November 13, 2007

When the Pretense and the Lies Unravel

It occurs to me that a certain crucial similarity can be identified when one compares what continues to transpire with regard to the United States as a political entity to the continuing economic downward spiral. The other day, in writing about the barren, deadly wasteland that is our political life, I wrote toward my conclusion:
The Bush administration has announced to the world, and to all Americans, that this is what the United States now stands for: a vicious determination to dominate the world, criminal, genocidal wars of aggression, torture, and an increasingly brutal and brutalizing authoritarian state at home. That is what we stand for.


So the dare goes unanswered. These horrors are what the United States now stands for. The realization of this terrible fact is slowly settling over the rest of the world, and other nations begin to make plans to deal with the profound threat to civilization and peace that America represents. Only Americans themselves continue to resist seeing the nature of the present moment, and the nature of what this country is. And so most of us wait, and most of us do nothing. We will not move.
As I explained in that essay, we have only reached this point because of the policies and actions that the U.S. has followed for more than a century. Horrors such as these do not arrive overnight, even courtesy of a remarkably vicious, crude and criminal administration. That trivial, superficial political partisans might wish to ascribe the horrors only to the other political party does not make their ahistorical, stupendously ignorant contentions true. If genuine, significant opposition to the Bush administration's policies had existed, Bush and his fellow criminals would not have been so successful, and they would have been impeached months ago. But as the "dare" in the earlier post had it, what Bush is doing is what too many Americans want -- or, at the very least, what they will not bother to resist in the manner and on the scale required. Bush has done away with the delusions, the pretenses, and the lies. If significant opposition had then arisen, it might be possible even to thank him for revealing the truth -- and for impelling us to chart a very different course. Instead, the "opposition" party and most Americans say only: "Oh, yeah. Terrible. Awful. Disgusting. Say, what's on teevee tonight? Hey, did I show you how cool my iPhone is?"

As far as the details and schedule of our collapse are concerned, I wrote the following in the first part of my "Final Descent" series:
I occasionally see comments to the effect that I am something akin to a prophet of doom, and that I am always announcing that we are about to enter hell on earth. In fact, I have always been careful not to say this, precisely because I cannot know the exact schedule and form of our collapse, just as no one can know such details with any certainty. (I also note that Chris Floyd does not say this either, although he speaks for himself on this point, and many others, with great eloquence.) That the collapse of the United States is coming cannot be seriously disputed. Our economy is a house of cards, as it has been for some time. While it might implode overnight depending on events, it might also fray and shred slowly, over a period of decades. There is no way to know.
The "house of cards" link goes to an article by Mike Whitney. I know nothing about Whitney, except what is in his articles. I find his explanations of current economic developments more compelling, more persuasive, and more understandable than almost anyone else's (although I acknowledge that I do not read extensively in this area). Whitney confirms in detail one point that everyone seems to realize, but few are willing to identify fully insofar as the ultimate effects are concerned. For some time now, a huge part -- perhaps the major part -- of our alleged economic "prosperity" has been utter fantasy, just as our central national myths are fantasy: phony credit leveraged against nonexistent wealth, which in turn depends on more phony credit, which also relies on credit backed by nothing...and on and on it goes. Everyone apparently assumed that even if one or two parts of this make-believe structure collapsed, a sufficient number of other parts would keep it largely intact. No one thought too long or too seriously about what could happen if one collapse triggered another, which brought down a major beam, which collapsed an entire wing...and so on. Very few people bothered to wonder about what might bring down the whole, fantastical thing.

Two more recent articles by Whitney are instructive. From "The Long Fall: A Market without Parachutes":
America is finished, washed up, kaput. Foreign investors and central banks around the world have lost confidence in US markets and are headed for the exits. The dollar is sinking, the country is insolvent, and its leaders are barking mad. That's bad for business. Investors are voting with their feet. They've had enough. Capital is flowing to China and the Far East in a torrent. It's "sayonara" downtown Manhattan and "Hello" Tiananmen Square.

The dollar fell another 2 per cent last night, gold soared to $840 per ounce, oil topped $98 per barrel, General Motors reported a $39 billion loss after the market closed on Tuesday, the real estate market continued its downward slide, and the major investment banks are marching in lock-step towards bankruptcy.

The news is all bad. The nation's economic foundation is in shambles. US credibility is shot. Bush and Greenspan have put us on the road to ruin. Now their work is done. We're flat broke.

The catalogue of fiscal ailments now facing the country is too long to list. We'd need a ledger the size of a small encyclopedia. There's been a stampede away from the dollar even though it's already lost over 60 per cent of its value since Bush took office and even though central banks around the world will lose their shirts if it collapses. They don't care. They're getting out while they can.


Many of the major investment banks are already broke; it's clear from their own reporting. Charles Hugh Smith sums it up like this in his recent article "Empire of Debt: The Great Unraveling":
"If their bad bets were marked to market, Citicorp and Merrill Lynch would be declared insolvent. Why? Because they are insolvent--right now. The meaning of insolvency is straightforward: their losses exceed their capital. Recall that these firms list assets of $100 billion (or whatever) but their actual net capital is on the order of 2.5 per cent to 5 per cent---a mere sliver of their stated assets. In other words: a 5 per cent loss of their stated assets wipes them out...The game is now over, and the players shuffling losses can only last a few more days or weeks."
And here are some excerpts from Whitney's latest piece, "Bulletins from the Titanic":
Amid the deluge of bad news over the weekend; one story towers above all the others. The yen gained 1.5 per cent against the dollar. (9 per cent year-over-year) That means that Wall Street's biggest swindle, the carry trade, is finally unwinding. The over-levered hedge funds will now be forced to sell their positions quickly before the interest-rate window shuts and they're stuck with humongous bets they cannot cover. The faltering yen is the grease that lubricates the guillotine. $1 trillion in low interest loans--which keeps the trading whirring along in US markets--is about to get a haircut. Cheap Japanese credit is the hidden flywheel in Hedgistan's main-cylinder. Once it is removed, the industry will seize up and clank to a halt. Fund managers can forget about the vacation rental in the Hamptons. It'll be sloppy Joes and Schlitz Malt-liquor on Coney Island from here on out.


