The Falling Sky's the Limit

It's remarkable how shameless our political leaders are regarding their state of hysteria (of course it wouldn't be hysteria if it wasn't without shame and decorum) and not a little disconcerting, suggesting (but by no means proving) that their collective panic is warranted. Last Thursday's convocation of politicians eager to impress upon the public how terrified they were (and by inference how oblivious they, tasked with overseeing the financial system, had been previously) was downright surreal. The sight of political leaders so disoriented they could barely prevaricate and dissemble inspires a mixture of revulsion and pathos, like seeing a turtle out of its shell. Less remarkable and more familiar is their lack of contrition regarding their decades of collusion that precipitated the crisis. First the combination of comedy and corruption that are the presidential tickets, the spectacle of the two mystified candidates scrambling to present competing facsimiles of leaderly competence, mimicking outrage while drawing on advisers complicit up to their elbows in the debacle, and now this, confirms it: the American political system has entered its late decadent phase.

The habitually ironic language Senator Schumer used to describe the reaction to Ben Bernanke's fire and brimstone sermon can speak for the bewilderment of the nation as a whole: “History was sort of hanging over it, like this was a moment.” Sort of like a moment. Perhaps when it all hits the fan in earnest we can at least reclaim spoken language from its flaccid state. I do hope when I'm tied to a stake by some feral, post-apocalyptic tribe I don't turn to see a fellow victim lamenting that it's all kind of like something, really.

Some of the language used brings to mind another incidence of grandstanding hysterics, that precipitating the Iraq war. This crisis is real, of course, and the content of this tragedy less fictional, but the form is the same: a sudden threat is identified, extraordinary actions and powers are deemed necessary post haste. Drastic measures will be accomplished through the mixture of cowardice and corruption that is sometimes called bipartisanship; they will likely be difficult to unwind, if not permanent. Questioning the consensus is all but forbidden. Now, as then, the details are too grim for the tender public: Senators Dodd, Schumer, et al, would not disclose them Friday. Back then it was classified information that couldn't be freely circulated; I could tell you but then I'd have to kill you. Now it's I could tell you but it'd probably kill you.

You'll recall the "crisis" precipitating the war also featured administration appointees briefing Congressional leaders and leaving no dry seat in the room. It makes me wonder what sort of prop Paulson might have used, a la Powell brandishing his vial of mock anthrax at the UN. Perhaps a toilet brush, to terrify them with the prospect of poverty and its indignities. As with the war, consequences for the powerful and responsible few will be deferred indefinitely, but will be immediate for the nation's integrity, prestige and pocketbook. The war may have not been necessary (though this question, and its moral implications, have been flushed down a memory hole capped with the illusion of "success"--as if we've gone through it all to deliver Iraq and its oil wealth to an Iranian-allied Shi'ite government) but even so it can be seen as a consequence of an extravagant society overly dependent on oil--just as the collapse of our financial system is a consequence of our dependence on borrowed money.

But however dislocated our leaders are from their constituents, it's still on us, the citizenry. The consequences of being a debtor nation have been well known, and one doesn't have to understand the complexities of credit default swaps or tranches to understand he can't borrow his way to wealth unless he plans on dying deep in debt. Our short-sightedness as a nation is the aggregate of our desperate decadence as individuals; no one seems to care anymore what will become of the world they leave behind (even as they flail away against mortality in the gym and in the plastic surgeon's office, as if they're going to live forever, and forever young). I'm sure someone has already used the metaphor, but as a nation we are a gambler on a losing streak, doubling down.

And out here in the provinces it all still seems so remote; nothing appears to have changed. Football was played on Sunday. The electronic menagerie of celebrity eavesdropping, reality television, the glib and soulless sitcoms; it all looks exactly the same. People are going about their business, carefree. Funny, I don't feel insolvent. But I am getting a sinking feeling: who, after all, is going to pay for this all? I'm not talking about taxpayers, either, but our foreign would-be benefactors. Foreign money is already looking for other places to go and the economy, coming down from the false stimulation of the last tax rebate scheme, can be expected to produce lower tax receipts; two sides of a vice. Meanwhile, the bill grows; foreign investment firms with offices and the attendant exposure in the US are clamoring for inclusion in the bottomless bailout plan. Another busy-work stimulus scheme with which incumbents hope to arm themselves for the coming electoral carnage is in the works.

There is one possible consolation: an attack upon Iran is probably off the table in the oval office. Of course, with certain messianic factions that don't concern themselves primarily with the health and viability of the US economy and the order that depends on it, and the fact that Israel and Iran themselves might not care that our schedule doesn't permit another war at the moment, having their own ideas and requirements, makes me feel a little like one of those trembling pols I started out here making fun of.

