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Contributed by Bill Bonner
Publisher of: The Fleet Street Letter



Today:  Deadweight Losses

*** Greenspan...slumping towards humiliation...

*** Something of a positive nature...on its way for 
sure...maybe. Sometime.

*** Japanese golf club membership...acid rain in 
Baltimore...the 'moment of truth' for consumers...and 

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It is sad.

Alan Greenspan - a man who should be enjoying his 
retirement...dandling grandchildren on his knee...or 
going to the lake with an old sweater on his back and a 
fishing rod in his hand - is instead setting himself up 
for public humiliation. 

It has been 7 months since Greenspan began cutting 
interest rates. Then, the world cocked its ear toward 
every Greenspan whisper, cough and muddled phrase...
Would he cut rates? When? How much?

Now, the Fed chief promises more rate cuts and 
nobody really cares. People are losing faith in rate 

"Pressures on profit margins have been 
unrelenting...." Greenspan told Congress yesterday, 
"...weakness is evident virtually across the board."

Across the map, in fact. The entire world economy 
seems to be melting down. And the Fed chairman's only 
ice cubes - rate cuts - seem to evaporate as soon as 
they are taken out of the freezer.

But let's get more details on yesterday's Wall 
Street action from Eric:


- Chairman Greenspan seemed almost mortal yesterday. Not 
only did the stock market defy him by falling, even 
while he was yacking away to Congress, but also, "Al the 
Omnipotent" seemed a little less sure of his power over 
the economy.

- In his testimony - from the twice-yearly speech 
formerly known as Humphrey-Hawkins, but now known as the 
"central tendencies" report - Greenspan cautioned, "The 
uncertainties surrounding the current economic situation 
are considerable, and until we see more concrete 
evidence that the adjustments of inventories and capital 
spending are well along, the risks would seem to remain 
mostly tilted toward weakness in the economy."

- And again: "The period of sub-par economic not yet over, and we are not free of 
the risk that economic weakness will be greater than 
currently anticipated..."

- Mr. Market didn't like what he was hearing. The Nasdaq 
fell 51 points to 2016. The Dow managed to recover from 
triple-digit losses early in the day to finish down only 
36.5 points.

- Thanks to the Chairman's unsettling commentary, bonds, 
historically a beneficiary of slow economic growth, were 
one of the day's sexier performers. The 30-year Treasury 
bond's price jumped 1 3/32 points to 97 31/32 - sending 
yields sharply lower to 5.51%, down from 5.60% a day 

- No Greenspan testimony would be complete, of course, 
until both sides of his mouth had had a chance to speak. 
So, despite his mostly doleful outlook, he did say, "The 
rate of deterioration is slowing quite clearly, and 
there are the first signs that something of a positive 
nature is developing."

- Nice thoughts, but it may require more than a quarter 
or two for "something of a positive nature" to blossom 
into meaningful economic growth. In fact, it may require 

- The problem with financial bubbles is that they never 
burst, they deflate. In other words, it takes years to 
unwind and work off the excesses. The Japanese bubble 
has been deflating for 12 years, and it ain't over yet.

- The Nikkei Weekly reports, "Losses on golf-club 
memberships disposed of by 391 listed [Japanese] 
companies came to 139.4 billion yen ($1.1 billion) for 
the fiscal year ended March, up 250% from a year 

- The Japanese paper continues: "A nationwide index 
compiled by the Nihon Keizai Shimbum showed membership 
prices down 91% in March 2000 from the peak of March 

- After the close of the trading session yesterday, IBM 
reported its latest earnings. In keeping with the latest 
fashion on Wall Street, the computer giant matched 
earnings estimates but then warned of hard times to 
come. CEO Lou Gerstner said, "We also were not immune 
from [sic] some of the problems that affected many of 
our competitors in the second quarter...[W]e are now 
seeing signs of slowing in our microelectronics business 
as our [electronic-manufacturing] customers reduce 

- In all, the news from IBM was not great. Happily for 
Big Blue and for the stock market in general, investors 
these days have become a pretty forgiving lot. They are 
adapting remarkably quickly to the new low-earnings 
environment. A headline from yesterday's NY Post says it 

- For now. "The moment of truth" for the U.S. consumer, 
says Stephen Roach, will come in the first quarter of 
next year. So many people now have 'flexible 
compensation' - based on stock options and year-end 
bonuses - that it now shows up in spending patterns. 
Typically, consumer spending rises in the first quarter 
- because of this end-of-the-year compensation. But this 
year, earnings and stock prices - which determine the 
size of these bonuses - are off. Spending is likely to 
drop, too.

