“The test of a first-rate intelligence is the ability to hold two opposed ideas in the mind at the same time, and still retain the ability to function. One should, for example, be able to see that things are hopeless and yet be determined to make them otherwise.”
F. Scott Fitzgerald, The Crack-Up
–Australian director Baz Luhrmann was scheduled to begin filming this month of his 3D version of F. Scott Fitzgerald’s The Great Gatsby, published in April of 1925. But now the project is off until Luhrmann can learn more about Fitzgerald. In a recent interview Luhrmann said, “I’ve been studying Fitzgerald now for three years, and my only act now is to absorb the DNA of his world, his life, the world of the novel.” In support of his cause, today’s Daily Reckoning will attempt to reveal what Fitzgerald’s work says about today’s Australian investment landscape.
–As an aside, you have to wonder what the advantages of filming a 1925 period film in 3D are. Fitzgerald’s greatest book (and perhaps the greatest novel about America by any writer, in our opinion) is a story about reinvention and Westward expansion and the abstract idea of America which he later called, “a willingness of the heart,” personified by the aspiring Jay Gatsby.
–But Gatsby is not an action book, and probably wouldn’t make a good action film. Are insights into the human condition more compelling when filmed in three dimensions? Maybe. But probably not.
–Incidentally, Luhrmann plans to film his version of Gatsby in Sydney, even though the story itself is set in Long Island and Manhattan. That seems appropriate. Sydney is the iconic city of a nation basking in the glow of the most extraordinary period of uninterrupted prosperity in its history, a little like New York in 1925, before the Crash and the Great Depression.
–And now is probably the right time to remake Gatsby, too. Certain stories are more telling at certain times. Gatsby is one of them. It’s a story about wealth as a means to an end…what people will do to get it…and how the pursuit of it for its own sake can ruin others.
–Not to put too fine a point on it, but Tom Buchannan-one of the main characters in the story-is described as a man with a body, “capable of enormous leverage-a cruel body.” Leverage is a word you use in physics and finance. It describes the ability to move something larger with the application of a small amount of force in the right place. It’s an unusual but obviously deliberate word choice from Fitzgerald.
–You can imagine that in 1925 there were plenty of people in New York using leverage to exercise a disproportionate amount of force over current events, financial and otherwise-just like today really, which is one reason the story is especially socially and economically relevant again . The most famous film version of the book starred Robert Redford and was released in 1974, about the time that paper money in the Western world became unhitched from gold.
–Luhrmann should read Fitzgerald’s 1936 essay The Crack-Up, published in Esquire magazine. Before Twitter and YouTube and cable-TV chat shows, celebrity personalities had their mid-life crises and personal breakdowns in three-part articles in nationally distributed magazines. Fitzgerald’s crack-up meltdown is far more “winning” than Charlie Sheen’s because Fitzgerald provides us with this gem, “One should…be able to see that things are hopeless and yet be determined to make them otherwise.”
–Which brings us to the world today. We’d submit for your consideration the simple idea that all the worlds’ political, military, and economic happenings can be best understood as part of a great Crack-Up. When you take away the key inputs of an expanding global system-cheap energy and cheap credit-the whole system a) ceases to expand, b) begins to fracture, and possibly c) utterly cracks up into many non-cohesive pieces.
–In Europe, the crack-up is political and economic. Yields on five-year government bonds in Portugal climbed over 8% for the first time ever. JP Morgan releases a research report which concludes that austerity measures will not pass political muster, throwing Portugal at the mercy of yet another European bailout.
–Not to be outdone, Citibank released a report citing a huge increase in two-year Irish bond yields. The report claims that the Irish banking situation “has all the hallmarks of something that might start to get ugly. It is ‘obvious to a blind man’ that Ireland does not have the ability to meet the present requirements. (Almost certainly not on the level of interest rates or level of debt.)
–How did that happy green island ever get in the position of loaning so much money it didn’t have so people could buy houses they couldn’t afford to capture wealth gains that were really just inflation in disguise? It’s what has to happen in a crack-up. You stop making economic decisions that have even a whiff of rationality to them. You chase the dream with leverage, which as we know can be cruel.
