Escape and Fantasy -- Economic Commentary by: Richard Russell

safehaven.com ^ | July 29, 2003 | Richard Russell

[arete]

I spent a lot of time over the weekend hitting the malls, watching the crowds, and noting the prevailing sentiment. The feeling I got was "escape and fantasy," a subtle but overwhelming sense of unreality.

These days the kids are heavily into sex, sexy clothes, near-nudity, cartoons, funny-paper movies, pseudo-violence. Look at your local newspaper and observe the new movies that are coming out. Nine out of 10 appear to be aimed at teenagers, and most have little to do with anything resembling reality. It's all escape, escape, escape.

I've been on this earth for quite a while, and I've been a pretty good observer of the so-called "human condition." I was in high school during the '40s along with Jack Kerouac who was one class above me. So I was there when the "beats" shocked America with their protests against this nation's old, up-tight ways. But the beats were protesting in their own way, and Kerouac's "On the Road" became the cry for a new freedom.

I was there in World War II, which brought on a seminal change in America's thinking. Suddenly, we went international. And we went triumphant. We were king of the world, and everybody knew it.

I was there in the '60s, lived in a commune for a while, and was writing against the Vietnam War in the face of protests from many of my own subscribers. The kids at Berkeley started the revolt against the Vietnam War, and the revolt quickly spread across the nation. Those were the hippie days, but the hippies were protesters -- protesting first against the War and then against up-tight America and its love of violence and its sexual repression. Drugs became the order of the day.

In the late-80s, the lust for money and success began to take over, and by the late-'90s everything was money, more money -- and profits above all, even if you had to lie about your profits.

What I see now is ESCAPE. Nobody's protesting -- Americans are just escaping. People somehow sense that "something is wrong," but they don't want to deal with it. So today it's all about celebrities, parties, big cars, second homes and lots and lots of sex. Sex is the greatest escape mechanism that God ever invented. Like cholesterol, there's good sex and bad sex.

And there's a third division, it's called LOTS of sex. You want to see lots of sex, turn on TV, go to any movie or better still -- watch MTV. I'm not saying that what hundreds of millions of kids are seeing on MTV is good or bad, I'm just observing that MTV has turned into an over-the-top "girlie show." Talk about escapism, this is it.

So what are people escaping from? I believe that consciously or unconsciously, they're escaping from our future. And what is our future? I'll say it once more -- our future is "INFLATE OR DIE."

What - you don't understand what that means? Then I'll rephrase it. Our future is "INFLATE OR REPUDIATE."

You see, the 1990s under Fed Chief Alan Greenspan was a decade of over-spending and debt creation. Half of all our Federal debt was created during the 1990s. During the 1990s our government ran up $2.87 trillion of new debt. This was more than all the debt the US government had built up since the United States were first formed.

But that's just part of the story. Coming up is roughly $44 trillion of unfunded liabilities, which includes Social Security, Medicare, normal government expenses and interest on the national debt.

We have a $10 trillion economy. How on earth is a $10 trillion economy going to service what's coming up in the way of $38 trillion in debt?

There are two choices. Repudiate a good chunk of this debt or at least cut it back drastically. Or finance the debt via the printing presses. Which one do you think the US government is going to choose? Look, if we're running the printing presses full speed now, and the BIG expenses haven't even hit yet, what do you think our leaders are going to do when the "debt hits the fan?" You guessed it, they're going to inflate at a level that has never been seen before.

Right now we're seeing just the tip of the mess. Our federal budget deficit is now half a trillion dollars, and our current account deficit is another half trillion. This is bad enough, but it's financial peanuts compared with what lies ahead.

And the irony is this -- here's the US, the world's biggest debtor nation, playing policeman to the world, running up bills of $3.9 billion a month in Iraq alone and placing our military all over the world. It's obvious that our government leaders are totally refusing to face the situation, and in fact, they're rapidly making it worse.

So changes will have to happen. One change is that free spending by Americans will have to stop -- and the new trend, forced upon Americans, will be savings.

A second change will be parsimony -- American consumers will have to scrimp, to cut back, to economize in order to pay their bills.

A third change will be employment. Jobs will be increasingly difficult to find. Unemployment will remain high as America's manufacturing and service bases are exported to low-wage nations overseas.

A fourth change will be recognition. Slowly but surely Americans will be forced to face the truth -- this nation is spent-up, it's over-spent -- we've spent our future and more.

A fifth change will be the recognition that the US can no longer be the undisputed world's hyper-power. Sure we'll have the world's biggest and baddest military, but that's actually going to be a problem. The problem is expenses. It's just too darn expensive to be military master of the world. It will be too expensive when you're building debts of a trillion dollars a year.

