Friday, June 27, 2008

Revenge Of The System

As Thursday's stock market plunge showed, it's hard to overstate the stress in the financial system right now. The Fed can't lower rates again without courting a hyperinflationary death-spiral. And it believes it can't raise rates without triggering a deep recession or worse.

The "system" doesn't like stress like this. There have been very few times in U.S. economic history when the consequences of policy failure have been so obvious and policymakers' options so limited. The main reason for the latter, obviously, is oil. And oil's a problem because the national interests of a small group of non-allies conflict with ours. I don't like quoting my own stuff, especially at length, but I'd rather repost it than rewrite it. From October 2007:

A phrase that's become popular is "a clash of cultures" and variations of it. The description's appropriate. The first culture is one in which policymakers believe they've repealed the natural business cycle. This culture of moral hazard and push-button Fed liquidity makes it possible for 30-somethings to sit in front of computer screens in Manhattan and Connecticut and make millions from the flickering green dots, while that same liquidity debases the dollars held by wage earners, retirees, and prudent savers; it allows mediocre corporate executives to exercise stock options and become fabulously wealthy; it tells stock and real estate speculators that if things go south, someone sitting in an office in Washington will press the "print" button and make everything okay; it makes "bridges to nowhere" possible; and it allows a nation to launch a preventive war and decades-long occupation without a thought about how to pay for it. This culture depends on dollar hegemony.

The other culture is composed of a few countries, non-allies, that happen to occupy the ground above the natural resource most sensitive to Washington's print button. Since they have the gall to object to our insistence on exchanging ever-depreciating pieces of paper for their main (and finite) natural resource, they both complicate our attempt at reinflation and profit from it.

If a U.S. attack on Iran happens during this administration, it won't be an act of the White House, neocons, or Republican party. And if it doesn't happen before January '09 and something magically comes along after that to make it "necessary" it won't be an act of the Democrats. It'll be the culture, the establishment. I don't mean "establishment" in the pejorative sense. You don't get to the Oval Office, or even come close, without understanding what that word means. Democratic leaders, including of course Hillary Clinton, understand the underlying exigencies and global market dynamics just as well as the White House. Of course we'll get the obligatory gnashing of teeth about the use of force. But let's see how much real resistance there is. Do you think the Dems want operational responsibility for what they realize must come next? This is deeper than either partisan politics or a weapons program that might produce a nuke three or five or ten years from now.

We know the prewar intelligence on Iraq was, at best, massaged and cherry-picked. We know that in January 2003, President Bush secretly proposed painting a U.S. reconnaissance plane in the colors of the United Nations, hoping that Saddam would then shoot at it and provide a casus belli. We know someone forged the Niger uranium documents. Any clear-thinking person using an ounce of hindsight knows the notes that accompanied the 2001 anthrax attacks (viewable here) were a ludicrous attempt to imitate the way a native Arabic speaker might write rudimentary English.

Anyone willing to do those things is capable of literally anything. There are some truly malevolent actors out there right now, and you don't exactly need a custom-fitted Reynolds Wrap chapeau to understand that. But it's important to realize they are just as likely to have names you've never heard before and probably never will. No one typed the Niger forgeries in the basement of the White House. The anthrax notes weren't painstakingly scrawled out in Karl Rove's office on a Sunday night. It wasn't necessary. The bad actors know that once their "work" sets the stage, public officials -- particularly these public officials -- can be relied upon to run with the ball. But I think it's a mistake to see that dynamic as unique to the current administration, or to believe that it won't apply the moment a Democrat sits in the Oval Office. Some underlying exigencies supersede partisan politics.

They have the oil. We have the paper. By shunning that paper and benefiting from our extraordinary attempts to stem economic weakness, they pose an existential threat to Bailout Nation. How much longer can the system allow that? If there's a time for vigilance and maximum skepticism about any sort of "provocation" that conveniently pops up, I think this is it.


