Belmont Club

"Some damned foolish thing in the Balkans"

President Obama warned that the crisis in Greece may lead to disaster for the world economy. He urged Chancellor Merkel to drop condititions which would require private bondholders to share some of the cost. One of the problems the financial rescuers face is the flat refusal by the Greek socialists to moderate their deficit spending.

Greek unemployment is now at 16%. The voters are unlikely to support any more cutbacks, yet without them Greece has to keep on borrowing. And without fresh funds Greece will go bust. The German Finance Minister wrote, “without another disbursement of funds before mid-July, we face the real risk of the first unorderly default within the eurozone.” But requiring investors to take a haircut may mean that Greece might not get the bailout in time. Unless the Germans put another coin in the jukebox the music could stop and the US economy could go over the cliff.

In Washington this week US president Barack Obama told Merkel that the euro crisis could spell disaster for the US economy and urged her to lead the effort to prevent an “uncontrolled spiral of default …America’s economic growth depends on a sensible resolution of this issue.”

Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. in New York said “we believe Europe will continue to find short-term patches for the situation there. If we’re wrong, the U.S. expansion could be at risk.” That economy was now under further risk from oil prices which rose sharply following a failure of OPEC to agree on proposals to increase output. The opposition was driven by Libya, Iran and Venezuela. “Political turbulence in North Africa and the Middle East undermined the usual consensus at the meeting in Vienna and led to speculation that new internal rivalries could split the group, leading to even more market chaos. Saudi Arabia, the world’s largest oil producer and influential Opec dove, was outmanoeuvred by Iran, Venezuela, Libya and others, later describing the summit as “one of the worst meetings we have ever had”. Direct echoes of the Libyan operation reverberated through the oil market.

The atmosphere had been poisoned by Qatar backing Libyan rebels fighting the government of Muammar Gaddafi, while Saudi Arabia has angered Shi’ite Iran by using force to help the Sunni-led Bahrain suppress a Shi’ite rebellion.

But this time those in OPEC politically opposed to the United States – led by Iran and Venezuela – found enough support to block Riyadh whose views normally hold sway.

Democratic Congressman Ed Markey called on President Obama to tap into the strategic oil reserve to ease prices. The President was a step ahead of him. “Obama said in March that the administration has a plan ‘teed up’ to tap the 727 million barrel Strategic Petroleum Reserve, should there be significant supply disruptions or shifts in the market.”  But that was a merely palliative. Unless new sources of supply came online, either from domestic sources of OPEC, the prices would rise again. Rather than conveying confidence in their “economic recovery” the administration’s eagerness to grasp at economic straws and apply short term relief hinted at barely concealed desperation. President Obama urged listeners “not to panic”. That means he knew what they were thinking.

The President spoke about the new economic trouble in detail for the first time since a report late last week showed job growth had slowed sharply in May. He tried to reassure Americans worried about high unemployment and expensive petrol that the nation is on a slow, if not steady, path to recovery.

“I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen,” Obama said at an appearance with visiting German Chancellor Angela Merkel.

“We don’t yet know whether this is a one-month episode or a longer trend.”

But with even Ariana Huffington saying “the economy stinks” and a New York Times journalist now launching a book arguing that a cabal of Democratic political operatives were behind the Fannie Mae and Freddie Mac disasters which sparked the subprime meltdown, the political and strategic dangers of a falling economy are obvious to all. Everybody knows the economy is going to be the biggest thing on people’s minds, and what they’ll be thinking is ***expletive deleted***.

The Republican Party and especially its Tea Party wing have just acquired a new weapon of mass destruction — and it has nothing to do with any of Congressman Wiener’s rogue body parts. If they deploy this weapon effectively in the next election cycle — a big if — then they have the biggest opportunity to move the country rightward since Ronald Reagan took the oath of office back in 1981.

The Tea Party WMD stockpile is currently stored in book form: Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. By Gretchen Morgenson, one of America’s best business journalists who is currently at The New York Times, and noted financial analyst Joshua Rosner, Reckless Endangerment gives the best available account of how the growing chaos in the mortgage and personal finance markets and the rampant bundling of dubious loans into exotically toxic securities plunged the world, and millions of American families, into the gravest financial crisis since World War Two. It is gripping reading as well, and its explanations are clear enough that readers without any background in finance will have no trouble following the plot. The villains? An unholy alliance between Wall Street, the Democratic establishment, community organizing groups like ACORN and La Raza, and politicians like Barney Frank, Nancy Pelosi and Henry Cisneros. (Frank got a cushy job for a lover, Pelosi got a job and layoff protection for a son, Cisneros apparently got a license to mint money bilking Mexican-Americans of their life savings in cheesy housing developments.)

If economic disaster overtakes the US, people will naturally cast around for a villain and Morgenson’s book will sell so many copies that it will single-handedly lift the authors above any economic danger. Barney Frank will surpass the unpopularity of Anthony Weiner by an order of magnitude and then it will go off the charts. There is now the chance that cumulative economic and policy blunders of the Obama administration will cascade over the next months, leaving a trail of global destruction that will beggar the imagination. The deficit-accelerating Obamacare, the failure to drill, the obsession with Green Energy, the failed engagement policy, the pointless law-enforcement and apogoligia-based strategy in the War on Terror, quantitative easing, the operation in Libya, Washington’s opportunism in the Arab Spring, to name but a few — these are all — all are coming home to roost.

There is about the unfolding something of a Greek Tragedy an inevitability that was avoidable and yet fated. Athens can’t stop spending. Washington can’t stop spending.  The EU can’t keep growing. The UN can’t keep but rapporteuring. The Middle East can’t keep scheming.  The insiders can’t help pushing their toxic schemes over the heaps of the old ones.  It’s like a Ponzi schemer that no one can stop, not even himself, even as jail looms in the visible distance. Yet whatever cannot continue won’t. Therefore the crash will come; and there’s nothing for it but to brace for a collision. Ooo-gah. Ooo-gah. Meep-meep-meep.

But no one should gloat. The catastrophes that can grow out of this litany of selfish and stupid missteps can ruin millions of people, inflict untold misery and significantly raise the risk of war. While everyone should hope for the best the possibility is that, like Greece, the international system has run out of short-term patches for long-term stupidity. An entire era may be teetering on the verge of collapse. No one will escape unscathed.

Houses Ain't Tulips

Things may have finally reached the point where there’s no place left to kick the can, no more spin to be spun; no one left to call this time. It’s what was called Tomorrow when it finally becomes Today.


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