Which Way The Wind Blows

Americans by and large long ago ceased understanding the economic underpinnings of their soft empire and its benefits. The most committed generally followed the Dow Jones number as an overall barometer while working out or eating dinner (not realizing that for that insufficient purpose the S&P is better but still limited). The Dow is a Delphic utterance from the vague auguries of ‘Wall Street’ across the land because it just branded itself more successfully.

When Cheney said defiantly “Deficits don’t matter!” he may have well been speaking for NASCAR Dads, Safety Moms, Firearm Uncles and Waterboarding Aunts everywhere. Yet even Americans cocooned within their mammoth, dry walled Great Rooms watching re-runs on Chinese consumer electronics know that something is wrong. Beyond the writers’ strike. Oil near $100. That, they get is bad. The big heads on TV tell them that much. The ARM resets on their mortgages they know are very bad — they get the bill. And while they wait for the popcorn to come out of the microwave before the commercial break ends for “Dancing With The Stars”, they also sorta kinda get that a lower dollar didn’t result in more American manufacturing and manufacturing exports. Even they dimly understand that Americans as a people no longer make things. We are well on the way to becoming the direct-mail society — sending each other direct-mail (or email, or social invites to web pages) for a fee.

All of which is to say that this item in the Financial Times is perhaps a wake up call. If Citicorp and Merrill Lynch are estimating that Wall Street will have to write off an additional $64 billion in bad money, we could be seeing the beginning of a massive asset self off. The $64 billion write off by itself essentially means the end of the so-called private sector rescue fund that was the talk of the Street just last month. The commercial and investment banks simply won’t have the dough to do it. (Citi says now it itself may have write off almost $11 bn, and Merrill’s write off will reach $10.2 bn). You remember the heady days of October 2007, just last month? Then the confident predictions were that the private sector could handle the ‘soft landing’ by joining together and pooling reserve funds. And that was just one of two proposed pools — for the large institutional investors. Another fund would be set up to take care of the smaller player, including the Man on the Street.

Not gonna happen now. The banks’ problems will soon become the American people’s problem. Moreover, this may still be the tip of the iceberg. As the initial meltdown at Merrill makes clear, the investment in derivative facilities 2007 remains what it was in 1998 when Long Term Capital Management collapsed. Even now, such instruments are largely so arcane and contingent on so many inputs that even the physicists who design them still have difficulty fully understanding all the permutations. Let alone, say, Stanley O’Neil, the CEO of Merrill Lynch — and he just resigned before the losses were said to now reach over $10 billion. We mentioned shades of 1998 once again. To be fair, it is somewhat different — here it is reckless forays into subprime lending via so-called collateralized debt obligations (CDOs), combined with oil shocks and dollar depreciation. All creating a perfect storm.

The Stiftung expects continued (and ineffective) interest rate cuts by the Fed. Accordingly, the dollar depreciation will continue, creating an increasingly intolerable overhang abroad. Absent a clear and immediate U.S. plan to address the situation, it is almost inevitable that the dollar will cease to be the global reserve currency and we will witness a growing flight to other currencies, not only the Euro. The impact on American standard of living will be fairly immediate. A significant (and rapid) asset sell off would also undermine the American global strategic position as well. Thus would the Warlord’s calamitous tenure see not only the collapse of the American 1945-2001 soft empire, but his preening and hollow ‘self righteous Empire’ as well. His ultimate legacy? A mistrust of government, incompetence, erosion of Rule of Law, and a devastated American economy under the gray cloud of stagflation. The good news? For his Rangers and his newly bloated Plutocratic elite? They may escape with a minor flesh wound. ‘Tis but a scratch.’

They used to say that us humans would do well to watch the nature around us for signs of disaster. Birds, animals and the shoreline all send us signals if we would only listen. So it is now. Gisele Bundschen, famous runway artist, wants her contract in Euros.

It doesn’t have to end this way, of course. And rarely do complex probability waves collapse into such a narrowly contrived certainty. Yet we can not help but think that without a captain until 2009, those probability waves are going to wreak havoc on this rudderless ship.

Comments

  1. Anon says

    Agreed – we thought better of that after the fact, but it just came up as a link on that magazine article about the Times editor with the and we thought better of it were gonna give the Stiftung a heads up to reconsider, as we have done before. But then got distracted by the news. So thanks.

  2. Anon says

    Bill’s paranoia might be justified – at this late moment:

    [link here to Bill O’Reilly personal info]

    [Ed.: — Anon — it’s funny and in his case deserved, but if we’ve condemned Malkin and the trash of the world for outting the addresses of children and families who spoke up for SCHIP and the like, we decided as a matter of policy to not return their abuse with the same.]

