http://www.ft.com/cms/s/0/4dc6d834-2ce2-11dd-88c6-000077b07658.html

Michael Chertoff, the Homeland Security secretary, does not agree with suggestions that the phrase is equated with a war on Islam, says Russ Knocke, his spokesman.

So this is one of those, your wrong because I think I’m right moments.  Who cares if you agree or not, if those people are offended and you want to stop fighting with them wtf sense does it make to continue to incite anger with their only possible detractors? At this moment, 70% of us don’t like Bush.  However faced with the lesser of two evils when push comes to shove, we would rally behind Bush if we’re occupied.  It’s common sense, yet they’re stuck on saying (believing) they’re right, until they’re proven wrong.  Nice strategy.

“We are at war with terrorism, and its underlying ideology – not Islam – and we’ve gone out of our way to make that point,” says Mr Knocke. “In truth, war has been declared upon us.”

“While we want to be mindful to the way our messages are heard by Muslim audiences, we also think war on terror accurately describes the fight we are in,” he added.

I remember the Redcoats being terrorized by Revolutionaries during the “War of Insurrection” when we did not line up like idiots and shoot at each other.  We used our brains and reasoned we must use tactics to suit our weakness’ to eliminate the foreign invaders.  Gee, what do the “terrorists” do - the same thing.  But we were right then, and they’re wrong now.  Do as we say, not as we do. History doesn’t repeat but it does rhyme…(Twain).

“The chairman is aware of the concerns voiced by many in the Muslim community about the phrase ‘war on terror’,” Captain Kirby said.

So there is more than one person to back this story up.  The Muslim world understands the connotation of the phrase rather than the denotative mind warp this administration wants us to believe. It’s flat out inflammatory and serves one purpose, to continue to add to the ranks of those against us and further the war serving American corporate interests.  Those are the only ones benefitting from this all.  The children of America are being slaughtered; the citizens who support the troops are being fleeced not only through the debt and interest but the wicked inflation that is gathering steam while the defense and infrastructure companies report record profits.

I suppose on one hand, maybe we should be happy.  America is on sale as the dollar gets trashed.  American companies are being purchased more frequently by foreign investors.  We’re not the ones buying a bunch of foreign companies, so what’s really going on here?  There is a large problem with the present course of action. Ultimately the world wants to reach our standard of living.  The thing is, our standard of living is so much better relative to most underdeveloped countries and consequently we’ll be giving up our standards and trading down while our bankers are seeking better alternative standards. Consider China’s communication infrastructure being near completely wireless.  Costs are lower, build out is quicker.  They’re catching up exponentially and when the frog looks out the day before the lake is covered, he sees half the lake.  The next morning he has no open water as the Lilli pads have grown exponentially.

You want to end this?  Follow Ron Paul’s sage words and remove the bases from foreign lands.  The basis for the struggle is a misguided animosity stemming from American hegemony distorting their way of life.  Yes corporate America will never leave, however the perceived aggression not only irritates a minority section of Islam, it is in violation of our constitution.  For those of us saying this is unrealistic, they do not understand the changes we have grown through.

Missile technology is quickly becoming the basis for military strategic operations.  We showed what we are capable of, near laser precision with a piece of metal moving several hundred miles an hour falling into your chimney.  Consider nuclear weapons.  One of two things must be true.  Either they work and are a nuclear deterrent, or they don’t work. If they do not deter anyone from using them against us, then we’ve wasted a few trillion tax dollars in the past sixty or so years. 

Or they work, and we’re waging wars against people and wasting money in the process.  The only wars we’ve fought since WWII have been limited engagements that have accomplished little.  Communism was destined to fail on its own.  The staple society in which it was constructed failed in the early nineties because their centrally planned economy was uncompetitive and was bankrupted when Saudi Oil flooded the market.

Even if we let Vietnam be overrun by Vietcong and never set foot, it would have failed as it has, and current day Vietnam is a small mirror to China. Both will produce a large middle class which won’t maintain status quo when it comes to individual freedoms.  It will take time, and most importantly a social movement to catapult the country even further forward.  The great firewall will not last.

So if we walk away and leave sovereign nations to conduct their business and we focus on ourselves instead of projection our insecurities, we might be able to move through beyond this and focus on real problems like citizens losing their freedom, transitioning away from fossil fuels and the general economic malaise that is descending upon us like icy hot.

Middle of Getting Nowhere

http://money.cnn.com/2008/05/28/news/economy/feelingpoor/index.htm?eref=rss_topstories

That's exactly how Chris Ackerman feels. He said that he and his wife, who live just outside Seattle, find that their paychecks no longer cover their rent, student loans and daily living expenses. That is forcing the young couple to turn to their credit cards to make ends meet.