What's clear is that the situation is getting worse, not better. Honesty must at least be considered as one of many options, although the Treasury Dept avoids that choice like the plague. Eventually, the public will have to be told about what is going on. Last week, the Financial Times reported: "In recent days, investors have been presented with a stream of high-profile signs that sentiment in the financial world is deteriorating. However, deep in one esoteric corner of finance, another, little-known set of numbers is provoking growing concern. So-called correlation - a concept that shows how slices of complex pools of credit derivatives trade relative to each other - has been moving in unusual ways 'What we are seeing in the synthetic [derivative] markets is that there is a serious fear of systemic risk,' says Michael Hampden-Turner, credit strategist at Citigroup. 'This is not just about price correlation within the collateralized debt obligation market, but about a potential rise in default correlation and asset correlation.' Until recently, traders often tended to assume that there was relatively little correlation between different chunks of debt, because they thought that the biggest risk to the world was idiosyncratic in nature - meaning that while one company, say, might suddenly default, it was unlikely that numerous companies would default at the same time. However, some regulators have been warning for some time that in times of stress correlation does not always behave as traders might expect."

The multi-trillion dollar derivatives industry-which has never been tested in down-market conditions---is now moving sideways. No one really knows what this means except that the most opaque and volatile debt-instruments are now threatening to unravel, triggering a cascade of unanticipated defaults and a colossal loss of market capitalization.


Finally, Greg Noland, at Prudent reports on the "looming disaster" at Fannie Mae where, the best-known Government Sponsored Entity (GSE) has entered into the current housing slump with a "Book of Business of mortgages, MBS and other credit guarantees of $2.7 trillion" which is backed by a measly "$39.9 billion of Shareholder's Equity".

That's all?

As Noland concludes, "A devastating housing bust will bankrupt the mortgage insurers, while the solvency of their derivatives counterparties going forward will be in doubt in any number of scenarios. The GSEs are now integrally linked to what I expect to be Credit insurance's and "structured finance's" astonishing downfall."
Regardless of the specific details in how these twin unravelings occur -- the continuing relevations as to the true purposes of the United States ruling class, and the ongoing economic collapse -- it is clear that a major readjustment is underway. Should the United States attack Iran, it will likely become increasingly isolated on the world stage. Even overwhelming brute force can only carry you so far, especially when more and more people begin to appreciate that you are nothing more than a viciously murderous bully. And certain other countries, including those that may hold a very significant part of our economic future in their hands, may decide that it is in their best interests simply to let the United States go down, despite the short-term very negative effects that will have on themselves and many others.

I have thought for some time (as have others) that, when you consider the broad arcs of history, the locus of world power is shifting away from the United States, to the East. Previously, I assumed that shift would take at least several decades. Given what may now be occurring, the timetable may prove to be considerably shorter. If it is, that will be genuinely terrible news for many people. I don't refer primarily to the ruling class, which has already amassed so much wealth and power that they undoubtedly have made certain their fall, no matter its speed or severity, will be comfortably cushioned. No, I mean all the rest of us, all of us "ordinary" people. Our lives may change substantially in the coming years; I now suspect that even ten years from now, many of us may look back on this time as the end of the period we regarded as "normal."

Yet I have to say, given what the United States now represents and embodies -- none of which will be altered in any fundamental way no matter which of the two major parties controls the levers of power in the future -- I do not regard this as a bad thing. The United States is now primarily a force for barbarity and large-scale death. If it were removed from its "leadership" role, the world can only benefit, assuming that an even worse nation does not rush to fill the breach. Of course, it might turn out that a number of countries all attempt to fill the void to the extent they can within their particular "spheres of influence," and that conflicts of varying degrees of intensity spread across the globe. A new Dark Ages may descend on the world.

Whatever may happen, and barring miracles of a kind I do not rely upon, the future is likely to be very bad, and possibly very grim indeed. I would apologize for this serious lack of cheerful news, but I can only do my best to assess the facts, and try to see where they lead. For a long time, the United States, its entire political class, almost all of the media, and the majority of its citizens have relied on myths, avoidance, equivocation and outright lies. Pretense cannot last forever. At a certain point, facts will reassert themselves. We have tried to have our way for more than a century, and it did not matter what methods of coercion and brutality we employed. For a long time, we succeeded. The United States may engage in one last desperate effort to avoid these readjustments, and an attack on Iran may be the preferred method. This is why I desperately try to encourage people to resist such an attack on the scale required, as I did in the concluding part of this recent essay. But our denial still remains impregnable, and the response to my pleas is close to non-existent.

The days remaining to such denial, and to the myths and lies that have sustained us, are now very limited in number. There is still time to make a different choice, but almost no one is interested in that. And given the breadth and complexity of the forces in play, there may be nothing we can do at this point.

Still, I keep hoping that more people will at least try. On certain days, I almost wish that particular hope would finally leave me, and that I would no longer feel it. It seems to me life would be easier that way. Most other people appear not to have these concerns, and they seem to be happy. Are they? I have no idea.

Well, we play the cards we're dealt. These are the cards I have. I do what I can with them, but I confess that it doesn't make me happy now. Not happy at all.