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These are the times that try men’s souls.

April 13, 2013

Alienation, Liberties, Markets

Thomas Paine

I recently spent some time in a flyover state and had some surprising discussions with people who, despite their extreme views, appeared in every other respect to represent the solid heartland of America. By that I mean they were not rednecks, but rather, enterprising, middle class, church going citizens with strong family values. They included a ranch owner, a retired professor, an attorney and a business owner who did something with furnaces. They exuded respectability and dependability and there is a sense in which I would have trusted them with my life. They all assured me that their views reflected those of their community. In a series of conversations they expressed a profound alienation from the U.S. Government, a deep-seated disenchantment with its policies on a wide range of issues and a belief that the political system is broken. Last but not least, they said they were determined, not just to hold on to their firearms and large capacity magazines, whatever new laws are passed, but also to stockpile them together with ammunition and food supplies, against the bad times they expect if current policies continue. They talked openly about secession, to secure what they consider to be their constitutional rights. It is easy to dismiss this kind of talk as the incoherent ramblings of a small group of right wing extremists but that would be a mistake. Alienation stemming from one or more of these beliefs is widespread in the heartland and an important part of the prevailing zeitgeist, or spirit of our times.

Even in the ‘other’ liberal America on the coasts there is alienation, although not so deeply felt as in the heartland. There is frustration that economic reality seems to have put limits on the dream of pursuing a progressive agenda through big government. To some extent liberal America also shares the feeling that we cannot continue as we have been, letting our government be captured by financial elites that don’t even come close to representing the public interest, however it is defined.

For investors there is disquiet about how to invest savings. There no longer seems to be a safe asset, let alone a safe institution, including and even especially, the United States Government.  All is flux and everyday verities prove to be nothing of the kind. Is cash safe or is cash trash? If safe, where are you going to keep it? In a safe bank? Hopefully not one in Cyprus. The Australian government has just announced new rules which tax citizens who have responsibly set aside savings for their own retirement in accounts which were not previously taxed. Of course this could never happen to Roth IRA holders in the United States, could it? Make no mistake, when you see bank accounts confiscated, laws made by non-elected administrative officials and sectional interests openly favored, you are seeing the erosion of the rule of law and the cracking of the foundations of civil society.

The problems seem so big, so systemic, that we can’t even conceive of a solution, because to do so would just create a whole new set of problems. Without the concept of a solution we are left with no strategy other than papering over the cracks and kicking the proverbial can down the road. How should a sane and rational individual react to such an insane and irrational world? Do we retreat into our own heads, the only place where we retain some control? Do we search for community, for like-minded people to provide us with solace and support?  Do we involve ourselves in activism or turn to religion, traditional or technological? Or, do we, like most people, just bury our head in the sand and hope it is all a bad dream? Whatever we decide to do it is clear that long range planning has become that much more difficult. What assumptions to do we make for planning purposes? The most unrealistic assumption seems to be the expectation that life is going to continue the same way it has been for the last thirty years.

Although the U.S. stock market is back to the 2007 highs and investors are as complacent as they have ever been, key divergences in economic indicators tell a different story. Base metals are slumping, the demand for energy is falling rapidly, treasury yields are at historic lows, GDP is close to stall speed and consumer confidence is down sharply, all indicators suggesting that economic activity is slowing and that the economy is teetering on the edge of deflation. March was marked by the biggest monthly increase in people dropping out of the labor force since January 2012, when the BLS did its census recast of the labor numbers. A record 90 million Americans are no longer even looking for work. While levels of corporate earnings appear to justify stock markets at all-time highs, this has been brought about through productivity increases which are unlikely to be sustained. More importantly, gold, which has spent the last 20 months consolidating, has just decisively fallen through key support levels, suggesting that deflationary forces are winning the battle against the Fed’s money printing. I suspect that in the next few years cash will not prove to be trash after all.

__________________

“There is no escape. We have gathered vast populations
incapable of free survival, insulated
From the strong earth, each person in himself helpless, 
  on all dependent. The circle is closed and the net
Is being hauled in. They hardly feel the chords drawing,
 yet they shine already. The inevitable mass-disasters
Will not come in our time nor in our children’s, but we
          and our children
Must watch the net draw narrower, government take all
powers – or revolution, and the new government
Take more than all, add to kept bodies kept souls – or
          anarchy, the mass-disasters.”

Selection from The Purse-Seine by Robinson Jeffers, 1937

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About Malcolm Greenhill

Malcolm Greenhill is President of Sterling Futures, a fee-based financial advisory firm, based in San Francisco. I write about wealth related issues in the broadest sense of the word. When I am not writing, reading, working and spending time with family, I try to spend as much time as possible backpacking in the wilderness.

View all posts by Malcolm Greenhill

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21 Comments on “These are the times that try men’s souls.”

  1. chr1 Says:

    Malcolm, wow, not much to say in response to that. You’ve captured a lot in just a few paragraphs.

