"It costs money, real money, to play at being an empire"
gold-eagle.com
The Tentacle's Caress
Doug McIntosh
I am old enough to remember when the original Star Wars movie came out in the summer of 1977. In one memorable scene, our heroes have rescued Princess Leia and then promptly gotten trapped in the mother of all garbage compactors. Hans Solo, watching the bubbles swirl around his feet sees a huge tentacle reach up and grab Luke Skywalker. Knowing something else is coming, the creature drops Luke. Someone comments it can't get any worse. Hans Solo replies, as the walls start to squash them, "It's worse." I know the feeling.
Having avoided the tentacle's caress, the USA economy is now about to be squashed by something few people even comprehend. It's not like capital inflows into the United States normally generates much interest. Until now that is. It seems the Mr. Magoo, Clinton/Bush economy is solely based upon massive capital inflows to sustain the fig newton of our illusions. What corporate profits exist have come solely through outsourcing, cannibalizing structure and stock manipulation. American corporations haven't made money in about five years. What they have done is cut expenses, rigged their stock prices and played games with the accounting rules. The Federal Government has been bankrupt, using commonly accepted accounting rules, for at least a decade. State and local governments have become bankrupt since 2000 as they cannot deficit spend like the Feds. At any rate, our entire economic system, at all levels, is dependent on debt, fiscal liquidity and massive capital inflows from overseas to finance our $500 billion federal budget deficit, our $500 billion trade deficit and our $7 trillion federal debt. The role of the media elite, the governmental elite, business elite and education elite has been to deny any of this economic reality. Their job is to maintain the profitability of the status quo, along with their perks.
We have seen the collapse of Fannie Mae and Freddie Mac as foreign investors dumped 3.2 billion dollars in their bonds in October alone. The US fiat dollar reached record lows against the Euro this week. The price of gold, that much maligned canary, is now over $400 an ounce. From both an historical and economic point of view, the USA economy is in an interesting position. In order to deal with the Federal budget deficit Mr. Magoo must sell nearly 40 billion in bonds every single month. If he cannot do this, then federal spending as we know it will cease to exist. And in the run up to an election year to boot. Obviously, Mr. Magoo will move printing presses to the top of Mt. Sinai to see this doesn't happen. Unfortunately for Mr. Magoo and his elite buddies, foreign investors are starting to realize the light at the end of the tunnel is a train headlight. The headlight of the newly derailed US entitlement gravy train. The USA gravy train gave its last gasp with the prescription drug bill just passed. The total defense budget of $400 billion and the $100 billion prescription drug plan do not exist in economic reality. Their entire amount equals this years budget deficit. A nation that gets to the point when its defense budget is financed out of thin air is obviously in economic delusions.
It is simply beyond current economic theory to explain what happens when any nations attempts to finance both a trade, or current accounts deficit, and a federal budget deficit nearly ten percent of its economy. Adding in state and local budget deficits, corporate deficits, personal deficits; well, you get the idea. Perhaps one of the really smart economists as www.gold-eagle.com can explain things better. I know I can't. All I can say is to watch for signs in the real world things starting to fall apart.
Over in the United Kingdom, the Financial Times ran an article called, "Investors Flee US Treasuries-$50 bn Down to $4.2 bn- Dollar hits record low against Euro." The article was dated 11-20-03. It may be due to the chaos of Bush in London, or the recent terror attacks, but I don't think so. What my gut tells me is this. For several years I have been waiting and watching, making predictions based upon my certainty the current economic fraud would come crashing down. What I see now, is I had it wrong. I also assumed the coup de grace would come from an internal American economic collapse. I see now the blow will be external and it will be either due to a confidence collapse in the fiat US dollar, or terror related. The point of the terror attacks, like the one today against the British bank is to destabilize our economies. Once our economies are destabilized, our imperial pretensions will collapse due to lack of money. Whatever Bush says, the USA faces the real possibly of a unilateral collapse in our overseas military, political and economic due to lack of money. Assuming the fiat dollar loses most of its value, which I think is credible, the USA will come back home with its fiscal tail between its leg. It costs money, real money to play at being an Empire. The irony is the USA doesn't seem to understand how vulnerable it's economy is. I don't think the powers that be have understood Osama Bin Laden's primary target has been the economy of the western power. He is going to spend us to death.
