Davidson Unplugged. July 19, The Desperate Attempts to Ward Off Collapse

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1 Davidson Unplugged July 19, 2015 The Desperate Attempts to Ward Off Collapse Hey, everyone. It's Charles Delvalle here and I'd like to welcome you to Davidson Unplugged. As always, James Dale Davidson is on the line. How are you? Hello. I'm fine. I hope everyone is, too. My mother always said to say you're great. Nobody wants to hear anything else. So, that's the answer. Those are wise words, and something that the Obama administration likes to follow as well. I'm sure that you saw the latest joke that is the unemployment report. I did. And I think that takes my mother's adage too far in the direction of total profundity. The June employment and unemployment numbers came out and they showed June payrolls which were the number of jobs, not people with jobs rose, allegedly, by 223,000. What they didn't specify in the headlines is that the number of people with full-time employment fell by 349,000. [Laughs] So, it was all part-time jobs. Well, apparently. And yes, many people with more than one part-time job. And now, if you dig more closely into Page 1 of 9

2 the payroll gain of 223,000, you find that actually it was only 163,000, because they failed to account for the downside revision of 60,000 jobs that were overstated in the May report. Now, the other thing Obama was so tickled about in the fall in the unemployment rate from 5.5% to 5.3% add another exclamation was that 375,000 unemployed people disappeared from the labor force instead of employment. So, we have a jobs report, which is supposed to be a matter for applause, but when you take a look at it, there's much less there than meets the eye. In fact, I wonder why the mainstream media who have access to the same information that we do can't give people a more accurate summary of what the government is pretending to be true. But, you know, their job is to go along with the gag and not to blow it up. So, there we are. Speaking of things blowing up, I think it's interesting what's going on in Greece and also in China, where the Chinese stock market has taken a tumble and the government has become extremely overbearing and clumsy in its attempt to prevent the market from correcting. As we look at it from the outside, there's a tendency, perhaps, to think, Well, this is a case of people who've read Schiller's work, being afraid of irrational exuberance and wanting to sell their paper gains before they disappear. But it seems that on the ground, the evidence points to a rather different conclusion that the reason that the Chinese are so desperate to sell is because there's a huge liquidity crunch there and people need the cash. And this comes out in the fact that there's been a lot of selling stocks in Hong Kong where there are not these crazy laws, rules, and regulations against selling for six months or you can't sell if you have a big position or you can't sell if you're a hedge fund, you can't go short, blah, blah, blah, Page 2 of 9

3 blah, blah. All of these distortions really are gimmicks that won't stand the test of time. Many other countries have tried to keep asset prices inflated and it's never been a very successful endeavor. And I think you need only to recall the fact that back in the day, long ago, when the South Sea bubble was bubbling, the King of England, at the time, had a substantial investment in the South Sea shares and he wanted to see it kept up and so did most of the members of the Parliament. I think Newton even had a big stake and it s worth remembering that while Newton was, perhaps, one of the most divine geniuses in history, he lost his shirt. He lost a staggering amount of money in a market when you could live for 100 pounds comfortably for a year, Newton's loss was in the hundreds of thousands of pounds. In fact, somebody did a calculation I'm just trying so shift through my notes here and find it his loss was equivalent of 268 million pounds in 2012, according to Forbes. And George the First lost big money. The Chancellor of the Exchequer, Robert Walpole, lost money. So, if George the First and the Chancellor of the Exchequer, in combination with Isaac Newton couldn't keep the South Sea bubble from popping, I don't think the Chinese Communist Party's going to do very well there. I think that they're in over their head. And also, speaking of Communists, we have to return to the concerted effort by the president Prime Minister of Greece, Alexis Tsipras, to turn this small Balkan country into a European version of North Korea. And he has been going back and forth with different reform proposals, denouncing the proposals, and then proposing new ones. We're now in a as we speak Page 3 of 9

4 kind of pause, as if we were watching a ping-pong game in extreme slow motion where the ball is just sort of hovering over the net at the moment. And we pretty much can tell that nothing good is going to come of it. The Germans, in particular, are not very well disposed to Tsipras because the left-wing party in the German coalition government is not in favor. They've been very vocal in their opposition, because Tsipras stiffed the Social Democratic parties in Greece and formed a coalition government in conjunction with an anti-eu right-wing party. And the Social Democrats don't like this, so they don't want Tsipras to succeed. All another interesting complication from the many that pile up. So, we're in the final innings of a strange melodrama that eventually will be, I think, a matter of great amusements to future historians. Oh, yeah. I think this has gone on for so long especially with Greece. I mean, had they just gone into a new currency in 2009 right when the crisis first started, I'm pretty sure they would be in a much better place economically right now. They would have all taken their losses. And the Greek people would probably be able to better deal with the reality of their situation. We were talking earlier there's a problem when people think that a democracy can make them not acknowledge things that are going on in reality. And so you use this pension increase as a good example of it, where people were able to collect their pension a bit earlier. And so what's the reality of that? The reality is that nobody really has money. So, maybe they'll collect it for a few months. Maybe they'll collect it for a year or two. But the day of reckoning will come Page 4 of 9

