The ‘No Problem’ Mindset: Guaranteed Destruction
by Gary North
Most people will not change. Too radical. Not going with the flow. Not betting against the herd.
The best examples in the 20th century were Jews in Germany in 1933. They stayed. This included Jewish bankers, all of whom could have left. They thought they could deal with Hitler. They did not read Mein Kampf. They did not take it seriously.
About 7% did leave early: 38,000 out of 523,000. More left after 1938. By 1941, about 160,000 remained in Germany. Then emigration was closed by the Nazis. Earlier, it was encouraged. The data are here.
At some price, almost all could have left. There were countries that would have let them in. They would have had to learn a new language. They would have arrived in poverty. But Jews had faced those options ever since the Assyrian captivity in the eighth century B.C. So what?
They all would not have escaped the Nazis. Some would have moved to other European countries that were overrun by Germany after 1939. But they could have tried to get away. They stayed. They refused to acknowledge the warning signals. “It can’t be that bad.” It got worse.
Jews had an answer for worrywarts. “No problem. We can handle it.”
The Armenians went through the same thing. The Turkish massacres of 1895 were a foretaste. Most stayed behind. Then came the genocide of 1915.
NO PROBLEM!
Look back at the economy in October 2007. The Dow was at 14,000. The banks were booming. Real estate was down a little, but the experts gave no warning. They were wrong. All of them.
The U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, which means that the deficit will go above $2 trillion. No one cares. No one says, “This is the end. The American economy will never again be what it was.”
Think “2007.” Would you have believed that Chrysler and GM were both headed for bankruptcy? In October 2007 GM shares were at $43. Now they are at $1. There was an industry called investment banking. Bear Stearns, Lehman Brothers, and Goldman Sachs were not part of the commercial banking system. To survive, a few made the transition in September 2008. Some did not make the cut.
Merrill Lynch is gone. Bank of America and Citigroup were bailed out by the government. They would have gone under. They sell for a fraction of what they did in 2007.
And what do most people say? “No problem.”
There is no problem for which their answer is not “no problem.”
Medicare will go bust. Social Security will go bust. “No problem.”
The unemployment rate keeps rising. “No problem.”
When people refuse to face reality, because reality is going to be more painful than anything they have experienced, they look for signs that the problems they cannot avoid without changing are really not that bad. They look for offsetting good news.
They think the status quo ante will return. The U.S. government is about to spend another $30 billion to buy a dead carcass of a company. It has already spent $20 billion. “No problem.”
The government will let the company stiff bondholders for $27 billion in exchange for 10% of the company, 72% owned by the government and 17% by the United Auto Workers medical insurance fund. “No problem.”
Bondholders were originally told that it would take a 90% vote to authorize this. The government has changed the rules. It will determine after the May 30 vote by bondholders what percentage must approve. “No problem.
The company will never return to what it was. “No problem.” People will not buy as many cars as before from a company run by the government and the United Auto Workers. “No problem.”
The Dow rose 100 points on the rumor that the largest bondholders will accept the deal. The deal is a disaster, but investors are in “No problem” mode. Somehow, the wipeout is less of a wipeout.
Who is going to buy a GM car instead of a Japanese car? Here is a company that is about to break its contracts with thousands of its dealers. “No problem.” Yet buyers are expected to trust a GM warranty.
Oldsmobile is gone. “No problem.” Pontiac is going. “No problem.” Cadillac sells its cars with an ad of a flash model putting the pedal to the medal. Hot stuff! The company thinks people with money will not see through this ad. The Cadillac division has lost its way. “No problem.”
The price/earnings ratio for the S&P 500 is over 120. Traditionally, 20 was regarded a sell. The investor pays $120 on the hope that the stock will retain a dollar of earnings, and pay investors some minimal percentage of these earnings as dividends. “No problem.”
We are watching the investment world adopting a lemming mentality that has always produced losses. “This time it’s different. No problem.”
CONSUMER CONFIDENCE
The Conference Board announced that consumer confidence is up to 55. The 50 figure is neutral. Yet consumer confidence is a lagging indicator historically. When it rises, the stock market usually falls.
The indicator is a reflection on what the stock market has done recently. To use consumer confidence as a justification for buying stocks is nonsense. This is like saying, “I will buy stocks because the public is confident, which based on the fact that stocks have risen.” If that strategy worked, stocks would never stop rising.
Even hard-money newsletter readers are beginning to doubt that the recent good news is in fact “less worse than expected” bad news. This is the stuff of dreams that do not come true.
Readers look at the reports, and the reports look awful: falling home prices, rising unemployment, an astronomical Federal deficit. But the media say we are close to a bottom – the bottom of a crash that none of them forecasted.
Readers think, “by the standards of late 2007, what
That was funny. At first I thought it was ripping on the karaoke videos but then realized that it was a spoof of the actual video. BTW, was Rob put in the penalty box?
Thanks, Dave. That sucks. I thought there was a forum post about it, but I don’t see it today.
rob deserves what he gets!!! alpha PLUSA
“”lame. gets old after 50 seconds.”
But enough about Randi’s trolling…”
if i don’t like your stupid video that makes me a troll?
