Thursday, August 13, 2009

Doomsday, revisited.

Greetings good citizen,

Well, if yesterday was Yea, you know what today is. First the Fed sounds the ‘all clear’ and today, lo and behold, we find retail sales in the dumper! Isn’t this the ‘polar opposite’ of yesterday’s analysis of increased imports? (Which drove the markets up 120 points)

Anyway, here’s a link to today’s fiasco. The consumer is back all right, back where we last saw them, broken and bleeding under the wheels of the bus! What do you suppose accounts for the ‘uptick’ in imports? We’re four months away from what major holiday? Ho,ho,ho!

It’s time once gain to shift mental gears as we arrive at tonight’s offering for a ‘top down’ view of the still unfolding disaster.

[Hat tip: The Automatic Earth]

Doomsday -- pros and cons

Arnaud de Borchgrave

Two major entrepreneurial tycoons, in the multibillion-dollar league, with worldwide interests, speaking not for attribution, agree that the worst is yet to come. America and the rest of the world has to reinvent itself for the 21st century, but this won't happen before another big credit-rattling shock. Millions of jobs are not coming back, they said.

They were speaking about the current global financial and economic crisis. Another humongous credit crunch is on the way, they believe, and the current optimism is simply a pause before another major downward slide. Unemployment, they forecast, will climb from the low to the high teens. A pledge to limit tax increases to those making more than $250,000 a year is a pipe dream. Someone has to pay the health piper. Major social dislocations are on their horizon for 2010.

One of the interlocutors has shunned all manner of stocks in favor of discounted corporate bonds that yield 7 1/2 percent, and gold. The other has already moved all his financial holdings into a cocktail of Asian currencies based at a new entity he created in Singapore.

"We are roughly where Britain was in 1968," said one. That year Prime Minister Harold Wilson decided to abandon all of Great Britain's obligations east of Suez. That included the entire Persian Gulf, from Oman to Kuwait, the Strait of Hormuz, British special agents in all the emirates and sheikhdoms, local constabularies with British officers, the fabled Trucial Oman Scouts (TOS) -- all for the bargain basement cost of $40 million a year.

As the British and other colonial empires faded into history, America's global empire grew topsy-turvy and since the collapse of the Soviet empire in 1989, its power grew unchallenged. The two tycoons, who did not wish to be quoted, agreed with a rapidly growing segment of the U.S. population that says America can no longer afford the astronomic costs of empire.

With more than 2.5 million U.S. military personnel serving across the planet and 737 military bases spread across each continent, and 3,800 installations in the United States, a reassessment of roles and missions is long overdue. The estimated $1 trillion in overdue infrastructure repairs and modernization strikes many as an overdue priority.

The 2010 defense budget is a shade shy of $700 billion, more than two-thirds of a trillion dollars, which now tops the rest of the world -- including major players Britain, France, Germany, Japan, Russia, China, India -- put together. Add all the defense expenditures neatly tucked into the budgets for Energy, State, Treasury, Veterans Affairs, and 16 intelligence agencies, and the numbers top $1 trillion.

With only 5 percent of the world's population, it is still remarkable that the United States can maintain global military superiority on less than 5 percent of gross domestic product. But from the world's biggest creditor, the United States has become the world's largest debtor, coupled with a rapid decline of a manufacturing sector once hailed as the arsenal of democracy and an annual per capita trade deficit of $2,000 per citizen.

U.S. share of global output continues to decline from year to year. Like General Motors Corp. and Ford, the United States has yielded share of the global market from one-third at the turn of the new century to one-quarter today. Was the rise of the rest the decline of the West?

Have U.S. commitments and responsibilities outstripped resources? The two anonymous billionaire voices were among the many now saying so in public opinion polls. They feel a paradigm shift is inevitable. We are yet to wean ourselves from the old paradigm: the $3 billion we borrow each and every day -- principally from China -- to maintain the world's highest standard of living, based on conspicuous consumption, by a few at a time of growing world shortages. And when we are finally weaned, it will become glaringly obvious that these few we were living way beyond their our means and that major belt-tightening is long overdue.

In his projections through 2025, Thomas Fingar, the former chief analyst for the 100,000-strong U.S. intelligence network, which includes 16 agencies with a budget of $50 billion, predicted the international system would be transformed over the next 15 years as dramatically as it was after World War II. As China rises to global prominence, the United States would be declining. "In terms of size, speed and directional flow," wrote Mr. Fingar, "the transfer of global wealth and economic power now under way -- from West to East -- is without precedent in modern history." [which is to say that ‘globalization’ equals ‘treason’.]

Following Mr. Fingar's analysis, former deputy Treasury Secretary Robert Altman wrote in Foreign Affairs, the official organ of the Council on Foreign Relations, that the current financial crisis is "a major geopolitical setback for the U.S. and Europe" that could only accelerate trends that are moving the global center of gravity to China. And this is something that a staggering $1 trillion for defense (in a budget with a projected $2 trillion federal deficit) would be powerless to reverse.

The pessimistic outlook should, of course, be tempered by the fact that IBM spins off more technology patents in a typical year than all of China. Three-quarters of the world's top universities are in America. So any loss of influence is at this stage attributable to reckless profligacy at every level of American society, beginning with the federal government and the mind-numbing bonuses that Wall Street's "Masters of the Universe," as Tom Wolfe called them in his 1987 best-seller "Bonfire of the Vanities," have lavished on themselves Roman Empire-style. [While we ‘peons’ merely struggle to survive…]

Both global entrepreneurs mentioned at the beginning of this column believe Israel will resolve its existential crisis by bombing Iran's key nuclear facilities later this year. One thought Gulf Arabs would be secretly delighted and that Iran's much vaunted asymmetrical retaliatory capabilities would fizzle as the theocracy imploded. The other could see mayhem up and down the Gulf, the Strait of Hormuz closed, and oil at $300 per barrel.

As I commented in the beginning, here we have the ‘top down’ view of the current crisis. Isn’t it amazing that each ‘strata’ of society considers itself the penultimate ‘every-man’?

Yes, good citizen, the rich blame the peasants for driving up the price of real estate to irrational levels so we could keep drawing upon the ‘magical manna’ of ‘home equity’.

No, no, free money had nothing to do with it! Nor did the fact that most of us hadn’t received a raise that outpaced inflation in over two decades have any bearing on the matter either.

It’s all one big ‘misunderstanding’, isn’t it? If we’d all managed to behave ‘rationally’, none of this would have happened.

So it appears that our ‘tycoons’ have decided to ‘follow the sun’ (and ‘the empire’) as it drifts Eastward…the rest of us are ‘scroomed’.

Correct me if I’m wrong but wasn’t the original revolution intended to free us from these ‘foreign entanglements’? I think we need to ‘try again’.

Thanks for letting me inside your head,


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