Tyranny of the Living


Tradition… is the democracy of the dead.

K. Chesterton


[ed note: this article is from Bill Bonner’s archives, originally published June 20, 2003]


Yesterday’s news brought word from Deputy Defense Secretary Wolfowitz that U.S. troops would be in Iraq for the next 10 years. Also came an estimate of the cost: An extra $3 billion would have to be added to the defense budget for Iraq… and an extra $1.5 billion for Afghanistan.

“Avoid foreign entanglements,” cautioned the father of the country. But corpses have no voice and no vote, neither in markets nor in politics. They might as well be dead.


My WolfieWolfie, back when still protected

Cartoon by Steve Bell


George W. Bush is undoubtedly better informed than George Washington. And heck, it’s a new era. Having foreign entanglements is just what the times seem to call for. George W. Bush may not have the wisdom of a Washington… but at least he has a pulse.

Few people complain about this tyranny of the living. Most accept it as a fact of life. They do not want people to be excluded from the pleasures of life because of an “accident of birth.” But they are perfectly happy to have the oldest and wisest of our citizens systematically barred from the polling stations and the trading floors by an accident of death.

The departed shut up forever, leaving behind them their car keys, their stocks, and their voter registrations… That is all there is to it. Goodbye and good riddance.


Mr WolfieNot much later …

Cartoon by Steve Bell


It is as though they had learned nothing useful… noticed nothing… and had no ideas that might be worth having, as if each generation were smarter than the one that preceded it… and every son’s thoughts – even in the present “culture of the moron” – improved upon those of his father.


The Cleverest Humans

Oh, progress! Thou art forever making things better, aren’t thou? Throw out the sacred books – for what are they but the thoughts of imbeciles? Forget the old rules… the old wives’ tales… the traditions… habits of generations… the old-timers’ superstitions… the old fuddy-duddies’ doubts!

We are the cleverest humans who have ever lived, right? Maybe. But today we convene a council from the spirit world; we invite the dead to have their say. Our aim is not to kvetch on behalf of our ancestors but to warn the living: The corpses may have a point.

Many times have we referred to old-timers’ wisdom in these letters. The old-timers wanted more from a stock than just the hope that someone might come along and pay more for it. They wanted a stock that paid a dividend… out of earnings. That was what investing was all about.

But by the 1990s, the old-timers on Wall Street had almost all died off. Stock buyers no longer cared how much the company earned or how much of a dividend it paid. All they cared about was that some greater fool would come along and take the stock off their hands at a higher price.


SPX-dividend yield-1A tale of two eras: one in which dividends mattered, followed by one in which the greater fool principle began to matter more … – click to enlarge.


So, they did. And now the market is full of them – greater and greater fools who think the stock market is there to make them rich. In the space of 20 years, the character of the U.S. economy and its markets changed so dramatically the old-timers would scarcely recognize them.

In the mid-1980s, the U.S. slipped below the water line separating the net creditors from the net debtors. But almost no one noticed or cared. By then, the old-timers were already in Florida shuffling along… waiting for someone to adjust their medication.


Inevitable Destruction

“In 1981,” Gloom, Boom & Doom report publisher Marc Faber explained, “stock market capitalization as a percentage of GDP was less than 40%, and total credit market debt as a percentage of GDP was 130%. “By contrast, at present, the stock market capitalization and total credit market debt have risen to more than 100% and 300% of GDP, respectively.” [Today, the stock market is 109% of GDP, and debt is 346% of GDP.]

We have wondered how this ends. Not well is our guess. Too much debt and credit, too much capacity, too many dollars, too many bad investments, too much spending, too many deficits, and too much confidence. What is the solution?

“Less” is our recommendation. “More,” said Bernanke, Greenspan, Bush, and everyone else in a position to do something about it. So, the whole thing rolls forward… toward its inevitable destruction. Because – and here the dead back us up 100% – all paper currencies sooner or later come to grief.

The “if” question is settled. “When” and “how” remain open. So, we turn to ancestors… and ask for advice.

The state’s need of money increased rapidly,” said one of them, Italian economist Costantino Bresciani Turroni, describing the scene in Weimar Germany 80 years ago. “Private banks, besieged by their clients, found it impossible to meet the demand for money.


Bresciano TurroniItalian economist (and later minister of trade) Costantino Bresciani Turroni, who wrote the definitive account of the Weimar hyperinflation episode

Photo via Hesperides Press


Less Is More

As the situation heated up in the summer of 1923, there were some who gave our advice: “Less,” they said. But officials were in roughly the same situation as Bernanke and Bush today: “More,” said they. One, Karl Helfferich, who had been Secretary for the Treasury of the German Empire during World War I, explained:


“To follow the good counsel of stopping the printing of notes would mean – as long as the causes which are upsetting the German exchange continue to operate – refusing to give economic life to the circulating medium necessary for transactions, payments of salaries and wages, etc.

“It would mean that in a very short time, the entire public– and above all, the Reich– could no longer pay merchants, employees, or workers. In a few weeks, besides the printing of notes, factories, mines, railways, and post offices, national and local governments, in short, all national and economic life would be stopped.”


Karl HelfferichGerman lawyer, economist and politician Karl Helfferich, treasury secretary of the Empire from 1915-1916, then minister of the interior (1916-1917). During the Weimar inflation he proposed the introduction of a currency indexed to the price of rye and other agricultural products, a plan that was rejected. Nevertheless, Hjalmar Schacht eventually incorporated a number of Helfferich’s proposals when launching the new Rentenmark.

Photo via Bain News Service


When an economy comes to depend on more and more credit, it must get more and more of it… or it will come to a stop. A man who has borrowed heavily to finance a lifestyle he cannot really afford must continue borrowing to keep up appearances. Or else, he must stop. But market manias, love, politics, and war are things people rarely stop.


Tormenting the Dead

In Weimar, Germany, once the hyperinflation got started, there was no stopping it until it had run its course. In 1921, a dollar would buy 276 marks. By August 1923, a dollar would buy 5 million marks. Middle-class savers were wiped out.

If only we could roust Herr Helfferich from his eternal sleep! We would like to shake the dust off his wormy cadaver and ask some questions. (And here, we think not of praising the dead but of tormenting them.)


German_mark_kids_playing_withA famous picture of children in the Weimar Republic playing with money that had become worthless

Photo via hstry.co


What fun it would be to show him what his policies – the same, by and large, as are now put forward by Greenspan, Bernanke, and Bush – provoked. How gratifying it would be to see the little kraut squirm under an intense interrogation.

What was he thinking? Why did he think that more of the dreadful printing press money would undo the harm that had already been done by too much? The late Bresciani Turroni continued:


“The inflation retarded the crisis for some time, but this broke out later, throwing millions out of employment. At first, inflation stimulated production… But later… it annihilated thrift; it made reform of the national budget impossible for years; it obstructed the solution of the Reparations question; it destroyed incalculable moral and intellectual values. It provoked a serious revolution in social classes, a few people accumulating wealth and forming a class of usurpers of national property, whilst millions of individuals were thrown into poverty.

It was a distressing preoccupation and constant torment of innumerable families; it poisoned the German people by spreading among all classes the spirit of speculation and by diverting them from proper and regular work, and it was the cause of incessant political and moral disturbance. It is indeed easy enough to understand why the record of the sad years 1919-23 always weighs like a nightmare on the German people.”


There – the dead have had their say.


papermarksvsgoldmarksThe exchange rate of the paper mark vs. the gold mark from 1918 to 1923


Charts by: StockCharts, Constantino Bresciani Turroni


Chart and image captions by PT


The above article originally appeared at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.



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