  3. Anon says

    Some unintentional humor here buried in Jonah Goldberg’s failed attempt at up front humor. He’s probably the one person who shouldn’t be able to condescend to Amy Poehler. But note well his need to lie about Brian Williams performace on SNL. No one thought Brian Williams was funny – not even his agent, or his mother. And he was not on to attract a younger audience to his fatuous news show. Further, Goldberg knows that fake news is often (not always) more serious than just about any news show.

    http://www.latimes.com/news/opinion/la-oe-goldberg6nov06,0,5869649.column?coll=la-opinion-center

  4. Dr Leo Strauss says

    O’Reilly’s radio show, while abysmal broadcasting-as-art-form compared to say, Rush, reveals even more clearly his dementia and paranoia. Without someone face-to-face to react to, he just stretches out further and further into the ether.

    It’s not a comfortable listen, even for sociological reasons. This is a man who in his heart of hearts likely does believe that Roger Ailes has a hit team of Korean illegal immigrants and would deploy them at O’Reilly’s beck and call.

  5. Comment says

    Olberman probably would not want to do this – he would not want to risk encouraging or adding perceived legitimacy to a genre that is filled with true madness – especially since these things always seem to bleed into gop memes via the talk radio spin cycle. But trying to ignore them has not made them go away. Quite the contrary. A typical roomful of gop activists believes far more fanciful things about the Clintons than does say Kucinic re Aliens. But don’t look to Russert or Matthews to mock them for it.

  6. Comment says

    No not the cat – but we do recall a non blinker a while back informing us that Bill’s dog (Buddy) died in an accident that seemed suspicious to the non blinker. In other words – an auto dog fe.

  7. Aldershot says

    “Start with the one about Hillary ordering a hit on someone’s cat.”

    I’m in. Think he’ll be able to get Socks?

  8. Comment says

    An idea for Keith – he should do an expose on all the Clinton conspiracy theories – One by one – Have on Sid Blumenthal and others to really dig into it all. This way he would get a rightist audience, if only to shout at the TV. Have you noticed the O”reilly trick to do many segments about the latest moral outrage (freak dancing, girls gone wilds, etc.) – so he can present risque material in a thin guise of righteous anger. Keith can do that with the Clinton conspiracy theories. Start with the one about Hillary ordering a hit on someone’s cat.

  9. Comment says

    Unless he figures away to integrate sports into his show, Olberman’s show won’t last – without Bush he’s toast. He will continue to do well with Bush though. He’s just not capable of carrying an hour. There’s no question that O’Reilly can carry an hour and he’s base is solid. Bill better integrates his own psychopathologies into his show – but Keith would probably run into roadblocks if he really let loose

  10. Aldershot says

    I would really like to see Olbermann in a Tweety format. More discussion and analysis, and less holding forth. Remember The Spin Room with Tucker and Bill Press? Pathetic.

  11. Comment says

    Olberman has too much fluff and uneven anger levels – His “worst person” awards are too O’Reilly heavy. But tonight he did have an interesting one with Kathleen Willey and Melanie Morgan discussing HRC ordering a hit on her cats.
    The HRC hit on the woman’s cats is one the classics in the genre of Clinton rumors – The mythical Hillary of the right wing imagination would make for a good movie. If Hillary was half as interesting and dangerous as this myth. But HRC has nothing to worry about – she has a secret Muslim spy to protect her.

  12. Comment says

    re Canceling Tucker – He has poor ratings, but something is keeping him afloat. Its hard to believe he has some consituency. There is a media perception that he has influence, but that’s one of those chicken/egg riddles. He would be better suited to be a head waiter at an overrated fancy mall restaurant connected to a store like Neiman or something similar. “We have a delightful Cabernet tonight ….”

  13. Comment says

    We missed Pat on Tucker, but we do detect some authentic sadness with Pat groking the implications of Rudy triumphing in the Party of the Lord. Pat’s too smart to understand the implication – while Tweety just gets carriesd away with whatever movie image happens to be in his mind. The social issues are only meaningful as wedges and catalysts for division – No one actually cares about the underlying issues, Pat is learning.

  14. Comment says

    The idea that we were welcomed in Iraq, by most Iraqis, is silly – But someone Matthews respects could have got him to switch sides – Say Ed Randell came on and said something like, ‘Just between us cheesesteak lovers, Chris – we were welcomed, at first – but then we lost our focus and overstayed our welcome. Bottom line, let turn the page. How’s Kathleen?’