Anonymous Jeff in Texas said...

I am reminded of Andrew Bacevich's excellent book, The New American Militarism. One of Bacevich's points is, basically, that ever since Carter proposed wearing sweaters and inflating our tires and was laughed out of office (oversimplifying here, obviously, but you get the point), no national politician of either major party has failed to understand that what Americans consider to be their way of life, their due, is based upon maintaining access to cheap oil. Of course, the present administration has so thoroughly screwed the pooch in their misguided efforts in this regard that they have made the problem horribly worse, and made the fraud obvious for all to see much sooner that it might otherwise have been. I fear for this country, and I am not comforted in the least by the quasi-religious rantings of Obama supporters, who refuse to see in their candidate's desperate tacking to "the right" just how much he has bought into this elite consensus. Obama is better than McCain, I've no doubt. But I don't think that is going to be good enough.

6/27/2008 7:56 AM  
Anonymous Anonymous said...

So can any of you out there with sometimes psychopathic tendencies use your God given talents to give us all a heads-up. Can you dream up what the next shock-horror-they're-getting-us-again-must-watch-global-breaking-news-event(s)-cum-excuse-to-lower-interest-rates-and-attack-Iran will be: Here's 3 wild guesses: a)Earthquake in Cali followed by tsunami/flood.
b) Induced volcano eruption in one of their countries that blocks out our sun so we need more oil. c)Simultaneous destruction of 5 un-seen episodes of 'Desperate Houswives'.

6/27/2008 9:26 AM  
Anonymous John B. said...

In addition to cheap oil, cheap labor and unfettered access to cheap labor markets have been a god given right (and necessity) to the USA is #1 crowd...

6/27/2008 10:40 AM  
Anonymous e. nonee moose said...

Any clear-thinking person using an ounce of hindsight knows the notes that accompanied the 2001 anthrax attacks (viewable here) were a ludicrous attempt to imitate the way a native Arabic speaker might write rudimentary English.

So, you're not only a Cunning Realist but a Cunning Linguist as well?

6/27/2008 11:45 AM  
Anonymous Anonymous said...

I happen to think that the presence of two carrier task forces in the Persian Gulf, rather than the usual one, is an ominous sign.

I am puzzled by this. We are suppose to be the world's super power. The only super power We spend billions on our armed forces, in part, to protect the free flow of oil. The Arabs (and Russians) are raking in our dollars with both hands and talking about becoming the financial powers of the world. We meanwhile are slowly becoming a debtor nation having to borrow billions so that we can protect these people. Something is drastically wrong.

Wouldn't you think that the Arabs should pay something for their protection?

6/27/2008 12:48 PM  
Anonymous Jeff in Texas said...

"Wouldn't you think that the Arabs should pay something for their protection?"

The Arabs in Iraq are paying a fortune for their protection. The fact is, with regard to oil producing countries, we offer "protection" the same way the mob does. "Nice oil fields ya got here-- be a shame if someone came in here and regime-changed your asses..."

6/27/2008 1:44 PM  
Anonymous Anonymous said...

Postings such as this are why I check up on your blog daily. Great post.

6/27/2008 2:46 PM  
Blogger CMike said...

I suppose CR would say, inadvertently or not, the Fed is propping up the nominal values in the stock market. When will Fed policy lead to a rising stock market in the face of a recession?

Not knowing the annual date the bureau uses, I'll take the average from the Bureau of Labor Statistics CPI calculator for years 1978 to 1982 (48%) and years 1979 to 1983 (37%). That shows inflation (or at least an increase for the CPI) as 42.5% for the period.

Though it should be easy enough to find, I'm having trouble finding a table for real GDP growth during the period

Look at the DJIA nominal values in this period.

Look at the S&P nominal values in the same period.

This time around what would anyone reading this thread (and CR) expect the nominal values of the stock market to do over the next six months? Why, if we are suffering inflation - one without wage gains - shouldn't stock markets be rising nominally?