A lot of our success is due to one extraordinary phenomenon. That phenomenon is the acceptance of the dollar as the world's reserve currency. Up to now we've been able to print our debts away. Up to now the world has been willing to accept dollars for their goods and merchandise. But as the mountain of dollars builds up, the world will begin to choke on dollars. The world may even begin to question whether the dollars are a valid holding. When that happens, everything changes. And I mean everything.

Bond holders are beginning to bail out. They're jumping the ship. As I write, the 30-year Treasury is down over a point to new lows. This means mortgage rates are heading up. This means debt will be more expensive to carry. This means people and pension funds and mutual funds which are holding the long bonds are already down better than 15% since mid-June.

The Fed has forced savers either to take big losses in bonds or to earn literally nothing in T-bills or CDs. The Fed's low-interest policy has forced oldsters to spend their savings or lose their shirt in bonds.

Subscribers, listen to me. The future is being carved out as I write. The future is going to be the US government printing massive amounts of Federal Reserve Notes (we call them "dollars") in order to pay off debts and unfunded liabilities coming due.

The future is going to be dollar-deterioration and a move out of financials and into tangibles. The future is going to be a flow of funds out of paper and into real wealth -- gold and silver.

I don't know how many of my subscribers have moved into gold and silver and gold and silver shares. In my opinion, the precious metals are still on the bargain table. Compared to the amount of paper that has been printed, the precious metals are ridiculously cheap. Gold was $850 back in 1980. Gold today is less than half its 1980 peak price. Before this bull market in the metals is over, I expect 1980's peak price to be far surpassed.

This isn't just a case of making profits. This isn't just a case of "beating the market." Buying the metals and the metal stocks here has to do with financial survival. It has to do with arming yourself against a mighty tide, and I don't know how I can make the case any stronger.

It's time for all my subscribers to get into a new and unfamiliar mindset. The mindset is based on a Federal Reserve which has allowed this nation to move toward a position which I can only describe as "technical bankruptcy." We've got a $10 trillion economy but we're going to deal with unfunded liabilities of over $40 trillion plus our "normal" ridiculous budget and current account deficits.

Think about it -- or join the "escape generation." The choice is yours.

Richard Russell

Dow Theory Letters Inc.

[djf]

I heard a guesstimate that worldwide, since 1990, something like $10,000 in currency has been created for every single ounce of gold in the world.

[steve50]

When the SHTF, I only hope that folks turn their anger on their own stupid belief in socialism and free lunches.

Last time FDR channeled the anger into the "New Deal" to placate the sheep, I'd think this time we'll get the global version of the same animal. I see nothing good coming out of this.

[arete]

I would have no idea but that sounds a little low to me. Part of the problem of course, is that the global central banks (central planners) still own most of the worlds gold which means they can control and manipulate the market and prices to a great extent.

Richard W.

[arete]

Last time FDR channeled the anger into the "New Deal" to placate the sheep

Can you say, "evil-doer terrorists"?

Richard W.

[djf]

Is Russell the one that says POG and the DOW are gonna cross at 3,000?

[headsonpikes]

"This won't be like the last depression."

I agree - that was a depression in an essentially capitalist world economy. The values of Western Civilization were devalued and scorned, and new modes of living - fascism, communism, and New Dealism, were touted as solutions to the economic problem. The rest of the 20th Century was consumed by a struggle between the various socialist systems to achieve supremacy. When socialist systems collapsed, such as the former Soviet Union and its satellites, there governments turned belly-up; there was no wide-scale repression.

When this next crisis arrives, governments will lack faith in themselves and in their solutions - real change will be possible if the moment is seized by the youth of America and other nations.

Call it a revolution, if you will.

This next depression will be a depression in an essentially socialist world economy, in which governments make the economic decisions - over half of the world economy goes through government hands directly, and virtually all the rest is under regulatory control.

I don't know what will replace it, but socialism is going to be rejected.

[steve50]

Part of the problem of course, is that the global central banks (central planners) still own most of the worlds gold which means they can control and manipulate the market and prices to a great extent.

As long as they can deal in paper gold they are OK. From the leveraged positions required to maintain control they better hope not to many want to hold the stuff in their hand.

[headsonpikes]

See my #26.

I refuse to be a pessimist - history ain't over, not by a long shot!

[Semaphore Heathcliffe]

Technically, that might qualify as a revolution.

hey now, that's crazy talk! We've got a Ree-publican president up for reelection. Wave the flag and get with the program, citizen.

[steve50]

The trend, at least for the last 150 years, has always been the people allowing themselves to be duped into stronger federal control to solve the mess.