  15. Dr Leo Strauss says

    Saunders has always been a 3rd tier Neocon fellow traveler. Until Sept. 2006, she and Tweety were in a Vulcan Mind Meld. It was hilarious to watch Sabato scramble to figure out his role in the Improv, trying to figure out if Tweety wanted angry or another answer.

    Tucker tonite is attacking the Boomer generation while Buchanan claims no one wants Hillary because she is fighting the old wars of the 1960s. A reason that Frank Press deserves to languish in sub par morning talk radio is he failed to make the obvious point — it is Buchanan, his Falangist Friends and the Wingnut Right that are obsessed about the 60s.

    Why can’t someone responsible cancel Tucker? We are even beaming his crap out to the cosmos. An alien race subjected to his empty smugness? They would be justified in passing a harsh sentence on us all for his electrons alone.

  16. Comment says

    Watching Hardball – he has this ridiculous woman from the SF Chronical (D. Saunders) on pushing what seems to be a neocon narrative about Iraq. But ofcourse Matthews makes common sense sound so obnoxious that it can be funny- Poor Larry Sabato on to push his book caught by the wayside. Saunders got this “well, I never …!” look of surprise about her as Tweety just relayed some unspeakable facts about Iraq.

  17. Comment says

    How about when Blackwater demands their salary in a combination of Euros and a basket of Asian currency – Then the GOP might pay attention.

  18. Dr.LeoStrauss says

    re Gisele

    Glad to see CNBC in on the story. When Tom Brady demands his salary in Euros perhaps America will wake up. Madden will be forced to say “This is a big deal. BOOM!! “

  19. Aldershot says

    “Aldershot – that site doesn’t sell guns or even brickbats.”

    My very bad. I intend to be packing.

  20. Comment says

    Doc, how much economic and jobs growth occured during Gee Dubs tenure if you subtract the Financial sector and the growth in government (including state gov taking up previously Fed roles)?

  21. Comment says

    The rising willingness to publicly embrace torture is part of the gruesome-ification that has taken place. If you scale back about four years and read what Soros said about the dollar you will notice his that his obvious reasoning was portrayed as contentious. Bernake has quite a day today. He and Ron Paul should joing Newt on the road.

  22. Dr.LeoStrauss says

    The economics of a strike in Iran right now do not favor the Warlord imo. The question is whether anyone can make the case to him or whether the Warlord cares — his eschatology/Götterdämmerung may simply override empirical facts.

    We believe that an Iran strike would solidify the Russian-Chinese strategic axis (itself a disaster for U.S. interests). And not only for the reasons discussed above, actually push the now hackneyed reference to Chinese movement out of the dollar into a reality. The paper itself dwindles even further in value. Since September or so, about a trillion dollars have simply disappeared for those holding U.S. notes already.

    Secondly, as we have discussed in the amphibian thread, the Iranians are more than capable of complicating passage of the Straits or even sending Hezbollah to interdict installations elsewhere. Oil could easily sail past $100 without blinking. It may do so even without a strike.

    Third, M&A activity in the U.S., which is already dying down will largely cease as the cash or debt to pull them off dries up or sits on the side lines. Corporate debt will be downgraded as well. The results for their day-to-day operational activity would be stunning. Overall, much phantom economic activity — refis and M&A stuff — make up a non-trivial amount of so-called economic growth in America these days. We’re seeing it halt now and bleed into the economy. That bleed will become a geyser.

    Those who are truly liquid will simply gravitate to other markets overseas or other instruments. Those less fortunate who are not part of certain protected pockets such as the Government and the permanent National Security State could see a calamity not known since the early 1920s. And the American population overall is not as tough, as used to privation, families then were larger and more integrated, communication/AgitProp less pervasive.

    The veneer of civilization is thin in America and this regime has done its best to dilute it further. One shudders to think should a worst case scenario arise. As we closed supra, all those probabilities condensing into one specific scenario are unlikely — to many random events still at play. But a strike on Iran would push events dangerously along this vector in our opinion.

  23. anonymous says

    Dr Strauss – I am curious to know how you see this affecting the chances of an attack on Iran. For the very big players, is a much bigger war a problem, or a benefit? And the Warlord, will he be constrained, or encouraged?

  24. Comment says

    “Waterboarding Aunts” LOL – PG Wodhouse would appreciate that term Doc! But you better license it quickly – or Frank Luntz will poach.

  25. Comment says

    Stan O’Neal et al will be fine personally – Just like the LTCM principles came out way ahead at the end – when the Committee to Save their Asses did just that.

  26. Comment says

    re Citi – Dr. Hadar was a bit behind the curve ( which is rare ) when he brought up the overrated Committe to Save the World – Citi’s troubles are not Rubin’s fault, but …

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