They've already cut out much of their entertainment and trips to visit her family and friends 30 miles away. If gas and grocery prices continue to rise, Ackerman, who works for an importer, said he'll have to stop contributing to his 401(k) plan. He doesn't see many other options.

Stories like this make me think of the classes we are led to believe don’t exist. I think the upper crust has been binging for the two terms of Bush following his lead in spending our money. Not until more people feel this and come to recognize they are getting nothing from the government in spite of the payments and patriotism in kind.  Corporate profits are private while the losses are being borne to the society.  When companies are not accountable for their losses, where is Capitalism?

Yet when we make an ultimate blunder but we can’t get bankruptcy to push the restart button. We get stuck with the tab on a five year plan.  Funny how people have to get on a five year plan, yet our own government and corporations have no five year plan. The government doesn’t even use the same accounting methodology they require public companies to use.  If we actually added all the commitments we’ve been promised the national debt is much closer to $40T, than the $10T we’re led to believe.

Mortgage Merry Go Round

http://online.wsj.com/article/SB121200132477426865.html?mod=todays_us_page_one

The rocket scientists are the wizards of Wall Street who invented securities that supposedly dispersed risk widely but actually created much more leverage than proved wise.

In a modern capitalist system, regulators provide guardrails to keep markets from driving the economy off a cliff. The regulators failed. Whether regulators should or could have restrained innovation on Wall Street or prohibited business deals between consenting, sophisticated adults is a tough question.

This is the problem.  Let’s move already to the post modern version where we have instituted the lessons learned from the failures of what we though were successes.  More government hands are not the answer, less is. Government is run by powerful, elite people who share boardrooms with each other when not in government. When government gets involved in the economy it does so at the expense of a free market. Resources allocated on the basis of true demand provides more benefits to more people, than one government deciding to choose a winner and a loser. I trust the 300 million of us to make a better decision than a few people insulated from their mistakes.

If all these people don’t financially hang for their mistakes there is no disincentive to refrain from repeating this decade after decade. No one should say they can or can’t create a product.  However if their proven to have been selling toxic waste, they should suffer the consequences of those actions.  Unfortunately we’ve climaxed to a point where if one comes down, they all do. Let these entities fail and reorganize the quality pieces as they’re own. 

This may result in marginal higher costs to the industry, passed on to us, but it’s the price we must pay for insurance against a total failure. It will cost more today to clean this mess up than it would have spread out over 300 million people over the last twenty years in the form of slightly higher costs to obtain credit.  Yes, we wouldn’t have been able to buy as many big screens as we wanted.  Aw shucks.

But investors who relied on the rating agencies -- particularly supposedly sophisticated pension funds and other institutions -- are at fault, too. Rating firms became a crutch for investors who simply didn't want to spend the time and money required to be prudent investors at a time when low interest rates had everyone reaching for higher returns without contemplating the higher risks.

Pension funds and those people who are depending on others to set them up are going to be shocked when they want to take money out.  The wealth the baby boomers have tied up alone is staggering and they must transfer these illiquid assets into liquid cash as they need it.  When they begin to see others selling, someone must buy.  What happens when they begin to feel the itch that the longer they stay, the more they have to lose?

We know SS is reaching a state of disequilibrium in the fact that more people will be living on it than putting into it.  So those who are paying either pay more or those who receive get less.  Someone is going to be unhappy, is it all of the above or one over the other?  I suppose it depends on the average age of Congress and the President during the next term.  The higher the average, the more likely the lowly Gen X and Millennials get shafted.

Derivative H-Bomb

http://us.ft.com/ftgateway/superpage.ft?news_id=fto052820081907312104

Efforts to tackle the risk surrounding privately negotiated credit derivatives will take a step forward on Thursday when 11 of the world's biggest investment banks announce the creation of the first central clearer for the opaque contracts by September.

Idea popped into my head.  What if this clearing house creates true price discovery for these derivatives and counter party risks quickly become clear.  If so, then will we have a rush to the exits and see whose left holding the bag?  Are we setting ourselves up for a crash in September?  There are those who do believe Sept/Oct is the best time frame seasonality wise to provide an opening for a crash. 

This clearing house is supposed to cast the light of day on a dark offbeat corner of the market.  Those inside the street agree that the derivative pyramid is akin to gambling.  Hedge funds have been selling insurance against losses for years as a way to provide a steady return on assets. Those products are exploding now that everyone is running to hide in a corner.  Oh well sorry, we’ve finally installed a light bulb and if we can find the switch to turn it on…

We have seen a few tentative mentions of nationalization as an option, but no discussion of what that might mean for America.  Perhaps it will be, as the Democratic Party proposes for health care, an easy no-cost solution.  But instead nationalizing two large sectors of the American economy will have large and unexpected effects on America.  It will be the largest expansion of government power since the New Deal. 

The exact form nationalization takes matters little. 