Preparing and Pining for the Apocalypse

Looking for silver linings (figuratively speaking, though literally speaking silver and gold are good redoubts at the moment) and not finding any. The fascinating (and by fascinating I mean inducing the same kind of dread one gets when his doctor prefaces his diagnosis by enthusing on recent advances in treatment options) thing about the current economic crisis is its many aspects; I've spent the last hour trying to retrieve something I read yesterday about how Asian investors started migrating out of US securities a couple of months ahead of the present difficulties--but retracing my steps through the informational thicket I find it has grown unrecognizable and unmanageable, like some nightmare jungle growing by the second, vines coiling about my ankles and unwinding down from above. I had set out in search of the headwaters of our economic torrent, only to get lost and disoriented in the bush.

Seriously; gold, silver and maybe oil, which in my worst-case scenario stays around a hundred dollars a barrel due to demand abroad despite the US lapsing into recession/depression, leaving us with negative growth and rising commodity inflation. I fear this more than the "global depression" which is the consensus worst-case, the US coming apart while everybody else continues to grow, learning how to thrive without us. Of course I have no idea where all that prudently saved Asian money will go, either, once our financial system implodes.

Someone compared this all to an economic Vesuvius, bringing to mind an image of unsuspecting modern Americans captured forever in three dimensional snapshots, like those unfortunate Pompeians cast forever in ash as they cowered beneath the pyroclastic onslaught. As we remain mostly oblivious to our impending fate, many of us will be caught in various ignoble postures, sitting in traffic or in cubicles, laying in tanning beds, getting tattoos, en flagrante delicto solus before the computer screen, pouring potato chip crumbs directly from the bag into my maw watching financial chat on (er, um, financial, uh, excuse me I seem to have lost my train of thought...oh yeah--sorry, I was transfixed briefly by the graceful, cascading arc of Becky Quick's golden mane) television.

As for me, I'm going to spend the weekend with a tall stack of DVDs of the post-civilizational dystopia genre, re-reading all my catalogued and annotated back-issues of Modern Survivalist magazine, looking for tips the television personalities (uh, television, um, the uh, what was I saying? oh yeah, sorry, I was helpless in the vortex of those limpid, almond eyes for moment) cannot provide; in the meantime I'll be outfitting my Honda with a swiveling gun turret and a Kevlar reinforced twenty gallon auxiliary fuel tank.
Okay, maybe my long-cherished fantasy of marauding through the post-apocalyptic hellscape at the head of a band of cutthroat brigands isn't going to come about at long last. But I do think that things are going to change for us all, just a bit; and it needn't be all bad, in the long run at least, should it mean retiring finally our ironic empire of consumption and conquest.

Who's Bailing What?

When the government first proposed its tax rebate scheme last January, many were quick to point out the money was not ultimately, despite the signature on the check, a payment from the US government, but a loan from abroad, largely from Japan and China. Now that we can confidently anticipate the consensus will quickly form around the presumptive necessity of a bailout of that economically distressed couple Freddie and Fannie, it's worth noting who is ultimately being bailed out here:

The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."
FreedomWorks President Matt Kibbe commented, "The prospectus for every GSE bond clearly states that it is not backed by the United States government. That's why investors holding agency bonds already receive a significant risk premium over Treasuries."
"A bailout at this stage would be the worst possible outcome for American taxpayers and mortgage holders, who have been paying a risk premium to these foreign investors. It would change the rules of the game retroactively and would directly subsidize the risks taken by sophisticated foreign investors."
"A bailout of GSE bondholders would be perhaps the greatest taxpayer rip-off in American history. It is bad economics and you can be sure it is terrible politics."

I'm not so sure about that last sentence. Define "terrible politics." Via Mish's Global Economic Trend Analysis

There's a Draft in Here

This is the mucked-up initial draft of my most recent article in The American Conservative. I'm assuming it's okay to post it here, seeing as the print issue is ancient by today's hyper-paced blog-influenced standards:

Rebates and Cheap Dates

To walk in money through the night crowd, protected by money, lulled by money, dulled by money, the crowd itself a money, the breath money, no least single object anywhere that is not money, money, money everywhere and still not enough, and then no money, or a little money or less money or more money, but money, always money, and if you have money or you don't have money it is the money that counts and money makes money, but what makes money make money?
- Henry Miller, Tropic of Capricorn

At the end of January President Bush and Congress passed their economic stimulus plan, the central component of which is a scheme by which the US government will borrow and distribute a minimum of 110 billion dollars to low- and middle-income taxpayers, essentially to replenish a fraction of the money still being sucked into the vortex created by the sinking housing market. On April 25 the first wave of these payments went out, four days ahead of schedule; by the end of June some 13 million Americans will receive checks of as much as 1200 dollars. China, still expanding as fast as the US economy is contracting, holds (over our collective head, you might say) over $1 trillion in assets denominated in our faltering currency, $330 billion of that in U.S. Treasury notes.

