Vision of the markets...

As I write, the equity markets have already judged the Senate’s stimulus plan, and by extension, the bills put forth by the House and the White House as well. The Dow is down 360 points, here, the judgment of millions of people is substituted for a relative handful of party hacks, earmark addicts, a White House dimly viewing a situation it barely understands, and all the others who would spin on their behalf.

Like generals waging the next war based on the last one, economic policy makers insist on understanding our situation based on those of post-World War II recessions or the Great Depression itself. But our situation is now so different that the past makes for lousy historical analogies.

Months ago, I declared we are deflating, and that there is little that our elected representatives can do about it. I repeat that assertion now. In the months since I first made that declaration, I have come to believe that inflation may follow but is probably several years off. I have also come to believe that understanding our current situation in terms of the past (recession/depression) is a trap. We are in a new state of economic affairs, one for which no name has yet been created.

Like generals waging the next war based on the last one, economic policy makers insist on understanding our situation based on those of post-World War II recessions or the Great Depression itself. But our situation is now so different that the past makes for lousy historical analogies. If one prefers history, here’s Abraham Lincoln with an always relevant observation: “As our case is new, so must we think anew and act anew….” And today our economic case is very new.

The stimulus bill, insofar as it might have done something, will achieve less than nothing. The political establishment has forfeited its own political capital in plundering the capital of others. The Senate bill is a monument to Democratic Party fecklessness and Republican Party pusillanimity.

Bush was a great President!

If George W. Bush had made a joke at the expense of the Special Olympics, would you have approved?

If George W. Bush had given Tony Blair a set of inexpensive and useless (to Tony Blair’s UK video formatting) DVDs, when Tony Blair had given him a thoughtful and historically significant gift, would you have approved?

If George W. Bush had given the Queen of England an iPod containing videos of his speeches, would you have approved?

If George W. Bush had bowed to the King of Saudi Arabia, would you have approved?

If George W. Bush had visited Austria and made reference to the non-existent “Austrian language,” would you have brushed it off as a minor slip?

If George W. Bush had filled his cabinet and circle of advisers with people who cannot seem to keep current on their income taxes, would you have approved?

If George Bush had ordered the firing of the CEO of a major corporation, even though he had no constitutional authority to do so, would you have approved?

If George W. Bush had proposed to double the national debt, which had taken more than two centuries to accumulate, in one 20 year, would you have approved?

If George W. Bush had apologized (in a begging fashion before the leads of dozens of nations) to Europeans for America for our unconscionable attitudes ” would you have approved?

If George W. Bush then proposed to double the debt again within 10 years, would you have approved?

So, tell me again, what is it about Obama that makes him so brilliant and impressive? Can’t think of anything? Don’t worry. He’s done all this in 10 weeks — so you’ll have three years and nine-and-a-half months to come up with an answer.

You can add to this with— If Bush’s people were responsible for flying Airforce 1 over NYC for a photo op and scaring half of the city; would you have approved?

A NOTE TO ALL NEW GRADUATES...

“Plastics,” was the advice given to college graduates in Mike Nichols’ ’67 film. But that was when there was still hope for America’s manufacturing sector. Even then, it was too late. The percentage of GDP from the manufacturing sector fell for the next four decades, from over 20% in the last ’60s to barely 12% last year. Better advice would have been ‘derivatives.’ They stank just as bad, but they were much more profitable. While only 8% of GDP, finance accounted for 40% of corporate profits in 2007. And derivatives grew from nothing to a face value of 16 times the GDP of the entire planet.

But your elders are always giving you bum advice.

“You cannot decline the burdens of empire and still expect to share its honors,” said Pericles to the class of 430BC. He lived during a time not unlike your parents’ era in the USA – when Athens was on top of the world. But vanity got the better of him. He launched an attack on Sparta that backfired badly. He soon died of plague and Athens was not only ruined, but enslaved. Athens’ ‘golden age’ turned to lead. Young Athenians should have shrugged off the burden rather than accept it. You should do the same.

When you were born 20-some years ago, the nation’s total debt per person was less than $90,000 – adjusted to ’09 dollars, of course. While that was a lot of money, it was nothing compared to what was coming. Now it’s $186,717 per person – more than twice as much, in real terms. Fortunately, private debt is not inheritable. But it comes to you as a lien against property. Instead of paying off their mortgages and leaving you a house, free and clear, the baby boomer generation spent the ‘equity’ in their houses even faster than they got it. House prices rose. But mortgage debt rose faster. While your grandparents owned 80% of their houses, by 2007, the typical homeowner only really owned 4 rooms of an 8-room house. And then, when house prices fell, so did his remaining equity…to the point where one out of six homeowners in America is now underwater. You could still eventually inherit a house, but you may have to scrape the barnacles off the front porch.

But that’s not even the half of it. While your parents had control of the US government they allowed themselves a little larceny. Add the unfunded retirement and healthcare benefits they voted for themselves to the official national debt, and together they are scheduled to cost your generation 4 times the total annual output of the US. This is over and above the private debt they accumulated.

Some of this debt can be carried. Some will have to paid down. But as it stands, as much as $77 trillion of post-’09 earnings must be stolen from the future in order to pay for the liquor your parents drank…the bombs they dropped on god-forsaken foreigners…and the interest on their debts. So, forget about saving for a European vacation or a house of your own. Even if every penny of your savings – and every other American’s savings – are put to the task you will still be paying for your parents’ expenses all your life.

But wait, there’s more! The burden is getting heavier. Federal budget projections show an additional $7 trillion in deficits over the next 10 years. Described as the cost of fighting recession, the present generation buries its own mistakes under cash that the next generation hasn’t even earned yet. Today’s bankers, businessmen and speculators are being bankrolled by you – tomorrow’s bankers, businessmen and speculators. Today’s homeowners get a helping hand…from whom? Tomorrow’s homeowners – you. Today’s employees get a boost too. Same story. Where do you think the money came from to pay Wall Street bonuses this year? How do you think GM stays in business…and Fannie Mae…and AIG… Who pays those salaries? Who pays to keep troops all over the world and keep old people supplied with new drugs? Who pays for hundreds of billions’ worth of ‘shovel ready’ boondoggles? You will. At least, that’s the plan.

The luck of one generation is the curse of the next. Like Pericles, your parents inherited a dollar; they leave you a peso. They took over the strongest, richest, most competitive nation in the world. And like Pericles they minded everyone’s business but their own. Now, not only does the US owe money all over town, its government puts out trillions more in IOUs every year – each one with your name on it. You’re not even out in the real world yet, and you’re getting the bill for 50 cents of every dollar the feds spend – almost none of it earmarked for you. But that is the thing about the real world your teachers probably forgot to tell you about. It is more unreal and fantastical than anything you studied.

Here’s what’s real: You’ve been dealt a bad hand. From the bottom of the deck…your parents have slipped you some nasty cards. MY advice? Fold ’em. Get up from the table before they clean you out.

Enjoy your weekend!