Thursday, 18 November 2021 — Wollongong, Australia

By Greg Canavan Editor, The Rum Rebellion

[6 min read]

Dear Reader,

The more things change, the more they stay the same…

I was reminded of this saying this morning while reading A Liberal State: How Australians Chose Liberalism over Socialism 1926–1966.

It’s the fourth book in a five-book series by David Kemp. It chronicles the history of liberalism in Australia. (I know, fascinating, right!)

As the title suggests, Australia has battled against socialism before. Given that we’re lurching down that path again, I thought it would be a timely read.

As an aside, with two school-aged kids, whom we are homeschooling, early mornings are about the only time I get to read uninterrupted (and before workday reading and writing kicks in).

This morning, I was struck by two consecutive passages from the book. The first was a quote from Alexis de Tocqueville, a Frenchman who travelled the US and observed its fledgling democracy in the early 1800s. He wrote a book about it called Democracy in America.

He wrote of these young Americans…

‘Our contemporaries are ever a prey to two conflicting passions: they feel the need of guidance, and they long to stay free. Unable to wipe out these two contradictory instincts, they try to satisfy them both together.

‘Their imagination conceives a government that is unitary, protective and all powerful, but elected by the people. Centralisation is combined with the sovereignty of the people. This gives them their chance to relax.

‘They console themselves for being under schoolmasters by thinking that they have chosen them themselves. Each individual lets them put the collar on, for he sees that it is not a person, or a class of persons, but society itself which holds the end of the chain.

‘A great many people nowadays very easily fall in with this brand of compromise between administrative despotism and the sovereignty of the people. They think they have done enough to guarantee personal freedom when it is to the state that they have handed it over…’  

He could have easily been talking about modern-day Australia.

Throughout our history, Australians have generally had a pretty good relationship with their governments. There has been a level of trust that is absent in other democracies.

This relates to our democracy’s unique history; a product of the Age of Enlightenment and also a beneficiary of the birth of the US republic just 100 years before.

Moreover, as an initial dumping ground for the British underclass, the first (non-indigenous) generation of Australians wanted to create an egalitarian society. There was to be no ‘House of Lords’ in Australia.

Which is why we’re a largely ‘compliant’ nation. We trust our leaders, so we generally do what they ask.

But my feeling is this trust — built up over generations — is disappearing fast.

The coming election is going to be a doozy. Scott Morrison is largely seen as a sell-out to those who elected him in 2019.

He’s pandered to special interests and those who hate him anyway, while turning his back on any liberal principles he pretended to have in the first place.

As a result, you’ll likely see a fracturing of the Liberal vote next year. Whether this results in a Labor victory, or the balance of power being held by a centre-right coalition, is anyone’s guess. But I’d be happy to wager there will be a decent swing against the Coalition, resulting in another three years (at least) of a fractured political system.

Which brings me to the second quote. As I said at the start, the more things change, the more they stay the same…

‘By 1931 the Australian people seemed to be losing faith in existing political parties to represent them effectively in parliament and to produce policies that worked to achieve the employment and other opportunities they desired, or the assistance many needed in a time of distress. Satisfaction with the performance of their democracy seemed to have reached an all-time low, and national unity never seemed more fragile nor class, sectarian and racial hatreds more intense.’

While there is a historical rhyme 90 years later, the economic situation is very different. Back then, Australia was in the pits of depression. Now, the economy is booming...apparently. And most of the population has been anaesthetised by a steady diet of stock market and house price gains, Netflix, and the nightly ‘news’.

We’re all ‘staying safe’, ‘doing the right thing’, and ‘in this together’.

That’s what we’re told to think, anyway.

But my gut feeling is that we’re not that united. COVID has opened up big divisions in society. We’ve realised that it’s not really society ‘which holds the end of the chain’. We’ve succumbed to ‘administrative despotism’ and willingly put our freedoms in the hands of the State.

Whenever that’s happened in history, you can rely on the State to abuse that trust.

It happened in the US a long time ago. It’s happening now in Victoria, and to a lesser extent in most other states.

