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Lew Rockwell
May 29 2009
The 'No Problem' Mindset: Guaranteed Destruction
by Gary North
Most people will not change. Too radical. Not going with the flow. Not
betting against the herd.
The best examples in the 20th century were Jews in Germany in
1933. They stayed. This included Jewish bankers, all of whom could
have left. They thought they could deal with Hitler. They did not read
Mein Kampf. They did not take it seriously.
About 7% did leave early: 38,000 out of 523,000. More left after
1938. By 1941, about 160,000 remained in Germany. Then emigration was
closed by the Nazis. Earlier, it was encouraged. The data are here.
At some price, almost all could have left. There were countries that
would have let them in. They would have had to learn a new
language. They would have arrived in poverty. But Jews had faced those
options ever since the Assyrian captivity in the eighth century
B.C. So what?
They all would not have escaped the Nazis. Some would have moved to
other European countries that were overrun by Germany after 1939. But
they could have tried to get away. They stayed. They refused to
acknowledge the warning signals. "It can't be that bad." It got worse.
Jews had an answer for worrywarts. "No problem. We can handle it."
The Armenians went through the same thing. The Turkish massacres of
1895 were a foretaste. Most stayed behind. Then came the genocide of
1915.
NO PROBLEM!
Look back at the economy in October 2007. The Dow was at 14,000. The
banks were booming. Real estate was down a little, but the experts
gave no warning. They were wrong. All of them.
The U.S. government is running a $1.8 trillion deficit this
year. Federal tax receipts are down 34%, which means that the deficit
will go above $2 trillion. No one cares. No one says, "This is the
end. The American economy will never again be what it was."
Think "2007." Would you have believed that Chrysler and GM were both
headed for bankruptcy? In October 2007 GM shares were at $43. Now they
are at $1. There was an industry called investment banking. Bear
Stearns, Lehman Brothers, and Goldman Sachs were not part of the
commercial banking system. To survive, a few made the transition in
September 2008. Some did not make the cut.
Merrill Lynch is gone. Bank of America and Citigroup were bailed out
by the government. They would have gone under. They sell for a
fraction of what they did in 2007.
And what do most people say? "No problem."
There is no problem for which their answer is not "no problem."
Medicare will go bust. Social Security will go bust. "No problem."
The unemployment rate keeps rising. "No problem."
When people refuse to face reality, because reality is going to be
more painful than anything they have experienced, they look for signs
that the problems they cannot avoid without changing are really not
that bad. They look for offsetting good news.
They think the status quo ante will return. The U.S. government is
about to spend another $30 billion to buy a dead carcass of a
company. It has already spent $20 billion. "No problem."
The government will let the company stiff bondholders for $27 billion
in exchange for 10% of the company, 72% owned by the government and
17% by the United Auto Workers medical insurance fund. "No problem."
Bondholders were originally told that it would take a 90% vote to
authorize this. The government has changed the rules. It will
determine after the May 30 vote by bondholders what percentage must
approve. "No problem.
The company will never return to what it was. "No problem." People
will not buy as many cars as before from a company run by the
government and the United Auto Workers. "No problem."
The Dow rose 100 points on the rumor that the largest bondholders will
accept the deal. The deal is a disaster, but investors are in "No
problem" mode. Somehow, the wipeout is less of a wipeout.
Who is going to buy a GM car instead of a Japanese car? Here is a
company that is about to break its contracts with thousands of its
dealers. "No problem." Yet buyers are expected to trust a GM warranty.
Oldsmobile is gone. "No problem." Pontiac is going. "No problem."
Cadillac sells its cars with an ad of a flash model putting the pedal
to the medal. Hot stuff! The company thinks people with money will not
see through this ad. The Cadillac division has lost its way. "No
problem."
The price/earnings ratio for the S&P 500 is over 120. Traditionally,
20 was regarded a sell. The investor pays $120 on the hope that the
stock will retain a dollar of earnings, and pay investors some minimal
percentage of these earnings as dividends. "No problem."
We are watching the investment world adopting a lemming mentality that
has always produced losses. "This time it's different. No problem."
CONSUMER CONFIDENCE
The Conference Board announced that consumer confidence is up to
55. The 50 figure is neutral. Yet consumer confidence is a lagging
indicator historically. When it rises, the stock market usually falls.
The indicator is a reflection on what the stock market has done
recently. To use consumer confidence as a justification for buying
stocks is nonsense. This is like saying, "I will buy stocks because
the public is confident, which based on the fact that stocks have
risen." If that strategy worked, stocks would never stop rising.
