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1 24th January 03:32
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Posts: 1
Default Solvency: Gone With the Wind (crisis down job)
by Gary North

Hardly anyone ever admits it, but in Hollywood’s Gone With the Wind, there are
no winners. That message is what the book’s title conveys, yet Americans are so
fascinated with the characters that they never draw the obvious conclusion: from
start to finish, there are no winners in the movie version.

My theory – undo***ented – is that most Americans identify with one or another
of the characters. They are so fascinated with the people on the South’s Express
that they don’t see the train wreck coming. Yet the movie’s introductory
on-screen lines from the book make it clear that the train wreck was coming from
the day that the South marched off to war against a better armed foe that had
more men, more factories, and more lines of credit.

The crucial scene in the movie takes place in the parlor, when the assembled
gentlemen ask Rhett Butler what he thinks of going to war. He tells them that
the North has all the armaments factories. The South has none. This cuts no ice
with his listeners. They ignored Christ’s warning: count the cost.

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

There is something inspiring about men who dearly believe that good intentions
and courage will always save the day. Most of Gone With the Wind is about the
consequences of such inspirational action: bad.

The South could have won the war if it had fought the way that the American
revolutionaries fought their war: as guerrillas and militia members, never
letting the enemy get any peace, and never risking an event like Pickett’s
charge. But there is little glory for guerrillas. They are not inspirational.

When it comes to investing your money and especially your time, you had better
be a guerilla.


Scarlett was ruthless during Reconstruction. But she did not get what she really
wanted, except what she already had: Tara.

Ashley was a beaten man mentally: in love and war and peace. He rolled with the
punches, but he was always getting punched.

Rhett saw his opportunities and took them.

The typical American worker/taxpayer today is most like Prissy. He don’t know
nothin’ about birthin’ and not much about anything else outside his job. He
assumes that someone – the government, his employer, or the experts – is in
charge and will keep the economy running smoothly. He is as confident in the
wisdom of experts as Scarlett’s father was about Confederate bonds in 1865. But
Scarlett’s father had an excuse. He was nuts.

The economists are the trusted experts. They think that the free market will
keep everything running smoothly, with help from the Federal Reserve’s FOMC:
Federal Open Market Committee, which is neither federal nor an open market. But
it is surely a committee. We all know what they say about a committee: "A camel
is a horse designed by a committee."

Economist Ludwig von Mises did not literally say this, but taught that "a
recession is prosperity designed by a central bank’s committee."

When you live in an economy that is stabilized by the FOMC, don’t be Gerald


The typical American worker is addicted to low-quality leisure. He watches prime
time TV. He does not read. He does not subscribe to economic newsletters or
spend time on financial websites. He does not think about the distant future,
which he defines as anything beyond this month’s paycheck.

This is not you.

But anyone who takes no action in terms of what he knows is likely to happen is
in pretty much the same condition as the typical American worker.

A driver who hears a siren and refuses to pull over is not fundamentally
different from a deaf driver who doesn’t hear the siren and also doesn’t pull

It’s unpleasant to hear someone say, "I told you so."

It’s worse when that person is you.

Today, workers in Europe, North America, and Japan have heard about the looming
fiscal crisis of the government-funded retirement programs and old age health
care programs. What was dismissed as nonsense two decades ago is accepted as
statistically inevitable by economists and politicians today. But they shrug
their shoulders and say, "It won’t happen for years." This is Scarlett O’Hara
syndrome: "Well, fiddle-dee-dee. I’ll think about it tomorrow."

Actually, Scarlett was a cunning, ruthless person who was determined to avoid
bad times. Bad times might happen to other people, but not her. "I’ll never be
hungry again." She was smart enough not to spend time worrying about the things
she knew she could not control.

The people around Scarlett really didn’t think too much about tomorrow, which is
why Scarlett got rich and they didn’t. They were focused on today. She was
focused on those aspects of tomorrow that she believed she could control.

Who was wiser?

Mammy. She instinctively did the right thing and worried only about the people
she loved, not about money. She nagged people, but only for their own good. She
rolled with the punches, but she did her best to help those around her to avoid
getting punched.

