Vic Socotra

31 January 2009

Cabaret

(Cabaret Film Poster)

I slept well, considering the continuing crisis, and I slapped the alarm with a smug sense of Saturday satisfaction and turned over again. The news was not going to be good, and sleep is, they say, so back to z-land it was.

I dreamed of the Kit Kat Klub again, or what I imagine the Klub might have looked like. Smoke, of course, and an acrid smell of sex and fear. Filled with desperation and desire, sad kohl-rimmed eyes and bright ruby lips that have seen too much and said too little.

I wasn’t around for that, which is part of the allure of a society that has been wring out by the scourge of hyperinflation, and there is nothing left to sell except what you are sitting on, and by that I do not means the stools at the bar, or the wobbly wooden chairs at the little tables.

The currency in Weimar German became so wildly inflated that officials simply took red rubber stamps and added hundreds of zeros to the face value; a cart full of paper became worth less as the hungry horses pulled it home. The inflation killed value, erased savings and leveled society to a gray hopeless blob.

It created a seething sense of resentment that brought thugs of Left and Right together in a dance of absolutist violence. You know what happened to Fräulein Schneider, who managed to hang on to her house, and her elderly suitor Herr Schultz, the fruit vendor.

The only Germans I know are sleek and well dressed, and it is hard to see them in the decadence of dissolution. I tend to fill in the images with the faces of the East, where I spent my time in the bars that functioned the same way the Kit Kat Klub did; depots for the exchange of basic human needs. There is always a constant market for alcohol and desire, even when times are bad.

It made the dreamscape interesting, East Meeting West and the Honcho outside the gate at the Yokosuka Naval Base still had the tatters of the Defeat there, plain as day.

They say that when the first sailors showed up in the Occupation, an enterprising Bos’un took the money from the mess-deck Monopoly set into town, and had a grand time spending it as real until the merchants and the military police figured out what he was up to.

Paper money is just paper, in the end, and worth only what you are willing to trade for it. In my dreams, I see flurries of paper, worth less and less with each transaction. There was a taste of that in the 1970s, before I went away to Asia, prices rising faster than the paper in the wallet could accommodate. Interest rates on the boil, the guns-and-butter program of wars on Communism and Poverty going on the rocks of the oil embargo, the finite commodity of oil versus the economic engine of government proposed by John Maynard Keynes.

Classic Keynes contended that the role of government in a slump was to provide work for the otherwise underemployed, to ensure that money flowed in the economy. That is part of the gigantic stimulus package that is the Administration’s first great act. Keynes recognized the value of work, from a psychological and social perspective, and argued that it was better to employ men to dig holes, and then fill them in, than let them stand idle.

I agree with him on that, even If I quiver at the thought of what the ultimate cost of this recovery will be. The Great Depression was not defeated by FDR’s Civilian Conservation Corps, worthy though that institution might have been. It was vanquished by the mobilization of the industrial base to manufacture the weapons of war.

Consequently, I am nervous, and looking at commodities that might be useful as a hedge for what is to come. With gold above $900 the ounce it's too late to buy. The oil thing did not work out well in the last year, but it could be back. The futures game is a risky one. Bonds, even T-bills, have a constant rate of return, and are no good in an inflationary spiral. Hold on to the real estate, and wait it out. They are not making any more of it, at least the earthen part.

An economist pal is almost beside himself. He pointed out that “The Economic Stupidity of the Versailles Treaty set the stage for economic chaos and Fascism…. we should keep in mind that the Monetarists (idiots that they are) have an equation that says MV=PQ , Where “M” = money, “V”velocity of money, “P” = price level and “Q” = real production. They assume that if M is increased, then rate of spending “V” stays constant. Thus, if “M” goes up 20% and “V” is constant and if workers can increase “Q” by a healthy 4%, then “P” goes up 16%, or we have 16% inflation.”

“It is possible and likely that V is not constant right now and is in fact falling. The destruction of normal lending and borrowing may also mean that M is being destroyed (Money is simply debt). So, we may not be in immediate danger of Weimar or Zimbabwe-style Inflation. We may be more in a 1930s or Japan 1990s situation than we think.”

I had to chew on that for a while, since the math quite eludes me, and it is math, rather than common sense, that has driven our policy. I pondered another note from a pal who was in the middle of the Japanese thing, when the East Became Red, not through the triumph of the Communists, but through red ink.

As the go-go 1980’s waned into the 90’s, he was working a sensitive military exchange project with the Japanese Maritime Self-Defense Forces (JMSDF) around the time of Japan Incorporated, and their massive buying spree that saw almost all Hawaii pass into their hands, a note of no small irony to those of us who lived on Pearl Harbor’s placid shores.

The project required frequent travel to the mysterious east, and interminable meetings, accompanied by fine dining and Olympian drinking bouts in the Akasaka and Roppongi nightclub districts.

It was over cocktails in a smoky club where a senior member of the JMSDF intelligence staff told him a story, aided by an interpreter for some of the more technical English terms.

As it turned out, the JMSDF was cash poor and land rich. It owned a small parcel of prime Tokyo real estate, a legacy of Imperial Navy days, but had no appropriations to rebuild its crumbling pre-WWII HQ buildings. The Maritime Staff Office (MSO) hatched a plan to fix this deficiency by selling off a piece of the parcel to finance the construction.

The Japanese economy was on the bubble. It had became entirely based on the frenzied lending to every Tom, Dick and Harry who could get a five, thirty, forty or even hundred-year term loan on real property. The MSO made discrete inquiries as to the value of their land, and what could they expect from a sale or long-term lease.

The expected sales price came in at over the total value of all the real estate in Manhattan. It was a number with so many zeros that it strained the credulity of everyone at the table.

The Japanese officer continued to say that follow-on conversations with the appraisers indicated that the total estimated value of Tokyo real estate at that moment was in excess of all privately-held real estate in the USA.

That speculative debt was absorbed by Japanese society until the inevitable bursting of the bubble occurred. The Sake was all consumed, the last bottle of Suntory Whiskey smashed.

The party was over. Prices began to come down. And down. And down.

It dragged a vibrant economy along with it. It took more than a decade to recover, even with all the government encouragement, infrastructure projects and zero interest rates.

My friend thinks that is what is going to happen to us, and I think he has an excellent point. I am relieved that hyperinflation will not be our fate. Instead, it will be a slow and steady deflation. I tried it on for size, like all the clothes in my closet had grown larger as I slept.

I made some eggs, and realized there is no point at all in preparing for it. Anything you buy now will be cheaper tomorrow, and since we are all going to wait for it, it will be even cheaper the day after that.

We have to snap out of us. Not just the Government; that stimulus is too thin. We all have to get out there and spend. All of us need to find something that has constant value and commit to enjoying it.

That might be tawdry joy and merrymaking, since at least that would get people spending again. That brings me back around to the Kit Kat Klub, and the women and men in heavy rouge. They do not Asian faces, nor German, though there are some of both. The crowd is distinctly diverse, and uniquely American. I can hear the music, can’t you?

“No use permitting
some prophet of doom
To wipe every smile away.
Come hear the music play.
Life is a Cabaret, old chum,
Come to the Cabaret!

Start by admitting
From cradle to tomb
Isn't that long a stay.
Life is a Cabaret, old chum,
Only a Cabaret, old chum,
And I love a Cabaret!”

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