The Decline of the American Empire
Recent economic, financial and geopolitical events suggest that the decline of the American Empire has started. After the collapse of the Soviet Union there was a brief period where the world switched from a bipolar balance of two superpowers to a unipolar world with one economic, financial, geostrategic superpower, or better, hyperpower, i.e the United States. But by now three factors suggest that the US has squandered its unipolar moment and that the decline of the American Empire – as the US was in effect a global empire – has started.
Let us explain how and why…
First, the US squandered its power by relying excessively on its hard military power in the wars of Iraq and Afghanistan and in its unilateralist foreign policy – including economic issues such as global warming – rather than relying more on its soft power of diplomacy and multilateralist approaches to global policy issues.
Second, regardless of mistaken US policies the rise of other economic and financial powers – the rise of China, the recent resurgence of Russia, the process of economic and political integration in the European Union, the emergence of India, and the rise of other regional powers such as Brazil, South Africa and Iran – implies that the relative economic, financial and geopolitical power of the US will be reduced over time. We are indeed slowly moving towards a multipolar world where there will be a balance of Great Powers rather than the hegemony of a single hyperpower. While on military terms the US is still the only superpower even its military power is now restricted by imperial overstretch and its armed forces being bogged down in Iraq and Afghanistan; thus, Russia has now been able to flex its muscle in its Central Asian backyard and humiliated the US – not just Georgia – in the latest conflict on South Ossetia. For the Bush administration having supported Georgia by words only and show its impotence – or unwillingness – to support an ally in spite of the administration push to have Georgia join NATO shows the limits of the American power. The US is at fault for effectively letting Georgia start a reckless attack on South Ossetia. Russia has scary and dangerous neo-imperial goals but deeply flawed US foreign policy of encircling a paranoid Russia allowed the worst nationalist tendencies of the Russian bear to reemerge.
Third, and more important, the US squandered its economic and financial power by running reckless economic policies, especially its twin fiscal and current account deficits. The last time around the current account started to go into negative territory in 1991 after a brief surplus during the 1990-91 recession. In the 1990s the growing US current account deficit was driven by a private investment boom – the internet technological revolution – and thus the accumulation of foreign liabilities of the US was driven by FDI and M&A activity, i.e the US accumulated foreign liabilities in the form of equity rather than debt. But since 2001 the further worsening of the US current account deficit was driven instead by growing fiscal deficits – especially in the 2001-2004 period – caused by unsustainable tax cuts and by the buildup of spending on foreign wars and on domestic security and since 2002 by the collapse of household savings and boom in investment in unproductive stock of housing capital that the housing bubble induced. And while the weak dollar is now inducing a modest improvement of the external deficit the looming sharp increase in fiscal deficits – that the current recession and financial crisis is inducing – will cause a return of twin deficits in the coming years. By now the US is the biggest net borrower in the world – running current account deficits still in the 700 billion dollars range – and the biggest net debtor in the world with its foreign liabilities now over 2.5 trillion dollars.
The trouble with these twin deficits is multi-fold. First, superpowers and empires – like the British Empire at its peak – tend to be net lenders – i.e run current account surpluses – and be net creditors, not net debtors; The decline of the British Empire started in World War II when the British fiscal deficits in the war and the current account deficits turned that empire into a net borrower and a net debtor both in its public debt and external debt. That financial switch into an external debtor and borrower position was also the reason for the decline of the British pound as the leading reserve currency. And the British twin deficits were being financed by a rising economic and financial power that was a net lender and a net creditor, the US.
Second, the last time the US was running large twin deficits in the 1980s the main financers of these deficits were the friends and allies of the US, i.e Japan, Germany and Europe as the US external deficit was against these economies. Today instead the economic powers financing the US twin deficits are the strategic rivals of the US – China and Russia – and unstable petro-states, i.e Saudi Arabia, the Gulf States and other shaky petro-states. This system of vendor financing – with these US creditors providing both the goods being imported and the financing of such deficits – has led to a balance of financial terror: if these creditors were to pull the plug on the financing of the US twin deficits the dollar would collapse and US interest rates would go through the roof.
Third, while it is unlikely that China, Russia and other powers would suddenly pull the rug from under the US feet – as such action would lead to a sharp appreciation of their currency and negatively affect their export led growth model – relying excessively on the kindness of strangers – especially that of your strategic rivals – is extremely risky. Since almost 100 percent of all US fiscal deficits since 2001 have been financed by non-residents – as US residents net holdings of US Treasuries have been flat since 2001 – by now the total stock of US Treasuries held by non-residents is getting close to 60 percent. And the foreign financing of the US current account deficits has also become more risky: less FDI and equity, more debt, more short term debt, more debt held by official political actors – central banks and sovereign wealth funds – , less debt held by foreign private investors, and more debt held by politicals rivals rather than allies of the US. This change makes the US vulnerable to such rivals using the financial terror weapon – dumping US assets and or reduicing their financing of the US twin deficits – in situations of geostrategic tension.
Suppose Russia flexes further its muscle in its backyard – under the pretense of defending abused Russian minorities in Ukraine, the Baltics and other former Soviet Union or Iron Curtain countries. Then Russia could use its financial power – the ability to dump hundreds of billions of dollar assets – to exert both financial and military influence. So could China over time if trouble in Taiwan or other disputed Asian territories become big geopolitical issues. Russia and China are already winning the new war for the control of commodities and ressources through their investments in Africa and Latin America – in the case of China – and its domestic and foreign control of energy and pipelines in Central Asia in the case of Russia. China and Russia are indeed winning the new Scramble for Resources.
Fourth, the foreign creditors of the US are getting tired of financing the US in the form of low-yielding US Treasuries. Thus the switch of such reserve holdings to SWFs that are planning to make large equity investments possibly with actual control of corporate firms and financial institutions that are desperate for capital to recapitalize themselves. But this desire of our creditors to get equity investments – the gems of the US corporate world – rather than low yield debt instruments is hitting the political backlash of financial protectionism as the UNOCAL- CNOOC, the Dubai Ports cases and the likely protectionist reform of the C
IFIUS process of approving FDI in the US suggest. But a country that needs to borrow from abroad 700 to 800 billion dollar a year to finance its external deficit cannot afford to be too choosy on the ways – equity rather than debt – that its lenders and creditors want to finance those deficits. The first rule of good manners if you are a guest is that you don’t spit on the plate from which your host is feeding you. But in its creeping financial protectionism the US thinks it can dictate to other countries the form and the terms of the financing of its twin deficits. This attitude will not be allowed by such creditors to last much longer.
The ensuing decline of the US dollar as the main reserve currency will take time and will not occur overnight; but it is inexorable given the relative fall in US economic, financial and geopolitical power. Already Russia is flexing its muscle and pushing for an international role of the ruble; the euro is rising as a major reserve currency; central banks and SWFs will slowly but surely start to diversify away from dollar assets especially as the Bretton Woods 2 regime starts to unravel; and even the RMB may become the dominant currency in Asia in the next decade as capital controls are slowly removed in China. It will take little time – if the secular decline of the value of the dollar continues – for oil and other commodities to be priced in currencies other than the dollar or in a basket of currencies.
All these changes in the economic, financial, reserve currency and geopolitical role and relative power of the US will not occur overnight. But the trend is clear. The rise of the BRICs and other emerging market economies; the continuation of the process of economic and political integration in Europe; the US policy mistakes in economic, financial and foreign policies will steadily erode the power of the American Empire. This process will not be sudden and will take a couple of decades. But the trend is clear: the brief period of unipolar power of the American hyperpower is now over and a new age of balance of great powers is starting in the world. Also, the rise of non governmental actors – multinational corporations, NGOs, terrorist groups, non-nation state powers, failed and unstable states, non-traditional global players – will radically change the traditional balance of power as the power of nation states will shrink relative to that of other global players.
Whether the decline of an hegemonic power providing global public goods – security, free trade, freer mobility of capital and people, inducements to free markets and democracy, better environment, peace – will lead to a more stable world with many powers multilaterally cooperating on these global economic, financial and geopolitical issues; or whether the absence of such stable hegemonic power will lead to a more unstable world characterized by conflicts – economic, political and even military – among traditional nation states, great powers and non-traditional actors is an open and difficult issue. But it is certain that the decline of the American Empire has started.
497 Responses to “The Decline of the American Empire”
Guest • August 13th, 2008 at 7:35 am
The US is reaping what it has sewn – electing a seemingly ideologically pure but stupid president. Eight years of deficits don’t matter and stupid tax cuts. So what does one expect other than destruction of the US from stupid policies and religiosity as the basis for decisions?crgordon
MASHIACH BEN CHANA • August 13th, 2008 at 8:07 am
SECONDOFORZA PARTIGIANI
MASHIACH BEN CHANA • August 13th, 2008 at 8:13 am
WELL SAID PROFESSOR RUBINI BRAVO. FANTASTIC POSTTHE RUSSIANS ARE COMINGHELLO RUSSIA GOODBYE NATO
Zeke • August 13th, 2008 at 8:14 am
I agree. The thing I keep telling myself is who we elect is a reflection of ourselves. Not a reflection of all of us but enough.
Brandon Cox • August 13th, 2008 at 8:17 am
Thank your George W. Bush.Worst. President. Ever.
AussieRob • August 13th, 2008 at 8:33 am
Given that the news clips we see have such enlightened views like “I ain’t voting for no woman and certainly no nigger” I can see you having a geriatric running the place down for another 8 years. Don’t expect a “the empire strikes back” sequel, you are about to join the 3rd world and get the sort of reception cops get in prison.
Mark • August 13th, 2008 at 8:41 am
So what are the options? I agree with the assessment, but what can be done to adjust the state of affairs? The US could make bold policy moves, but the political will of our elected officials is not there. i.e. Iraq.
Anonymous • August 13th, 2008 at 8:58 am
The Georgia war is indeed a big turning point — the US tried to circle Russia taking advantage of its weakness. Now Russia is fighting back and making the US and its puppets look like fools. No one is buying the US “democracy” brand any more because they know its not real. I think we are going to have a real new COLD WAR and the return of proxy battles involving countries like ISRAEL which already had a big role in the Georgia fiasco: http://electronicintifada.net/v2/article9756.shtml
Brian Shriver • August 13th, 2008 at 9:03 am
Agree with everything but…Not sure that US interest rates would go through the roof. If foreign investors diversified away from the USD, they would have to sell their USD to Mr. Somebody in the forex market (for a plummeting price). Mr. Somebody would then be flush with cash, willing and able to invest in US government bonds. It’s true he may not want to, but he probably will, since bonds rally when financial crises occur.FWIW
London Banker • August 13th, 2008 at 9:05 am
@ Professor RoubiniGreat blunt writing here, and I agree that the US has squandered the sympathy it had in the wake of 9/11 when even Iran offered immediate cooperation and sympathy with Americans.But can we use “multilateral” instead of “multipolar”? I don’t think multi-polar makes sense (geographically or politically) as it implies the Bush-style “you’re either with us or against us” line up of nations. Frankly it invites the sort of bi-polar decision-making we’ve had all too much of over the past generation. Nations have complex interests and cultures, which create complex matrices of interaction, driving patterns of cooperation and aversion.I’m tired of simplicity, dumbing down of difficult, complex geo-political issues into Us and Them stances. We need – all of us – to rebuild structures for cooperative discussion and decision-making in global political and economic affairs that respect sovereignty while ensuring that global norms are both expressed clearly and upheld by the community as well as individual nations (particularly those with nukes).
Anonymous • August 13th, 2008 at 9:21 am
I agree with long term analysis, but in the short term of a gathering global recession, the dollar may be looked at as a safe haven, for no other reasons than there’s nothing there right now to replace(certainly no one would argue that China or Russia are more stable) and simple inertia, which one should never under estimate the power of, in the affairs of man.
Guest • August 13th, 2008 at 9:47 am
So, the U.S. should ignore all the terrorist attacks? Taking no stand brought the attacks to our soil. You are right, we should pull out of Europe, the M.E., and
Guest • August 13th, 2008 at 9:58 am
Mr Roubini,you miss one very important aspect of the situation today.If the Peak Oil theory is true (and all the facts are showing that it is true), then the US army is very well positioned in the middle east and the debt of USA will never be paid back.