- The big question, as always, is: in the face of 
slowing spending, declining share prices and a general 
economic malaise, where should one invest? Well... let's 
check in with the DR Blue Team. "Even for a hard-core
bear," says Marc Faber, "there is a price at which the 
purchase of any market can be justified." 

- Dr. Faber: "Natural resource-producing sectors of 
countries such as Malaysia, Indonesia, Vietnam, 
Australia, and New Zealand will do well, soon, as China 
will one day become the world's largest importer of
commodities - such as coffee, cocoa, copper, plywood, 
timber, grains, meat, etc. New Zealand rural properties 
are another bargain, which are increasingly attracting 
the attention of some well-known value investors."
As these markets have been hammered down 50% or more 
recently, it may be time to take a look. (see: Financial 
Resurrection: Not When, But Where?)


Back to Bill:

*** Sirens began wailing about 5 pm in Baltimore. It 
sounded as if a riot had broken out downtown. I was 
about to bolt out the door, join the mob and try to pick 
up a pair of pants or a TV set, until I learned the real 
cause of the excitement: a chemical spill in a nearby 
train tunnel.

*** Thousands of gallons of hydrochloric acid were said 
to be pouring out of the old tunnel entrance near Mt. 
Royal Terrace. Suddenly, public servants in all manner 
of uniform sprang to action. Lights flashed. Sirens
screamed. A scene that would have cost Hollywood $2 
million to stage was acted out live - before our eyes - 
at a cost of only $5 million or so.

*** Hazmat bureaucrats wait years, maybe decades, for an 
opportunity like this - to rush to the scene, step 
before the cameras, and persuade more taxpayer money to 
flow in their direction.

*** In our neighborhood, grown men and women walked 
around with paper towels over the faces - following the 
instructions of some public health official or local 
wiseacre. People claimed to be able to smell the lethal
vapors...but I saw no one dissolve on Mt. Vernon square.

*** But even clouds of poisonous gas have their 
silverous linings. Eric and I walked up to that new 
restaurant from which we were turned away last week -
and got a table, no problem.

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"I ought to go upright and vital, and speak the rude 
truth in all ways. If malice and vanity wear the coat of 
philanthropy, shall that pass? If an angry bigot assumes 
this bountiful cause of Abolition, and comes to me with 
his last news from Barbados, why should I not say to 
him, 'Go love thy infant; love thy wood-chopper: be good 
natured and modest: have that grace, and never varnish 
your hard, uncharitable ambition with this incredible 
tenderness for black folk a thousand miles off. Thy love 
afar is spite at home."

Ralph Waldo Emerson

Baltimore, once known as the 'Monumental City,' has 
edifices honoring soldiers on both sides of the war 
between the states. Here at the Daily Reckoning, we have 
little doubt they died valiantly, or at least matter which fool's errand they were on at 
the time.

But the whole undertaking turned out to be a deadweight 
loss for America, like the 'Cultural Revolution' in 
China in the 1960s...or the campaigns of Bonaparte for 
France. Or the purges and liquidations in the Soviet 

On a per-capita basis, the United States suffered a loss 
6 times higher than WWII. Gettysburg alone produced more 
casualties than all previous U.S. wars.

And for what? Except for a bloody slave revolt in Haiti, 
slavery was eliminated throughout the rest of the 
Americas without much violence or expense. The peculiar 
institution simply dissolved, like the Soviet Union in 
the 1980s. Brazil, for example, outlawed slavery 
peacefully in 1888. There was no need for 
reconstruction. No carpet baggers. No scalawags. No Ku 
Klux Klan. No Jim Crow. 