    Thanks.

    Reply

  2. Gregoryno6 Says:

    Worth reblogging.
    I didn’t realise our government’s latest fiduciary fiddle had been reported overseas. A lot of Australians have become quite cynical about superannuation and its value.

    Reply

  3. Gregoryno6 Says:

    Reblogged this on The mind is an unexplored country. and commented:
    A perceptive piece from Malcolm Greenhill.. perhaps that old Monty Python joke about ‘putting the lot into diesel-powered nuns’ is about to become sound investment strategy.

    Reply

  4. Steve Says:

    We do live in strange (and interesting) times, at least economically. Anytime the govt intervenes dramatically to fund deficits or pursue one social agenda or another, bubbles are created. I’m afraid the stock market is being significantly artificially inflated by Fed policy in part to prevent a deep recession, but it may be a recession we should endure rather than risk greater long-term damage to our economy. Meanwhile I’ll just enjoy seeing my stock portfolio at an all time high – while it lasts!

    Reply

  5. johnrchildress Says:

    Malcolm: It’s time someone formed The Fixit Party and made the decisions required to put this country on the right track. Instead of worrying about Palestinian statehood, gay marriage or spending $100M on capturing an asteroid, let’s fix the real problems: we need a flat tax, term limits for Congress, Line item veto for the president, break up the banks, balanced budget, get rid of the DOE and other costly waste, cut red tape for small businesses, implement mandatory 2-year military service, eliminate tenure in schools so we can fire lazy teachers, stop spending billions to help Afghanistan and Iraq when they don’t want our help, invest in rebuilding infrastructure. That would go a long way in a short time to bolster people’s faith in America again. Greatness starts at home, not around the world.

    Reply

    • Malcolm Greenhill Says:

      John, thank you. While we can argue about details the outline of the solution is clear to a broad coalition of fiscally prudent individuals. The bigger problem is that there have been so many years of malinvestments as a result of cheap money, that any meaningful reduction in spending will initially cause widespread corporate bankruptcies. The $87 trillion in unfunded liabilities for Medicare, social security and federal pensions can never be paid. Even a partial default on the national debt (inevitable in my opinion) would initially have a massive contractionary effect on employment in the public sector not to mention public sector pensions etc. Just look at Bernanke’s current quandry. Even a hint that the Fed is going to reduce bond purchases sends the stock market into a tizzy. Politically the first problem is to get politicians elected who will implement a fiscally prudent policy. The next problem is figuring out how those politicians can remain in power while implementing a program which will cause severe suffering to virtually everyone in the short term. Presumably this is where good leadership comes in. Enter President Fixit!

      Reply

  6. becwillmylife Says:

    And this is why, even though I feel restless, I stay in my current position. Now does not seem the time to take chances that may directly affect my future. Savings, retirement- my husband and I have planned and saved- making sound decisions. We live below our means with minimal debt. So why do I feel so vulnerable? I guess you answered that and much more.

    Reply

    • Malcolm Greenhill Says:

      I think we all feel more vulnerable and that is the problem. Imagine everyone doing the same as you and your husband, being just a tad more cautious than usual, a little more careful with money, a little less adventurous with job changes. All this adds up to powerful deflationary forces that even all the Fed’s money printing is having difficulty holding back.

      Reply

  7. hunt4thought Says:

    Right-Wing Extremist seems to rhyme with Patriot these days.

    Reply

    • Malcolm Greenhill Says:

      Or, as Charles Austin Beard said:

      “One of the best ways to get yourself a reputation as a dangerous citizen these days is to go about repeating the very phrases which our founding fathers used in the great struggle for independence.”

      Reply

  8. Clay J Mize Says:

    Malcolm, Right on. A deep south heartlander that i am. I couldn’t agree more with your assessment. Your forecasting of deflation makes me think. Thanks for that.

    Reply

  9. Dapper Dan Says:

    My two favorite lines from this one. Excellent!

    “Make no mistake, when you see bank accounts confiscated, laws made by non-elected administrative officials and sectional interests openly favored, you are seeing the erosion of the rule of law and the cracking of the foundations of civil society.”

    “The most unrealistic assumption seems to be the expectation that life is going to continue the same way it has been for the last thirty years.”

    Reply

  10. L. Marie Says:

    My brother and sister-in-law are financial planners for Waddell & Reed. I have to say they’ve had a rough time of it since 9/11. The pall of the fall of the stock market still hangs over some.

    Reply

    • Malcolm Greenhill Says:

      Yes, so far it has been similar to the tech market crash in that when the proverbial hits the fan there is a domino effect. First the portfolio gets hit, then one spouse loses their job which adds to the level of stress on the relationship. Eventually the house gets sold to improve cash flow and free up equity. You get the idea. Having said that the San Francisco Bay Area has proved remarkably resilient this time with plenty of employment from social media companies and a housing market that is back to the 2007 market highs. Hope springs eternal 🙂

      Reply

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