Yet, like sheep, we’re grateful for a haircut and a feed…   

Regards,

Greg Canavan,
Editor, The Rum Rebellion

By Bill Bonner Editor, The Rum Rebellion

Dear Reader,

MoviePass was in the news this week because it was bought out of bankruptcy.

The idea behind the company was remarkably stupid. It was a subscription service, founded in 2011. You signed up…paid US$10 a month…and you got tickets to as many movies as you wanted — in theatres.

Long before COVID-19 hit, this proved to be the wrong idea at the wrong time.

The company had no deal with the theatres. It just bought the tickets retail…losing money each time a customer wanted one.

This led to a drastic loss-reduction strategy: the company disabled its website so customers couldn’t order any more movies!

How do you like that? You have a great idea for a wealth-destroying business. Then, when it is so successful you can’t keep up with the losses, you simply stiff the customers.

Well, that technique got the company into bankruptcy court, whence it has just emerged under the direction of one of the people who created it in the first place, Stacy Spikes.

He says he has a new idea.

But the old idea at least was in tune with market realities. That is, it was absurd.

Join the fun

When the money goes, everything goes with it. And first to go is the brain.

The Federal Reserve has held its key lending rate below the rate of inflation for almost all of the last 11 years. So borrowers could get money, effectively, for nothing.

That was bound to soften up their frontal lobes.

In a normal world, you invest in businesses that produce goods and services — at a profit. The profit represents the extra wealth that the businesses create…and share with their owners, who use it to pay off the debt. That is how society prospers and progresses.

But in a fake-money world, why bother? It’s easier just to borrow…and join the fun. Buy back your own stock to increase your share price. Or buy your own products to increase your profits.

Or buy Shiba Inu [SHIB]…or an NFT. You might not make any real profits. But who cares? This is the Capital Demolition Derby.

Wreck your jalopy? No worries. At negative rates, you can just buy a new one.

And don’t worry about interest rates going up. Here’s CNBC to reassure us:

‘Interest rates could remain at their record lows “forever”, according to one asset manager, despite a recent rush to normalize policy by many of the world’s central banks.

‘GAM Investments’ Julian Howard told CNBC’s “Squawk Box Europe” last week that he believed it was “entirely consistent historically to talk about low rates forever.”’

Squandered capital

What great fun — the dents…the smashes…the close calls and narrow escapes…the trick trucks and clown drivers…

…grotesquely low interest rates, grotesquely high stock prices, MEW (mortgage equity withdrawal), NFTs, Rivian, the Elon effect, the dog coins, and all the rest!

Too bad it makes us poorer.

It’s not because of its great weather that Switzerland is richer than Haiti. It’s because its people have accumulated capital over generations — savings, skills, infrastructure, factories, machines, and crucially, habits.

The US also boomed under a regime of honest money and limited government. But many years of fake money, fake interest rates, and empire building have taken their toll.

The American mind is mush. Manufacturing industries have left; now, it’s Asians and Mexicans who learn the critical skills.

The habit of saving money has also been exterminated by more than a decade of artificially low interest rates (the Federal Reserve’s key rate has been below zero almost all the time since 2009).

And now the US squanders its precious capital on government boondoggles, zombie companies, gag art, joke ‘money’, and dumb ideas.

Leading the way

Probably the leader in the Capital Demolition Derby is Amazon.com, Inc [NASDAQ:AMZN]…our old ‘river of no returns’ stock.

The brightest sun in history shone on Amazon these past 18 months. The company sells stuff via the internet…and delivers it to your door (sometimes by drone…what fun!).

What more could it hope for than a global pandemic that kept everyone at home, with government cheques to spend!

And sure enough, sales soared.

But what’s this? Sales more than tripled over the last five years. And Amazon, with plenty of capital on hand, spent nearly US$57 billion on new investments over the last 12 months. But its operating cash flow toted to only US$54.7 billion.

And thus did Amazon show us how it works: Raise money. Spend it. Lose it. And your stock goes up.

AMZN rose from US$1,900 per share at the beginning of the pandemic…to US$3,540 now.

And the derby goes on. Bam! Crash! Ka-boom!

Regards,

Bill Bonner,
For The Rum Rebellion