|
|
Random Thoughts
The Perfect
Financial Storm � 2
(USA)
by
Gaurang Bhatt, MD
The US went on a spending
spree during the Vietnam War which led to trade and budget deficits.
Nixon had to close the gold window, devalue the dollar and turn it into
a fiat currency with no backing. Carter put the foolish and equally
ambitious of world domination, Soviet Union, in a position of forced
error of invading Afghanistan. His and Saudi financing of fanatic
Islamic radicals with the logistic encouragement of Pakistan desiring
strategic depth in Afghanistan and deniable haven for terrorism against
India led to the blowback of 9-11. The Saudi ruling princes wanted to
export their salafists and deflect their discontent to preserve their
illegitimate rule. America wanted to give the tottering Soviet Union its
Vietnam. Pakistan wanted Afghanistan as a haven for training terrorists
with deniability. Now Bin Laden is a headache for the Saudis,
Afghanistan has become the newest quagmire for the US after Iraq and
Pakistan is falling apart. America which cast a blind eye towards
Pakistan�s clandestine nuclearization is now worried about the nuclear
weapons falling into the hands of Taliban or Al Qaeda and making furious
plans of how to combat that.
Reagan, the Bushes and Clinton have de-industrialized the US and idiot
Bush Jr. has pushed it to the brink of bankruptcy. The Republicans who
have no brains and the Democrats who have no spine removed all
regulatory authority and with their fanatic free market fantasy, allowed
the greedy bankers and Wall Street types to create toxic securities
which like a cancer have spread throughout the entire global financial
system. Treasury Secretary Paulson blackmailed the idiotic
rubber-stamping congress to sanction a 750 billion boondoggle after
allowing Bear Stearns and Lehman to fail. He saved AIG which had
dealings with his former firm Goldman Sachs. As the Saturday New York
Times highlights, AIG had indulged in regulatory arbitrage by writing
over 500 billion dollars of credit default swaps without adequate risk
assessment or putting aside reserves.
The taxpayer has put up 150 billion dollars to rescue Paulson�s pals and
contributors to the campaigns of house, senate and presidency. Half of
the 750 billion dollar bailout has been used and 75 billion dollars of
it already lost. AIG is likely to report a 60 billion dollar loss for
the fourth quarter of 2008 and will probably need another 100 billion
dollars. In addition a new stimulus package of 787 billion dollars is
signed into law and two trillion more will be needed for banks. The FDIC
has just increased its premium for member banks and levied an urgent
surcharge. It will need more taxpayer funds as will the pension benefit
guarantee fund. Fannie Mae and Freddie Mac have been nationalized and
given 500 billion dollars. The auto companies are begging for taxpayer
money. So far the taxpayer through the Federal Government has taken on
an added liability of nine trillion dollars and spent nearly three
trillion dollars. In the meantime unemployment has soared and is likely
to touch 10% and remain high till 2011 or longer. Obama�s budget
projections while not outright lies like those of his predecessors, are
unrealistically optimistic as other economists are projecting a less
than 3% growth in the US economy in 2012 and 2013. Thus the budget
deficits will be trillion dollars a year for years.
In the meantime layoffs are spiraling upwards and the economy spiraling
downwards. House prices, home sales and home construction are in a free
fall and loan defaults are spreading to prime and jumbo borrowers,
credit cards and auto loans. The market has fallen by over 50% and is
ready for a dead cat bounce in a week or two before it resumes its
downward trajectory. What is worse is that with the new debt added to
the nation, its ability to service the debt would be seriously
jeopardized if the interest rates rise sharply. Ten and thirty year
rates are rising and the Federal Reserve has desperately announced that
it may buy the bonds by printing more money to keep interest rates low
to stabilize home prices, service the debt and revive the economy. The
real solution is to sharply devalue the dollar but the worse mess of
sinking economies of the Asian exporters like Korea, Taiwan, Singapore
etc. and Europe facing a demise of the euro because of Greece, Pain,
Portugal, Ireland, Belgium and even Netherlands, and the feeding frenzy
of speculators are making the dollar go up. The sorry state of East
Europe and Russia, which borrowed huge amounts of dollars, is sinking
their currencies. Russian oligarchs borrowed to leverage and pyramid
their bets for greater ill gotten gains and East Europe ordinary
citizens for reduced interest rates and to go on a spending spree like
Americans did with their credit cards and home equity lines of credit.
American consumers are tapped out, over their head in debt, afraid of
losing their jobs and their credit has been curtailed by de-leveraging
of banks with shrinking capital. The US economy is 70% dependent on
consumer spending and financing by Japan, China and the petro-states of
the Gulf. All three have lost enough dollars and have more dollars than
they want or need. OPEC wants to reduce oil output to keep prices high
and some members want to be paid in euros for their oil.
The rising dollar prevents the US trade deficit from shrinking and makes
the earnings and balance sheets of US multinationals worse. Korea has
already markedly shrunk its dollar reserve holdings but because its
corporations have borrowed large dollar amounts its currency the won has
fallen 40% in a year. Ditto for many other Asian currencies. Even the
mighty Japanese yen is reversing as export dependent Japan�s economy
falls sharply. China with its huge dollar reserves is up a creek It
cannot use its dollars to buy American companies as it found out with
Unocal. It cannot buy military technology because of the US embargo. It
receives no interest because short term treasury rates are zero to
quarter percent. Its plight is worse than the noveau riche person who
bought a masterpiece at inflated prices considering it to be a store of
value, and now finds that it is unsaleable and unusable. That is why it
gave tens of billions of dollars to the Russian oil giant Rosneft to
help it repay its dollar debt in return for energy supplies from the
Russian east and trumped Japan�s bid. Sooner or later China will dump
its dollars or demand Taiwan. That is why Hilary Clinton was silent on
human rights when she went to China on her first trip as Secretary of
State. America�s descent in the world can be summed up as �Rich man
(pre-Reagan), poor man (Reagan deficits), beggar man (Bush Sr. -Gulf War
One and Clinton-de-industrialization and NAFTA), thief (Bush Jr.-Iraq)
The rising dollar is due for a major and prolonged fall in two weeks or
less.
As though our troubles are not bad enough, in two years a large cohort
of baby boomers are due to retire and put a greater stress on Medicare
which has an unfunded deficit of nearly 50 trillion dollars. From Reagan
to Bushes via Clinton, it was like simians in charge and that too
intoxicated with the heady brew of global dominance, stung by the
scorpions of disastrous mismanaged wars in Grenada, Lebanon, Iraq,
Somalia, Serbia, Afghanistan and again Iraq. Now Obama wants to sink us
deeper into Afghanistan and wants to extend the policy of folly to
Pakistan and Iran. Truly as the Greeks may have said, �Those whom the
gods wish to destroy, they first make mad�. American foreign policy is
like Hindu mythology. The stupid gods invariably give boons to
undeserving demons making them invincible. Then one of the trinity has
to use subterfuge to defeat the demon that his stupid troika fellow has
created. Examples are Shah�s Iran, Saddam�s Iraq and rulers and nuclear
weapons of Pakistan.
March 1,
2009
Also
See Part 1 (Europe and Central Asia)
Top
|
Random Thoughts
|
|