Mr. Lincoln's hard, uncharitable ambition looked to the 
outside world like a civil war, but it was really a 
revolution. The principles of limited government, self-
reliance, and liberty were overthrown. Lincoln had shown
that he could do pretty much anything he pleased - and 
get away with it. Few future presidents or Congresses 
missed the lesson.

This revolution has been recognized by historians, but 
misinterpreted. They see the philanthropy and miss the 

It is frequently said that the U.S. Constitution rests 
on two incompatible principles - liberty and equality - 
and that prior to Mr. Lincoln, liberty was dominant. 
Post-Lincoln, equality has been emphasized. Thus 
historians flatter force - dressing up violence to make 
it look respectable, like putting a tuxedo on a mass 

When a man willingly exchanges a sack of potatoes for a 
chicken, both he and the person he trades with come out 
ahead. Each gets something he wants. 

But when a thief steals a chicken... or a government 
confiscates it in the name of income redistribution... 
the entire society is poorer. The chicken thief 
contributes nothing. And the farmer spends time and 
effort trying to avoid another theft - instead of 
raising more chickens. If enough chickens are taken from 
him, he may even decide to begin stealing chickens 

Roughly, the more violence and theft in a society, the 
more primitive, poor and barbaric the people are. The 
Soviet Union demonstrated how this works. 
Claiming to make citizens equal, the Bolsheviks seized 
almost all the resources and output of the country and 
distributed them as they saw fit. Anyone who resisted or 
got in their way was liquidated. 

But the gap between rich and poor did not disappear - it 
widened. Party bosses and top-level apparatchiks 
controlled more wealth, proportionally, than the 'robber 
barons' of the U.S. They had their dachas on the Black
Sea...their fleets of chauffeured limousines and 
airplanes...their support staffs. 

And just like a Gates or a Carnegie, they could 'invest' 
resources in huge, capital-intensive projects - dams, 
railroads, factories. The only difference was they 
didn't have to show a profit, compete for customers,
or answer to investors.

"War is the health of the state,' it is said. But war 
does almost no one else any good. Lincoln left a healthy 
state - after 4 years of America's most costly war, 
while the deadweight of government over the next 135 
years did nothing to increase equality. 

People are less free since Lincoln's war. But how are 
they more equal? Do men enjoy the charms of the 
beautiful women more democratically? Do people eat the 
same mush in the fancy restaurants as in the cheap ones? 
Do they pay the same tax rates? 

Or is 'equality' merely the coat of philanthropy... 
tossed over the shoulders of a grasping politician?

More I return to money, I promise!

Bill Bonner

About The Daily Reckoning:

Daily Reckoning author Bill Bonner

Bill Bonner is, in spite of himself, a natural born contrarian. Early each morning, Bill writes The Daily Reckoning—his take on the financial markets and what’s going on in the world—and sends it off by e-mail before most Americans’ alarm clocks have buzzed. Many readers say it's the first thing they want to read when they get up—not only because it's informative and thought provoking, but also it's inspiring, in its own quirky and provocative way.

Of course, there's much more to Bill than his daily market commentary. He's also the founder and president of Agora Publishing, one of the world's most successful consumer newsletter publishing companies. Bill's passion for international travel and big ideas are reflected in the company he's successfully built. In 1979, he began publishing International Living and Hulbert's Financial Digest . Since then, the company has grown to include dozens of newsletters focusing on health, travel, and finance. Bill has vigorously expanded from Agora's home base in Baltimore, Maryland since the early ’90s—opening offices in Florida, London, Paris, Ireland, and Germany.

Agora's publication subsidiaries include Pickering & Chatto, a prestigious academic press in London and Les Belles Lettres in Paris, best known as a publisher of classical literature in bilingual editions.


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Last modified: July 20, 2001

Published By Tulips and Bears LLC