Guest • August 13th, 2008 at 10:09 am
I had one history professor friend compare the Maritime Dutch Golden Age to the current state of American affairs. It’s not exactly the same but he pointed to the fact that the Dutch, over time, outsourced everything and ran a massive deficit. The Dutch lost their positions eventually. Sound familiar?Also, this same friend made this comment, “All Empires went bankrupt first before they crashed.”
Anonymous • August 13th, 2008 at 10:14 am
Professor Roubini – thanks.A pretty example from today. Do you think Russia is the enemy now? Think again – it just made a big investment in U.S. steel manufacturing:Russia’s Novolipetsk Steel to buy U.S. John Maneely for $3.5 bln
MOSCOW, August 13 (RIA Novosti) – Novolipetsk Steel [LSE: NLMK], one of Russia’s largest steel producers, said on Wednesday it had signed a final agreement to acquire the U.S.-based pipe manufacturer John Maneely Company (JMC) for $3.53 billion.Under the deal, Novolipetsk Steel will acquire the U.S. steel pipe and tube producer from a group of shareholders, including global private equity firm Carlyle Group and the Zekelman family, on a debt free, cash free basis. The deal is subject to regulatory approvals and is expected to be closed in the fourth quarter.”The acquisition of JMC fits with NLMK’s stated strategy of portfolio diversification and downstream integration in the core markets of the company. It strengthens NLMK’s position in North America and provides an entry point into an important and high-margin end market,” Novolipetsk Steel said in a statement.Established through the merger of John Maneely Company and Atlas Tube in 2006 and headquartered in Ohio, JMC operates eleven plants in five U.S. states and one Canadian province. The company has annual production capacity of over 3 million metric tons of steel pipe and tube, Novolipetsk Steel said.
I wonder what McCain’s comment on this … hehehe
Guest • August 13th, 2008 at 10:16 am
The march continues toward a bigger and bigger non-competitive behemoth banking monopoly. The most influential and well-connected members of the banking cartel and its Fed tit, the 19 et al, are picking up the spoils of the destroyed and crippled after they themselves have their large, defaulted loans and dead investments restored to life by a Congressional pledge of tax dollars. And now, we can listen with serious demeanor to their “investment strategists” – a la Merrill’s Bernstein — telling us just how it is and will be. Well, he ought to know. And we ought to know who will end up with all the toys after Bernstein’s “massive consolidation.” So many here seem to love and admire the vast power of the Fed. But, hey, we can blame all the damage on little George — the mastermind of worldwide economic enslavement.Credit Crisis Still `Far From Over,’ Merrill’s Bernstein SaysAug. 13 (Bloomberg) — The credit crisis is “broad, deep, and global” and “far from over” for financial companies even after they reported $500 billion in writedowns and credit losses, Merrill Lynch & Co.’s chief investment strategist said.“Investors are significantly underestimating both the scope and the extent of the credit bubble and the consequences of its subsequent deflation,” Richard Bernstein wrote in a note to clients. “The problems are not confined to large institutions that are overexposed to U.S. subprime loans.”The lingering effects of the crisis mean banks and brokerages need “massive” consolidation because of the glut of lending worldwide, Bernstein said.Profit for U.S. banks and brokerages tumbled 94 percent in the second quarter from a year earlier, according to Bloomberg data. Financial stocks in the Standard & Poor’s 500 Index have tumbled 28 percent this year for the worst performance among 10 industry groups.To contact the reporter on this story: Jeff Kearns in New York at jkearns3@bloomberg.net.
Guest • August 13th, 2008 at 10:18 am
In a recent posting of the Merk Fund newsletter, Axel Merk noted that holdings of Euro’s in the US Gov’t accounts had gone down suddenly. This supports the view that the recent upsurge in the US dollar was a currency intervention, and not a clear long-term change in the fortunes for the US dollar. Naturally, we all know that Mr. Paulson is very good at “dancing and prancing”, so temporarily this maneuver makes things look (technically) as though a major currency change has occurred. But it hasn’t. In fact, we’re rapidly approaching the point where Fannie Mae is completely insolvent. See John Hussman’s article this week (www.hussmanfunds.com).Meanwhile, don’t know if you caught the interview with President Bush on NBC during the Olypics. At one point the president was asked something like this: “What do you think about the relationship between the US and Chine, as America has problems while China is moving rapidly ahead?”. And the President’s response”: “America doesn’t have any problems.”The response in Washington is to turn the dial on the “BS Meter” to maximum.PeteCA
maynardgkeynes • August 13th, 2008 at 10:21 am
If the foreign creditors of the US really are “getting tired of financing the US in the form of low-yielding US Treasuries” and “are planning to make large equity investments,” as Prof Roubini asserts, I have to question how unlikely it is that China, Russia and other powers would suddenly “pull the rug from under the US feet – as such action would lead to a sharp appreciation of their currency,” as Prof Roubini also asserts. An appreciation of their currencies would allow them to buy US corporate assets on the cheap, which is their long term goal. Thus, they have much less stake long term in a strong US dollar than is generally thought.
Guest • August 13th, 2008 at 10:36 am
@Guest: “So, the U.S. should ignore all the terrorist attacks? Taking no stand brought the attacks to our soil. You are right, we should pull out of Europe, the M.E., and…”Do I detect an oxymoron here? Taking no stand brought the attacks to OUR SOIL. So, WE should PULL OUT OF EUROPE, THE M.E. AND…The Neocon Party’s slogan: “War is Peace; Freedom is Slavery; Ignorance is Strength; Defense is Terrorism.”
Guest • August 13th, 2008 at 10:54 am
Written by MASHIACH BEN CHANA on 2008-08-13 08:13:51Can you provide some in depth and accurate information on the forum provided for this subject?? See home page for”Conflict in Georgia: Economic and Financial Fallout by Kavitha Cherian and Rachel Ziemba Aug 11, 2008″hlowe
Anonymous • August 13th, 2008 at 10:58 am
Echoes of Niall Ferguson’s “Colossus: The Rise and Fall of the American Empire” Penguin 2005.
Anonymous • August 13th, 2008 at 11:20 am
Any thoughts on the possibility (?) mentioned in the “factional” book titled Implosion (by Peter Koenig) of the U.S. secretly working on a return to some sort of Gold Standard for its currency – given that confidence/trust is beginning to wane?
Guest • August 13th, 2008 at 11:21 am
Now we know why Bob Scheer was fired from his base paper, The L.A. Times. No establishment media, especially the Sam Zell-looted Times, can tolerate an investigative truth-teller when the flame gets too close to the gasoline.Today’s Scheer blockbuster puts the neocons and John McCain in the forefront of Georgia’s surprise attack on South Ossetia.Yes, Russia helped with provocations and it greatly benefits from the outcome. But the main story, trust me, is right inside those paragraphs from Robert Scheer. Excerpts:“Georgia War a Neocon Election Ploy?” by Robert ScheerAugust 13, 2008 — Is it possible that this time the October surprise was tried in August, and that the garbage issue of brave little Georgia struggling for its survival from the grasp of the Russian bear was stoked to influence the U.S. presidential election?Before you dismiss that possibility, consider the role of one Randy Scheunemann, for four years a paid lobbyist for the Georgian government who ended his official lobbying connection only in March, months after he became Republican presidential candidate John McCain’s senior foreign policy adviser.Previously, Scheunemann was best known as one of the neoconservatives who engineered the war in Iraq when he was a director of the Project for a New American Century. It was Scheunemann who, after working on the McCain 2000 presidential campaign, headed the Committee for the Liberation of Iraq, which championed the U.S. invasion of Iraq…Yes, it sounds diabolical, but that may be the most accurate way to assess the designs of the McCain campaign in matters of war and peace. There is every indication that the candidate’s demonization of Russian leader Putin is an even grander plan than the previous use of Saddam to fuel American militarism with the fearsome enemy that it desperately needs.McCain gets to look tough with a new Cold War to fight while Democratic presidential candidate Barack Obama, scrambling to make sense of a more measured foreign policy posture, will seem weak in comparison. Meanwhile, the dire consequences of the Bush legacy that McCain has inherited, from the disaster of Iraq to the economic meltdown, conveniently will be ignored. But the military-industrial complex, which has helped bankroll the neoconservatives, will be provided with an excuse for ramping up a military budget that is already bigger than that of the rest of the world combined…http://www.huffingtonpost.com/robert-scheer/georgia-war-a-neocon-elec_b_118597.html
aleister perdurabo • August 13th, 2008 at 11:23 am
If only we had listened:http://uk.youtube.com/watch?v=-tPePpMxJaA
bytheway • August 13th, 2008 at 11:42 am
Remember “wag the dog” ?”The spin doctor Connie Brean (Robert De Niro) partners with the Hollywood producer Stanley Motss (Dustin Hoffman) to concoct a straight-to-video war with Albania. They want to deflect public attention from the charge that their candidate, the President, improperly touched an adolescent girl.”Sounds familiar.They are playin always the same game.
bytheway • August 13th, 2008 at 11:46 am
@ aleister perduraboLooks like Carter was the only President who tells his citizens the truth.And they kicked him..
Guest • August 13th, 2008 at 11:48 am
Whimsical diversion from “sharp elbowed” financialshttp://www.firstthings.com/article.php3?id_article=241
Guest • August 13th, 2008 at 11:50 am
The Russians remember Kosovo.
Guest • August 13th, 2008 at 11:58 am
Pelham Grenville…a little like Fothergill. Devastatingly perfect prose.
Gloomy • August 13th, 2008 at 12:05 pm
Nouriel,Great post as always. Thanks for addressing inflation and the dollar in your most recent efforts. In addition to your well made points, IMO another factor weighing on the dollar will be that declining exports of our creditors in this very deep recession/depression, will leave them with less capital available to purchase our treasuries. This slowdown in treasury demand will occur just as we increase treasury sales, due to massive corporate bailouts and declining tax revenues. In this way, the US economic slowdown will precipitate a rise in treasury rates and weakening of the dollar.
WAWAWA • August 13th, 2008 at 12:11 pm
Thank your George W. Bush. Worst. President. Ever.Absolutly, I regret that I voted for this a$$ whole.Bush has betrayed principals of economic conservatism among other things.saddest part is that general public do not know how weak the US has become.
Guest • August 13th, 2008 at 12:22 pm
Dr. Roubini – your “Decline of the American Empire” is a profound undertaking. No one else would have taken on an analysis of this detail, with such economic and political magnitude, without any political bias. You, Professor, are a valuable resource and we are lucky to have you.
bytheway • August 13th, 2008 at 12:26 pm
Take a lock at http://www.chrismartenson.com/fuzzy_numbers chapter 16 and you will see, US hasnt become weak, it was weak long time ago, but with “statistics” they deceived the sheople.It seems to me that most folks in financial blog were Bush voters.Asthonising.Where you all blind?He was an Idiot since his first day.
GLOOMY • August 13th, 2008 at 12:28 pm
NO PLACE TO RUN AND HIDE, PART 2From the Telegraph:”What we are about to see is a race to the bottom by the world’s major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.”Better put a little gold in your portfolio, just in case.
Guest • August 13th, 2008 at 12:30 pm
U.S. Economy: Retail Sales Fell in July, Led by Autos (Update2)Aug. 13 (Bloomberg) — Sales at U.S. retailers dropped in July for the first time in five months as record gasoline prices and tighter credit reduced automobile purchases.Spending dropped 0.1 percent from June, the Commerce Department said today in Washington. Excluding cars, sales rose 0.4 percent, less than anticipated. The Labor Department said prices of imported goods soared 21.6 percent in the year to July, the most since at least 1982.Consumer spending, which makes up more than two-thirds of the economy, is likely to keep fading as a boost from tax rebates wanes and households try to cope with job losses and house-price declines. Macy’s Inc., the No. 2 U.S. department-store chain, today said profit may fall more than it forecast. Wal-Mart Stores Inc., Kohl’s Corp. and J.C. Penney Co. also report this week.“With the tax-rebate effects dissipating and the labor market weakening, we should see consumer spending slow through the remainder of the year,” said Dana Saporta, an economist at Dresdner Kleinwort in New York, which correctly forecast sales excluding autos.Import prices rose 1.7 percent in July from the previous month, more than economists had projected, after a 2.9 percent increase in June, Labor figures showed.“We are in the midst of a long-term trend in inflation,” said Joe Brusuelas, chief economist at Merk Investments LLC in Palo Alto, California. “We can’t sugarcoat this. It’s not a good thing.” …
Guest • August 13th, 2008 at 12:44 pm
CNBC: Goldman’s Joseph Cohen Still Sees Market StrenghthsPlease let me know when she turns bearish (or even neutral) on the market so I can leverage the farm to go long equities. That would be the contrarian signal of all time.