• It can de jure or de facto.  Governmental control has long since moved from legislation to agency dictats.  Our representatives in Congress now function more as Tribunes than a legislature.
• It might be an explicit government take-over, or through existing business structures.  The building might say First National Bank, but so tightly controlled so as to be functionally a government agency.

What will America look like -- guessing -- after a severe recession and nationalization of these two sectors?

Despite hysterical forecasts, it will not be an apocalypse.  America's people and infrastructure will still remain, and life continues.  America will more closely resemble France and German.

• Economic growth will slow.
• Our government and economy will be more rigid.
• Economic and political power will concentrate.
• Social mobility will be more difficult, as challenging established power structures (profit, non-profit, political, economic) will be more difficult.

Our elites will likely see these things as progress.  What we think of these changes will not matter, unless we take responsibility for our country.   We have the tools to do so, if we have the will to use them.

Recent news reports and commentary about the slow nationalization of our financial system

"U.S. Mulls Next Steps in Crisis", Wall Street Journal (18 March 2008) (subscription only) -- Excerpt:

The U.S. will face the same issues that Asian nations faced in the crisis of 1997-98. Is it better to nationalize financial firms outright, or inject bonds that provide the funding to carry on, so long as the recipients agree to repay the bonds with future profits?

"Bank Bailout Is a Path to Nationalization", James Pethokoukis, US News and World Report (21 March 2008)

"10 reasons your taxes are going up", Paul B. Farrell, Marketwatch (24 March 2008) - Excerpt:

The Fed's dealing with America like a third-world banana republic, effectively nationalizing our financial industry!

"Denial, Hope, and Panic", John H. Makin, American Enterprise Institute, (27 March 2008). Excerpt:

Addressing the fundamental problem -- the persistent and accelerating fall in house prices -- will require legislative action that will, to some extent, nationalize the mortgage market.  This approach is understandably abhorrent to many and carries with it substantial risks of involving the federal government in mortgage markets to a greater extent than is already the case.

If steps to contain the damage being caused by a free fall in house prices result in a return to the idea that house prices go only up and that they are underwritten by the federal government, we will see another housing and credit bubble even larger than the one that has already been threatening the global economic system.

We are probably at a point, however, where we need to choose between two approaches to putting a floor on house prices.  Either have the Fed print so much money that a return to inflation eventually stabilizes house prices and then pushes them back up -- the radical monetize approach -- or, alternatively, employ the nationalize approach, whereby a federally funded agency steps in to buy mortgages at less than their current face value to help stabilize the credit markets.  The Fed's commitment to ensure price stability makes the nationalize approach the only realistic option, however unattractive it may be.

"Policymakers confront awkward home truths", Financial Times  (31 March 2008)

The uncomfortable question of how to nationalise part of the US housing market is drawing closer. The Fed's balance sheet is huge and can be expanded to swap for unwanted mortgage securities. This may still not be enough to unwind financial market tensions and it looks increasingly likely the government will have to join the rescue, perhaps by creating a new agency that can accept defaulting mortgages and replace them with more accommodating terms for homeowners.

"Fed eyes Nordic-style nationalisation of US banks", Telegraph (31 March 2008)

The US Federal Reserve is examining the Nordic bank nationalisations of the 1990s as a possible interim solution to the US financial crisis. ...

These are steps toward a new era for America.  Quiet and small steps, so as to not disturb the Candidates or the stately kabuki of the election process.

Please share your comments by posting below (brief and relevant, please), or email me at fabmaximus at hotmail dot com (note the spam-protected spelling).

For more information about this subject

1. A brief note on the US Dollar. Is this like August 1914?  (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
2. The post-WWII geopolitical regime is dying. Chapter One   (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
3. We have been warned. Death of the post-WWII geopolitical regime, Chapter II  (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
4. Death of the post-WWII geopolitical regime, III - death by debt  (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
5. Geopolitical implications of the current economic downturn  (24 January 2008) – How will this recession end?  With re-balancing of the global economy, so that the US goods and services are again competitive.  No more trade deficit, and we can pay out debts.
6. A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
7. What will America look like after this recession?  (18 March 208)  — More forecasts.  The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
8. The most important story in this week’s newspapers   (22 May 2008) — How solvent is the US government? They report the facts to us every year.

To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.

It didn't take long for rumors to turn into reality. Bear Stearns succumbed to a liquidity crisis, JP Morgan Chase & and the Federal Reserve jump in with buckets of money to bail it out.

Bear Stearns is now up for sale, pennies on the dollar.

I hope you aren't invested in bank stocks. Quite the opposite, those of us using the investment prowess of Casey Research are invested in an ETF (exchange traded fund) that goes UP in value as the financial stocks go down. And down they have been going.

If you want help navigating the current financial storm, subscribe to International Speculator and learn how to leave the herd and actually make money in the current debacle.