Nero Once Fiddled, Now Obama is Manning the Printing Presses
“To Rome said Nero: ‘If to smoke you turn I shall not cease to fiddle while you burn.’” –Ambrose Bierce
For President Obama it has been a dismal year. He cannot claimvictory on even a single one of his big four agendas: healthcare, theeconomy, the war or the environment. It seems for every step forwardthe Obama administration has taken two steps back.
Before you agree to wholeheartedly embrace this rumbling disaster,take note that Obama’s failures, even if they extend just another threeyears, are the nation’s failures and there will be consequences thrustupon us all.
Meanwhile Obama’s approval ratings continue to tank. At the crucial100-day mark of his presidency in April 2009, 63 percent of thosepolled believed the President had accomplished a “great deal.” Hisoverall approval rating, according to Real Clear Politics’ RCP Average,now stands at 49.6 percent, with 44.9 percent saying they disapprove.
With confidence in the leadership evaporating, the economy isgingerly perched on a precipice. At the same time the stock market haslost its upward momentum and could be susceptible to another crash.
“Despite the rebound of the stock market and the return to hugebonuses on Wall Street, most Americans remain mired in debt andmillions of them are living in depression-like conditions,” says The Star.com.“The economy has come back far enough to reassure the wealthy and thecorporate elites that things ought to return to pre-crash ways and thatthere is no need for radical measures of the kind they were prepared toaccept during the great bailouts a year ago.”
The economy is so weak that one adult in eight and one child in fourneeds food stamps. Wall Street has so far ignored the three-leggedtable that is our economy, but perhaps not much longer.
Bear Still on the Prowl
In January the FederalReserve reported that commercial real estate losses could reach 45percent this year. The result of this is $1.5 trillion in commercialloans that could default.
It gets worse. Option adjustable rate mortgages have a gun at theirhead, with $29 billion recast higher at the end of 2009, followed byanother $67 billion in 2010. Barclays Capital announced, “We expect 81%of the option ARMs originated in 2007 to default.”
If you want to know how fast this will sink Big Board stocks askyourself this—how long does it take a gaggle of money managers to say,“Titanic?”
To date Wall Street is bragging about corporate earnings that “arenot as bad as expected” and my favorite, “lower than expected”inflation. Whatever happened to the days of Ronald Reagan and PaulVolcker when any inflation was bad? That inflation could be worse islike your doctor telling you that your cancer is spreading, but cheerup… it’s not spreading as fast as he anticipated.
The Obama administration has been very good at only two things:expanding the breadth of the federal government and increasing theamount of dollars.
“What we don’t know yet is… whether we have big government or smallgovernment; they’re more interested in whether we have a smart,effective government,” said the President just before his inauguration.
So far so bad says the January/February issue of The Atlanticin its cover story. “A business organization as inflexible at the U.S.Congress would have a major Whale Oil Division; a military unit wouldbe mainly fusiliers and cavalry,” decries the magazine, adding, “TheAmerican tragedy of the early 21st Century; a vital and self-renewingculture that attracts the world’s talent; and a governing system thatincreasingly looks like a joke.”
Part of the problem for the Democrats is that they subscribe to thedogma of Franklin Delano Roosevelt, that big government can dictateprosperity. What they will learn instead is that more money in and ofitself is not more wealth.
Rome’s Spectacular Rise and Inflationary Fall
The god emperors of Rome constructed their empire by implementing hardmoney. It financed the greatest realm the world had ever experienced.
The hard money was paid out to its armies which in turn conqueredmost of the ancient world. Jack Weatherford explains in his book, The History of Money,“Rome’s fame and glory came from the military and from conquest, andtheir riches, too, derived much more from the achievements of the armythan from those of the merchants.”
As long as Rome’s legions conquered new lands, the empire thrived.But each new occupation required ever greater resources. Around 130B.C., Rome occupied the kingdom of Pergamum. In a few years, Rome’sspending doubled from 25 million denarri (a Roman silver coin) to 50million.
By 63 B.C., the budget grew to 75 million denarri, and spending wasbeginning to spin out of control. Vast strategic ambitions and socialexpenditures were beginning to mount.
When Augustus siezed the throne Rome was at its apex, spending roseto an astonishing 250 million denarri or 10 times what it had been 60years earlier.
By the time the Empire had conquered Europe the cost of its army vastly exceeded the treasure it was repatriating.
Yet spending continued to climb even as revenues declined. Sound familiar?
A string of emperors grasped at an immediate solution. They began to re-mint new money with less and less silver in it.
To pay for the rebuilding of Rome after it burned Nero reduced thesilver content in the denarri by a whopping 90 percent! Before longconfidence in Roman money began to collapse. Eventually the Empireimploded, crushed beneath its weighty ambitions, with a mountain ofdebt and a debased currency.
The New Romans
President Obama and the FederalReserve have a much easier time of opting for inflation than Nero did.Our leaders don’t have to re-mint debased coins or even overworkprinting presses. Instead they can create money out of thin air with akeystroke.
Last summer the Wall Street Journal wrote that the U.S.government has been, “flooding the market with dollars. By buying U.S.Treasuries and mortgages to increase the monetary base by $1 trillion,Fed Chairman Ben Bernanke didn’t put money directly into the stockmarket but he didn’t have to. With nowhere else to go, except maybecommodities, inflows into the stock market have been on a tear… Thedollars he cranked out didn’t go into the hard economy, but insteadinto tradable assets. In other words, Ben Bernanke has been the market.”
The problem is that the Obama/Bernanke bull can’t last. The creationof money is a zero sum game and alone it does not revive afundamentally weak economy. And unless the economy itselfimproves—beginning with greater confidence in the dollar—the stockmarket is bound for a serious fall.
Yours for real wealth and good health,
John Myers
Myers’ Energy and Gold Report
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John Myers is editor of Myers’ Energy and Gold Report. The son of C.V. Myers, the original publisher of Oilweek Magazine, John has worked with two of the world’s largest investment publishers, Phillips and Agora. He was the original editor for Outstanding Investmentsand has more than 20 years experience as an investment writer. John isa graduate of the University of Calgary. He has worked for PrudentialSecurities in Spokane, Wash., as a registered investment advisor. Hisoffice location in Calgary, Alberta, is just minutes away from theheadquarters of some of the biggest players in today’s energy markets.This gives him personal access to everyone from oil CEOs to roughnecks,where he learns secrets from oil insiders he passes on to hissubscribers. Plus, during his years in Spokane he cultivated a networkof relationships with mining insiders in Idaho, Oregon and Washington.