Guest • August 13th, 2008 at 12:47 pm
Looks like Paulson finally got out of the hot tub to buy S&P futures.http://finance.yahoo.com/q/ta?s=%5EGSPC&t=1d
Guest • August 13th, 2008 at 12:49 pm
Zero to 8000 in 60 Seconds – Hedge funds grew from just $39B in 1990 to more than $2T at the peak last year. At the peak, there were more than 8,000 hedge funds. We’ve lost about 500 over the past year, and that number is going to hyper-escalate moving forward . . . but there is a catch (see below). In any event, these two numbers scream out . . . painful unwinding ahead. We are already seeing it, with some estimates of growth in hedge funds for the first six months of this year showing an outflow of funds, and the most optimistic numbers showing just a $30B inflow, compared to more than $150B in the first six months of 2007. Keep that in the back of your mind . . . a $2T unwind at 7:1 leverage.http://realestateandhousing2.blogspot.com/
Guest • August 13th, 2008 at 12:57 pm
As the truckers would say on their CBs, the flag-antenna patriots jumped on Russia faster than a rat on a Cheeto
Guest • August 13th, 2008 at 12:59 pm
OUTSIDE GORI, Georgia – Russian troops and paramilitaries rolled into the strategic Georgian city of Gori on Wednesday, apparently violating a truce designed to end the conflict that has uprooted tens of thousands and scarred the Georgian landscape.Yikes!
Anonymous • August 13th, 2008 at 1:10 pm
This distruction started a long time ago, what your talking about is results from a probem which is a result from another problem which is a result from the REAL problem. Keep digging tho, and follow the moeny.
Angry • August 13th, 2008 at 1:28 pm
When you look at the all the problems the U.S. faces, the drivers boil down to a few points:1) Politicians are not accountable to the people anymore (if ever)2) Politicians are manufactured candidates with little real leadership experience or ability–example GW as a war president (from all that training and experience in the Texas National Guard?)3) U.S. citizens are uneducated and uninterested in politics. Partly their fault and partly the system. Look at mainstream media–when is the last time you saw a real debate on issues?4) Politics is now entertainment. Candidate debates are sound-bytes5) Regulation is non-existent and corporations do not look out for the individual6) Americans consume too much stuff. Our productivity is slipping b/c the country doesn’t invest in anything meaningful like education or infrastructure. Instead we speculate in housing and buy escalades. That is why we are all in debt.7) Empires rise and fall. I can’t see anything truly redeeming in the U.S.’s future outside of technology (which can only do so much)8) The U.S. system is perfectly setup for the rich to screw the poor and middle-class.
ArtS • August 13th, 2008 at 1:30 pm
Dr Roubini,I agree a with you, I see you are changing your thinking about the USA, you are giving more weight to inflation and money printing (last blogs) and now you are seeing the USA more from a global economy perspective, this is a top down analysis, great!, the implication is that the American consumer will not the driving force of the global economy for much longer.From the economic data I can see we have a “make believe” economy represented from the official data like GDP, CPI, unemployment etc. that make the situation to look much better than actually is and the real economy that could be represented from data like Shadow Government Statistics athttp://www.shadowstats.com/According to SGS data unemployment is around 14%, GDP is mostly negative since the 2000 recession, CPI is in the order of 12% and M3 growth is 16%, very dismal data indeed. I know many people would say why we have to believe more in the SGS data than in government statistics. SGS claims they do their statistics according to methodologies previously used, e.g. CPI as it was calculated in the 1980’s and 1990’s, since governments were changing methodologies to show a better scenario I am more inclined to believe on SGS than official data, besides it feels more realistic.The big problem I see with the official figures is that all the conclusions that an economist could make could be totally wrong. Garbage in, garbage out. It is an exercise in futility. For instance predictions that recession started in the first quarter this year would be non sense because we were already in a recession, we were in a stagflation state at the beginning of 2008 when we were discussing the need for an external shock to create this situation etc.
richinar • August 13th, 2008 at 1:32 pm
I wish desperately that I could argue against the points made in this most recent post. I still believe that we as Americans can change our future. We may never again have the standing in the world as we once did, but that does not mean we must be marginalized either.Change is deperately need at all levels of government. We can not spend our way out of trouble. Change must begin now and here at home on the most basic levels. Vote out incumbents to start with. Force change.
bsetser • August 13th, 2008 at 1:33 pm
Nouriel — i think you are understating the extent to which the US can determine the assets its creditors buy. So long as its creditors are resisting exchange rate pressure/ not spending the commodity windfall they more or less have to buy euros and dollars. there aren’t big enough markets elsewhere to absorb their surpluses. and if they cannot buy asset a, they end up having to buy asset b. it isn’t fair perhaps, but the united states creditors aren’t buying us assets for returns. that is why cuts in us rates (far more damaging to the financial interests of us creditors than protectionism — and incidentally, here us “fiancial protectionism” is in some sense balancing others exchange rate protectionism/ closed capital account) haven’t reduced official financing of the US. and that is why Dubai ports world and Cnooc/ unocal were associated with more not less Chinese and Gulf demand for us financial assets. to have leverage, the united states creditors need to be able to credibly threaten not to buy any us assets if the us protects some assets. to do that tho they need to stop pegging to the $. and recently china doubled down on its peg …
Tor • August 13th, 2008 at 1:47 pm
Georgia started its shock and awe firebombing of a city of Tshinvalli and killed Russian peacekeepers a day before Russia responded, yet media largely covers that fact. Russia is uprooting military infrastructure e.g. destroying leftover military artillery base in Gori that western media calls “looting”. Footage of a residential building with upper floors burning is a result of munitions detonation at that artillery base bombed by Russian air force.What is scary is that US administration is hell bent on defending its Georgian pet project taking escalation steps. I know what I am talking about as I took part in the same US sponsored program as current Georgian prez.Next 6 months of Bush administration are going to be scary. Something happened on Aug 6th that led Bush to decide on escalation: many decisions took place vies-a-vi Israeli prime minister, Pakistan, Iran. Does anyone see similarity to 1914? Does anyone suspect psychological problems of Georgian prez?
AfA • August 13th, 2008 at 1:51 pm
@ AngryThat’s a good start. I am talking about your name. About the points you made, they are all good, but I only see them as consequences. To think today’s problems are results of only incompetence is do the responsible a favor.
E.Downe • August 13th, 2008 at 1:57 pm
Bush can be blamed for a lot. But I am convinced the trouble began with the naive “domino theory” that put us in Vietnam.
Guest • August 13th, 2008 at 2:00 pm
S&P now green. Paulson can get back in the water.
Guest • August 13th, 2008 at 2:01 pm
http://seattlepi.nwsource.com/horsey/viewbydate.asp?id=1806Ha-Ha
AfA • August 13th, 2008 at 2:07 pm
Nouriel,Is this why Paulson went to the Gulf then to Beijing: Finalizing (or begging for) a deal?Does the USA qualify for a loan and rebuilding program from the IMF and World Bank?
aleister perdurabo • August 13th, 2008 at 2:19 pm
Nice rant by Paul Craig Rogers on Counterpoint. Part of it below:Every country is tired of war except for the US. War, including nuclear war, is the neoconservative strategy for world hegemony.The entire world, except for Americans, knows that the outbreak of armed conflict between Russian and Georgian forces in South Ossetia was entirely due to the US and its Georgia puppet, Saakashvili. Americans, alone in the world, are unaware that the hostilities were initiated by Saakashvili, because Bush, Cheney and the Israeli-occupied American media have again lied to them.Everyone else in the world knows that the unstable and corrupt Saakashvili, who proclaims democracy and runs a police state, would not have taken on Russia by attacking South Ossetia unless given the go-ahead by Washington.The purpose of the Georgian attack on the Russian population of South Ossetia is twofold:To convince Europeans that their action in delaying Georgia’s NATO membership is the cause of “the Russian aggression” and that to save Georgia from conquest Georgia must be given NATO membership.To ethnically cleanse South Ossetia of its Russian population. Two thousand Russian civilians were targeted and killed by the US-equipped and trained Georgian Army, and tens of thousands fled into Russia. Having achieved this goal, Saakashvili and his puppet-masters in Washington quickly called for a cease fire and a halt to “the Russian invasion.” The hope is that the Russian population will be afraid to return or can be prevented from returning, thus removing the secessionist threat.No doubt the Bush Regime can con the American population, just as it did with Iraqi weapons of mass destruction, Iranian nukes, and 9/11 itself, but the rest of the world is not buying it, not even America’s bought-and-paid-for European allies.Writing in the Asia Times, Ambassador M. K. Bhadrakumar, a former career diplomat in the Indian Foreign Service, notes the disinformation that is being peddled by the Bush Regime and the US media and reports that “at the outbreak of violence, Russia had tried to have the United Nations Security Council issue a statement calling on Georgia and South Ossetia to immediately lay down weapons. However, Washington was disinterested.”http://www.counterpunch.org/roberts08132008.html
The Russian • August 13th, 2008 at 2:33 pm
@aleisterYou seem to know all relevant facts. We also know PR in Russia, obviously it works with you.What makes you so sure, your very reliable links?
AfA • August 13th, 2008 at 2:38 pm
@ GloomyYou are always asking good questions and making relevant remarks. Bond vigilantes will soon resurrect from among the dead and make treasuries have a very bad nightmare.Currently, as all major currencies (USD, Euro, Pound) fall apart at the speed of free fall their relative strength gives an illusion that things are holding. It is as if 3 parachutists jumped off a plane at the same time, so when they look to each other, they are almost always at the same level at any given time (although the fat guy falls faster).Also, you may add few Private Equity firms to your To-be-bailed-out list going forward.Oh, and the parachutes are torn.
Gloomy • August 13th, 2008 at 2:40 pm
TROUBLE AT THE BAR DOWN THE STREETKevin Depew’s latest:”The tab jumper is a bartender’s worst nightmare. Worse than the lecherous gin guzzler that gropes female patrons. Worse than the executive junior vice president that slurps booze on the company card as if prohibition is looming and then doesn’t tip… because of “corporate policy.” Yes, each is awful in its own special way, but nothing is more ruinous for a bar than people WHO WON’T PAY.And so there’s this news today that the bartender is worried about a very big customer who is drinking less than usual… Fannie Mae (FNM)… skipping out on her tab.See, despite a now EXPLICIT government guarantee, Fannie Mae bonds are trading at near their highest yield ever over benchmark Treasuries. Fannie 30-year agency debt currently yields 6.02%, or 212 basis points more than Treasuries of similar maturity, according to data from Bloomberg. That means the bartender fears she won’t pay, mostly because people who have been drinking at her bar are skipping out on their tabs.It’s a vicious and dangerous circle, which is why, for decent and reputable bartenders, it is nothing short of a nightmare. Once it starts, you have NO CHOICE but to crack heads or face financial ruin. The market is cracking Fannie’s head.So this is where things stand. Fannie Mae said last week it will no longer buy and guarantee Alt-A mortgages because the default rates on these mortgages are increasing at a rapid rate.http://www.minyanville.com/articles/greeks-goat-fannie-fnm-liquidation/index/a/18497
Gloomy • August 13th, 2008 at 2:49 pm
@AfaGreat analogy- and, none of the parachutes will open! Will private equity require a government bailout?