Even hard-money newsletter readers are beginning to doubt that the
recent good news is in fact "less worse than expected" bad news. This
is the stuff of dreams that do not come true.
Readers look at the reports, and the reports look awful: falling home
prices, rising unemployment, an astronomical Federal deficit. But the
media say we are close to a bottom ` the bottom of a crash that none
of them forecasted.
Readers think, "by the standards of late 2007, what we are seeing
daily was inconceivable." Optimists speak of a slow, weak
recovery. Pessimists speak of hyperinflation and depression
simultaneously. But as the chorus proclaims "No problem," the public
mindlessly picks up this refrain.
"We have nothing to fear but . . . fear itself!" Yet as FDR delivered
those words, Hitler was consolidating power in Germany. Stalin was
beginning the purges. A quarter of the U.S. work force was
unemployed. But Roosevelt began the refrain: "No problem." Four years
later, unemployment was still 20%. The Federal deficit had
ballooned. Happy days were not here again.
Your friends don't want to hear your pessimism anymore. They don't
want to change. They will refuse to change.
In 1934, Ludwig von Mises realized that Hitler, an Austrian, would
seek to bring Austria under German hegemony. He warned Jewish
economists to leave. They had been his students at his famous seminar
in Vienna. Fritz Machlup believed him, and came to the U.S. So did
Gottfried Haberler. Mises went to Switzerland as a professor, leaving
his great personal library behind. He fled to the U.S. in 1940, after
France had fallen. He never got a full-time teaching job again.
A few listened. Most did not. "No problem."
HEARING, THEY WILL NOT HEAR
People count the costs of making a change. This is wise. Jesus taught:
For which of you, intending to build a tower, sitteth not down first,
and counteth the cost, whether he have sufficient to finish it? Lest
haply, after he hath laid the foundation, and is not able to finish
it, all that behold it begin to mock him, Saying, This man began to
build, and was not able to finish. Or what king, going to make war
against another king, sitteth not down first, and consulteth whether
he be able with ten thousand to meet him that cometh against him with
twenty thousand? Or else, while the other is yet a great way off, he
sendeth an ambassage [ambassador], and desireth conditions of peace
(Luke 14:28`32). In short, count the costs. This is what people have
refused to do. They have counted the cost of doing something
radical. It's high. They have counted the immediate cost of doing
nothing new. It seems low. They prefer doing nothing.
But what about the long term? What about:
1. Retirement (no Social Security or Medicare)
2. The Federal Deficit ($1.8 trillion this year)
3. Federal Reserve's monetary base (doubled)
4. Falling house prices
5. Rising unemployment
6. The war in Afghanistan (forever, until our defeat)
"No problem!"
How do you reason with these people? Answer: you don't, if you value
your time and your privacy. If you turn out to be wrong, you will be
ridiculed or at least treated as a child. If you are correct, you will
be hated. You will also be hit up for money. If you are a Christian,
you will be told you are heartless. You will become a line of credit
for those whose mantra was "No problem!"
They don't want to change. They will not change. They will not listen
to you.
And when things turn out much worse than even most newsletter writers
are forecasting, you will be hated. Are you prepared for this?
Do you have a real plan to deal with what is obviously an unfolding
disaster: rising government ownership, massive deficits, rising
unemployment, falling house prices, busted retirement pensions, rising
interest rates (falling corporate bonds), and Federal Reserve
inflation on a scale never seen in American history?
Or do you think you can delay. "No problem!"
CONCLUSION
We live in today's world. It's bad, but it's not a catastrophe. We
must keep our heads above water.
A Tsunami is coming. In such a scenario, you have got to get out of
the water and off the beach. But few people ever do, unless they have
seen a tsunami. Few have.
Allocate some percent of your wealth to tsunami-avoidance. Do it
quietly. Do not discuss this with your big-mouth brother-in-law.
What do you really think is likely to happen? Not what you would
prefer will happen.
Think, "General Motors in October 2007"
Think Chrysler, Merrill Lynch, and Lehman Brothers.
No one saw it coming. It came.
Problems. Big, big problems.
May 30, 2009
Gary North [send him mail] is the author of Mises on Money. Visit
http://www.garynorth.com. He is also the author of a free 20-volume
series, An Economic Commentary on the Bible.
http://www.lewrockwell.com/north/north718. html
May 29 2009
The 'No Problem' Mindset: Guaranteed Destruction
by Gary North
Most people will not change. Too radical. Not going with the flow. Not
betting against the herd.
