense of the word. Though there are plenty of exceptions especially among the made-up nations of former European colonies nations are usually composed ofgroups of people who share common blood, culture, and language.

Americans mostly speak English. But they might just as well speak Spanish. And at the debut of the

republic, the founding fathers narrowly avoided declaring German the official language at least, that isthe legend. A Frenchman has to speak French. A German has to speak the language of the Vaterland. Butan American could speak anything. And often does.

Nor is there even a common history. The average immigrant didnt arrive until the early 20th century. Bythen, Americas history was already 3 centuries old. The average citizen missed the whole thing.

Neither blood, history, religion, language what else is left? Only an idea: that you could come toAmerica and be whatever you wanted to be. You might have been a bog-trotter in Ireland or a baron inSilesia; in America you were free to become whatever you could make of yourself.

Give me liberty or give me death, said Patrick Henry, raising the rhetorical stakes and praying no one

would call him on it. Yet, the average man at the time lived in near perfect freedom. There were few booksand few laws on them. And fewer people to enforce them. Henry, if he wanted to do so, could have merelycrossed the Blue Ridge west of Charlottesville and never seen another government agent again.

Thomas Jefferson complained, in the Declaration of Independence, that Britain had erected a multitudeof New Offices, and set hither swarms of Officers to harass our people, and eat out their substance. Yet theswarms of officers sent by George III would have barely filled a mid-sized regional office of the IRS or cityzoning department today.

Likewise, the Founding Fathers kvetched about taxation without representation. But history has shownthat representation only makes taxation worse. Kings, emperors and tyrants must keep tax rates lowotherwise, the people rise in rebellion. It is democrats that really eat out the substance of the people: the

illusion of self-government lets them get away with it. Tax rates were only an average of 3% under thetyranny of King George III. One of the blessings of democracy is average tax rates that are ten times as high.

Americans today, wrote Rose Wilder Lane in 1936, after the Lincoln administration had annihilatedthe principle of self-government but before the Roosevelt team had finished its work, are the mostreckless and lawless of peoples we are also the most imaginative, the most temperamental, the mostinfinitely varied.

But by the end of the 20th century, Americans were required to wear seat belts and ate low-fat yogurt

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without a gun to their heads. The recklessness seems to have been bred out of them. And the variety too.North, south, east and west, people all wear the same clothes and cherish the same decrepit ideas as if theywere religious relics.

And why not? Its a free country.

Regards,

Bill BonnerThe Daily Reckoning


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