MASHIACH BEN CHANA • August 13th, 2008 at 2:54 pm
ALL THE READERS OF THIS BLOG THE INVASION OF WESTERN EUROPE BY RUSSIA IS IMMINENT MAY SOUND CRAZY BUT WILL HAPPEN SOON, PULL OUT ANY INVESTMENT YOU HAVE IN WESTERN EUROPE SELL YOUR HOMES FACTORIES WHAT EVER YOU HAVE, AND TRANSFER IT TO UNITED STATE OF AMERICA. YOU WILL BE SAFE IN USA. FOR THE TIME BEING.THE RUSSIANS ARE COMINGHELLO RUSSIA GOOD BYE NATO
Guest • August 13th, 2008 at 3:00 pm
@ArtS: “The big problem I see with the official figures is that all the conclusions that an economist could make could be totally wrong. Garbage in, garbage out. It is an exercise in futility. For instance predictions that recession started in the first quarter this year would be non sense because we were already in a recession, we were in a stagflation state at the beginning of 2008 when we were discussing the need for an external shock to create this situation etc.”There, you said it. That’s it, ArtS. Succinctly put, in a nutshell. Reality is setting in, outing truth. Case in point — Sean’s post yesterday on the plight of the folks in Southern Florida. The “who” from Whoville.
Reality • August 13th, 2008 at 3:03 pm
To save Georgia from conquest??? Sorry but the logic is completely flawed. Old Europe will NEVER accept NATO membership for Georgia. Do you understand what NATO membership is supposed to mean? If any member is attacked then all other members are bound to come to their military aid. Old Europe would be crazy to agree to that and the Americans are insulting their intelligence when their agenda is obvious. NATO was created in another area with a much different Geopolitical landscape, it has become just another tool by which the Americans pathetically attempt to push their naive agendas just as they did with Iraq and Afghanistan and then they wonder why they are in decline. The EU made a big mistake in expanding so rapidly into the East, Europe is no military power and the era we are moving into will call for that if real influence is to be had, what do you think the EU will do say if Russia decided invade Estonia on the pretence that its citizens in Estonia were being abused? Apart from flying diplomats around for a thousand meetings and a few threats of economic sanctions – NOTHING will really happen. Do you really believe that the citizens of old Europe will spill blood for Estonia, Georgia or Poland? It would be so easy for Russia to split the EU and they know this, already a split is forming as new Europe have a different mindset after being under the yoke of the soviet union for so long, they have different fears, hopes and values. The EU should never have expanded; it should have consolidated with the original 12 and built itself up militarily, enough to ensure influence. The current EU structure will not work, it was born in stable times and will die in the instability we are about to move into.And that’s as good as fact.
Guest • August 13th, 2008 at 3:04 pm
can someone explain to me why SPG, GGP, and KIM still command high PE multiple??? where is this famous commercial real estate bust???
The Russian • August 13th, 2008 at 3:05 pm
@Ben CPlease relax, Russians are already there. Ask LB how many of us are in London alone. Should we bomb our huge own deposits in Geneva or what do you want us to do?“Quite an experience to live in fear, isn’t it? That’s what it is to be a slave.”Batty (blade runner)
Tor • August 13th, 2008 at 3:05 pm
MASHIACH BEN CHANA you need to relax. Russian military budges is 1/25 of American. I think neocons are coming. If Americans will not put them in cages they will put naive God loving Americans in cages.
London Banker • August 13th, 2008 at 3:14 pm
I can’t help if Masiach Ben Chana has accidentally elaborated the Bush/Paulson/NeoCon strategy for propping up the US markets and US dollar. By sowing instability, war and fanaticism throughout the world via their many proxies, they scare those with any wealth remaining to invest in the “safer” USA.For myself, I’m quite content to be in Europe. Our officials are now openly talking about how Bush/Blair knew Saddam had no WMDs but Cheney insisted on war anyway. When a former assistant director of MI6 talks on the record like that, it is likely because he fears worse duplicity and violence is being contemplated by the same people than that which he reveals. He almost certainly has been cleared to speak publicly, because no one is wavig the Official Secrets Act around this time as was done to silence those who spoke out in 2003 and 2004.If there is something big going down to widen the war, it seems Whitehall is unofficially doing its bit to pre-empt the lies and propaganda by documenting the lies and propaganda it rubberstamped five years ago.
Guest • August 13th, 2008 at 3:16 pm
looking at REIT, they have been trading side-way or little bit higher since low in start of this year, is REIT bust over? where is this ultimate RE bust?
Guest • August 13th, 2008 at 3:27 pm
@The RussianI don’t know any of the relevant “facts”. Roberts was an undersecretary of the Treasury under Reagan. I don’t think he can be dismissed out of hand. I just note that during the crisis the dollar went up and oil went down. Was it all just priced in? Not much about this makes sense to me.
London Banker • August 13th, 2008 at 3:30 pm
@ Batty/The RussianThe Russians won’t attack Britain for the same reason that Arab fanatics won’t attack either: too many live here already. The Arabs and Russians are propping up the high end of the real estate market, and love to have plush bolt holes in wide open London. There are almost no immigration controls here, and many wealthy elites from all over the world have a strong interest in keeping it that way by ensuring that all the worst violence they finance is aimed elsewhere.So we might have the occasional KGB poisoning or Islamic militant bombing, but you’re still ten times more likely to be murdered in America by friends and family with guns.I was talking to an old Whitehall hand the other day about security at the Treasury. We both miss the days of the IRA (who blew things up regularly and with much more frequency and skill). Security was a lot less, police state tactics were not tolerated, even though the threat was much greater. We wish our country would return to that insouciance in the face of real threats rather than succumbing to police state Big Brother on the grounds of hyped threats.
Hank Paulson • August 13th, 2008 at 3:33 pm
Nouriel,What a crap story, a little bit intelligent person would have figured out for himself that the usa would not remain the only power. Russia was bankrupt and could start his economy again, with the help of the usa, Europe japan etc. they allowed for example cheap labour to start working in shipping industry. Even they closed in Europe the eyes when the east Europeans came here to work in construction etc and in farming. Result Russian and Ukrainian started work in Poland, Bulgaria etc etc. And these countries got great financial help of the west. Okay Russia has all commodities they need but if they would not have trade them they would not have the dollars they now have. Fact is that Russia entered the usd reserve currency agreement and they benefitted from it same goes for bric etc etc. Okay the usa pushed a bit to far with certain things, but they let free trade prevail and it’s up to the people who supply the usa of goods to continue accept those green bills they now clearly want more so prices goes up and what happens ? direct and indirect demand for all kind of goods go down in the usa. Now the rest of the world can buy with there cheaper dollars cheaper products to strengthen their economies. Its like communicating barrels. You can only ask yourself why western governments not openly told us that our standards of living would decrease over time. Okay I can continue for a while but I don’t do. Sorry what a crap story. Inflation is a taxing of rich people and its okay with me. I am very rich and for me it’s a game to play with the other rich on the table, sometimes you win sometimes you loose. Little bit loss on inflation is not a problem keeps the bottom part of society infront of the TV. Come on nouriel join the happy few you smart enough. You analyses of how much write downs are coming etc are more of help than dooms day scenario’s, for that we have already an institute called the church or mosque.
Roland • August 13th, 2008 at 3:41 pm
Even a deteriorating British Empire could fight and win two major wars.Empires can decline for a long, long time. But that whole while, they can remain very good at killing people.How long was the Roman Empire in decline? Only for about a dozen lifetimes!Is the USA in decline? Of course it is. Trapped in the power-games of empire, having a governing elite with interests increasingly separate from those of its general public, the USA in the long run can do nothing but decline.But it’s going to take a very long time, and many perverse and cruel things will happen before the monster finally dies of natural causes.For unlike Britain, the USA faces no peer military rivals. Indeed the US margin of superiority has widened since the 1990′s. Once the missile defense systems are in place the USA might even find itself with the Holy Grail: the ability to conduct a successful nuclear first strike with little fear of retaliation.Bear in mind that Rome was never the most productive city in the Mediterranean world. They ruled their world simply because they had superior force, and because their neighbours could never unite to offset their power.Likewise, the USA will not be the most productive centre of the world economy. They won’t have to be.You don’t have to deserve power in order to retain power. The USA won’t deserve to keep its leadership position; they’ll just say, “Oh yeah, if you don’t like it, whaddya gonna do about it? Wanna fight?”And what would China do about it? Wreck the US currency? That hurts China as much as it does the USA.What’s Russia gonna do about it? Look at their travails when they’re trying to get back a place they conquered 150 years ago. The key point about Georgia is not that Russia’s fighting there, instead it’s that the USA has anything to say about it in the first place. That shows just how powerful the USA has actually become.What’s Europe gonna do about US power? Nothing, of course, since the elites of Europe share most of the goals and perspectives of their US counterparts. Now naturally they’ll turn their noses up at the brusque and barbaric conduct of US power. That’s exactly what the highly civilized Greeks did during the time of the Roman Empire. The Greeks sneered and the Romans ruled. The food will always be better in Europe. So what?
AfA • August 13th, 2008 at 3:44 pm
@ GloomyTo understand the risks PE are facing one needs to look at their business model. To be too simplistic and general, PE engaged in highly leveraged debt, mezzanine, LBO’s, MBO’s … by profiting from cheap “wholesale” interest rates and increasing P/E. Moreover, these firms bought stakes in companies and industries they do not understand or had no idea about their business models, stripped old management and undertook substantial reorganization, making of each company they have a controlling stake in a veritable bank-like firms, totally dependent on the bond market. PE heavily invested in restaurant chains, car makers and related industries, in addition to other high risk strategies such as RE and distressed investments. The PE raised and invested record funds during the last equity boom years. Very recently, the PE profited from the incapacity of Investment banks to finance big deals. However, as was the case with SWF latest capital raising efforts, the continuous tightening in credit markets, falling equity markets and worsening recession will significantly put few PE at risk. Look around you to see that most of their investments are turning sour: retailers and restaurants going bankrupt, RE, financial services … However, it is very difficult to track their past and present performance and to know who owns what and how much given their secretive and private nature.The reason why, if time comes, some of these PE’s will have to be bailed out (beyond their size and systematic impact on the markets) is who their investors are. PE’s are typically financed by Pension funds, insurance companies, endowments, SWF … all of which are unable (except SWFs that are unwilling) to raise more capital to shore the PE’s.I am not following any PE closely, but among the top ones, I think that Cerberus has the worse track record (GMAC, Mervyn’s, Chrysler …)
Ron • August 13th, 2008 at 3:44 pm
Question for the Professor, or LB, or Rich H, or PeteCA or any of the other regulars here…What is the answer to the ‘decline’ of America? How can it be addressed and corrected?Everywhere I read I hear almost a resignation that we are now doomed to economic penury.My question is this: What, in the long term, can the US do to better adapt to globalization?I often hear some of the following as potential solutions for Joe Citizen as we stare into the eyes of the changes that globalization is bringing upon us.1. Protectionism/Tariffs- usually not seen as an effective tool. I’m not sure why this is the case, but I guess it is because closing off US companies to outside opportunities is like shooting yourself in the foot.But on the other hand, if foreign entities will simply buy them all up based on our current strategy, I’m not convinced we would be that much worse off.2. Education- Not sure where this idealistic path will lead, since back office/entry-level jobs are being offshored, along with now middle-office, more “knowledge-based” careers. The only advantage I see with education is the ability to be mobile and reinvent yourself, but even that becomes limited with the pace of the changes we are seeing.Perhaps it is thought that it will lead to number three…3. Innovation- Are we building up the developing countries, making certain parties in the developed world rich, mind you, based on an old platform? Fossil-fuel based manufacturing society Version 1.0, only to pull the rug out from under themall with innovation in more greener technogies (and much higher fuel costs)? Not that we’d be that far sighted, but… Even if that were the strategy, I’m just not sure that developing countries wouldn’t just copy what they would see outof us.What do you think the answer is?America can’t compete on labor costs.America can’t endlessly sell off it’s corporate structures.America can’t export or sell off it’s natural resources.America can’t just be an idea generator. Eventually, those with all the chips will just come up with their own ideas, won’t they? And alot of the intellect can be copied with the advent of the Internet.Obviously, Americans can’t all be the financiers for the new global arrangement. And, as we are seeing, foreign entities will soon cut us out of that part of the equation anyway, because they won’t need us as much.Thoughts welcome. It would be nice to hear ideas or examples from prior history if you know of any.Thanks all.
