The great overreach continues…there’s so much noise in the financial markets, one can barely think straight. Housing slump may exceed the Great Depression…the profit parade in commodities marches on. We pity the next president…the subprime debacle has produced a tsunami of lawsuits…and more!

“The baths, the wine, and Venus corrupt our bodies,
But the baths, the wine and Venus are our life…”

-Inscription found on a Roman tomb

Yes, dear reader…we are here in Rome. We have enjoyed the wine. We have
had a bath or two – in our own private bathroom. And Venus? Well…this is
a family publication…

This afternoon, we are going to visit the baths of Caracalla, built at the
beginning of the 3rd century by Caracalla’s father Septimius Severus and
inaugurated by the son after Severus’s death.

‘Overreach’ is not a Latin word. But it was practically invented to
describe what the Romans did to themselves…to their empire…and to
their money. About which, more below…and more about our own overreach,
circa 2008, too.

But first the bare facts, yesterday’s financial news in a nutshell:

The Dow rose slightly. Oil held steady at an all-time high of $118. Gold
dropped another $16 to close at $909.

There is so much ‘noise’ in the financial system, it is hard to think. The
papers are full of distractions and absurdities. You can find almost any
point-of-view you want. Some argue that central banks are winning…that
the stock market hasn’t gone down because it is getting ready to go
up…and soon, the housing market will bottom out too.

“Fears of bank failures recede,” says a headline in the Financial Times
today.

Others argue that the worst is still ahead…that the stock market will
melt down…that housing prices will fall another 20%…and that the whole
world will go into a monumental downturn.

“Housing slump may exceed Depression,” says a San Diego paper.

We take a middle view – that financial assets (including paper money), the
financial industry, the credit cycle, the dollar-standard monetary system
and the U.S.A. itself are in an historic decline…while emerging markets,
gold and commodities are in a once-in-a-lifetime upswing.

We’ve heard about the panic that the doubling of wheat and rice prices is
causing in China, India and other Asian countries. But now, reports the
Washington Times, this panic is beginning to spill over to Americans. The
article goes on to point out that bulk grocery stores, such as Costco, are
having to put a limit on how much rice customers in certain states can
buy. Americans have gotten a whiff of the high prices and fear that the
shortages will spread from overseas, and have begun hoarding necessities
such as oil, rice and flour.

“Commodity prices across the board are at levels not experienced in many
of our lifetimes,” said CFTC Chairman Walter Lukken. “These price levels,
along with record energy costs, have put a strain on consumers as well as
many producers and commercial participants that utilize the futures
markets to manage risks.”

Resource Trader Alert’s Kevin Kerr assets that “this profit parade [in
commodities] isn’t going to end anytime soon.” He’s so certain, in fact,
that he’s offering three month’s of Resource Trader Alert – completely
free of charge. Find out how you can profit from this epic boom in
commodities here.

http://www1.youreletters.com/t/1472707/30712165/846957/0/

But let’s take a look at the headlines and then we’ll come back to our
analysis.

Is the housing market getting worse? Well, you already heard the report
from San Diego; it could be worse than the Great Depression, it says. Up
the coast, the news from the LA Times is that California is suffering a
record level of foreclosures. And in Nevada, the local press tells us that
many erstwhile homeowners are not being very considerate to the new
owners. They’re wrecking the houses before they leave, says the paper,
even putting cement down the plumbing. Of course, they’re upset, continues
the report, because they feel they’ve been roughly handled by the mortgage
industry.

Meanwhile, in Chicago, Jesse Jackson is in the news; he thinks borrowers
have been roughly handled by the mortgage industry too. He’s called for a
moratorium on foreclosures.

And over the on East Coast, the Washington Post says lenders are “being
swamped” by delinquent loans.

Partly because of the risk of bad payers, mortgage approvals have fallen
to a 10-year low. But not all the delinquents are homeowners. Many former
students, who took out loans to get through college, are finding it hard
to pay the money back. Lenders are tightening up on the scholars too. And
the Bush Administration is so alarmed at the thought of all the college
keg parties that might be canceled; it has proposed to buy student loans
from the lenders.

Where will it get the money, you ask? From taxpayers, of course. Who are
the taxpayers? The parents of the students, obviously. Then, why not let
the parents keep their money and pay for their own children’s education?
Oh, stop being a silly old fuddy duddy…

*** First, we turn to Project Overreach: America’s Imperial Budget, 2008.
George W. Bush et al. have been stretching in all directions. And now
comes his party’s chosen successor, John McCain, with even longer arms.