Socialism may be weakened, but it's ugly brother is going to have a pretty good run for a few years.

[arete]

but it's ugly brother is going to have a pretty good run for a few years

Yep -- that's what I've been thinking.

Richard W.

[Nick Danger]

The financial scenario presented here is certainly scary, but it's barely the tip of an iceberg.

A lot of us see the same thing that Rusell does — people are "tuning out," turning to escapism, and denying reality in massive numbers. They are diving into the television, or sex, or retreating into little communities of various kinds.

Is this because people are concerned that the Federal Reserve has misbehaved? I have trouble with that hypothesis. I just stopped the last 100 people who went by me at the mall here, and only two of them had ever heard of the Federal Reserve. One wanted to know if it was some kind new wine they should try.

Russell spends his time writing Dow Theory letters, so of course he thinks that this is all financial. But it's not; that's just one more symptom of the generalized rot that has set in. Were every 'dollar' out there backed in full by gold, we would still see massive numbers of people retreating into fantasy. It is how humans react to powerlessness in the face of overwhelming complexity.

The recent Supreme Court decision concerning the Texas sodomy law is an example. There are tens of millions of people who would never join a pogrom to eradicate homosexual humans, but who really wish such people would be a little discreet about it. A parent rails in vain against homosexual scoutmasters, men kissing each other on television, and so on. It just keeps coming, and no amount of effort seems to make any difference.

It is this way with everything. It is almost impossible anymore to find a clerk in a store who speaks English well enough to tell you where the pasta sauces are. They look at you like you just said, "Pas Taso?"

Is everything going down the tube financially? Well, no surprise there. Everything is going down the tube everywhere we look. The bubbly blonde behind the checkout counter has to ask the manager what number month 'April' is. Our young men are basically checking out of higher education; the only place you'll find men on a college campus today are in the science and engineering schools, and half of them are foreigners with names like Wong and Prindartha. Just as well, too, because the engineering jobs are moving to India.

Nobody knows what the law is. There's so much law that one or another law says anything you want said. Look at the California recall nonsense; the law is 'clear' that there shall be an election. Bustamante says 'no,' and cites the Constitution. The Constitution says there shall be an election, if appropriate. Like everything else, it all ends up being decided by some non-elected clown in a black robe.

People feel totally powerless in this environment. So they give up. They crawl into a hole and they hide from the complexity that they can no longer comprehend or effect. They can see where it's going. They may not understand the Federal Reserve, but they know what it means that half the kids aren't living with their fathers anymore. We've seen that one; it's called Watts, or the South Bronx. They look at 13-year-old girls dressed up and made up like French whores, and they can only shake their heads. So they wander into McDonald's and ask for a Big Mac and fries, and the kid behind the counter gives them that look. "What is big macanflies?"

Arrggh.

Has the population voted for politicians that have run up $44 trillion in promised benefits that no one knows how to pay for? Why not? 50% of the people don't know what "50%" means.

Antonio Gramsci, white courtesy telephone please. Paging Mr. Antonio Gramsci. Your country is ready.

[Question_Assumptions]

Japan has a high savings rate. A high saving rate does not support the consumption and service economy that has to replace a manufacturing based economy if you want to keep people employed. Japan is also seeing deflation. If you want to see where some of the ideas in this article go, look at Japan and bear in mind that Japan still hasn't dealt with all of its problems.

Given the high debt levels in this country, as well as the large amount of money that most people have invested in their real estate, I think that any deflationary scenario would be a disaster. I think the only exit lies through inflation, as painful as that may be. The current weak dollar policy may also help.

[Question_Assumptions]

Japan has a lot of escapism, too. The anime (Japanese animation) that is so popular now in the US is often quite escapist. I agree that it has to do with feelings of being powerless. Just bear in mind that when you pull security out from under the powerless, they can often become quite a nasty and violent bunch of people because then fear sets in.

[steve50]

I hear the new gold "dinar" is out in a day or two. Lot of countries taking interest in PM currency of late.

They get nice gold coins, we get a new shade of pink in our fiat $20's. Doesn't hardly seem fair.

[headsonpikes]

"I think the only exit lies through inflation..."

Coincidentally, that will be the only exit the Fed sees, too.

;^)

[bvw]

Yeah, but the bond market is coming down with hives.

[Beck_isright]

In Florida, we're lucky if 25% turn out in statewide elections. I think 50% is an optimistic number. The NEA and socialists have done their job. They have dumbed down American society to the point where we should replace the white stars with white lemmings. It would be more apporpriate.

[headsonpikes]

Only weeks ago, I recommended long bond puts as a speculation on one of these threads.

Call me prescient. ;^)