Hank Paulson • August 13th, 2008 at 4:09 pm
Nouriel,Quote:I had one history professor friend compare the Maritime Dutch Golden Age to the current state of American affairs. It’s not exactly the same but he pointed to the fact that the Dutch, over time, outsourced everything and ran a massive deficit. The Dutch lost their positions eventually. Sound familiar?Also, this same friend made this comment, “All Empires went bankrupt first before they crashed.”Unquote:More crap, pls stop, we are all family from this empire.The dutch are very rich, maybe not the most rich on earth. And now part of EU the Nato power. And friend with the USA power. Friend for 400 years with Japan. Family rooted ties with New Zealand, Australia, Canada, South Africa, and many more. They spread them self out over the globe.The British empire, the same still in the top, and now part of the eu and nato power. And friend with the USA power. Friend for 400 years with Japan. Family rooted ties with New Zealand, Australia, Canada, South Africa, and many more. They spread them self out over the globe.The Roman empire(ITALIA), the same still in the official top, and now part of the eu and nato power. and friend with the USA power. Friend for 400 years with Japan. Family rooted ties with New Zealand, Australia, Canada, South Africa, and many more. They spread them self out over the globe.(Footnote on ITALIA: They are also the biggest in the unofficial top, called MAFIA, rulling Europe underground economy and that of USA and big links to the Russian and south American underground economiesFrance, same rules half AfricaSpain same rules half south AmericaPortugal sameMust I continue?Empires only exist in the head of lost economic analyzers who want to get attention of their public
AfA • August 13th, 2008 at 4:12 pm
@ Ron,Four: None of the above.It is not the lack of solutions or ideas that is the problem, it is the ability or willingness or both to implement them. As a US citizen, why would you need the US to stay the world hegemonic power, or even a big power? People live probably better in internationally insignificant countries, cities and places. The solution is to force the solution on those who make the decisions.As the Oracle said: We cannot see past the choices we haven’t made (yet).Nobody can. If we try, we will be just debating over quantum or parallel realities. None of it really matters if we don’t make the decision and implement it. The Conditional types II and III (If + past + conditional) are irrelevant except for learning one’s lessons.@ LB “By sowing instability, war and fanaticism throughout the world via their many proxies, they scare those with any wealth remaining to invest in the “safer” USA.” This is exactly the idea that crossed my head when I read the previous post. I wouldn’t be surprised.@ Hank Paulson,You sounded more language mastering, foolishly convincing in front of a camera. What happened? Do you have some dyslexia problem? This is probably why you confuse Treasury and Goldman or Trillion and Million.
Guest • August 13th, 2008 at 4:14 pm
Driving declines for 8th straight month– CNNMoneyAugust 13, 2008 — Americans drove 12.2 billion miles fewer, or 4.7% less, in June than they did during June 2007, according to a report released Wednesday from the U.S. Department of Transportation.U.S. driving levels have decreased in every month since November 2007. From November to June, Americans drove 53.2 billion miles fewer than they did over the same period last year, the study of more than 4,000 highway traffic recorders showed…June’s soaring fuel prices led to a nearly 2% drop in demand for gasoline vs. June 2007, according to the U.S. Energy Information Administration…As a result, the Transportation Department said highways are not receiving enough revenue from the existing gas tax.Mary Peters, U.S. Secretary of Transportation, presented Congress with several measures (for more money)…saying the government needs to move away from the 18.4 cents per gallon gasoline tax and 24.4 cents per gallon diesel tax. Congress plans to take up highway and transit legislation in 2009… ENDIn California, the Franchise tax on gasoline is based on the average wholesale price of gasoline during a 1-year period so the dough is rolling in, in the billions. But when the Federal government takes a dip on its set rate of 18.4 cents per USA gallon because people can’t afford to drive anymore, they want to do something about it. And the people and the truckers who’ve already cut back can go to the devil. Who said the government cares about fuel conservation or inflation or the economy?It’s just too bad for the big fat fed spenders that their planned economy is now consuming the consumers. As the old adage goes: If fortune turns against you, even jelly breaks your tooth.http://www6.lexisnexis.com/publisher/EndUser?Action=UserDisplayFullDocument&orgId=574&topicId=100007979&docId=l:836432555&start
Hank Paulson • August 13th, 2008 at 4:19 pm
Ron,Don’t ask what ‘We’ have to do ask yourself what ‘YOU’ have to do.Stop looking up for answers.Are you happy now ? do you have food, drink, sex, family, friends, free time, nature, etc. Can you maintain what you have till you die? In that case close your hand put them above your head and thank who you want to thank for it, but you than did what you had to do, you lived happy within your means.If not read my story above, basically it means immigrate make contact with other cultures, and free yourself from the burden of the ‘WE’
Brandon Cox • August 13th, 2008 at 4:21 pm
It’s time for NR to win the Nobel Prize in economics.
Guest • August 13th, 2008 at 4:25 pm
“22% in survey curtail visits to doctor” S.F. ChronicleAugust 13, 2008 — Nearly a quarter of Americans have reduced the number of times they see their doctor because they want to save money in these tough economic times, according to a survey released Tuesday by the country’s state insurance regulators.The poll of 686 consumers, fielded in July for the National Association of Insurance Commissioners, found that 22 percent of respondents weren’t visiting the doctor as often as a result of today’s economy.Eleven percent of those surveyed also said they had cut back the number of prescription drugs they take or the dosage of those medications to make the prescription last longer…”There’s a lot of evidence that the more patients are required to pay more for their care, the more that they make economic decisions about what to get or what not,” said Dr. Michael Potter, a family physician at UCSF Medical Center and head of the San Francisco chapter of the California Academy of Family Physicians…Americans have been paying a greater share of their health care costs over the past several years primarily because employers, who cover nearly 60 percent of insured individuals, have been shifting more of the rising cost burden onto them by requiring them to pay a larger share of the premium, raising co-payments, changing plan designs and reducing benefits…http://www.sfgate.com/c/a/2008/08/13/BUSL129L0L.DTL
Ron • August 13th, 2008 at 4:31 pm
Afa,I appreciate what you are saying. Can you elaborate?What are those choices that we haven’t made yet?(I agree with you on living standards in other countries probably being better…)
London Banker • August 13th, 2008 at 4:35 pm
@ RonI was talking to someone in Washington DC yesterday who offered to send me some documents. He asked if I could download big files. That question would never be asked in Britain because virtually everyone on the web here has fast landline broadband access, and mobile broadband is spreading fast.The US preferred to protect monopolies – like local/regional phone and utilities and airlines – rather than promote competition and innovation and investment in better infrastructure. You dismiss the developing world, but that is where much of the most rapid and promising innovation in mobile technologies and alternative energy are happening.The US should withdraw within its borders, reduce its military spending, re-commit to multilateral institutions, open its internal markets to competition (look what breaking up AT&T did for telecoms innovation and competition), and provide public healthcare to promote labour mobility and health security (it also makes people feel they get something important for their taxes besides parking tickets and red tape).You’re still going to have to live with being an ex-Empire, but as Britain has proven, that’s not so bad really. You can produce countless documentaries and dramas about how great you were back in the day to run on late night television.
Ron • August 13th, 2008 at 4:36 pm
Hank Paulson,I appreciate your answer. The burden of the ‘we’. I like that.But, is your answer that I should focus only on my own individualneeds? I think somehow that is part of the American problem.And with regard to “immigrate”, isn’t that running away?My question is what could people do if there was “something to be done”?
Guest • August 13th, 2008 at 4:37 pm
“S.F. Can’t Escape U.S. Downturn: Front Page SF ChronicleSan Francisco’s economy has been a standout performer in recent years, but there are signs that the national downturn has slowed the city’s momentum.An analysis by the San Francisco controller’s office, the first of what will become monthly economic barometer reports on the city, showed broad signs of economic weakness based on June and May data. While San Francisco generally outperformed other areas of California, the job market, housing and commercial real estate all declined.Housing, of course, posted dramatic price drops for both the month and the year. But for the first time in years, commercial property vacancy rates rose slightly while office rents dipped.The city’s unemployment rate rose in June both for the month and year. Air passenger arrivals remained strong. But city hotel occupancy rates slipped from the year before, a hint that high travel costs may be affecting tourism.”We in San Francisco have been an island of prosperity, but we’re starting to see things that are concerning,” said Ted Egan, chief economist in the controller’s office.
Guest • August 13th, 2008 at 4:38 pm
“Driving declines for 8th straight month”And why? Because of the supply shortage.How the market react to it? Oil price went up to destruct the demand.
Hank Paulson • August 13th, 2008 at 4:41 pm
Ron,You look like a small helpless rabbit sitting at night, on one of your beautiful interstate highways, looking straight into 2 fast approaching lights. Wondering what that could be.Afa About dyslexia problem. Yes you right. Happy ? try to motivated my American brothers a bit. In my eyes Nouriel is doing the opposite. There are 3 solutions for your problems.1. Inflate2. Deflate (maybe default on some debt)3. Combination of 1 and 2 + the rest of the world is going to spent his USD on American made products and services. The trade deficit in reverse.I think we will get no 3. Inflation and deflation we have already big time, and slowly investments are coming into the usa. Communicating barrels !!!!!
Guest • August 13th, 2008 at 4:47 pm
Talking of simplicity:”Market panics are a “harvest time” for seasoned speculators who, armed with a war chest of cash, coolly watch from the sidelines as the great unwashed masses push and shove and beat their way towards the exits, gripped by blind fear that the world is coming to an end, at least as far as their investments are concerned, and that if they don’t sell immediately their previously cherished holdings, they will get much less for them later and perhaps nothing. They jettison everything, regardless of fundamental or intrinsic value, and as the panic approaches maximum intensity and prices accelerate into a vertical descent, the Smart Money moves in and vacuums up all the trashed securities at firesale prices and then sits back and relaxes, assured of huge profits as prices stabilize ahead of the next long upleg. The investment masses, lying battered and bruised on the sidewalk, take a sideways look up to see the Smart Money limousines pulling smoothly away, their occupants chuckling with contented glee, and acknowledging their benefactors out on the street with a final “Thanks suckers!”. That is exactly the situation we find ourselves in with respect to the Precious Metals sector right now, and especially with respect to Precious Metals stocks, which are close to or at a historic extreme low relative to the metals. “Ho humPeterJB
Guest • August 13th, 2008 at 4:57 pm
@LB,Thanks. I appreciate your response.But, can America do well enough just communicating at light speeds over the net and not making or producing anything? I guess that is what I’m asking.@Hank,Actually, I believe I’m well prepared for what’s coming, but thanks for asking. My concern was for most of those around me, since I will have to live among them. You know, like when I come up out of the subway and there are guys living on the platform, drinking coffee with no shirts and shoes on, like it was their bedroom.Why mistake my inquistive nature for timidity?Your further thoughts would be welcomed.
fedwatcher • August 13th, 2008 at 4:58 pm
Professor Roubini,Great post. However, there is still time for the U.S. to redeem itself by:- cutting back on unilateral incursions- cutting back on imported oil and developing other energy sources- balancing its individual, municipal, county, state, and federal budgets- holding its robber barons accountable- regaining the trust of the free worldBut all of this will take decades.The euro is not ready to become the world’s reserve currency yet, however, if we look back to the late 1970’s at how the euro was born, we can see the path to a new reserve currency.The euro started as a basket of currencies that was used by EU members and others as a way to account for cross border contracts and accounting in the late 1970’s and much latter became an actual currency.A similar creature born of a basket of G8 currencies and others could be used as a new reserve.I hope we can maintain the U.S. Dollar as the world’s reserve currency as long as possible, but just because the Euro can’t be, does not mean that other solutions don’t exist.
