I referenced a slew of important news pieces at the News Room yesterday, and in doing so I realized that there were a couple major “lines” of events unfolding in the media, so I thought I’d string one of them together more directly right here. Hopefully I can outline the other one in a day or two, but feel free to visit the news room and browse the recent Iraqi war developments.
Anyway, I’ll start on the economic front, where the following warnings have all surfaced in just the past week (Cryptogon.com has bagged most of these already):
Former World Bank Chief Economist Predicts Global Crash
“Former World Bank Vice President, Chief Economist and Nobel Prize winner Joseph Stiglitz has predicted a global economic crash within 24 months – unless the current downturn is successfully managed. Asked if the situation was being properly handled Stiglitz emphatically responded “no,” and also drew ominous parallels to the development of the NAFTA Superhighway and the North American Union.”
GAO Chief Warns Economic Disaster Looms
“Walker can talk in public about the nation’s impending fiscal crisis because he has one of the most secure jobs in Washington. As comptroller general of the United States – basically, the government’s chief accountant – he is serving a 15-year term that runs through 2013….But the backbone of his campaign has been the Fiscal Wake-up Tour, a traveling roadshow of economists and budget analysts who share Walker’s concern for the nation’s budgetary future….Their basic message is this: If the United States government conducts business as usual over the next few decades, a national debt that is already $8.5 trillion could reach $46 trillion or more, adjusted for inflation. That’s almost as much as the total net worth of every person in America – Bill Gates, Warren Buffett and those Google guys included.
A hole that big could paralyze the U.S. economy; according to some projections, just the interest payments on a debt that big would be as much as all the taxes the government collects today.
And every year that nothing is done about it, Walker says, the problem grows by $2 trillion to $3 trillion.”
Of course it’s ludicrous to speak about the current state of affairs continuing for the next “few decades”, but the interesting point is that the GAO Chief has actually come to believe that he must take his show on the road to the moneyed-classes in this country to get his message across. Evidently the people who hire him aren’t listening…
Paulson re-activates secretive support team to prevent markets meltdown
“Judging by their body language, the US authorities believe the roaring bull market this autumn is just a suckers’ rally before the inevitable storm hits.Hank Paulson, the market-wise Treasury Secretary who built a $700m fortune at Goldman Sachs, is re-activating the ‘plunge protection team’ (PPT), a shadowy body with powers to support stock index, currency, and credit futures in a crash.
…Mr Paulson says the group had been allowed to languish over the boom years. [Ed. note: no it hasn’t, that’s a lie]. Henceforth, it will have a command centre at the US Treasury that will track global markets and serve as an operations base in the next crisis.
…Mr Paulson is not the only one preparing for trouble. Days earlier, the SEC said it aims to slash margin requirements for institutions and hedge funds on stocks, options, and futures to as low as 15pc, down from a range of 25pc to 50pc….The move is so odd that conspiracy buffs are already accusing SEC chief Chris Cox of juicing the markets to help stop the implosion of the Bush presidency.”
Lowering the margin rate means giving the huge players LOTS more money to play with, certainly. But it also–perhaps more importantly–means they’ve been given lots more breathing-room on their margin calls.
And I suspect that’s the principle reason for the move. If hedge funds are facing margin calls that means they’re being forced into a position where they have to sell, and time and again that’s the recipe for a market crash, as the margin calls beget selling which begets more margin calls and more selling.
This is absolutely a desperation move, no doubt about it. Coupled with the uncloseting and knighting of the PPT–which is nothing more than an officially sponsored market-manipulation group–it sounds a strong signal that something is very wrong.
What a strange world our markets have become when indexes can hit new highs and there is such wide-eyed desperation in the ranks that they’re resorting to changing the rules to keep things going. Of course, keep in mind that a host of smart people have been saying that the markets have been playing against a “house edge” for several years now, and many old-timers have left the game altogether.
Oh, and speaking of desperation, this piece is my favorite (and double kudos to Keving at Cryptogon.com for noting it):
Costello seeks orderly $US withdrawal
“[Australian] TREASURER Peter Costello has called on East Asia’s central bankers to “telegraph” their intentions to diversify out of American investments and ensure an orderly adjustment.Central banks in China, Japan, Taiwan, South Korea and Hong Kong have channelled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down American interest rates.
Mr Costello said “the strategy had changed” and Chinese central bankers were now looking for alternative investments.
“Of course you can have an orderly adjustment,” he told reporters. “And what I would recommend is that these matters be telegraphed well in advance. I think we should begin preparing ourselves for it.”
I literally had to laugh when I read this again and realized he was serious. It’s not that “telegraphing” moves is any big deal–heck people do it all the time. But they generally do it AFTER they’ve taken or exited a position. Watch CNBC, whose only purpose anymore is to allow money managers to tell people what they want them to do after they themselves have already done it. Or any stock bulletin board for that matter….
No, the real shocker is that the Australian Treasurer is openly admitting that people are getting trigger happy to dump the dollar. He’s asking these Eastern bankers “hey, can’t you just let everyone else in on your monetary plans”. In effect, he seems to be admitting that the US Dollar is a liability, that no one is looking to the US for monetary guidance anymore, and he’s genuflecting before China to call the shots going forward. In fact if you read the piece, he goes on to kiss a lot of butt, saying how Australia is really a lot closer to China than it is to the Western world, respects it’s unique heritage and culture, etc.
Clearly Costello is switching sides out of fear of a US$ collapse, letting everyone know there’s a new tune to dance to. (And the UAE appears eager to hit the dance floor early).
But ultimately in the contest for desperate statements, the brass ring goes to our own President Elect(?):
China saving too much money: Bush
“US President George W. Bush said today that he hoped China would transform from a country where people “hoard the money they have” into one where people buy large amounts of US products.In an interview with conservative radio talk show host Rush Limbaugh, Mr Bush said China should become “a society in which there’s consumers. Because now they’re a society of too many savers”.
…”If we can encourage China to become a country of consumers, you can imagine what it would mean for US producers and manufacturers to have access to that market,” he said.”
I can’t even explain where such an asinine statement comes from. China will never go that path because they are fundamentally a different people. Shouldn’t a world leader have at least some inkling of essential, varying cultural characteristics? But then I guess if you’re a NeoCon you’re already suffering under the erroneous assumption that everybody else really wants to be what you want them to be….
But even to make a statement like this must cause world leaders everywhere to roll their eyes. I mean the world already knows that Americans are living on borrowed money/time–now we’re advising the Chinese to do so as well, so that we can continue our spree? The Chinese want the US to collapse! They’d just rather have it happen slowly than quickly… And what are we going to sell them? Their own stuff? I mean I know there are Wal-Marts in China, but let’s face it: one day the troops are going to walk into them and escort the small handful of foreign managers out the door and off to the airport (hopefully) and that will be it. A bloodless corporate coup. After all the only thing non-Chinese about them are the financial coffers!
But regardless, for Bush to even make a statement like this is worrisome. Mark my words: Bush, or/and his administration, are headed for some kind of collapse before the next election comes around. I don’t hold much hope for fundamental reform to come out of this week’s elections, and I don’t doubt an Iranian invasion-gambit is on the table….but however that may be, these people have got “implosion” written all over them.
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– now, here are two links to his 2nd and 3rd news strings which are also great reading.  Enjoy.
More News Stringing
And Yet More News Stringing