5 as it always comes, and when that happens, they're going to be forced to acknowledge reality. Just because they're in a democracy doesn't mean that they suddenly live outside of reality. No, exactly. But that's why I would question the easy assumption that if they'd change currencies in 2009 they would somehow be in a better place. I'm not sure they would because I don't think that this is really a matter of denomination of their obligations or their assets. The basic hard fact is that they don't earn enough to support the level of government spending that they have and so much of their economy is comprised of government spending. They borrowed their way to these sums because they could leverage their membership in the euro zone. If they suddenly became like Argentina was after it defaulted which is what presumably they would be who is going to lend them the money? Who would lend them the money to spend on pensions that are wildly out of kilter? The Germans didn't want to do it because, as the Frankfurt newspaper said, Why should we increase our working age from 67 to 69 so that Greeks can enjoy their retirement at the age of 62? Well, that's a good question. And it's very hard for politicians in Germany to answer that. They wanted to keep the euro zone intact, and they have a big investment in that, and it, by and large, has been beneficial to the exporting countries which are probably the northern European countries the Netherlands, Germany, Finland, and maybe some of the others that are not so much in the euro like Denmark or Sweden. But there is no way that anybody in his right mind is going to lend vast sums to Greece apart from their participation in the euro. I doubt that it's really true, as everybody says, Oh, they can just print money. They Page 5 of 9

6 can print drachma by the dozens, by the thousands, by the billions. And you know, there's Zimbabwe. Speaking of which, they figured out now that there is a way for some of the Zimbabwean population to recover some of their massive losses from hyperinflation because $10 trillion Zimbabwe notes have value. They're worth $0.04 apiece. [Laughter] So, you could go down there with a bushel basket, I guess, and collect millions of $10 trillion notes and sell them for curiosities on the sidewalks of Paris. Yeah. I'm sure you'll make at least one euro selling that. It's better than $0.04. I suppose that works, but I don't really think so. I think that the basic fact is that the growth thrust in the world has petered out and countries like Greece, which have no known competitive advantage in anything that they're able to execute like I mentioned in a recent article in the newsletter, Germany exports more olive oil than Greece. What's that all about? It's about the fact that the Greeks are disorganized. They don't work hard. They have very stupid labor laws, so it's hard to get productivity. They don t seem to be very good at organizing large-scale operations. To the extent that a new currency would work is the fact that nobody would lend to them unless they started making some real changes in their economy. And they would quickly learn that. They wouldn't have the crutch of the euro and the IMF supporting them anymore, because I'm sure neither group would want to lend them any money. And so with nobody lending them money, if Page 6 of 9

7 suddenly they have no money, then they have to make these tough decisions or go through hyperinflation. And, of course, had they gone through a hyperinflation, yeah, they'd probably be far worse off today than they were at any other time. Well, there's the other issues that you have to consider, which is that Greece is one of the countries in Europe that imports the highest percentage of its food. More than 45% of the food that they eat is imported. That means that whether they have drachma or euros or whatever they have, they have to pay for this food by earning it in some fashion by selling something. How many blue tablecloths can you sell? I don't know. Yeah. You know, I also find it interesting that France has already admitted that they've made plans for a Greek exit. And I think all the countries in the euro especially the ones surrounding Greece have made these plans. Because it stands to reason that if Greeks go through a complete upheaval, that people are probably going to leave the country, and suddenly, all the neighboring countries are going to have all these Greeks coming in and walking across their borders. Of course, I wouldn't blame any of them, but then it becomes a problem for all the other countries and then who knows what other social upheaval it may cause. Well, you know what the biggest destination for Greeks fleeing Greece is, don't you? What? Nova, in Australia. Really? Yes. Page 7 of 9

8 Why Nova? Tens of thousands have gone there this year because there are Greek-speaking enclaves in Nova. So, you could go to Melbourne and continue to eat spanakopita for your side dish for dinner or whatever and the lamb kabobs and they may even have Baklava that you order in Greek. Greece kind of reminds me especially if we go through this situation of Puerto Rico. You have more Puerto Ricans living in New York City and in Orlando than you actually have living on the island itself. And of course, it's because the economy has been circling the drain for some time now and they're all talking about trying to grant this island the ability to allow public utilities to go bankrupt. And two presidential candidates Bush and Clinton both finally support something like that. I have a feeling that Greeks are going to be the same. Eventually, you're going to find more Greeks everywhere else than you do in Greece, especially if things keep going the way they're going. Well, we're going to have an interesting test of this government and how seriously it can impinge on the prosperity of innocent people. Most definitely. And this is going to be a big test of the euro itself because if Greece becomes the first country to leave, it may become more tempting to either allow other countries to leave or for other countries to explicitly leave. Once that happens, Germany and France who are probably the two biggest supporters of the euro will have a lot of things to talk about Page 8 of 9

9 regarding what they want to do about this, whether they want to just let it occur or whether they want to try and stop it, you know? In the United States, we had the Civil War when states tried to leave the union. Could we have that same thing in Europe? I think it's possible. Maybe it's not likely, but it s certainly a possibility. And of course, the irony would be that the EU was put together to kind of establish a peace. Right. Well, I very much doubt that the Dutch army's gonna be on the march to try to defeat Greek pensioners. [Laughter] Anyway, well, it's an exciting time, as the Chinese proverbs have it. It sure is. Exciting times. And we'll see what the next round brings. I think it'll be well worth close attention to see how it unfolds. All right, Jim. Well, I want to thank you so much for joining us on this call today and we'll talk again soon. Okay. All the best everybody. Bye now. Bye. [End of Audio] Page 9 of 9

HARRY TRIGUBOFF. HOWARD: Why did your family choose to come to Australia? I know you were living in China but why did you

HARRY TRIGUBOFF. HOWARD: Why did your family choose to come to Australia? I know you were living in China but why did you 1 HARRY TRIGUBOFF HOWARD: Why did your family choose to come to Australia? I know you were living in China but why did you 2 choose Australia? TRIGUBOFF: We knew that things would change in China. I came