The best examples in the 20th century were Jews in Germany in
1933. They stayed. This included Jewish bankers, all of whom could
have left. They thought they could deal with Hitler. They did not read
Mein Kampf. They did not take it seriously.
About 7% did leave early: 38,000 out of 523,000. More left after
1938. By 1941, about 160,000 remained in Germany. Then emigration was
closed by the Nazis. Earlier, it was encouraged. The data are here.
At some price, almost all could have left. There were countries that
would have let them in. They would have had to learn a new
language. They would have arrived in poverty. But Jews had faced those
options ever since the Assyrian captivity in the eighth century
B.C. So what?
They all would not have escaped the Nazis. Some would have moved to
other European countries that were overrun by Germany after 1939. But
they could have tried to get away. They stayed. They refused to
acknowledge the warning signals. "It can't be that bad." It got worse.
Jews had an answer for worrywarts. "No problem. We can handle it."
The Armenians went through the same thing. The Turkish massacres of
1895 were a foretaste. Most stayed behind. Then came the genocide of
1915.
NO PROBLEM!
Look back at the economy in October 2007. The Dow was at 14,000. The
banks were booming. Real estate was down a little, but the experts
gave no warning. They were wrong. All of them.
The U.S. government is running a $1.8 trillion deficit this
year. Federal tax receipts are down 34%, which means that the deficit
will go above $2 trillion. No one cares. No one says, "This is the
end. The American economy will never again be what it was."
Think "2007." Would you have believed that Chrysler and GM were both
headed for bankruptcy? In October 2007 GM shares were at $43. Now they
are at $1. There was an industry called investment banking. Bear
Stearns, Lehman Brothers, and Goldman Sachs were not part of the
commercial banking system. To survive, a few made the transition in
September 2008. Some did not make the cut.
Merrill Lynch is gone. Bank of America and Citigroup were bailed out
by the government. They would have gone under. They sell for a
fraction of what they did in 2007.
And what do most people say? "No problem."
There is no problem for which their answer is not "no problem."
Medicare will go bust. Social Security will go bust. "No problem."
The unemployment rate keeps rising. "No problem."
When people refuse to face reality, because reality is going to be
more painful than anything they have experienced, they look for signs
that the problems they cannot avoid without changing are really not
that bad. They look for offsetting good news.
They think the status quo ante will return. The U.S. government is
about to spend another $30 billion to buy a dead carcass of a
company. It has already spent $20 billion. "No problem."
The government will let the company stiff bondholders for $27 billion
in exchange for 10% of the company, 72% owned by the government and
17% by the United Auto Workers medical insurance fund. "No problem."
Bondholders were originally told that it would take a 90% vote to
authorize this. The government has changed the rules. It will
determine after the May 30 vote by bondholders what percentage must
approve. "No problem.
The company will never return to what it was. "No problem." People
will not buy as many cars as before from a company run by the
government and the United Auto Workers. "No problem."
The Dow rose 100 points on the rumor that the largest bondholders will
accept the deal. The deal is a disaster, but investors are in "No
problem" mode. Somehow, the wipeout is less of a wipeout.
Who is going to buy a GM car instead of a Japanese car? Here is a
company that is about to break its contracts with thousands of its
dealers. "No problem." Yet buyers are expected to trust a GM warranty.
Oldsmobile is gone. "No problem." Pontiac is going. "No problem."
Cadillac sells its cars with an ad of a flash model putting the pedal
to the medal. Hot stuff! The company thinks people with money will not
see through this ad. The Cadillac division has lost its way. "No
problem."
The price/earnings ratio for the S&P 500 is over 120. Traditionally,
20 was regarded a sell. The investor pays $120 on the hope that the
stock will retain a dollar of earnings, and pay investors some minimal
percentage of these earnings as dividends. "No problem."
We are watching the investment world adopting a lemming mentality that
has always produced losses. "This time it's different. No problem."
CONSUMER CONFIDENCE
The Conference Board announced that consumer confidence is up to
55. The 50 figure is neutral. Yet consumer confidence is a lagging
indicator historically. When it rises, the stock market usually falls.
The indicator is a reflection on what the stock market has done
recently. To use consumer confidence as a justification for buying
stocks is nonsense. This is like saying, "I will buy stocks because
the public is confident, which based on the fact that stocks have
risen." If that strategy worked, stocks would never stop rising.