McCain wants to lock in place Bush’s $350 billion of tax cuts…and then
cut another $300 billion more. Here at The Daily Reckoning headquarters
we’ve never met a tax cut we didn’t like. But it’s the other side of the
ledger than concerns us. If revenues go down, how would McCain pay for all
those spiffy projects – mortgage rescues, student loan bail-outs, the
never-ending war in Iraq, bombing Iran…not to mention all the regular
giveaways to America’s seniors, poor, cripples, veterans, bankers, and
feeble-minded citizens?

The idea, put forward by Arthur Laffer and the Reagan crew, was that lower
tax rates would stimulate economic activity and, ergo, more tax revenue to
the government. But now, McCain’s top economist – Douglas Holtz-Eakin –
says the estimates of increased tax revenue as a result of lower rates
were “overblown.” As director of the Congressional Budget Office, he
admitted to Congress that a “dynamic analysis” of tax cuts (taking into
account the likely positive effect of cuts on economic activity) made
essentially no difference to the outcome. Conclusion: if you cut
taxes…you also must cut spending…or you’ll find yourself in the hole.

The Bush Administration has worked the United States into the biggest hole
ever. Like Diocletian, Septimius Severus and Caracalla, the next president
will face the consequences of overreach…inflation, budget deficits, and
rapidly expanding debt.

*** But mommas still want their babies to grow up to be president…or
even better, to land a job on Wall Street. And to break into finance or
politics, it helps to have a degree from a prestigious university. It is
proof to your employers that you have been indoctrinated with the latest
Efficient Market claptrap…that you believe the hocus pocus of modern
macroeconomics…and that you can do the miracle math required to turn
trashy credits into triple A-rated investments.

But for all those mommas hoping to get their babies a place at Goldman or
Blackrock, we have a suggestion: aim for the legal department. Yesterday
brought word from the Financial Times that “sub-prime produces a tsunami
of lawsuits.” Our guess is that the financial industry has seen its best
days. The wheels are falling off the deal machine. Bonuses are coming
down. Employees are being laid off, cast off, spun off, and blown off in
every department – save where the legal team does its work. The next few
years are likely to produce further trimming in the financial industry
ranks. But the in-house lawyers…and lawyers who work face them from
outside firms…are bound to enjoy a boom. They’ve got to work out,
renegotiate, defend, and deny thousands of claims. Their jobs are safe for
years to come.

*** Poor Caracalla. The man spent his whole life pushing the barbarians
back…or being pushed back by them. And for his thanks…one of his own
men stabbed him to death.

But he had it coming.

He was a good child, say the historians: “sed haec puer.” But he went bad
fairly early. After his father died, he ruled as co-emperor with his
brother, Geta. Then, he murdered Geta in 212 A.D. and fled to the army for
support. After he had solidified his position, he began purging his
brother’s old friends and supporters. More than a 1,000 were killed.

He seemed to want to imitate Alexander the Great…and even began walking
with his head tilted to the right, as he had seen in a depiction of
Alexander. He set out to make his military glory with a series of
campaigns against the Gauls, the Chatti, the Alemanni, and the Getae. He
pillaged Alexandria, after hearing that the citizens spoke of him with
contempt. And he was preparing a war against the Parthians when he was
killed.

His greatest achievement was the “Constitutio Antoniniana,” which made all
inhabitants of the empire equal citizens. He is also remembered for a new
coin – the Antoninianus – which replaced the denarius. It was a way of
dealing with the inflation that was troubling the empire. Wars were
expensive then, as they are now. But back then, were sometimes profitable
enterprises, as a victorious army usually captured enough booty to pay its
way – and then some. But the larger the empire became, the more neighbors
it had, the longer its borders grew, and the more garrisons it needed to
protect them. The people at home needed bread and circuses too – or they
would go turn on an emperor…and shift power to a rival.

Pretty soon, Rome ran out of money, which was then calibrated in gold
and/or silver. The Antoninianus was a way to depreciate the currency. It
had a face value of 3 times the denarius, but with the same silver
content.

Hmmm…

Until tomorrow,

Bill Bonner
The Daily Reckoning