I think he was, jessi.
http://www.lewrockwell.com/north/north71….
The ‘No Problem’ Mindset: Guaranteed Destruction
by Gary North
Most people will not change. Too radical. Not going with the flow. Not betting against the herd.
The best examples in the 20th century were Jews in Germany in 1933. They stayed. This included Jewish bankers, all of whom could have left. They thought they could deal with Hitler. They did not read Mein Kampf. They did not take it seriously.
About 7% did leave early: 38,000 out of 523,000. More left after 1938. By 1941, about 160,000 remained in Germany. Then emigration was closed by the Nazis. Earlier, it was encouraged. The data are here.
At some price, almost all could have left. There were countries that would have let them in. They would have had to learn a new language. They would have arrived in poverty. But Jews had faced those options ever since the Assyrian captivity in the eighth century B.C. So what?
They all would not have escaped the Nazis. Some would have moved to other European countries that were overrun by Germany after 1939. But they could have tried to get away. They stayed. They refused to acknowledge the warning signals. “It can’t be that bad.” It got worse.
Jews had an answer for worrywarts. “No problem. We can handle it.”
The Armenians went through the same thing. The Turkish massacres of 1895 were a foretaste. Most stayed behind. Then came the genocide of 1915.
NO PROBLEM!
Look back at the economy in October 2007. The Dow was at 14,000. The banks were booming. Real estate was down a little, but the experts gave no warning. They were wrong. All of them.
The U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, which means that the deficit will go above $2 trillion. No one cares. No one says, “This is the end. The American economy will never again be what it was.”
Think “2007.” Would you have believed that Chrysler and GM were both headed for bankruptcy? In October 2007 GM shares were at $43. Now they are at $1. There was an industry called investment banking. Bear Stearns, Lehman Brothers, and Goldman Sachs were not part of the commercial banking system. To survive, a few made the transition in September 2008. Some did not make the cut.
Merrill Lynch is gone. Bank of America and Citigroup were bailed out by the government. They would have gone under. They sell for a fraction of what they did in 2007.
And what do most people say? “No problem.”
There is no problem for which their answer is not “no problem.”
Medicare will go bust. Social Security will go bust. “No problem.”
The unemployment rate keeps rising. “No problem.”
When people refuse to face reality, because reality is going to be more painful than anything they have experienced, they look for signs that the problems they cannot avoid without changing are really not that bad. They look for offsetting good news.
They think the status quo ante will return. The U.S. government is about to spend another $30 billion to buy a dead carcass of a company. It has already spent $20 billion. “No problem.”
The government will let the company stiff bondholders for $27 billion in exchange for 10% of the company, 72% owned by the government and 17% by the United Auto Workers medical insurance fund. “No problem.”
Bondholders were originally told that it would take a 90% vote to authorize this. The government has changed the rules. It will determine after the May 30 vote by bondholders what percentage must approve. “No problem.
The company will never return to what it was. “No problem.” People will not buy as many cars as before from a company run by the government and the United Auto Workers. “No problem.”
The Dow rose 100 points on the rumor that the largest bondholders will accept the deal. The deal is a disaster, but investors are in “No problem” mode. Somehow, the wipeout is less of a wipeout.
Who is going to buy a GM car instead of a Japanese car? Here is a company that is about to break its contracts with thousands of its dealers. “No problem.” Yet buyers are expected to trust a GM warranty.
Oldsmobile is gone. “No problem.” Pontiac is going. “No problem.” Cadillac sells its cars with an ad of a flash model putting the pedal to the medal. Hot stuff! The company thinks people with money will not see through this ad. The Cadillac division has lost its way. “No problem.”
The price/earnings ratio for the S&P 500 is over 120. Traditionally, 20 was regarded a sell. The investor pays $120 on the hope that the stock will retain a dollar of earnings, and pay investors some minimal percentage of these earnings as dividends. “No problem.”
We are watching the investment world adopting a lemming mentality that has always produced losses. “This time it’s different. No problem.”
CONSUMER CONFIDENCE
The Conference Board announced that consumer confidence is up to 55. The 50 figure is neutral. Yet consumer confidence is a lagging indicator historically. When it rises, the stock market usually falls.
The indicator is a reflection on what the stock market has done recently. To use consumer confidence as a justification for buying stocks is nonsense. This is like saying, “I will buy stocks because the public is confident, which based on the fact that stocks have risen.” If that strategy worked, stocks would never stop rising.
Even hard-money newsletter readers are beginning to doubt that the recent good news is in fact “less worse than expected” bad news. This is the stuff of dreams that do not come true.
Readers look at the reports, and the reports look awful: falling home prices, rising unemployment, an astronomical Federal deficit. But the media say we are close to a bottom – the bottom of a crash that none of them forecasted.
Readers think, “by the standards of late 2007, what
Did anyone see Conan OBrien’s premier on The Tonight Show last night – IMHO I thought he was pretty good, but for god’s sake – bring it back to NYC!
kachow!
That was funny. At first I thought it was ripping on the karaoke videos but then realized that it was a spoof of the actual video. BTW, was Rob put in the penalty box?
“lame. gets old after 50 seconds.”
But enough about Randi’s trolling…