Even hard-money newsletter readers are beginning to doubt that the
recent good news is in fact "less worse than expected" bad news. This
is the stuff of dreams that do not come true.
Readers look at the reports, and the reports look awful: falling home
prices, rising unemployment, an astronomical Federal deficit. But the
media say we are close to a bottom ` the bottom of a crash that none
of them forecasted.
Readers think, "by the standards of late 2007, what we are seeing
daily was inconceivable." Optimists speak of a slow, weak
recovery. Pessimists speak of hyperinflation and depression
simultaneously. But as the chorus proclaims "No problem," the public
mindlessly picks up this refrain.
"We have nothing to fear but . . . fear itself!" Yet as FDR delivered
those words, Hitler was consolidating power in Germany. Stalin was
beginning the purges. A quarter of the U.S. work force was
unemployed. But Roosevelt began the refrain: "No problem." Four years
later, unemployment was still 20%. The Federal deficit had
ballooned. Happy days were not here again.
Your friends don't want to hear your pessimism anymore. They don't
want to change. They will refuse to change.
In 1934, Ludwig von Mises realized that Hitler, an Austrian, would
seek to bring Austria under German hegemony. He warned Jewish
economists to leave. They had been his students at his famous seminar
in Vienna. Fritz Machlup believed him, and came to the U.S. So did
Gottfried Haberler. Mises went to Switzerland as a professor, leaving
his great personal library behind. He fled to the U.S. in 1940, after
France had fallen. He never got a full-time teaching job again.
A few listened. Most did not. "No problem."
HEARING, THEY WILL NOT HEAR
People count the costs of making a change. This is wise. Jesus taught:
For which of you, intending to build a tower, sitteth not down first,
and counteth the cost, whether he have sufficient to finish it? Lest
haply, after he hath laid the foundation, and is not able to finish
it, all that behold it begin to mock him, Saying, This man began to
build, and was not able to finish. Or what king, going to make war
against another king, sitteth not down first, and consulteth whether
he be able with ten thousand to meet him that cometh against him with
twenty thousand? Or else, while the other is yet a great way off, he
sendeth an ambassage [ambassador], and desireth conditions of peace
(Luke 14:28`32). In short, count the costs. This is what people have
refused to do. They have counted the cost of doing something
radical. It's high. They have counted the immediate cost of doing
nothing new. It seems low. They prefer doing nothing.
But what about the long term? What about:
1. Retirement (no Social Security or Medicare)
2. The Federal Deficit ($1.8 trillion this year)
3. Federal Reserve's monetary base (doubled)
4. Falling house prices
5. Rising unemployment
6. The war in Afghanistan (forever, until our defeat)
"No problem!"
How do you reason with these people? Answer: you don't, if you value
your time and your privacy. If you turn out to be wrong, you will be
ridiculed or at least treated as a child. If you are correct, you will
be hated. You will also be hit up for money. If you are a Christian,
you will be told you are heartless. You will become a line of credit
for those whose mantra was "No problem!"
They don't want to change. They will not change. They will not listen
to you.
And when things turn out much worse than even most newsletter writers
are forecasting, you will be hated. Are you prepared for this?
Do you have a real plan to deal with what is obviously an unfolding
disaster: rising government ownership, massive deficits, rising
unemployment, falling house prices, busted retirement pensions, rising
interest rates (falling corporate bonds), and Federal Reserve
inflation on a scale never seen in American history?
Or do you think you can delay. "No problem!"
CONCLUSION
We live in today's world. It's bad, but it's not a catastrophe. We
must keep our heads above water.
A Tsunami is coming. In such a scenario, you have got to get out of
the water and off the beach. But few people ever do, unless they have
seen a tsunami. Few have.
Allocate some percent of your wealth to tsunami-avoidance. Do it
quietly. Do not discuss this with your big-mouth brother-in-law.
What do you really think is likely to happen? Not what you would
prefer will happen.
Think, "General Motors in October 2007"
Think Chrysler, Merrill Lynch, and Lehman Brothers.
No one saw it coming. It came.
Problems. Big, big problems.
May 30, 2009
Gary North [send him mail] is the author of Mises on Money. Visit
http://www.garynorth.com. He is also the author of a free 20-volume
series, An Economic Commentary on the Bible.
http://www.lewrockwell.com/north/north718. html