The stimulus plan will also attempt to pump some monetary air directly back into the housing bubble, increasing limits on government backed loans, $633,500 for FHA and $729,750 for government sponsored entities such as Fanny Mae and Freddie Mac, relieving those hardy souls sticking it out near the top of the housing bubble with the option of saving hundreds per month by refinancing their jumbo loans.

So habitual has deficit spending become that even the knowledgeable seem to have forgotten that if you’re in the red a dollar spent is a dollar borrowed, and it’s a dubious economic rationale for a “stimulus” program that sinks you further in debt and reinforces the very habits that put you there. There is an obvious political rationale, and at least one respected old hand of media punditry helped out with an enthusiastic column praising the bipartisan hustle of our legislature that the less astute might have confused for quick desperation.

As after 9/11, the economy is faltering and confidence is shaken, and the people are urged to shop. Pitching in, Wal-Mart is offering to cash rebate checks for free, if you have the unfortunate habit of cashing your checks at Wal-Mart. Uncle Sam wants you. To be a wastrel. (Picture his top-hat unsteadily perched on the tawny conch-shell that shades Donald Trump’s grimly debauched pout).

Once growth became both the means and the end of our de-industrializing economy (now something akin to a perpetual-motion machine) and as the quantification of the net effect on growth of various human actions became, if not a passion the closest approximation of one an economist’s heart can muster, it was only a matter of time before profligacy became civic virtue. We haven't yet designated frugality vice, but the implication is certainly there.

But it’s the economy we’ve created, not the economy that has created us. Frugality is a form of modesty, after all, and modesty was the first of the old order dispatched by the sexual revolution. Commerce, equally impatient with this inconvenient former virtue, was the guillotine. Vanity reaps the spoils, and is much more at home in the present order. It’s only fitting, seeing as it’s ultimately vanity that put us here. It is understandable therefore that the individual citizen takes no significant shame in maxing out his credit cards and borrowing against his home at the first opportunity, and that he takes little more shame in bankruptcy. He follows the State‘s lead in going into perpetual debt, and the State follows his.

If the State has become a “nanny” it isn’t a very good one, reinforcing our worst habits, and reinforcing them most in those of us who can afford it least. Even in redistributing wealth downward, the government’s plan does the less prosperous half of population the humiliating disservice of singling it out in its peculiar promotion of vice. One could go all day cataloguing the curious inversions of order in our topsy-turvy new world.

Ignorance, or failing that complicity in the economic farce, is also encouraged in the people; the citizen is “given” a “rebate”, drawn from an insolvent treasury, borrowed in part from him, in part from abroad (it‘s not accurate to say primarily from China, as Japan still holds more of our debt, for the moment; yes, China is the second biggest claim on US debt). It is a gimmick embedded in the gimmick that is the tax “refund.”

But to the extent we consider our actions we are frankly and openly accepting the longer term cost of our economic voodoo, incanting away to keep the inflationary zombie animated and moving, making as if it‘s alive. Most habitually expect the next boom to get us out of the hock we are in today with no appreciable level of pain. And the tax rebate is, above all, a plan for avoiding pain, in other words responsibility, no matter how urgent the warning that pain conveys and how overdue its proper corrective.

Government financed make-work once involved building things; the products of FDR's depression-era initiatives stand as monuments in defiance of their well-documented lack of economic justification. Entire ecosystems were encased in concrete, regions wired with electricity, rivers dammed, bridges built, and all at the surly, stubborn pace of government work. Such grand programs are now out of the question (unless they divert obscene sums into the defense industry), but not because we’ve adopted the conservative virtues of solvency and limited government.

Saving your money and living with your means are now anti-social acts. Economic growth, regardless of its composition or their effects (indeed, concern for the non-economic effects of policy is morally disreputable in current political discourse) trumps all other concerns. No longer content to stay home militarily, making things and balancing our books, we have developed an economy to which thrift and modesty are detrimental, waste and excess beneficial. It’s a perpetual boom mentality attempting to manifest a perpetual boom, through power of will. But until that happens, we're essentially borrowing money simply to spend it, as our production continually lags our appetite. Our diligent government stands ready to print as many dollars as it will take for as long as it takes. How much longer foreign governments will be willing to do their part by absorbing our excess, is anyone's guess.