Tuesday, June 9, 2009

Waiting for the Other Two Shoes to Drop

I saw a movie a while back that included a scene of a pig being prepared for slaughter by taking a bullet in the head. But the poor thing didn't just flop down and die, Hollywood-style; instead, it wandered about in a confused way, uttering a few low grunts now and then (no ear-piercing squeals). The scene changed at that point and we weren't provided any further information on the fate of the pig until it was already strung up and being gutted. But the question on my mind was, when did it "know" (assuming a pig can "know" these kinds of things) that its number was up? And how did it "feel" about this knowledge?

Segue now, if you will, to an image of people caught in a hurricane, back in the days before weather satellites and radar. They have experienced terrific high winds and destruction, but have survived. Perhaps the storm is over! Little do they know that they are in the eye of the hurricane, and that before long the other side of the storm will strike, and they will be treated to, perhaps, even stronger, more destructive winds before it is all over.

OK, so... what does all of this have to do with... anything? Simply that, for example, the stock market, AKA "the Dow", has been eerily stable for quite a while. (But note also that a trivial rise or fall -- of one or two points -- still merits "analysis" of why it occurred. Can they say "random"?) Real estate seems to have bottomed out. And guess what, all the banks that absolutely, positively, had to receive a bailout or they would surely go under, and the economy would be ruined as a result, not only the U.S. economy but the world economy, and aliens from outer space would take advantage of this fact to conquer Earth and impose a Taliban-like regime on the entire human race, and... they are already clamoring to pay the money back! Which makes one wonder why they needed it in the first place. Was the entire exercise just a test, if you will, of how gullible the federal government is about these things? Were the bankers just trying to see how much they could get away with? If so, they succeeded admirably -- we now know that if the bankers aren't in charge of everything, they are certainly at the top of the heap of whoever _is_ in charge. But this is good to know... I guess. At least it's good to get it confirmed, once and for all. (This is the kind of thing that turns "conspiracy theories" into accepted facts.)

Now, we are told that the unemployment rate has yet to peak; fair enough. We are also told that there plenty more dominoes to fall in the "subprime" market; fair enough. But! The dollar has, paradoxically, been holding fast against other currencies of late -- by which I mean European currencies, which are the only ones that count outside of the yen and the... whatever they use in China. (too lazy to look it up) What this means, in a nutshell, is that, world economy-wise, when the U.S. sneezes, everyone else catches cold. OK -- this is not too surprising, but I also suspect that, before long, the rules of the game are going to be changed and China will become the first among equals, currency-wise. But that remains to be seen.

In any case, it appears that "someone" has decided that an 8000 floor on the Dow is good enough -- wouldn't do to scare _everyone_ away from the stock market, now would it? And you'll notice not a whole lot is happening with interest rates... and there is strange new respect for financial responsibility in the mortgage industry. People who could have gotten a no-money-down, zero-interest (until it balloons) mortgage a year ago are now being told to take a hike. So one bit of madness has been wiped off the economic map, at least (and no thanks to the likes of Barney Frank).

But! Lest we forget -- the "economic stimulus plan" is just getting off the ground, and the U.S. Treasury has already put the printers of currency on an around-the-clock production schedule to print as much money as fast as possible. This, if I may use a tired analogy, is a tidal wave that appears to be far off and harmless, but which will wash over any and all who are foolish enough to be holding dollars within a few months. If, on the other hand, you're holding stocks, those may inflate as well -- and I admit I don't know enough about these things to predict. All I can say is that dollars are an accident waiting to happen -- not only on the domestic front, with hyperinflation, but on the international front, with currency exchange rates. Hedge your bets if you like (I have) -- but think very seriously about putting some money into currencies of countries that are run by sane people -- like Switzerland, for example. (I hate to say it, but I suspect that the Swiss are high up on the totem pole of the people who run the world economy... in which case their currency will never be in serious jeopardy. Do with that what you will... )

So the first of the "shoes" I'm talking about is the value of the dollar -- both relative to tangible goods and relative to other currencies. (The shoe that already dropped, by the way, is the "investment" shoe, i.e. the fact that securities took a hit of up to 50% in the past year.) And what is the second (or actually third) shoe? Well, it's none other than taxes, which will have to be raised to Swedish levels in order to pay for all of Obama's utopian schemes -- and even that won't be enough. There is literally not enough money in the world to pay for everything he wants to do... and he will discover this eventually, but not before beggaring (vs. "buggering" -- but it will feel about the same) the good old cash-cow American middle class.