Hank Paulson • August 13th, 2008 at 5:01 pm
Ron,If one thing in my eyes have proofed is that all governmental interference in economies have failed because of their side effects.The result is a population who is not happy and is constantly looking to above for help.Probably when you start looking to yourself you will find out that you have family who needs help or friends or an animal, giving them personal help will give you probably great satisfaction and respect from the people around you. Now half America or more is looking again up to your new messiah obama, he is going to do it, he will pull us out of this mess.I think 4 or 8 years from now you will conclude he gave you tv shows (war in Iraq, war in I don’t know etc) and mc donalds, same like the romans did. He will not be able to shut down your military complex or cut the salaries on wall street.Final the romans left roman and went to the USA and became happy owners of for example country wide, mozillo (his names sounds Italian, and I read he needed so much money for his family, this is real Italian thing, so I use him as example) and they left happy after all.What politicians do, is pretending they have an answer, but they don’t have, its like at the market when the sales man are screaming their tomatoes are better than the one next to him. Or the commercials about soap on tv. They all lie a bit and in the end you find out the lie and your not frustrated.You ask is eduction the solution ? How many more years children have to go to school till 45. Look to all this financial specialist going to school till 24 or 26 in Europe, after that this highly specialist guys go work in banking selling people pyramid (cq ponzi sheme’s) products. At the lower school you have probably once seen the letter which say you have to send it to 5 other people and they again have to send it to 5 others etc. inside the letter is a list of people to whom you must pay. When you forward the letter you pay the top person and take of his name and put your own name on the bottom, if everybody will follow your advise you will become millionaire probably now zillionaire. What did the master say about this letter or your parents ?IOW this financial students are a waste of the tax payers money at least here in europe they learned something what is worthless.
Guest • August 13th, 2008 at 5:04 pm
Did I mention that the fundamentals of the global theory of economics were fatally flawed?”it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.”http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/08/12/stage_two_of_the_gold_bull_market_is_just_beginningOh, btw, the coming global depression will be felt demographically – your mileage certainly will vary.Ho humPeterJB
Guest • August 13th, 2008 at 5:14 pm
I don’t really expect anyone from the “money” game to know much about ‘bees’ but these little fellows are not only the most important aspect of functional life of this Earth, but are also the most efficient producers on the planet; which, consideration er study thereof, could bring a few basic levels of competence to our beloved and ubiquitously noisy economists.”Britain’s honeybees have suffered catastrophic losses this year, according to a survey of the nation’s beekeepers, contributing to a shortage of honey and putting at risk the pollination of fruits and vegetables.” See news of the rest of the World… and the USA.The Bee was the highest symbol of Egyptian Pharonic Royalty (crudely put) and honey is already a fully processed food at source. And, this little guy keeps the whole food chain alive and nobody, especially the “ruling elite” those sageous masters of the universe, wouldn’t know one if one bit him/her.Fundamentals… sighHo humPeterJB
Guest • August 13th, 2008 at 5:23 pm
Too bad bull-headed mavericks Bush & Cheney operate in a vacuum and are still attempting to unilaterally orchestrate global policy without any understanding or appreciation for any of Roubini’s very accurate hypothesis.The USA decline has been in force for several years now…as the depreciating $USD provides a timetable for our demise.As for Bush/Cheney…hold on to your hats…as I for one am most fearful that our own leaders are potentially still the biggest threat to both global peace and prosperity in the short run…and current saber-rattling and potential mega-disasters (Iran, Russia, China (human rights/trade/Taiwan) conflicts etc.) are rapidly coming to a crossroads it seems…and Bush/Cheney, who are so unpopular on both sides of the Aisle as well as around the world…have little to nothing to lose but to “swing for the fences” in their final days in Office.I for one pray we make it to January.
Guest • August 13th, 2008 at 5:24 pm
America’s War Party is not confined to the Republican Party. The War Party wanted Guilliani but it attached itself to McCain. The neocons are bullies with bombs. To deal with the Russians, a diplomatic government would have made all effort to understand who they are and what they aren’t, the things that could be agreed upon or negotiated.But an approach like McCain’s, who suggests that we kick the Russians out of the G8 (if it’s even possible) is the act of a bully, a vice and tactic of America’s evil military aggressiveness. And McCain, unlike Bush who is just an actor for his masters, has his own stubborn ideas. Which makes him very dangerous.McCain backers criticized the vacationing Obama for being too soft on the Russians, but unlike McCain, Obama on this issue seems to be taking more of the stance of a US Senator rather than that of President of the US. He allowed the President to be the president. Obama has a lot of faults but cutting off discussions with the Russians won’t be one of them.Every country looks out after its national interests. And it is not in Russia’s interests to let in a bunch of outside international bankers and oligarchs to run things. But it is in Russia‘s interest to support ethnic Russians who live in these various areas. Russia is a major force in the world and it is not going to be pushed around. The US and Israel pushed, and Putin pushed back.
AfA • August 13th, 2008 at 5:32 pm
@ Hank,I did not intend to make any personal attack, I was talking about dyslexia of ideas, although your latest post goes against my first impression.I think you are confusing recognizing facts and demoralization. Building and correcting past errors necessitates an understanding of what went wrong and has been done as well as their consequences. We cannot reach conclusions, provide solutions and find ideas without first understanding what just happened. People have a bias that they master their past and present and want to master their future. We do not master nor really comprehend our past.Between someone who tells you that you are in trouble (even if that risks to demotivates me) and one who keeps you in a delusion (even if that may relieve me), which one you think puts you in a better position to improve and correct? Look past titles, forget about nationalities and dismiss categories. If you don’t, you won’t see facts. And each time any idea that remotely puts faults on ourselves we dismiss it because we don’t like the smell of it.@ Ron, I really do not see a much positive and better reaction to what has been said than yours: not denial, not rage, not surrender. But, “what can I and we do?”
iww • August 13th, 2008 at 5:45 pm
The first rule of Holes is that when you find yourself in one, you need to stop digging.China and others will rise. We can at least try to slow down our decline.We need to reduce our enormous military budget, stop expensive foreign wars, and get out of Iraq and Afghanistan immediately. And we need to relearn how to build things instead of shuffling money and paper around. One can go on, but this would be a good start.
MASHIACH BEN CHANA • August 13th, 2008 at 5:48 pm
Linking Beijing to HitlerThe China Post news staffWednesday, August 13, 2008The Beijing Olympics have been compared to the Berlin Games of 1936, held three years after Adolf Hitler came to power.The two most prominent critics comparing these two Olympic host-countries are, interestingly, both women scholars: Nina L. Khrushcheva, granddaughter of the former Soviet leader Nikita Khrushchev; and Tsai Yin-wen, chairwoman of Taiwan’s opposition Democratic Progressive Party (DPP).In an article published in the Japan Times a week ago, Nina Khrushcheva said:”Images that recall German leader Adolf Hitler’s goose-stepping stormtroopers are the last thing that China’s leaders have in mind for their Olympics; after all, official Chinese nationalism proclaims the country’s ‘peaceful rise’ within an idyll of ‘harmonious development.’ But, both aesthetically and politically, the parallel is hardly far-fetched.”Dr. Khrushcheva noted: “By choosing Albert Speer Jr., the son of Hitler’s favorite architect and the designer of the 1936 Berlin Olympics, to design the master plan for the Beijing Games, China’s government has itself alluded to the radical politicization of aesthetics that was a hallmark of 20th century totalitarianism.”Like those regimes, whether fascist or communist, China’s leaders have sought to transform public space and sporting events into visible proof of their fitness and mandate to rule.”Speer Jr.’s commission, in Khrushcheva’s view, was to lay out a master plan for the access to the Olympic complex in Beijing. His design centered on an imposing avenue to connect the Forbidden City and the National Stadium in which the opening ceremony was to take place. His father’s plan for “Germania,” the name Hitler selected for the Berlin that he planned to construct after World War II, also relied on such a mighty central axis.China’s rulers see the Olympics as a stage for demonstrating to the world the exceptional vitality of the country they have built over the past three decades, she said. That demonstration serves an even more important domestic political objective: Further legitimizing the regime’s continuing rule in the eyes of ordinary Chinese. “Given this imperative, an architectural language of bombast and gigantism was almost inevitable.”Like the Beijing Games, the Berlin Olympics were conceived as a “coming-out party” for Hitler’s Germany. So the Beijing Games are meant to “resemble the hubristic Games that beguiled the Fuehrer and enthralled the German masses in 1936.”China is said to have found its own model to develop and modernize, and its rulers regard the Games in the same way as the Nazis and Leonid Brezhnev did, as a means of “selling” their model to a global audience.Writing on the same subject in Taipei’s China Times Sunday, Taiwan’s opposition leader Dr. Tsai protested against Beijing’s insistence on requiring Taiwan athletes to call themselves “Chinese Taipei.” Her party is dedicated to de-Sinicizing Taiwan, an anti-China goal causing internal division and international suspicion.The Republic of China, Taiwan’s official name, is recognized by only 23 of the world’s 196 countries, and is rejected by the United Nations. But the WTO, the APEC, and IOC, with the WHO on the way, have already accepted the name “Chinese Taipei.” Nation building is never easy; Kosovo and Georgia are painful reminders.Nina Khrushcheva, author of Imagining Nabokov: Russia Between Art and Politics, teaches international affairs at The New School and is senior fellow at the World Policy Institute in New York.Nina L. Khrushcheva is a contributor at Project SyndicateTHE RUSSIANS ARE COMINGHELLO RUSSIA GOODBYE NATOTHE AMERICANS ARE COMINGHELLO USA GOODBYE IRAN
g. Anton • August 13th, 2008 at 6:21 pm
I quote from the above: “The ensuing decline of the US dollar as the main reserve currency will take time and will not occur overnight; but it is inexorable”.From my point of view, the article underplays the role of the weak dollar as a factor in the collapse of the US as THE prime economic power, and the subject of a possible CRASH of the dollar is not addressed (in which case the “inexorable” and the “near future” may well be coincidental).Secondly, how long will it take for the dollar to lie down and die? My opinion is that it depends to a large part on US economic policies and actions, It seems to me that current actions of the Ben B. Fed (e.g. their recent and ongoing largesse to the financial wealthy) would indicate to me that they are in a great hurry to arrive at the “inexorable”.
Guest • August 13th, 2008 at 6:22 pm
For people who talk about giving up and letting America go, that’s not an alternative. We are not facing simply the worst of socialism or high taxation and loss of freedom: we’re facing slavery. People don’t understand what it means if the last superpower with its remaining vestiges of liberty should collapse. America’s primary enemy is not Russia. It is the anti-freedom war party mentality within our own country.What we’re facing is what Robinson Jeffers foresaw in the future for a people who fail to fight back against tyranny: “We wish of course, that our women would die [fighting] like biting rats in the cellars, our men like wolves on the mountains: it will not be so. Our men will curse, cringe, obey; our women, uncover themselves to the grinning victors for bits of chocolate.”
Guest • August 13th, 2008 at 6:25 pm
Excerpt from Haaretz -Russia, however, is considered key to efforts to isolate Iran, and Israeli officials have therefore urged their American counterparts in recent months to tone down Washington’s other disputes with Moscow to focus all its efforts on obtaining Russia’s backing against Iran. For instance, they suggested that Washington offer to drop its plan to station a missile defense system in Poland and the Czech Republic – a proposal Russia views as a threat, though Washington insists the system is aimed solely at Iran – in exchange for Russia agreeing to stiffer sanctions against Iran. However, the administration rejected this idea.In an attempt to compensate Israel for having rejected all its proposals, Washington then offered to bolster Israel’s defenses against ballistic missiles. For instance, Gates proposed stationing an advanced radar system in Israel and linking Israel directly into America’s early warning satellite network; he also offered increased American funding for the development of two Israeli missile defense systems – the Arrow-3, an upgrade of Israel’s existing Arrow system for intercepting ballistic missiles, and Iron Dome, a system designed to intercept short-range rockets. In addition, Washington agreed to sell Israel nine Super Hercules long-range transport aircraft for $2 billion. However, it would not agree to supply Israel with any offensive systems.Now, Israel is awaiting the outcome of the latest talks between the West and Iran, as well as a formal announcement of the opening of an American interests section in Tehran. Israel views the latter as sure proof that Washington is not planning a military strike.http://www.haaretz.com/hasen/spages/1010938.html
Guest • August 13th, 2008 at 6:52 pm
bsetser makes an interesting point. How does development of BRIC domestic markets affects his assumptions?