6/27/2008 3:13 PM  
Anonymous Kilfarsnar said...

"If there's a time for vigilance and maximum skepticism about any sort of "provocation" that conveniently pops up, I think this is it."

Yes indeed. In fact I would say that the time for vigilance began almost seven years ago. Before the Anthrax attack, the 9/11 attacks were the "provocation" that started the ball rolling in the direction it is today. Like the Anthrax attacks, it is not as though Bush and Cheney were planning out airplane routes and the placement of explosives (ok, maybe Cheney...). This is all a lot bigger than the current administration. It began before they got there and will continue after they are gone.

But I am glad to see discussion of the Shadow Government, even if it is not called that. More and more people are starting to realize that they don't live in the country they thought they did.

6/27/2008 3:15 PM  
Anonymous Thomas Daulton said...

In response to a couple of Anonymouses ago, I don't think TCR is endorsing any particular theory, story, scenario, or conspiracy. He's just saying that skepticism is healthy and at this point may be life-critical, on a personal and national scale. We don't know what form the bullsh#t will take, but keep your nose peeled for that peculiar smell.

In the case of the Iranians, for example, TCR's previous posts have listed reasons why the Iranians are happy with the status quo because they have the upper hand now. If some news "appears" which our government spins as "Iranian aggression", you have to ask yourself what compelling reason would the Iranians have to gamble with some easily detectable half-assed covert plot when they already have our troops pinned down helplessly and they're making money hand over fist on the oil. The ones who start the aggression in that scenario would be the ones with the losing hand, not the winning one.

It's just that realizing the truth of that situation will require giving up on the meme of "America is always the valiant defender, never the aggressor", which is drilled into all schoolchildrens' heads and repeated on a daily basis. We've also been conditioned to believe that all Arabs (actually Iranians are not arabs, but that distinction is lost on the American people) -- all Arabs are crazy fanatics, and so to the Iranians as a nation, it would be worth murdering a few hundred Americans by shipping IEDs to Iraq, even if it destroys their best market for $150-a-barrel oil. Another meme that the survival of our country depends on letting go.

It's idiotic not to realize that religious fanatics would be just as happy to destroy us economically with expensive oil, without lifting a finger in war; but frankly I think that's the point. A lot of Americans would be intentionally willing to pretend to be deceived by a stupid George Bush made-up-evidence excuse for war, as revenge for a perceived economic attack. "They deserve it anyway" seems to be the prevailing American logic.

6/27/2008 3:34 PM  
Anonymous Anonymous said...

Two things:

Obama is better than McCain, I've no doubt. But I don't think that is going to be good enough.

Agreed. In addition, no matter how good and skillful Obama may be (very much an open question), this is a time of profound institutional failure. The disinfo operation used to sell our glorious Mesopotamian adventure was probably the most amateurish, ludicrous farce I've ever seen in this country in my lifetime. It occurred at a time when access to information of ALL kinds was available to ALL "citizens" -- effortlessly. Yet here we are, pissing a trillion dollars into the Tigris.

Which brings me to the second point, a caveat to CR's call for scepticism: Even if you do distrust everything coming out of this government -- and what sentient being doesn't, now? -- it's hard to see what good it's going to do. Scepticism will spare you some psychological shock, but that's about it. As I said during a prior flame war, voting, writing your "representatives", all the old nostrums of republican (small 'r') virtue are essentially useless. Notice how the "opposition" party has consistently pushed into the background Senator Webb's attempts to head off a catastrophic war with Iran?
-- sglover

6/27/2008 4:14 PM  
Anonymous Mr. Hedley Bowes said...