So, as the DJs say, the hits just keep coming. First we have the investment hit -- which includes the real estate hit, i.e. people who "invested" in their own residence assuming its market value would never go down. Then the government moves in and, like Mighty Mouse, saves the day, and sure enough, look at the Dow, and look at all the other things that have at least "stabilized" if not "turned the corner". But the very large hammers that are poised to strike the middle class (because who else?) are hyperinflation and taxation -- and I can't see any way around it. It's as basic as the Law of Gravity -- you simply can't print trillions more in currency to pay for bailouts and "stimuli" without turning our currency into funny money... and you can't implement the program without increasing taxes, i.e. taking a share of actual productivity as opposed to simply printing dollar bills. It's possible, of course, to implement schemes like this only through taxation, or only through inflation... but that doesn't seem to be the way the U.S. government works; they prefer a kind of hybrid approach, probably because it's more complicated, hence harder for ordinary people to detect, hence less politically damaging.

But here's the good news -- maybe. The powers that be have clearly decided not to turn the U.S. totally into a "people's republic", a la North Korea -- the middle class is going to be kept alive, if barely (for the time being). The stock market, which is basically a scam, is going to be kept afloat in a kind of Potemkin Village manner. And there are many other signs that, under Obama, it's still going to be "business as usual". (That is assuming that nationalization of banks, the stock market, insurance, real estate, and the auto industry is accepted as "business as usual".) But I don't believe that the saga is over with -- hence the metaphors with which I opened this post. The pig is the American middle class -- dealt a fatal blow by the economic crisis, but still alive and -- more or less -- on its feet... still hoping for salvation and release, either by Obama or by some other messianic figure. Little do they know that their fate is sealed! Because the other two shoes -- hyperinflation and taxation -- will impact them far more than anyone else, and in fact may spell their demise. But in the meantime they wander around in a daze, emitting the occasional plaintive grunt, and not making too much of a fuss about the fact that there's a bullet lodged in their head.

But what about the hurricane? I'm sure you've already guessed. The administration, and the media, are all claiming that the worst is over and that things are easing up, this is not the end of the world, etc. But the truth is, it's just half over (if that) -- and who is to say that the second half of the economic hurricane won't be worse than the first? The people who are in charge of these things may have something in mind that we know not of... something that we don't even have hints of. They may have decided that the American middle class, like the fatted calf, is ripe for the slaughter, and it's only a question of how to get it to quietly march into the pen where the man with the knife awaits. Or... they may have decided that the middle class is too fruitful a resource to simply squander at this time, and that they will permit it to live a bit longer. In any case, I can't imagine that the inflation and taxation bullets can be avoided; even if they are not fatal, they will surely alter the economic and social landscape, and for generations to come. And this is aside from the fact that, when it comes to foreign policy and "Wilsonism", we are just as committed as ever to expanding the American Empire world-wide... even as this country goes down the drain, socially and economically, we are determined to broadcast the blessings of "the American way" far and wide. So why don't we see more overt skepticism about this? Why is Ahmadinejad our most prominent critic? Is it because he has clearer vision than any other world leader? More likely it's because the others are cooling it and just waiting for us to fail, at which point they can move in and fill the gap. Ahmadinejad is foolish enough to point out that the king is naked -- on a daily basis. And for that, he's likely to get nuked by us and/or the Israelis. But he is far from the only skeptic in the Middle East. I think leaders in that part of the world, and elsewhere as well, are starting to "smell blood" when it comes to American hegemony, and will waste no time taking advantage as our grasp grows progressively weaker. In the meantime, Americans will have to learn what it's like being citizens of a failed empire. Who knows? It might not be so bad...

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