You and I have no control over the FOMC, the Federal Reserve Board, or Congress.
We see the U.S. government’s deficit rising at $300+ billion a year – before
Katrina. We see the balance of payments deficit rising at $700 billion a year.
We can do nothing about any of this. We are watching a train wreck in slow
motion. Our task is to get out of the way.


I always return to the career of Doc Holliday’s father. He was a field-grade
Confederate officer in the first year of the Civil War. He was wounded early and
returned home.

He sat down with a map. He concluded that the North would attack Atlanta by way
of captured rail lines from Tennessee.

His wife owned land in the region between Atlanta and the ocean. He told her to
sell her property. She did. Then he moved as far south as he could and still
stay in Ge****a: Valdosta. Why? The town was so far away from anything of
military value that he figured that Northern troops would not get there during
the war.

It all came true. His wife’s property was in the pathway of Sherman’s march to
the Atlantic. Northern troops did not arrive in Valdosta until after the war.
The Holliday family kept its capital intact in the form of a nice house in a
safe place.

He could read a map. He could draw conclusions. Most people did not have ready
access to a map in 1862. Few could have read a map. Most people could not have
drawn accurate conclusions from what they saw.

So, most people in Atlanta just sat there. Most people in the West today are
just sitting there. Most people in Atlanta hoped for the best. Most people in
the West today are hoping for the best.

We have seen what just sitting there did in New Orleans. Most people got out.
Most people took the warnings seriously. Those who failed to leave got trapped.

When no one can get out because everyone is trying to get out at the same time
on the handful of exit routes, the only ones who do get out are the ones who got
onto the highway early.


There are a lot of maps out there. Too many of them are treasure maps.

You don’t need a treasure map. You need an escape route.

You can’t read all the maps. You have to decide which maps make sense and which
maps you can understand. Then you have to decide to take action in terms of what
the maps seem to indicate.

Some maps are clear. The map governing the fiscal reality of Social
Security/Medicare is crystal clear. The financial well will start running dry in
2011, when the post-World War II baby boomers start retiring by the millions.
That is six years away. Social Security will still produce a surplus until 2017,
but Medicare won’t. The two programs are linked at the hip politically.

The Federal government’s red ink is already flowing. It will get steadily worse
six years from now. Then it will become a flood.

The financial Katrina has been spotted. It is a category-5 hurricane. It is
moving straight for the coast.

How many feet below sea level do you live? The more dependent you expect to be
on Federal money, the lower your location.

Six years: the time it takes between the birth of a child and his first day in
school. For new parents, this seems like a long time. For grandparents, it

It has been five years since the stock market peaked. The NASDAQ is down 60%.
The S&P 500 is down 40%. Yet the financial media are oblivious to this. All the
way down and then back up (part way), the media said, "Now is the time to buy."

The retirement fund managers are buyers on behalf of the investors. So are the
index fund managers.

The boom is on in real estate. But the problem with real estate is the same as
the problem in equities: it takes economic growth after price inflation and
taxes to sustain any market boom, and there is no growth after price inflation
and taxes. There was, slightly, but Katrina has killed this.

So, which maps should you believe? I read the "maps" published by the Federal
Reserve Bank of St. Louis.

I realize that not many readers who started this report have actually come this
far. Of those who have, only a few will click through. Then hardly anyone will
check back at least once a month.

Then this handful of people must interpret the maps.

This procedure is not intuitive.

The point is, the maps are out there, and you must pick the right ones to read.
Then you must interpret them.

Being as prescient as Doc Holliday’s father isn’t easy. But at least we can all
give it a try.

Watching the next installment of "Survivor" is no substitute for map reading.


The maps that count most are the maps that estimate the future of Social
Security/Medicare. One map is demographic. The people are here. One map is
political: the political promises have been made. The taxes have been imposed.
The domestic economic growth rate is mythical after price inflation and taxes.
The main social security maps are here.

You even get commentary that will help you interpret them.

The general economic maps are here.

It is clear what the maps say: economic growth cannot possibly sustain the
political promises made. We are therefore watching a slow-motion train wreck.

When you think "Social Security/Medicare," think "Confederate bonds in 1866."

If you sit there, hoping for the best, your personal solvency will be gone with
the wind.


"Can't you see we're still here,
Can't you see we're still here,
Singing loud; Singing clear,
We shall not go under,
We're still here."

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