It seems there are two forces at odds here: the 'short' crowd and the 'long' crowd. My take on the recent statements of the Fortis chairman: 'we're so sunk by the subprime crisis and other defaults that we don't know what else to do but blow the whistle' and the subtext: 'another singular event that will change the game permanently, so put your options now while you can'. On the other side of the equation: some very sincere and meaningful efforts to right the ship and steer away from the rocks. I believe that's where Bernanke's at and I subscribe to the theory that if the U.S. economy can hold steady through the election we'll see policy changes that will guide us away from harm and permit imbalances to work themselves out. One immediate action we could take: implementation to the Commodities Trading rules for 'energy' and expulsion of malevolent players from futures markets. Another action immediately following the election: the arrest and trial of Bush, Cheney, et al, to prevent further harm and malfeasance from foreclosing options of the incoming administration. Then, upon inauguration, an immediate realignment of the U.S. policy and fiscal posture to wind down the wars in the Middle East, go after DOD corruption and waste, reduce DOD allocations and reallocate budgets to infrastructure and sustainable energy investment. The problem is getting through the inauguration intact: vigilance, high vigilance, especially in the next week and months. The wolves are indeed at the door.

6/28/2008 10:33 PM  
Anonymous joel hanes said...

But I do think that the Niger yellowcake forgeries originate with Rove, and were fed to SISMI on purpose.

And the possibly-mis-kerned Bush TANG "forgeries" (reporting real facts) that were fed to Rather: I think Rove did those too.

And I think he's proud he did these things.

6/29/2008 12:52 AM  
Blogger Spider said...

It's already started. . .

U.S. escalating covert operations against Iran, report says

6/29/2008 5:26 AM  
Anonymous Anonymous said...

Some news over the weekend related to those anthrax attacks as well: major award in Hatfill lawsuit.

6/30/2008 12:44 AM  
Anonymous Anonymous said...


Will the market crash or rally?

The Saudis have already said they believe current demand is being met, despite the high prices — suggesting that

high prices alone might not be enough to warrant the increase in supply.

6/30/2008 1:59 AM  
Anonymous Anonymous said...

The Saudis are right. This is a monetary issue, not a supply one.

6/30/2008 3:37 AM  
Blogger LFC said...

You can't expect to turn the U.S. dollar into toilet paper and not have it impact the economy, and particularly oil. Bush policies have steadily dismantled the dollar in order to give the economy the illusion of prosperity.

Since his house of cards had to fall some time, I'm just glad it fell during his term rather than on the next president. Of course, the next president will have to clean up Bush's mess ... just like Texas ... just like Harken Enegery ... just like Spectrum 7 ... just like Arbusto. Seems like Bush has a history of leaving destruction in his wake.

6/30/2008 1:06 PM  
Anonymous Anonymous said...

95% in the house of reps think that 'emergency powers' are needed to better control oil trading. Can't help thinking that the real, hidden benefit of such legislation will be for those pushing for it to constrain or give advantage over competitors. Need for emergency power, and by such large bleeting margins of suppprt, conjures up images of early days in a dictatorship(eg. Nazi Germany)

6/30/2008 7:44 PM  
Anonymous Anonymous said...

From a number cruncher with credibility:

A Lost Decade for Stocks

"...between 1945 and 2007 the S&P 500 rose 10.7 percent annually when the Democrats occupied the White House, compared to a 7.6 percent annual increase when the Republicans were in control. This decade is turning out to be a lost decade for stocks and it is winding down to be a particularly poor one for Republicans. The eight year increase under the Bush administration will do well to close at an annual gain of one percent per year.

It is a myth that the stock market does better when the Republicans are in control. The historical record speaks otherwise and this administrations record is just providing an exclamation point to this record...."

6/30/2008 9:55 PM  
Anonymous Anonymous said...

Yeah, it's all the fault of Bush and Cheney. My God, did some of you even read the post?


7/01/2008 6:53 AM  
Anonymous Anonymous said...

Want to learn something interesting? Research the amount of gas in the Arctic, Bermuda area, and N & S Carolina offshore areas. ( Hint : Methane Clatharates )

7/10/2008 6:06 PM  

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