January

The Laurel Comment
“ It was ordained at the very beginning that time would be the natural equalizer of all humankind and that it would be at once, both man’s mortal enemy and his greatest savior “ William Milton

If the major economic events of 2007 are to act as a harbinger of those things yet to come about, then it would appear that unlike Ebenezer, it is already too late for the world to change course. The impact of the sub prime mess that was brought about through cheap credit, lax regulation and blatant hucksterism may have been temporarily eased through the facility of the world’s central banks and their out of control printing presses but it is far from resolution.

As was the case during the Reagan-Bush Senior era when the Savings and Loan crisis was spawned, it is the perpetrators rather than the victims who are receiving the bailout. The ongoing actions of the aforementioned central banks to alleviate these short term difficulties are even seen as necessary and unavoidable by many of the issue’s most severe critics as their fear of imminent collapse has superceded their normal reticence toward monetary inflation. The question , it appears has reached beyond the pale, and that the only hope for present and future economic stability lies with “more of the same”. In essence, the easy credit , low rates and printed money that created the crisis in the first place are not being reversed, but enhanced.

Added to the actions of these all powerful government institutions are those of a relatively new and increasingly influential subset of national entities known as the “sovereign funds “. Dubai , ( known by some as the world’s money laundering capital ), China, Singapore, the OPEC nations and a still growing list of others have spent billions during the past few years buying U.S. based assets, including large positions in major financial institutions barely diminishing their ever mounting reserves of dollars. Hard assets , it would seem are better investments than currency based low yield treasuries, lending thought to the prospect that “ boxing day “ may have ended on December 26th but “ boxing year” in America has only just begun. The country is on sale , not necessarily to the highest bidder , but to any bidder at all.

It is difficult to believe that less than a decade ago America sat unchallenged as the world’s only superpower as it rode the rich technology wave to a budget surplus and record job creation। Remember too that oil in 1998 was at 10$ per barrel and only double that in the days of 9/11. Alas the surplus is no more and the deficit appears to have been permanently installed, while job growth even in the midst of the real estate boom barely matched labour market increases. Meanwhile the Iraq debacle , despite the surge fantasy, continues to waste both precious lives and precious funds as it destroys the last vestiges of America’s international moral and military credibility. This first decade of the new millennium has once again proven that a small group, or cabal if you will, of influential people can have an enormous impact upon history, unfortuneatly this impact is of a negative and destructive nature.

So where to now we might ask? Since the U.S. election is still eleven months away , there is little point in speculating upon what a new administration might do as the problem is about now. Furthermore, a recent poll voted George Bush as America’s most admired person, yes folks even a President Huckabee is possible . Betwixt here and there however lies the challenge for “sane “ Americans to fill the vacuum of intelligent political leadership with new hope for without such hard slogging...disaster looms.

Economy
The American consumer is responsible for 70 plus per cent of the U.S. economy, the savings rate in that country is effectively zero, credit card debt has reached epic proportions and the ATM machine that used to be a three bedroom house is broken. Meanwhile, energy and food prices have continued to escalate in the face of increased demand and market manipulation typified by the absurd subsidization of corn based ethanol. The potential for a return to the stagflation of the 1970's has fast become a topic for discussion among economists who either lived the experience and did not understand it and those who were conceived during its long nights and think they can avoid it.

Gold, energy and food appear to be the investments of choice should such a circumstance come about. It is true that emerging markets may one day replace the need for vast amounts of American consumption but that day has not arrived. China and the other sovereign funds will continue to support the “system” as long as they can and as long as it is in their interest to do so. Think 2008 Olympics.

Look for a strong market upsurge early in the year despite all the bad news as the mass of paper liquidity chases hard assets higher. Beware however that markets and economies are subject in the end to two important tenets, real growth and trust in the system. Such growth is fast fading and confidence in world currencies is eroding at a rapid rate. This is the recipe and the burners are on high.

Commentary
The recent events in Pakistan have underlined the nuclear threat we wrote of last month, they have also served to illustrate the failed policies that have abetted the breakdown. The government of Pakistan has received some 10 billion dollars of Bush largesse since 9/11, monies that were purportedly spent in support of the Bush “ war on terror” as well as to stabilize that country. This is not a joke, it is a tragedy of what may be epic proportion, one born of naivete at best or stupidity at worst. It is past time to change these insane neo con policies and for America and the West to abandon their interventionism as their efforts have not only proven to be wasteful, but counterproductive.

Leave, monitor and contain should be the freshly adopted stance of all serious Presidential candidates। Islamic terrorism is undoubtably a danger to the world but it is not an uncontainable one. North America , Europe including Russia, China , Japan, newly emerging India and Brazil represent a far more powerful potential economic and military alliance than all the bin Ladens of the world can ever dream. It is time to unite in the face of such tenth century foolishness and stop wasting precious resources in the pursuit of oil. Worries over global warming will quickly pale if a loose nuke finds its trigger.

Remarkably
The decade of the roaring twenties ended with a bang not a whimper as the crash of ‘29 brought a painful end to the excessive pursuit of pleasure and of things material that had typified the post Great War period. The depression that followed, it is said , did not have to be so severe, if the policies implemented by the Hoover administration had been more enlightened. Tight money and restrictive trade legislation have long been blamed for the length and depth of the economic decline that ended only with the buildup that preceded the Second World War.

As we look forward now to our present circumstance we note a different reaction to some of the same emerging problems. Instead of tight money, our cure has been greater monetary expansion as we have sought to innoculate the economy with the bacteria that caused the disease. As for trade and globalization , the real boom creators, we now hear rumblings of discontent from both the left and right as the scepter of protectionism and the xenophobia wrought from immigration and job loss move to front and center of the Presidential campaign.

In 1932 Franklin Delano Roosevelt , an aristocratic Democrat replaced the then unpopular Republican Herbert Hoover as President and quickly proceeded to rally the American public, morally if not practically with both his speeches and public policy decisions which appeared to be both inclusive and caring leading many observers of history to believe that his actions saved capitalism from itself and America from a revolution.

Social and regulatory policies implemented during FDR’s three plus terms some 70 plus years ago remain the basis for what is now America’s tattered social safety net. There have been additions over the years in the areas of civil rights and old age medicare of a sort but for the most part the nation has lagged far behind the rest of the industrialized world when it comes to citizen rights. A new agenda is long overdue and it is becoming ever more obvious and increasingly imperative that a vigorous and charismatic leader must emerge soon before the now developing social revolution becomes something else. If America is to move forward and regain the moral high ground it has most recently forsaken then it must elect a new FDR not another George Bush.