Guest • August 13th, 2008 at 7:42 pm
MASHIACH BEN CHANA ,you are starting to get on my nerve with your crap. China is a communist country with tons of bueacracy and inefficiency with goal to improve socially, economically, though i am not sure about politically. politically is probably mixed bug. and current olumpic in beijing is certainly not what you described. your crap shows how twisted and crazy you are. please checkin to doctor before you do anything crazy to yourself and people around you.
Guest • August 13th, 2008 at 7:52 pm
Buy Gold at $800 on August 26th..5th wave ends there..
TJ • August 13th, 2008 at 8:21 pm
This is a great argument but I don’t buy it (and trust me.. I want 2 so bad)! The truth is that military power goes a long way and the U.S. has not run out of things 2 sell. U can argue that the $ is losing value, foreclosures are rampant, and oil is at an all time high but that is mistaking the forest 4 the trees! The truth is homes appreciated in value and those who sold b4 the bubble burst walked away with a lot of cash! There is also something in this world called petrodollar recycling. I guess people are really dumb enough 2 believe it’s a coincidence that the economy is flat lining as this dude is leaving office. The losses will be socialized and soon people will realize (or not) that some1 has left w/ the honey pot. How can u argue against a system that was designed 2 suck the average American Taxpayer dry, get more on the hook, and “creatively” destroy those without access 2 valuable information? How can u argue that something (the US$) is getting weak when at the same time its scarcity is making it stronger. It’s simple wealth distribution and we r not the winners!!! We’re losers Tony!!!! (and u’re stoned off of this bullsh*t u’ve been fed 4 the last 8 years).
Guest • August 13th, 2008 at 9:19 pm
TJ, to cut it short, what are you trying to say??military power goes a long way?? where, the moon??British Empire once posses the mightiest Navy in the world, Rome posses the mightiest legionaire/army, look what happened to themif you dont have the econ/funds/citizen to support the army,the army is screwed
Medic • August 13th, 2008 at 9:27 pm
@ Ron;FWIW – the US will be marginalized unless we learn to accept our role as a team member and not the owner of the team.You want to move the US forward into a better position? Talk to people – your friends, co-workers and family about what you see as issues. Educate as many people as you can about why this country seems to be broken and how we can fix it.Take a page from history – start a revolution of ideas (not war) and bring them to life. Leaders will be needed. Be one.Educate yourself on the government and know its workings. Find as much truth as you can and share it. Turn off your TV and question everything the media tells you. Run for public office and fight the system to make changes you believe in.If only enough people would do this, I would be hopeful.Today, I am not there; but tomorrow I might be.
Stephan • August 13th, 2008 at 9:32 pm
When the yields in US treasury bonds start to drastically rise it is the beginning of the end. When the suppliers of credit (china,etc.) become worried that the US in not credit worthy anymore (when treasury bonds get downgraded) you want to have all your curreny exchanged in hard currency like gold an silver. I think the financial and political situation can escalate quicker than people would expect.
PhilT • August 13th, 2008 at 9:41 pm
@ Ron, I really do not see a much positive and better reaction to what has been said than yours: not denial, not rage, not surrender. But, “what can I and we do?”Written by AfA on 2008-08-13 17:32:05In case you have not read this one ==>Global Macro EconoMonitorThe Housing and Debt Crises: Intractable Problems and How they can be Resolvedby Daniel Alpert Aug 13, 2008Best …
Guest • August 13th, 2008 at 9:41 pm
is the author credible??@Stephan, i agree, bush & co have only a few of months leftU.S. Armada En Route to the Persian Gulf: “Naval Blockade” or All Out War Against Iran?http://www.globalresearch.ca/index.php?context=va&aid=9817Shortly after this article was released on August 13, US military sources as well as Stratfor stated that the various press reports (UPI, Middle East Times, Kuwait Times) regarding the naval deployment in the Middle East were incorrect.According to the press reports (see UPI, August 11, 2008), the war ships involved in the “Operation Brimstone” war games off the US North Atlantic coast, had set sail for the Middle East.We have checked the most recent information regarding the movements and location of the various USS Carrier Strike Groups. Corrections and updates are indicated. We will provide further updates as more information becomes available.——————————————————————————–The World it at a very dangerous crossroads. America in alliance with NATO and Israel has embarked upon a military adventure.The Bush administration has launched a naval blockade directed against Iran, which could be a first step towards an all out war.Military sources report a deployment of US and allied naval power in the Persian Gulf, the Arabian Sea and the Red Sea directed against Iran.There has been a virtual media blackout regarding this naval deployment. The Western media, including the printed press and network TV have failed to meaningfully address these war preparations.While war plans directed against Iran are casually acknowledged, the broader implications of a war on Iran are rarely analyzed.The US media has become a unconditional mouthpiece of the Pentagon. The Islamic Republic is relentlessly accused, without a evidence and substantiation, of developing nuclear weapons, as well as working hand in glove with Al Qaeda.The emerging political consensus among America’s allies, including France, Germany and Italy is that a war on Iran is warranted as a means to enhancing global security.This consensus is formulated while carefully disregarding the fact that even a limited “punitive” aerial attack on Iran, would immediately result in escalation, engulfing the entire Middle East Central Asian region from the Eastern Mediterranean to China’s western frontier into an extended war zone. There are at present three distinct war theater in the region: Afghanistan, Iraq and Palestine. An attack on Iran could potentially engulf a large number of countries into a much broader conflict.
Guest • August 13th, 2008 at 9:45 pm
anyway Ron,are you Ron Paul??gut feelin..
Stuart • August 13th, 2008 at 10:08 pm
It would be incredible if Georgia did not advise the US of its intentions beforehand given all the catering it has been doing to the US and given that the US had military interests already in Georgia at the time, not to mention its continuing attempts to join NATO. For this to occur on the eve of the Olympics too…. There is definitely alot more to this story than a simple uni-lateral act of aggression.
AfA • August 13th, 2008 at 10:30 pm
@ Ron,I couldn’t have said it better than Medic. The decisions that are awaiting to be made are; to stop living beyond our means individually and as a nation; to make decision makers accountable to those who elect them not those who lobby and finance them; to have the courage to say that the ideologies and mischief perpetuated by our leaders are not ours; to force the change (peacefully); to understand that our salvation and future development does not lie on the arrival of one Man or One date but by continuous education; to take our medicine now by letting the reckless fail; to pay our excesses and debts now instead of pushing our children into slavery …We cannot predict what lies ahead without first making (or not) these decisions. The rest is only a chain of reactions governed by the only law our universe knows: causality.
Stuart • August 13th, 2008 at 10:34 pm
“Empires only exist in the head of lost economic analyzers who want to get attention of their public”OMG, gimme a bloody break. What an absurd comment. Death only exists in the head of lost forensic coroners who want to get attention of their public I guess too.
Guest • August 13th, 2008 at 10:44 pm
A Texas cowboy lay down on a barroom floor,Having drunk so much he could drink no more;So he fell asleep with a troubled brainTo dream that he rode on a hell-bound train.The engine with murderous blood was dampAnd was brilliantly lit with a brimstone lamp;An imp, for fuel, was shoveling bones,While the furnace rang with a thousand groans.The boiler was filled with lager beerAnd the devil himself was the engineer;The passengers were a most motly crew–Church member, atheist, Gentile, and Jew,Rich men in broadcloth, beggers in rags,Handsome young ladies, and withered old hags,Yellow and black men, red, brown, and white,All chained together–O God, what a site!While the train rushed on at an awful pace–The sulphurous fumes scorched their hands and face;Wider and wider the country grew,As faster and faster the engine flew.Louder and louder the thunder crashedAnd brighter and brighter the lightning flashed;Hotter and hotter the air becameTill the clothes were burned from each quivering frame.And out of the distance there arose a yell,“Ha, ha,” said the devil, “we’re nearing hell!”Then oh, how the passengers all shrieked with painAnd begged the devil to stop the train.But he capered about and danced for glee,And laughed and joked at their misery.“My faithful friends, you have done the workAnd the devil never can a payday shirk.“You’ve bullied the weak, you’ve robbed the poor,The starving brother you’ve turned from the door;You’ve laid up gold where the canker rust,And have given free vent to your beastly lust.“You’ve justice scorned, and corruption sown,And trampled the laws of nature down.You have drunk, rioted, cheated, plundered, and lied,And mocked at God in your hell-born pride.“You have paid full fair, so I’ll carry you through,For it’s only right you should have your due.Why, the laborer always expects his hire,So I’ll land you safe in the lake of fire,“Where your flesh will waste in the flames that roar,And my imps torment you forevermore.”Then the cowboy awoke with an anguished cry,His clothes wet with sweat and his hair standing highThen he prayed as he never had prayed till that hourTo be saved from his sin and the demon’s power;And his prayers and his vows were not in vain,For he never rode the hell-bound train.
Douglas Jaffe • August 13th, 2008 at 10:46 pm
I’m always surprised that people fail to mention population growth and immigration. The USA will remain a power because we continue to have children and we still welcome huge numbers of immigrants that revitalize our society. Russia is shrinking and its xenophobia is not helping. Japan, Korea, China, Italy and various other developed countries are facing demographic time bombs and I don’t see this situation improving anytime soon.Provided the US does not foolishly turn away talented, passionate immigrants, we will continue to thrive as a power and as an economy. People do matter, especially the young, working age cohorts.
AfA • August 13th, 2008 at 10:51 pm
@ Ron,I couldn’t have said it better than Medic. The decisions that are awaiting to be made are; to stop living beyond our means individually and as a nation; to make decision makers accountable to those who elect them not those who lobby and finance them; to have the courage to say that the ideologies and mischief perpetuated by our leaders are not ours; to force the change (peacefully); to understand that our salvation and future development does not lie on the arrival of one Man or One date but by continuous education; to take our medicine now by letting the reckless fail; to pay our excesses and debts now instead of pushing our children into slavery …We cannot predict what lies ahead without first making (or not) these decisions. The rest is only a chain of reactions governed by the only law our universe knows: causality.
Murph • August 13th, 2008 at 10:54 pm
Professor,Excellent article.Your concluding paragraph leads one to reflect that we find ourselves today in a confluence of factors which led up to two previous World Wars:WWI- Great Power competition for influence and resources- Global network of trade and finance in which the world was too inter-connected for anyone to imagine world war (the global trade explosion of the pre-WWI period was not matched again until the end of the 20th Century)- Networks of treaties and alliances, dated from previous conflicts, unreflective of current conditions and with uncertain activation-triggersWWII- Recovering, nationalist Great Power overcoming a sense of humiliation from the last global conflict (Germany then, Russia now)- A rising Great Power seeking a place on the world stage (Japan then, China now – although not, today, expansionist or militaristic)- Rise of Authoritarian models of economic development- Deflationary economic depression (all ‘recessions’ were called ‘depressions’ back then, so call this one what you will)There are a number of powder-kegs of which we are aware (Georgia, Iran/Israel, Terrorism with WMD), and certainly many more in the form of ‘Black Swans’ (just ask the Archduke Ferdinand), which may ignite truly awful chains of events.The ‘tail-risk’ of truly awful global conflict in the intermediate-term is under-appreciated.One prays that our current and prospective leaders remain cognizant of the past as they navigate the present and look to the future.
Stuart • August 13th, 2008 at 10:59 pm
Re-cap of the Georgian/Russian war.http://www.stratfor.com/weekly/russo_georgian_war_and_balance_powerInteresting, very.
Guest • August 13th, 2008 at 11:04 pm
Provided the US does not foolishly turn away talented, passionate immigrants, we will continue to thrive as a power and as an economy. People do matter, especially the young, working age cohorts.Douglas, where were you this last 1-2 decadescurrently, where does most of the world innovation comes from??do you know, a uni in Spore produces better grad students than the US, India have a talented pool of IT programmerswith the soon implementation of a “near to closed economy” by democrats (if Obama wins), do you see immigrants shaping up US futures??”we will continue to thrive as a power and as an economy”ok, can you provide us a tangible solution to the debt problem/solvency without causing a recession/depression/deflation,anyway, rhetorics wont help..
