The latest from the G20 meeting in Toronto. As you recall, the meeting was billed as a showdown between the Germans and the Americans…that is, between the deficit cutters and the big spenders…
That is, between the people without a hope and the people without a clue.
TORONTO (AP) – World leaders must work together to make sure the global recovery stays on track, Treasury Secretary Timothy Geithner said Saturday.
Geithner made his remarks as President Barack Obama has warned his counterparts from the Group of 20 nations to not reel in measures to stimulate their economies too quickly. The United States fears doing so could endanger the global recovery.
Asked if the global economy could slip back into another “double dip” recession, Geithner said the answer to that question hinges on decisions made by world leaders. “It is within the capacity of the people who are going to be in those rooms together in the next few days to avoid that outcome,” he said.
“If the world economy is to expand at its potential, if growth is going to be sustainable in the future, then we need to act together to strengthen the recovery and finish the job of repairing the damage of the crisis.”
As near as we can tell, the recovery has been on the wrong road since it started its motor. And the folks in Toronto couldn’t put it “back on track,” even if they knew what they were doing. All they can do is get out of the way.
The system has too much debt. It needs to get rid of some of that debt – by write offs, defaults, and pay downs. Things that must happen, must happen sooner or later. Better sooner than later.
But what IS happening now?
World trade is breaking down – the Baltic Dry index, a measure of world trade, recently fell 17 days in a row.
Consumer spending is breaking down – the “consumer discretionary” sector has turned ominously negative.
Stocks are breaking down – the Dow fell 9 points on Friday…145 points the day before….
Employment is breaking down – you know the story.
Housing is breaking down – not since 1963 have people bought so few new houses.
Does this sound like a recovery? Of course not.
What it sounds like is a defeat. A failure for the recovery team.
But don’t worry, boys, sometimes failure is the best you can hope for. And come to think of it…defeat is not so bad. Think how much better off the Chinese would have been if Mao’s long march had ended in the total collapse of his army. And suppose George W. Bush hadn’t been such a total failure? People might not have elected Barack Obama. And what if the invention of the television had never caught on? Americans might still have some dignity and brains….
Not only do collapse and failure help prevent bigger mistakes, they also correct mistakes after you’ve made them. Running up debt equal to 362% of global GDP was probably not the smartest thing the human race ever did. Trying to ‘recover’ the economy and reproduce the system that produced those debts is even dumber.
Instead, let’s have a good old fashioned correction…a collapse…a failure of the Geithner, Bernanke, Obama team. We’re going to have it anyways. Bring it on. Get it over with!
And more thoughts…
Saturday night, we talked to an executive in the airline industry.
“Airlines are terrible businesses. Our company is in Chapter 11 right now. But it’s nothing to be ashamed of. All airlines go broke. The only exception I can think of is American Airlines. The others have all gone into Chapter 11 at one time or another. Some have gone broke more than once.
“As Warren Buffett says, the whole airline industry has never made any money. People seem to want to run airlines. Often, it’s a kind of glamour project. Or sometimes, it’s just a love of those big machines.
“Of course, everyone else makes money. The airplane manufacturers. The pilots. The suppliers. The fuel companies. But the airlines themselves are a disaster.
“I’ve tried to figure it out. And the only sense I can make out of it is that they can never reduce capacity…even when they go broke. The planes are so expensive NOT to operate, that the airlines keep flying even at a loss.
“And then Wall Street got the idea of securitizing the airplanes. They took the industry and broke it down into tranches of debt. Some of it was more risky than others. But all they had to secure it with was the panes. Sounded perfectly reasonable. But when the airline receipts went down, the airlines themselves were headed for trouble. Well, imagine that you were a hedge fund and you get a call from Wall Street.
“Hey…we’re going bust…where do you want your plane delivered?”
“No one wants to see a Boeing 747 delivered to his parking lot. And when the industry is suffering, you can’t sell them. So, they end up making deals…keeping the big birds in the air…even when they clearly have too many seats and everyone is losing money.
“What an industry…
“Oh…and you should tell you readers, if anyone is holding airline stocks now, they should sell. The industry has had a good run. But it’s late in the game.”
*** Last week, we went to the Maryland Transportation Authority in Baltimore to renew our license. This weekend, we went to the Annapolis office. This time it was to get a learner’s permit for Edward, 16.
Your editor will not drive a bit better after renewing his driver’s license. Edward, when he gets his learner’s permit, will be no safer. So what’s the point? We stand in line. We collect papers. We take orders. And we turn into a race of zombies. We arrived at 8:05. Edward got a place in line…his father went to the hardware store. The MTA wouldn’t open until 8:30.
When the doors finally opened, we realized that this was a very different crowd from our MTA experience on Wednesday. This crowd was white!
You could see the cultural and racial differences immediately. Instead of a lot of poorly-dressed, overweight, barely-literate black people we were in the middle of a lot of poorly-dressed, overweight, barely- literate white people. And those were the clerks!
The only real difference we could see was that these clerks were less polite than they were in Mondawmin. At least, the only one we saw. She barked commands with a kind of mock efficiency. Then, woe to you if your papers were not in order. You might as well have been an illegal immigrant.
Edward didn’t have a Social Security card. Instead, his mother had spent three hours going to the Social Security building to get him a form proving he had a Social Security number.
“You gotta have a Social Security card.”
“No… The directions say you need Social Security ‘documentation.'”
The clerk tossed a piece of paper on the counter. Her pencil pointed to the 6th commandment: “You must show a Social Security card.”
“Why do you need a Social Security card? He’s just getting a learner’s permit. He’s not getting a job.”
“Those are the regulations.”
“Well, they don’t make any sense. Why should someone need to have a Social Security card to drive a car?”
“I didn’t make ‘em.”
“Yes, but it clearly says ‘documentation’ on the website. And we’ve got documentation. He has a Social Security number… Seeing the actual card (which has been lost) does not get you anything extra. You don’t even make a copy of it. So you’re going to make us waste another 3 hours…”
“Do you want me to call security?”
for The Daily Reckoning Australia