In August 2003, the USA conned foreign investors into loaning us 50 billion dollars. Less than a month later, they gave us less than five billion. The article says this reflects concern about our $45 billion a month current account(trade) deficit and our ability to deal with it. In plain economic terms, we ate $40 billion out of last months $45 deficit. Eating such a diet is not healthy for long, especially once Mr. Magoo gets going with the printing presses.
The article goes on to talk about looming trade wars with both China and Europe. The report also noted that foreign direct purchases of Mr. Magoo's bonds dropped to the lowest level of the year at $5.6 billion in September. In August they bought $25.1 billion. We have seen nearly sixty billion in foreign financing evaporate in less than one month. The death knell was sounded when the report concludes that the sixty billion was not spent on the US stock market, which were net losers of $6.3 billion in September, except for Japan which is buying heavily now.
The report assures us this is only coming from private accounts and hedge funds and not central banks, which "continue to favor US bonds." What we are seeing is the first faint lapping on the shore of the tidal wave. Foreign investors have made the judgment the USA is a loser nation. They regard us as arrogant jerks rushing around the world bombing innocent people. They judge President Bush to be an idiot, Cheney to be evil and our system and people corrupt, lazy and greedy. As they execute those judgments in the economic sphere our debt riddled economy will wither into nothingness. To paraphrase Paul Revere, "The foreigners are coming." It's really painfully simple from an economic perspective. The USA has to import massive amounts of global financing to make the fiat funny money system stay together. Soon, Mr. Magoo will have to start raising interest rates. Soon the value of the dollar will begin to impact daily life in the USA. And soon, gold and precious metals will skyrocket as the only alternative to the worthless scrap of paper called the Federal Reserve Note.
You cannot run 1 trillion dollars in budget and trade deficits and then finance them from a non existent internal savings rate. You then must finance them by conning foreign investors into providing you the economic "fix" your credit and debt addicted casino economy needs. If you cannot get the financing, your entire economic system will implode, just like it nearly did in the fall of 1998 due to the Russian bond collapse. Where's the money going to come from Mr. Magoo? That's the question. America should clearly understand there are groups in the world, terror groups, the Russia, China and European elite, who view the collapse of the fiat dollar as a good thing. Indeed, they view it as the only way to curb our Imperial pretensions. If war is diplomacy by other means; then, economics is a legitimate target for war. Americans in general, and American leadership in particular, have failed to realize that a war against our economy has been underway for at least a decade. If you accept, as I do, there are groups on this planet who want to gut the USA like a fish, then it is clear these groups intend to destroy our economy as a way to do that. The goal of these groups is to exploit the class, economic and racial divisions in our society in the context of a general economic collapse. After the period of chaos is over, these same groups will end up on top of the manure pile. I'm not sure these groups can pull it off. I am sure they intend to try. I am also very sure many Americans and all of our leadership lack the moral virtue, integrity and character to deal with such a scenario.
We are told we are in good times in the USA. Even as the stock market closes in on 10,000 the Mutual Fund industry is shown to be corrupt. The entire business class of the USA, from our toga wearing Tyco chief on down are moral failures. The judgment is in. The judgment is as Isaiah says in 3:13-15, "The Lord takes his place in court; he rises to judge the people. 14 The Lord enters into judgment against the elders and leaders of his people. "It is you who have ruined my vineyard; the plunder from the poor is in your houses. 15. "What do you mean by crushing my people and grinding the faces of the poor?" declares the Lord, the Lord Almighty."
A very good question for American society, since the society those verses were directed at, the ten tribes of the Jews, met a brutal fate. Of course, here in America we don't believe any type of history repeats itself. We've been printing funny money for nearly a century now. Being a superpower lets you bully anyone you want, at least for a while. |
