Gold shot up $40 yesterday. Stocks were flat.
And how do you like that? Mr Market was right all along. He knew the fix was in. This is an economy – and a society – that depends on easy credit. No way were the politicians going to stop the credit from flowing. When they threatened to cut it off, Mr Market ignored them. Stock prices kept going up. Turned out, he was right again.
We’re back home in good ol’ Balawmer, with football season in full flower.
Our trip took us to Paris, London, Buenos Aires, Salta, Miami, Ft Lauderdale and then home again. The only travel problem we had came in our last stop, Ft Lauderdale, where the agent at check-in seemed unable to operate his own computer system.
While we were travelling, often out of range of modern communications, Washington was making a public spectacle of itself. Wherever we went, cab drivers, hair dressers, and barkeeps kept us up-to-date:
“Wow, what’s going on in the US? Sounds like they’ve gone crazy”, said one.
“So, are they really going to shut down the government?” asked another. “That will be a first.”
“Have Republicans lost their minds”, began a third. “Who’s going to vote for them?”
To the foreigners, the spectacle seemed sordid and stupid. To us, as little as we saw of it, it was immensely entertaining. First, because we never doubted that the pols would come through with a deal in the end. And second, because it would have been better if they hadn’t.
But the show’s over, at least for now. Bloomberg:
The passage last night by wide margins — an 81-18 vote in the Democratic-led Senate, followed by a 285-144 vote in the Republican-controlled House — allows the U.S. to avoid default and ends the shutdown that began Oct. 1 and has taken $24 billion out of the U.S. economy.
“We’ll begin reopening our government immediately and we can begin to lift this cloud of uncertainty and unease from our businesses and from the American people,” Obama said last night at the White House after the Senate voted.
Bill Bonner on markets, economics & the madness of crowds
Get Bill's free daily email 'The Daily Reckoning' sent straight to your inbox
The news reports of the settlement on Wednesday night told us that the agreement was reached after the standoff had taken “$24bn out of the economy.”
People took this news as though it were a tragic fact, like the sinking of a cruise ship or a shooting at an elementary school. But how was it possible for $24bn to be taken “out of the economy”? Where did it go? To another planet?
This is what makes government so amusing. It is like barroom chatter late at night – full of things that couldn’t possibly be true yet accepted by everyone present as gospel.
The $24bn refers to the money that the feds did not spend. But did it vanish? Not at all.
Not that we have anything against government; on the contrary, it’s always a hoot. But government at its best is a very modest affair. It puts a cop on the beat – ready to knock heads, if necessary, to maintain peace and quiet. It puts a judge on the bench, able to enforce contracts and protect property. It raises the flag on national holidays. Otherwise, it butts out.
But few people are content with Jefferson’s kind of government. They want Hillary Clinton’s kind of government. But as it grows, government quickly reaches the point of declining marginal utility, and then slips into its bad habits – that is, grand larceny.
The money that was supposedly taken out of the economy didn’t disappear. It remained with its rightful owners; neither stolen, nor redistributed. The zombies were short $24bn; but the productive sector was ahead.
And what were the feds going to do with that $24bn? In the event, they shut down national parks – one of the few federal activities that might be a paying proposition. Otherwise, instead of driving to work, filling out forms and chatting over coffee, federal employees were sent home. There, they enjoyed their leisure, or spent time on home repairs.
The money that would have paid them to come on the job, was saved, spent, or invested in other ways. Who’s to say that the world is a worse place as a result?
• Don't miss Bill's next Daily Reckoning. To receive the next article straight into your inbox as soon as he's written it, sign up to the email list here.
Information in The Daily Reckoning is for general information only and is not intended to be relied upon by individual readers in making (or not making) specific investment decisions. The Daily Reckoning is an unregulated product published by Fleet Street Publications Ltd. Fleet Street Publications Ltd is authorised and regulated by the Financial Conduct Authority. FCA No 115234. http://www.fsa.gov.uk/register/home.do
New to MoneyWeek?
Welcome, and thank you for visiting us.
Here at MoneyWeek, our aim is simple. To give you intelligent and enjoyable commentary on the most important financial stories of the week, and show you how to profit from them.
If you've enjoyed what you've read so far, we've got something you'll definitely be interested in.
Every week day, Monday to Friday, we send out a thought provoking and often controversial email called the Daily Reckoning. In it, we try to figure out the markets and how current economical events are shaping the world we live in. If you're interested in investment opportunities and the markets, we think you should be reading it…
With your permission, I'd like to send you the Daily Reckoning for FREE.
We hope you enjoy your stay on the site.
Editor, The Daily Reckoning