–In the Middle East and North Africa, the political crack-up continues as well. The toll of a weaker U.S. dollar (evidence itself of a bankrupt U.S. empire) continues to rise, regime by regime. Some of the regimes in the region enjoyed explicit U.S. military and economic backing. Some did not. But in one way or another, the whole pre-Tunisia status quo was a product of the 30-year relationship between U.S. energy needs and the security relationship (protection money) the U.S. had with reliable partners in the region (Saudi Arabia).
–All of that is cracking-up. And even the unanimity of America’s central banking cartel is cracking up. “If we continue down on the path on which the fiscal authorities put us, we will become insolvent, the question is when,” said Dallas Federal Reserve Bank President Richard Fisher at a question-and-answer session in Germany.
–Maybe it was the jet lag. Or the lager. But Fisher (for now) is in the inner sanctum of the Fed. He’s superficially criticizing the U.S. Congress (fiscal authorities) for reckless spending. But he’s indirectly criticizing his own Fed (monetary authorities) for buying U.S. government debt with newly created money.
–The whole affair is bigger than that: it’s the crack-up of the Fiscal Welfare/Warfare State funding model. Fisher said the U.S. was near an avoidable “tipping point” where the fiscal crisis led to insolvency. But it may have passed that tipping point.
–A nation has truly cracked up when it believes creditors will continue to finance three wars, annual deficits of $1.5 trillion, and an un-repentant, un-serious political class that refuses to cut spending (not to mention a rent-seeking populace that continues to vote itself benefits that must be paid for by future Americans not yet born).
–So far, all these external crack-ups have been good for Australia. The Aussie dollar is riding high. And Australia has plenty of energy commodities that should gain in value as energy itself is re-priced for the new geopolitical instability in the Middle East and the doubts about nuclear power stemming from Japan’s nuclear crisis.
–But the world-wide crack-up is as much a state of mind-a zeitgeist that goes with the end of a huge credit bubble-as it is a specific event. So it was just a matter of time before Australia’s politicians had to find a way to join the crack-up. They’ve chosen the Carbon Tax.
–The main justification for taxing carbon dioxide emissions seems to be the assertion that carbon dioxide is “pollution”. This is why Green’s Senator Bob Brown unhelpfully refers to power generators as “polluters” rather than the companies who make sure your lights go on when you flick the switch.
–Since “pollution” isn’t something people want, there is no market price for it. Thus, according to the argument we’ve seen, a price on carbon dioxide is needed in order to figure in the social economic cost of the “pollution”, which is not currently being paid by anyone.
–Make the polluters pay! That seems to be the strategy of the Gillard government and the Greens. And they assure us that it’s only the polluters that will be pay. The carbon tax won’t be passed on in the form of higher energy prices to consumers because…consumers will be eligible for compensation and rebates to offset higher energy prices.
–So who is going to pay for the compensation? Hmmm.
–It’s a crack-up by the Greens to think that you can run an industrial economy like Australia’s on a mix of sun, wind, water, and warm fuzzies. Part of the carbon price crack-up, then, is a kind of mental breakdown by people who have emotionally given up on the modern world and want a simpler, more bucolic kind of life-and are happy to force it on you whether you like it or not.
–Is it a stretch to characterise the pro-carbon tax position as a crack up? Well, if you don’t accept the assertion that carbon dioxide is pollution, then the whole logic for carbon tax falls apart. The argument for the tax then relies on a kind of “emotional logic”. According to that logic, human beings are a parasite killing the planet by engaging in unnatural energy behaviours.
–The solution-driven by “emotional logic”-is to “power down” the planet. Or, to put it more simply, the hope is that if Australia can just can its carbon dioxide emissions (via a carbon tax and then an emissions trading scheme) it can lower the Earth’s temperature, save humanity from itself, and create jobs!
–It’s complete crack-up nonsense. It’s also a completely self-imposed economic self-harm that’s not necessary. Not even a starry-eyed dreamer like Jay Gatsby would believe that an Australian carbon tax can save the world. Gatsby might not even believe that carbon dioxide is pollution and should have a price, anymore than oxygen should have a price.
–But in a crack-up boom, people seem to find ways to destroy if life doesn’t do it for them. The saving grace of a crack-up is that it passes. You just hope that too much lasting damage isn’t done while the nation is the grip of the madness.
For Money Morning Australia
(Scott Fitzgerald original image source : http://en.wikipedia.org/wiki/File:F._Scott_Fitzgerald,_1921.png)