David J. Williams

Lehman’s roadkill. Merrill Lynch has run for cover. And it looks like Washington Mutual is probably next, along with God knows who else. The best analogy I can think of to describe what’s happening involves a really big set of cookie jars, hundreds of hungry monkeys, and a complicated light system that only incrementally reveals who has their hand in which jar, and just how many cookies they’ve already consumed. The point being that we still don’t know how deep this goes, and if that isn’t an argument for a total reform of the entire joke that our financial system has become, I have no idea what is.

It will also be interesting to see if the disaster that the economy is becoming finally makes its way into the presidential campaign.  Both candidates have talked a lot about the economy, sure, but neither has even begun to level with the American people about just how bad this is getting.  The New Model McCain is unlikely to venture anywhere near THAT discussion, of course, but Obama is going to have to.  Explaining in precise terms how this is all part of the mess the GOP has created while avoiding pointing out to the average citizen how his/her own spendthrift habits is also part of the problem . . . that’s the fine line that Obama is going to have to walk.  As for McCain, he can only hope the attacks on Palin intensify while everybody forgets about all those pesky issues that actually matter.

In my post of yesterday, I made the statement that “[Fed chairman] Bernanke is clearly floundering amidst the crisis that [former chairman] Greenspan spent his career postponing.” At least one commenter has wondered why Greenspan did this, given his focus should have been on the overall economic health of the country. And I’m here to tell you why:

Because he was a chickenshit.

Oh, it wasn’t entirely his fault. As the commenter in question points out, there’s no doubt that Alan Greenspan succumbed to pressure from the Prez, thereby turning what should have been the culmination of a great career into a mockery of everything that career stood for. But Greenspan was just doing his utmost to prevent an economic downturn at all costs.  Costs that included the risk of an even greater economic downturn in the future.  Thus the lowering of interest rates to rock-bottom levels across the early part of this decade.  Thus the ignition of a housing boom that rapidly got out of hand.

But that nonetheless did what it was supposed to:  propel us out of the recession of 01/02.  And something that’s worth noting about that recession is this:  it was the first in American history where our leadership denied its existence throughout its existence.  It was only after it was safely in the rearview that the dreaded R word could be pronounced at the highest levels of state.  And I would argue that there’s a sense that we never truly recovered from it:  that the housing boom constituted, essentially, a false recovery.  All we did was create a mountain of debt that’s now threatening to suffocate us.

Yet before we rush to blame Bush and Greenspan, we should take a good, hard look in the mirror.  Because that’s where the ultimate culprit resides.  Because lately the American public’s relationship with that thing called Reality has been getting pretty dysfunctional.  Something our leaders are smart enough to see . . and cowardly enough to accommodate (and, I might add, greedy enough to exploit).  The American people don’t want to be in a recession.  So . . presto . . no recession!  It’s easy, see?  We just hit the magic button and keep printing more money and your homes keep increasing in value and you can keep on fucking borrowing and borrowing and keep on buying SUVs because we know the only thing that’s as unlimited as dollars is oil and besides daddy I mean Dick Cheney said the american way of life is non-negotiable and you wouldn’t want to see what kind of electoral temper tantrum I’m gonna unleash on any goddamn commie who tells me that it’s NOT . . .

But let’s not get carried away here.  Because Dick also said use your last ten bucks to buy THE MIRRORED HEAVENS.  There’s no better way to spend it.  Trust me on this.

Grim day yesterday, as oil rose into the stratosphere and stocks took it on the nose. Just to put things in perspective, we are now on track for the worst June on Wall Street since the Great Depression. What’s really scary here is that it’s not just oil prices that are driving this; the market was also reacting to clear signals that the credit crisis (which bankers were so eager to assure us was now behind us) remains in its early stages. Worse, Fed chairman Bernanke is clearly floundering amidst the crisis that Greenspan spent his entire career postponing. Barclays Capital warned its clients yesterday that central banks have flunked their “first major test in 30 years”, and that their pumping of money into the economy has given them “zero credibility . . .and the Fed has negative credibility, if that’s even possible.”

Harsh words.  Maybe too harsh, given that it’s not just the Fed’s fault.  The stupidity of the much-vaunted stimulus packages passed by Congress and signed by the Prez this past spring is now manifest: at best that stimulus had no impact; at worst, it persuaded just a few more debt-stricken consumers to stagger to their local Circuit City for a TV they couldn’t afford.  We’ve been sleepwalking for so long; what’s ten more minutes after you’ve already hit the snooze button fifty times?  But unfortunately the scene now is like that at Arthur Dent’s house in Hitchhiker’s Guide:  the bulldozer is right outside the window, and it’s about to come crashing through.  Royal Bank of Scotland just issued a warning that the “chickens are about to come home to roost”, and that by September the markets will be in full, devastating retreat.  It’s hard to see how that scenario can be avoided now.

Meaning that the Fed will be confronted with the dilemma they’ve been so desperate to avoid for so long.  Raising interest rates offers the only hope of stemming the runaway inflation that rising oil and commodity prices are threatening to unleash.  But the impact on the long-deluded American consumer will be nothing short of catastrophic . .  and that’s a word that I fear we’re going to hear a lot more of in the weeks and months to come.