‘Democracy is the theory that the common people know what they want, and deserve to get it good and hard.’
—HL Mencken
This week, the French are taking the democracy flimflam to new levels.
They’re holding a nationwide ‘town meeting’…with leaders hoping that the voters’ anger exhausts itself in endless and pointless wind.
The legerdemain of modern popular government is that it is ‘the people’ who make the big decisions. They elect — after suitable scrutiny and much grave reflection — representatives, who then turn the wishes of ‘the people’ into the law of the land. At least, that’s the theory.
As Hillary Clinton once described this fantasy: ‘The government is all of us.’
But everywhere and always, it is nothing of the sort.
Wall Street comedy
We’ll come back to that…and the comedy now taking place in France…in a minute. First, we check in on the comedy on Wall Street.
There, investors are waiting to see what happens next…in the wall/shutdown standoff…in the Brexit countdown…in the US/China trade war…in the bond markets…and at the Fed.
Jim Cramer, he of Mad Money fame, says the bear market ended at Christmas. But investors aren’t so sure.
In October, the Dow made a new all-time closing high at 26,828. It’s been down ever since. And it could go down a lot more.
Stocks, like bonds, follow long, cyclical patterns that the feds can’t control. Yes, they can influence them, delay them, and distort them. But in the end, it’s Mr Market who has the last laugh.
You can see the patterns best by looking at the Dow in terms of gold. From the top in 1929 to the bottom in 1933 was only a 4-year period.
But it took another 27 years — until 1960 — for the Dow to recover relative to the price of gold. The high came six years later, marking a span of 37 years, peak to peak.
The next bottom came in 1980, 14 years later…along with another loss, inflation-adjusted, of about 80%. Then, it took another 19 years to hit the next top, in 1999, for a 33-year cycle, peak to peak.
In gold terms, stocks have been going down ever since…and still have not reached their ultimate low. When that happens, our guess is that you’ll be able to buy the entire Dow again for less than 5 ounces of gold. But when? [Refer to today’s Market Insight for more.]
Nobody knows…but neither Mr Trump nor Mr Powell wants to find out. The president is talking up the economy…and preparing to blame Fed chief Powell if anything goes wrong.
For his part, Mr Powell is playing it cool. He says he’ll be ‘patient’ about normalising interest rates. In other words, he’ll cut and run if stocks take another dive.
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Little room to run
The trouble is, neither of them has much room to run at all. The Trump team has already stretched the budget with a trillion-dollar deficit. And the federal funds rate is already closer to the bottom of the plausible range than to the top.
Normally, the Fed’s Mistake #3 (dropping rates in a panic when markets crack) requires a 500-basis-point cut. But Powell only has 250 of them (the current federal funds rate is 2.5%).
But the problem is not just a US problem. All over the globe, governments are running out of time and money.
They used EZ money to increase spending and debt. Now, with interest rates rising, growth rates falling, and populations aging — they face a challenge. What to do now?
Will they admit that they made a mistake…that they can’t really control Mr Market? Will they stand down, and allow a correction to cleanse the system of excess debt and unaffordable expenses?
Oh, Dear Reader…sometimes your naïveté surprises us! No way! The elites depend on that money.
Instead, using debt (the US) or taxes (France), they will put the hurtin’ on their fellow citizens.
Myth and malarkey
Government, always and everywhere, is a way for the few to exploit the many. It used to be more obvious. When the Vikings conquered Normandy, for example, they took the best land, built castles, and became the ruling class.
But modern democracy depends as much on fraud as force. Elite conquerors pretend to respond to the ‘will of the people.’ But the real game is the same — they use myth and malarkey (rather than mace and crossbow) to get control of the government and use it to extract what they want.
The trouble is, as the elites take more and more, the rest of the population begins to chaff and grouse.
The ‘government is all of us’ myth looks counterfeit when 10% of the population gets nearly 100% of its economic gains. Then, too, the people of Flyover Country don’t take kindly to the elites’ experiments with transgender pronouns, uncontrolled immigration, and global temperature control.
In America, the forgotten people rose up and voted for Trump. In Britain, they voted for Brexit. And in France, they put on yellow vests and set cars on fire.
Great discussion
Each group of malcontents has its flare-up issues. In France, discontent is focused on the automobile, which is why they wear the yellow safety vests in protest.
The gap between the elite and the rest is more geographical in France than it is in the US. The insiders are literally intra muros…concentrated in Paris…where you can barely drive a car anyway.
These urban sophisticates regard non-Parisians as though they drag their knuckles on the ground and are barely able to walk upright. So they don’t hesitate to tell them what to do — in the name of progress, of course!
And thus, supposedly to reduce the country’s carbon footprint, the poor folks outside the city are forced to drive under 50 mph on rural roads and buy gasoline at more than $6 a gallon.
And woe to the driver who is not fully loaded with flares and yellow vests! A few speeding tickets (given by electronic sensors) and an unsnapped seatbelt, and he’ll lose his license.
Ten weeks ago, the common folk began to resist. And now, the Macron government has initiated what it calls a Great Discussion or a Grand Debate on the future of the nation.
The French feds say they will ‘revitalise democracy’ by holding blabfests all over the country. Thus, is the stage set for one of the greatest comedies of modern politics.
People from all over the nation have been invited to join local conferences and give voice to their worries, their doubts, their complaints, and their fondest hopes for the future.
You may wonder what the hell the paid members of the French Assemblée Nationale have been doing all these years — if not listening to their constituents bitch and moan?
And why, you might ask, will the French federales suddenly be moved to action by the earnest plaints of ordinary citizens…whom they seem to have ignored successfully since the Reign of Terror ended in 1794?
But of course, nothing will change. The Grand Debate is merely a media stunt. For there is no chance that these outsiders will be allowed to steer the elite away from their real objective — which is to get more power, money, and status for themselves!
In the end, the little guys will not get what they want or what they expect, but what they deserve…and as Mencken reminds us, they’ll get it good and hard.
Regards,
Bill Bonner