Oct. 27, 2008 (World News Trust) --
In the typhoon of commentary that's blown around the world a step
behind the financial tsunami that's wrecking everything, two little
words have been curiously absent: "fraud" and "swindle." But aren't
they really at the core of what has happened? Wall Street took the
whole world "for a ride" and now a handful of Wall Street's erstwhile
princelings have shifted ceremoniously into U.S. Government service to
"fix" the problem with a "toolbox" containing a notional two trillion
dollars. This strange exercise in financial kabuki theater will shut
down sometime between the election and inauguration day, when the
inaugurate finds himself president of the Economic Smoking Wreckage of
the United States. What will happen?
I have thought for some
time that things could get dangerously out of hand in America, despite
our exceptionalist notion that we are immune to the common plot-lines
of history. For starters, inauguration night will seem more like
Halloween, as those two little words fly in to haunt the new president.
So, a large and looming question is: who will be appointed the next
attorney general of the United States (to replace the human sash-weight currently
occupying the office), and how soon will the federal marshals be
scouring the wainscoted hallways of Goldman Sachs, JP Morgan Chase, not
to mention a thousand Greenwich, Connecticut, hedge fund boiler rooms,
with man-sized nets?
A story-line is already emerging to the
effect that these birds really didn't quite know what they were doing
in grinding out that multi-trillion dollar basket of alphabet
securities sausage (a theme on Sunday's "60-Minutes" broadcast). Nobody
will buy that line of bullshit, though -- and certainly not in the
courtroom where, for instance, Mr. Hank Paulson will have to answer why
his own firm of Goldman Sachs set up a special unit to short its own
issues. It will be edifying to see how they answer.
In the
meantime, however, millions of Joe-the-Plumber types will have gotten
their pink slips, slipped helplessly into foreclosure, watched the repo
men hot-wire their Ford pickups, and eaten down the kitchen cupboard to
a single box of Kellogg's All-Bran (which had been sitting there for
eleven years infested with weevils). They will be watching the official
proceedings in the federal courtrooms with jaundiced eyes as they hunch
in their tent cities, in the rain, sipping amateur-brand raisin wine
bartered for a few snared rock doves. How long before the hardier ones
among them venture out to Easthampton with long knives and matches?
It
will bring little satisfaction though, and the disappointment could
lead to a more inchoate outbreak of civil disorder that would be more
like a free-for-all of vengeance and grievance. There will be a great
outcry for the new government to "do something!" Perhaps that will
finally bring the troops home from Iraq -- only for them to find that
the Homeland has become Iraq....
If the financial system
completes its self-destruction -- and that's looking more and more like
a real possibility -- there will be several pretty awful consequences.
One is that the United States will be forced to declare bankruptcy by
repudiating its own debt. All those who took refuge in U.S. Treasury
bonds and bills will be like folks who sought shelter from a tornado in
their out-house. That would go hand-in-hand with a massive currency
inflation that is likely to follow the current phase of compressive
liquidating deflation -- in which every possible asset is being sold
off for less than its face value. That process is self-limiting due to
the finite supply of real salable assets. The trillions of dollars
injected into system while this is happening must eventually snap-back
as people shed the last fungible article and compete for necessary
commodities like food and fuel with dollars that are suddenly plentiful
but worthless. At some point, the government may have to summon up a
new currency. I don't think it will be anything like the "Amero" which
the paranoid fringe incessantly mutters about as part of their fantasy
in which the United States, Mexico, and Canada all join up to become one country.
But any "new dollar" would probably have to be backed by gold.
As
we discover ourselves to be a much poorer nation, one of my
correspondents put it: "the bogus risk-swapping economy must be
replaced by a net value-added economy." That means actually making
things, growing things, and rebuilding things, and that can only begin
to happen if we do not stupidly sucker ourselves into a war with other
nations who are liable to be extremely ticked off at us for destroying
the global economy, but also competing with us for a dwindling supply
of resources that are not equitably distributed around the world.
This
means especially oil. I hope you're enjoying the temporarily cheap
prices at the gas pumps, because this is purely a function of the
compressive deleveraging that is going on right now, as contracts and
positions held in energy markets are being dumped by everybody and his
uncle to raise cash to meet margin calls. My guess is that oil and its
byproducts will become much more difficult to get in the months ahead
-- not just more expensive, but literally not available. The current
falling price of oil has little to do with the real supply and demand
fundamentals. It's simply a function of the markets being in near-total
disarray. We're running on current inventory, and running it down. In
the background, all kinds of peculiar and terrible things are
happening. The entire apparatus of allocation and distribution is being
thrown out of whack. The smaller tanker operations are going bankrupt.
The "less-developed" nations are heading back to the 17th-century level
of daily life without electricity. The oil exploration and development
projects that were planned for hard-to-get oil netting $100-a-barrel
minimum -- in places like the deepwater Gulf of Mexico, Siberia, and
Central Asia -- are being shelved, which means the world has less of a
chance to offset coming depletions in old fields.
The bottom
line of all this is that we in the United States could find ourselves in a
situation of shortages, hoarding, and rationing. This would pretty much
kill off whatever remains of the previous shuck-and-jive economy --
hamburger sales, theme park visits, Nascar weekends -- while it makes
obvious the failures of our suburban living arrangements (and drives
the value of housing there closer to zero).
The new president
will have to be Franklin Roosevelt on steroids, with some Mahatma
Gandhi and Florence Nightingale thrown in. My pet project of restoring
the American passenger railroad system might seem pretty minor in the
face of all this, but it's at least a place to start that will
accomplish several things: allow people and things to get places
without cars and trucks; put many thousands of people to work at many
levels doing something of direct, practical value; and be a small step
in rebuilding confidence that we are a society capable of accomplishing
something.