Dow up 93 points yesterday, after the Greeks and their creditors set a new deadline for a deal to avoid a ‘Grexit.’ Until then, they agreed to disagree.
And the show goes on…
Meanwhile, the rout continued in China this morning. Shanghai stocks plunged another 6%.
That brings the losses since the market peaked on June 12 to roughly 30%. (More on the consequences of that crash below in Market Insight.)
These two troubles — one in Europe, the other in Asia — have a similar theme. They are skirmishes in what history may come to see as the Zombie Wars.
Whose side are you on?
On one side: the Fed, the NSA, the CIA, Fannie Mae, Freddie Mac, the trade unions, Wall Street, the dollar, Obamacare, New York’s taxi system and QE. The wars on terror, poverty, illiteracy, and drugs. Dodd-Frank, the TSA, the ATF, millions of retirees and disability scammers, General Motors, Hillary Clinton, and many, many others.
On the other: Airbnb, Uber, cryptocurrencies, ‘Main Street’, businesses, families, gold, young people, savers, Freemasons, Ron Paul, truck drivers, the Episcopal Church, Elks, entrepreneurs, free markets and millions of honest people who make their livings and live their lives as best they can without holding a gun to anyone else’s head.
Yes, dear reader, maybe it was too much alcohol or too little food. But in the night, a vision came to us. It revealed the big picture in a way we hadn’t seen it.
Zombies, you’ll recall, are people and institutions that live at the expense of others.
Some are freelance criminals. But most depend on government to get the flesh they need.
People don’t give up their own blood readily. They run. They hide. They try to protect themselves. But government maintains a territorial monopoly on the one thing that does the trick — violence.
So today, we stoop to admire the institution of government. What a beautiful racket! It typically takes 20% to 50% of an economy’s output. It makes the rules. It sets the pace.
And woe to anybody or anything that gets in its way.
Everybody is a customer
You can divide an economy into three estates: households, businesses, and government.
Of the three, government is in the best position by far.
Everybody is a customer of the government, whether he wants to be or not. And when you have control of the government, you set the terms of the deals with the other estates. And you can change the terms whenever you want.
That’s why there is so much money in politics — because you can get so much money from politics!
A person can go into government with nothing; he comes out with a fortune.
Dick Cheney, for example, huffed and puffed almost his entire career in politics, except for a brief stint with a crony defence contractor. Now, he’s said to be worth $80 million.
Or Hillary Clinton. She has never had a job in the productive economy. She is said to be worth $21 million.
Successful politicians get the best parking places, the best offices, and other perks and privileges that no one else gets.
Members of Congress also routinely exclude themselves from the rules and regulations they’ve made for others.
For example, it is illegal for US companies to misstate their financial positions; for government it is business as usual. In the private sector, fraud is a crime; in government it is ‘just politics.’
As to the business community, government has a mixed relationship.
Every business is a source of funds. In addition to the money it gets from taxation, confiscations, and other predations, government also gets bribes in various forms.
A retired Congressman, for example, can look forward to a career as a lobbyist for the industries he promoted while in office. Or he can make money by giving dull speeches to industry groups. He may choose to do a little consulting, too, or haunt the board of directors.
Businesses usually begin as productive enterprises. But almost all have zombie tendencies. Once they reach a certain size, they recognise that the best investment they can make is in politics.
They hire lobbyists. They pay crony politicians.
In return, government enacts rules and regulations to stifle competition. But as with so many of its activities, government succeeds when it fails.
As a new industry arises, the money still flows from the cronies, while the feds get a piece of action from the new enterprises, too.
They grouse and groan. But the masses usually love government.
They think business people are greedy SOBs. But they often hold the fellows who run the government racket in the same exalted category as saints, TV stars, and sports heroes.
Don’t believe it?
At a recent reception in Baltimore, we noticed people gathered around a familiar face. It wasn’t Baltimore Ravens owner Art Modell; it was former senator Paul Sarbanes.
Just look around Washington — or any major city for that matter. Do you find statues of Henry Ford? Where is the marble bust of Alexander Fleming, discoverer of penicillin? Where is the pile honouring Sam Walton?
Instead, you find plenty of granite spent to honour scallywags and scoundrels — Lincoln, Wilson, and FDR, to name just a few.
And who’s next?
Why Hillary is a terrible candidate
In politics, as in markets, nobody knows anything. But we were seated at dinner last night next to a seasoned political analyst.
‘Hillary won’t win the White House,’ he confided. ‘She might not even win the nomination.’
We recall that much of what he said was off record, but we can’t remember which parts. So, we will leave his name out; he may have spoken more candidly than he had wished.
‘The trouble with Hillary is that she’s a Clinton without Bill’s charm. And she’s yesterday’s news. She couldn’t even beat Obama. And he’s a terrible politician.
‘Obama only got elected because of a unique set of circumstances — Hillary and George W. Bush. People were sick of Bush. Hillary is a weak candidate.
‘So now we’re seeing other candidates come out. Bernie Sanders is showing us how vulnerable she is. Others will be encouraged. One of them will probably get some traction.
‘Jim Webb is not getting any money from the establishment. But he has real appeal to the voters.
‘As for the Republicans — Hard to say. I’ve met them all. Rand Paul is smart. But he doesn’t have the funding. Or the political network. He’s too much of an outsider and a maverick to be acceptable.
‘The trouble with Ted Cruz is that he is inflexible. He’s very smart and right about a lot of things. But you have to be fairly flexible to get elected president.
‘The one I really like is Rick Perry. I know, he sounds like an idiot. But he’s not. They just caught him at a bad moment, when he was on painkillers from dental surgery, or something.
‘You remember — he couldn’t recall which department he would abolish if he were elected. It was just a case of brain fog. But it happens to everyone.
‘He’s actually very smart — and a good campaigner.’
We’ve never met Rick Perry, so we can’t say either way.
More on Zombie Wars tomorrow.
For The Daily Reckoning, Australia