Two news items of note that have recently caught my attention. The first, that China has been taking advantage of the global firesale of stuff, along with its massive cash reserves, to buy up various overseas commodities. Second, that the Fed today committed to buying $300 billion of long-term Treasury bonds in order to drive down interest rates and, it is hoped, stoke demand for houses. The Chinese are buying goods with cold hard cash which we have been shoveling their direction every time we shop in Wal-Mart or run a federal budget deficit; we are buying loans from ourselves with money we do not have. The first is called real estate; the second is called fantasy-land.
In response, the price of gold shot up nearly 5%, or about $50, settling at about $930 an ounce, while the dollar fell to 1.34 against the Euro, moving higher from lows set when the dollar briefly was perceived as a safe haven. While the Fed is surely right that the economy has not yet “bottomed,” those with a view beyond today’s market gyrations can see that when growth is “restored,” that the U.S. will be using inflated dollars to chase after dwindling resources. Stuff will be getting a lot more expensive in the not-distant future, and you can bet that the Chinese are not going to be selling it cheaply to us in return for our increasingly worthless greenbacks. Perhaps the only thing more grim than our current economic moment is the economy that is awaiting us. We will either learn thrift by a new commitment to old virtues, or we will learn it the hard way. We will be able to afford fewer things, move around less and we will find ourselves facing a world that is not subject to our notional control. For most, this will be an occasion for lamenting. To my mind, it would generally constitute a better way, but a hard way when it comes by force and not by choice. Hard especially because - like our response to the current “crisis” (a word that reflects our belief that this is something extraordinary, unexpected, exceptional, a departure from the norm rather than the new norm), we will not believe in the reality of the reality that we face. We will deny its truth and its causes, looking instead for another cause other than ourselves. We will deny until the bitter end, avoiding the bankruptcy that awaits us in the belief that past returns are the guarantee of future results, most of all for no better reason than we wish it to be so.