Job No. 1 — Juxtapose

New York Crisis reveals real center of American power.

Interesting, no – even as juxtaposition. Although, like Shanghai, we too have always felt NYC was far more important to Amerikuh than the city built on a swamp. So when the City faces a full blown crisis, we take it seriously. U.S. strength despite the Military and History Channels’ (sometimes remarkably inaccurate) porn always has been our economic resources: today in tatters. What makes this case even more problematic than Bear Stearns is the government’s role in encouraging activities through the implicit non-guarantee guarantee.

We’re comforted tonight. The Man Child Who Will Bring Change agrees that “there is little doubt” the country is in a recession. How Clinton-esque, the parsing, so that the Crowned One can always fall back on the technical definitions of how many quarters of negative growth overall are required. Perhaps like re Iraq he can hold a second press conference. This time, big signs, a nice speech and a good grin won’t change “facts on the ground.” Or overcome mental whining.

No one can use the dreaded “b” word — bail out — yet, but it is exactly what is happening Monday, congressional approval a formality. After all, what are 435 members of a castrated Duma supposed to do when Reality drops its cloak and pulls its dagger? Midnight Rambler, indeed.

Don’t you feel like bystanders watching another slo mo accident? Is the American political system even capable anymore of strategic thought? Beyond lurching from crisis to crisis? Beyond tax cuts to this decimal place for this demographic. Beyond just energy. We can’t blame Neocons for our failure (and it is ours, collectively); Rumsfeld didn’t screw this up.

The U.S. Shanghai Two Step Crash And Burn

Easy for academics (including Bernanke) to criticize roundly the Japanese handling of their post 1989 bubble economy. Papers published, tenure locked in. Yet what exactly is learned? And its practical application?

Almost non-existent regulation of both Fannie Mae and Freddie Mac? Check. Almost non-existent regulation of derivatives and roll back of Wall Street ‘Chinese Walls’ between banking and investment banking? Check. Agit Prop from Movement types bleating to repeal the odious tedium of requiring exalted CEOs to sign declarations that they actually have read and understand company financials offered to the markets? Check. We even put eunuchs in at the SEC (Chris Cox) — and have no doubt, a Democrat Congress is as complicit now along with the Warlord’s feeble end.

The Prophet should not take all the skepticism. McCain is worse. We’ve only met Phil Gramm personally in his office a couple of times on the Hill. To us he is as out there as you guess. So we never did and never will take him personally seriously (in the Senate he was, however, a real “Force” by virtue of his mere presence and vote). We did find his wife intellectually interesting the few times we crossed paths. McCain’s problems go deeper. Did anyone else watch Carly Fiorina, Mcain’s other ‘economic advisor’ twitch on today’s moribund Press The Meat? How uncomfortable to watch someone alternate between stand up and pathos. (Someone needs to whisper in Carly’s ear that to express interest in the Veepship on national TV is a death knell). To all of them, we say “Well here is what you’re going to eat on Monday, Dearest Virginia”:

US taxpayers are about to find out what their long-standing and (strictly speaking) non-existent guarantee of Fannie Mae and Freddie Mac will cost them. One way to think of it is this: take the US national debt of roughly $9,000bn and add $5,000bn. Not bad for an obligation still officially denied.

In the end, that astounding prospect might be the outcome. Partial or outright nationalisation of the housing lenders – colossal pseudo-private entities that own and underwrite US housing loans – would add some or all of their $5,000bn (€3,144bn, £2,513bn) in liabilities to the government’s balance sheet. While it is true that the agencies (unlike the government) own housing-related assets that roughly match those liabilities, the still-collapsing housing market makes this a lot less reassuring than one could wish.

In some cosmic Jungian juxtapose, for 10 days next month we will see China proclaim her place on the global multimedia stage. Symbolism beyond mortal planning. True, Beijing is their Moscow to the Russian/Soviet Leningrad (see supra ). Also true that air there makes Los Angeles Aspen. But in the end, does it matter? What speaks louder today? LA smog or China’s staggering liquidity? The future is made real in their architecture, physical infrastructure and deft geopolitical expansion. Oh, and cash. By contrast, forget our crumbling infrastructure. We can’t even create a single building after 7 years (if you know what we mean).

What do the American crisis, Chinese Olympics and American analytical entrepreneurs have in common? Those still peddling Neocon conspiracies against Iran barely cling to an Israeli exercise and Photoshop. They should think about all of the above and take off their blinkers. A war with Iran? One must ask that famous question, paraphrased — “yeah you and whose finances [army]?” First, the U.S. military; it is no shape to wage war against Iran. Not going to happen. Absent a near term cataclysmic event. Beyond generational burnout of hardware in Iraq and personnel replenishment, the imminent procurement crisis still creeps up. Juggling those amazing costs, a new American president must then still manage an economy edging precariously close to a whirlpool. From that spring all national power flows. A tanking economy, two failing wars abroad *and* launch a third against Iran? Analytical shots of absinthe until the eyes bleed. But it makes good copy.

Imagine this scenario. The U.S. domestic situation somehow sua sponte “stabilizes”. We still won’t go to war against Iran. We can’t afford another unilateral expeditionary activity as they like to say. (We may not realize it yet, but it is true). Perhaps by 2015 — as the Marines wargamed — per earlier posts. Things may change human and real capital wise. But in the meantime? We are paper tigers to revive a Maoist slogan. At best we slink in as lowly mercenaries, fighting on another’s dime (Euro). The bottom of the barrel? Be like the Brits after 1940, fighting on charity. And who exactly has their wallets open?

We do concede one recent error. We thought human capital requirements would force major American troop drawdowns from Iraq around April-May. Recent announcements of larger returns to CONUS this Fall while late were inevitable. Even so, the idea that large portions of American troops simply will move to Afghanistan misses the point. Leaked studies estimating a drawdown to about 50,000 in Iraq makes sense for an initial — and only initial — bureaucratic ante. Iran? Puhlease.

Still, no reason for the Summertime Blues. Unlike some others we don’t have to take dog off the menu. Even our creditors are pre-occupied — building the future is not a stroll in the park, doncha know. How interesting in the background to watch breakthroughs as a EU Middle Eastern summit unfolds.

Strike a pose. There’s nothing to it. Juxtapose.