As Americans celebrate their bountiful land, they recognize that some part of the nation's core has become distorted. The phrase "sound as a dollar" was actually said with pride and a straight face.
As Paul Kedrosky pointed out early this year in explaining why PPIP would have an effect, a fool with a plan beats a smart man with no plan. The financial community had a plan. It was to get bigger and richer, and to game the system to a heads I win, tails you lose situation.
And so we have the previous Treasury Secretary coming in from Goldman Sachs, where for the loss of income he got to pay no tax on hundreds of millions of dollars of unrealized capital gains; then we have his water carrier, one T. Geithner; now we may get the head of the current incarnation of the House of Morgan, one J. Dimon to replace the water carrier.
Meanwhile, the Senate may pass a tax increase disguised as health reform. What kind of reform for the benefit of the people is it when the taxes to support the plan come several years before the benefits?
Meanwhile, the international news du jour is trouble with a heavily indebted state-owned enterprise in that American-Anglo protecterate, the small sheikdoms of the Persian Gulf; this one is in Dubai, that region of bubble market excess.
Could this be something that tips some financial institution of some systemic importance over the edge? Could it be the start of a debt failure cascade?
Could this event, which has been maturing for some time, have been the reason for the flight to short-term U. S. debt instruments recently?
As was mentioned in a recent post, whenever the VIX drops when the stock market averages drop, this is a sign of complacency. Complacency gets punished at unpredictable times in the markets. Andy Grove had it correct in a real sense: only the paranoid survive. Conspiracy theorists amongst us would even wonder why this Dubai news came out when the U. S. markets were closed for Thanksgiving and then barely open the next day; in effect when the most important financial center of the world was entering what in effect was a 4-day holiday.
Could this be the start of the long-called for "flight to safety" in the U. S. Dollar? Is it just a fake-out?
In keeping with the belief that what has been happening in the economy and stock markets in America is a version of "extend and pretend" for about the past decade, yours truly owns only two publicly traded corporate stocks: McDonald's and Ross Stores. Hardly bets on a boom!
As we continue to move to a world in which the Feds are the borrowers of last resort, the old rules of finance are becoming unrecognizable. In this world, zero percent interest rates are the New Normal, but these are rates that preferred borrowers get to pay. You and I pay much more, but we get nothing or less than nothing adjusted for probable inflation on secure savings.
Hamlet's phrase that the times were out of joint refers to a dislocated joint that he was called upon to "set" right; Hamlet as orthopedist.
The financial and economic times are out of joint. Barack Obama, constitutional lawyer with a bevy of academics and government careerists supporting him, including Gentle Ben at the Fed, is being treated by currency traders the way they treated James Earl Carter. Flights to "safety" notwithstanding, the message of the markets is that this is a weak President presiding over a weak currency and a weakening power. But there's no challenger yet close to displacing the U. S. as global hegemon.
So we slouch on and give thanks for that much at least.
But a big raspberry for self-serving financiers.
Cranberries for the rest of us.
Copyright (C) Long Lake LLC 2009
Great post.
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