Anonymous • August 14th, 2008 at 12:16 am
Agree with our “Hank Paulson”, there is no disgrace in saying “this debt is not my fault, I will leave it to others” and go. That’s one less dupe working to pay off their debt, or one less slave the creditors will have to work for them. You’re entitled to freedom, and don’t let ANYONE take your precious years away from you.As for saving America or redeeming it, that will be easier after debts are wiped out by a bankruptcy. Go, allow things to be cleaned up, then come back if you choose.Our “Hank Paulson” has a true heart. Listen to him!
Mark • August 14th, 2008 at 1:27 am
With regards to the debate about whether immigrants and the young are going to save the USA, that’s not enough. Too much debt, and declining resources (which are likely to decline at a faster rate in order to help pay off debt).Brains are the same as processes. No matter how good the process, it is of little use without the actual raw input materials.Brawn, however, will be of increasingly more value.Mark
Berzerker • August 14th, 2008 at 1:42 am
“The Roman Empire never fell”-Phillip K. Dick
geokalp • August 14th, 2008 at 2:27 am
Professor Roubini,a logical move on the US decline would be the formation of new Union with Europe, a new Union comprising of European Union, US-Canada-MexicoNATO formation could be used but some current member countries would be ruled out of the New Union
flipper • August 14th, 2008 at 4:44 am
Ok, since this post is politics, not economics – a quick look how the current conflict looks from Russia.a) Obhasians and Georgians and Osetians and Georgians have fought wars in 1992. There was a lot of evil and dirty things on the both sides but it is documented thatGeorgia started first at that time. It was a time then Georgians and many other nationalisms were on extreeme rise and leaders like Gamsahurdia actually make Miloshevitch an inocent kid by comparison. The history of conflict between those peoples is ofcourse even more long dated – going back many centuries, sometimes hotter, sometime colder. It’s a naturall extention of living in the mountains – scarce territory for growing food, poverty, blood revenge (vendetta), etc.b) the wars in Obhasia were threatening do destabilise the whole region at that time, so Russia moved in peacekeeping forces under UN mandate. This is important, the mandate is still valid. De-facto both Osetia and Obhasia had independence from Georgia for 15 years. Most of them have Russian passports and use Russian currency. (Russia has not only assumed all USSR debts and secured nuclear weapons but also had a policy of providing citizenship to any USSR citizen born before 1981)c) i will not write anything about US policy in the region, i may be biased. The cold facts are that US installed it’s puppet leader who is naturally not very sane person and armed him to the teeth. He was elected on promises to unite Georgia. He has also gave Georgian people jobs and confidence – all this was supported by US money. Many on this blog may be not aware, but Georgian president is getting even his salary from US budget – an officially confirmed fact. Nice spending given that US is running twin deficits. Given that both Osetian and Obhasians hate Georgians after the war in 1992, the only way to unite was to drive them from their territory completely and then settle there. And that is precisely that Saakashvilly tried to do attacking a city of Tshinvally with tanks, artilery and grad missles.d) By no means Ossetians and Russians are saints in this conflict, but the blame in this situation clearly lies on the person, who broke the status quo.e) Russia had ofcourse a plan in place for this and saw it coming but have chosen to let the conflict to break out. But there was very little it could de before it actually did under peacekeeping mandate.f) The media on both sides is full of crap and propaganda. But my feeling is on the georgian side the degree of crappingness is miles higher. It’s a confirmed fact that Georgia has blocked all Russian television in the country and all access to .ru domens on the net. If someone does things like this he clearly is afraid.g) Saakashvilly is by no means a leader of unified Georgia. There were numerous reports that the last election were manipulated and he was mostly overthrown by opposition not long time ago. After that he unleashed repressions on all opposion and virtually viped it out.h) What most of the Russian are really shocked of here is the media coverage this episode is getting in the west. It is clear that Saakashvilly is a liar, he has been cought on it on numerous ocations in last days, but still western media shows almost unconditionall support for him and uses his ministry of truth information in coverage. Also thing like cutting out words from Medvedev and Putin speaches to show them in slightly different light, etc.j) The fears that Russians are coming after EU or Ukraine or whatever is total crap. Russian leadership care the most about making money. All of them are deeply integrated in the west – houses in France and London, accounts in Geneva, kids in UK private schools and universities etc.
Anonymous • August 14th, 2008 at 4:48 am
Strip away the monetary oversupply bubble of the latter part of the Greenspan years, and we’re probably still in the 2002 recessionS&P 850 …and then some to finish the job Alan never allowed to happen ?
Wolf in the Wilds • August 14th, 2008 at 4:56 am
Bravo Flipper,It is about time someone reveal the western press for what it is: a propoganda machine.
Alessandro • August 14th, 2008 at 5:01 am
London Banker: “You’re still going to have to live with being an ex-Empire, but as Britain has proven, that’s not so bad really. You can produce countless documentaries and dramas about how great you were back in the day to run on late night television.”
LOL! In Rome, we still enjoy those documentaries two thousand years after the collapse of our empire.
Alessandro • August 14th, 2008 at 5:03 am
@Wolf in the Wildswelcome back, I missed your contributions, hope you’ll stick around.
Guest • August 14th, 2008 at 5:08 am
@AllesandroIts nice to be back after lurking for the last few months as I settle into my new job. Same work, different place. But in the last 6 months, the world has become a more dangerous place. Events have been accelerating faster than anticipated. The issues surrounding Fannie and Freddie came much earlier than I thought and now the level of distrust in the solvency of the US banking system is increasing within the US. The question I would like to pose is this:Can the US Government allow the failure of Washington Mutual?According to FDIC data, Wamu has US$121b of insured deposits, with another US$64b from FHLB. With a current market capitalisation of approximately US$6.8b, and obviously understated writedowns on their portfolio of mortgages, and the looming downgrade from Moody’s to subinvestment grade, it is clear than Wamu cannot survive. Would the Fed backstop another bailout ala Bear? Can they? Does the FDIC enough funds to support the bailout of Wamu if there was a bank run?It seems like we are running towards a tipping point in the US economy. What can the regulators do to prevent a wholesale failure of the US banking system if the confidence is lost? Remember, this is not a Bear.. this is the largest S&L in the country.What say you?Wolf in the Wilds
George W. Bush • August 14th, 2008 at 5:20 am
For those people on this blog who are advocating the potential of young people in China, India, Russia or Eastern Europe, think again. I worked on various large international deals with youngsters and managers from the aforementioned countries and their ability to think for themselves and be creative to solve problems is absolutely dreadful, shocking and terrifying actually!! Most of them were like robots, I have many examples but it goes beyond the scope of this discussion. These people have some way to go and it may take a generation for sure. Way before that, Peak Oil, Peak Soil, Peak Water (watch North Eastern China and North Western India!!) etc will put a break on everything.I believe, that only in the land were true freedom excists (i.e. Europe and the USA) new eco friendly companies will really trive. But that doesn’t mean we should protect ourselves a little bit for the time being. I like Angela Merkel, she’s right to protect our (i.e. EU) assets from to much outside influence. Foreigners may participate but they cannot fully own. Why should Arabs, Russians and Chinese be allowed to scoop up EU companies with their dollar reserves which are largely there because of crazy old Greenspan and Bernanke. I like Angela seeking to end the era of leverage households and leveraged companies. So although some pundits see the EU lowering interest rates to basically zero just like the Americans will be forced to do, I still believe the Bundesbank, uuhhhh I mean the European Bank will not do so.Finally, I whish Nouriel Roubini would spend more time with somebody like Lester Brown. Both guys are Nobel prize candidates. I believe Nouriel is absolutely right as far as it regards his particular area of expertise. But the great evironmental issues now facing the world as described by Lester Brown in Plan B 1.0-3.0 and others, should be part of his analyses in my honest opion. The ‘American Dream’ won’t work for China. There are not enough resources. America and Europe were build on cheap oil but there’s non left. Also, in the not so near future and as a result of the one child politics, every Little Emperor will be forced to look after two China parents.The great winners will be those countries that can succesfully adapt to a sustainable economy and are able to switch from a model of leveraged households and leverage companies to model in which both investment and consumption are less interest sensitive and fiscal dicipline is leading. That means much lower growth rates, but real growth. Therefore, in the short term I still like Europe, I like Brazil and of course I like the USA but only after it has finished its MacDiet let’s say 5 years from now which includes a strong raise in gasoline taxes, banning SUV’s, listening to T Boone Pickens, not voting for McCain and let hyperinflation wash away all those debts.P.s.1 I’m also a bit afraid of what MASHIACH BEN CHANA will do to himself.P.s.2 Hank Paulson is extremely rich, kudos for him…Try taking it with you when you die you old typical American you..Only sharing, giving, changing and the notion that all securities that you have gathered around you is crap, will bring happiness and true enlightment…
Extinct Species • August 14th, 2008 at 5:25 am
Basically agree. However, the US couldn’t realistically do anything about Georgia. Doesn’t have anything to do with US commitment in Afghanistan and Iraq. Does anyone truly believe US troops would have been used in Georgia to directly engage Russian troops? No chance. And any kind of military resupply would have just delayed the inevitable and resulted in Russia extracting a much higher penalty.
Wolf in the Wilds • August 14th, 2008 at 5:46 am
Its about time the good Dr discusses the political ramifications of the reckless financial and political policies of the US and the effects it would have on the world going forward. This is my 2cents worth.In the last 8 years, the Bush administration has adopted a unilateral approach to foreign policy, taking advantage of the global sympathy after 9/11. In doing so, it has sowed the seeds of discontent globally. So far, the other major powers of the world have not taken offence at it because of the economic advantages that they benefited from, with the US as the main consumer of their products. They were willing to finance the consumption and the wars as long as the US continued to import from these countries. Going forward this will no longer be the case. IMHO, a major turning point was reached last Thursday. A detailed analysis of what happened in Georgia can be found here but the facts (as pointed out by Flipper as well as other more neutral source: seehttp://www.stratfor.com/weekly/russo_georgian_war_and_balance_power )Clearly, there was miscalculation on the part of the US and its allies on the resolve of the Russians, and Georgia is now paying the price of that miscalculation. The balance of power in the Caucuses has shifted. Furthermore, it brings to bear the increasing weakness of US influence on the global stage. Russia will now seize the moment and consolidate its borders, creating a buffer between the motherland and the perceived foe (Nato and the US). The increasing European reliance on Russia for energy will further weaken US influence in the Old World. Europe cannot afford to offend Russia. 70% of its natural gas comes from Russia. And Russia knows it. To really change the face of Europe, all Russia has to do is to insist payment of its resources in Euro and Roubles. Imagine the result of such an economic move.IMHO, the Chinese will soon assert its influence in the other region of importance, East Asia. As the region becomes more reliant on China for economic growth, so will China’s influence grow in terms of foreign policy. Watch this space.The next region where this conflict of global influence will appear is also the most dangerous: the Middle East and specifically Iran. I have great fear that the US Neocons might start a war in Iran, using nuclear proliferation as an excuse. Israel’s fear of Iranian nuclear capability will also add fuel to the fire. It is equally unlikely that the Russians or the Chinese will allow that the US to control Iran. Iran represents the largest source of oil for China and a key resouce for both China and Russia. And they will not allow US to control all the oil in the Middle East. Rumours of a US naval build up is already spreading on the net as well as war preparations in Kuwait. I have my doubts on such rumours but I am watching US naval movements with great interest at the moment. Georgia, to me, was to test the resolve of the Russians and because they responded with strength, it might deter a US attack on Iran now. But the Neocons are running out of time. They have maybe half a year left to start a conflict, and there might not be many opportunities left.It is almost always inevitable that economic collapse leads to military conflict. I just didn’t think it will happen so soon.PS I had my doubts on the western “free press” before but the coverage on Georgia confirmed my greatest fears. We cannot rely on them for facts anymore, even the previously neutral BBC. It is becoming a very sad world to live in.
Guest • August 14th, 2008 at 5:56 am
Wolf in the Wilds, if those reports about new US and UK carriers in the Gulf are true, things might get real ugly very soon. Let imagine war in Iran starts before US elections. It will be a perfect moment for China to annex Taiwan, since US military will be even more deeply involved in Middle East.
OuterBeltway • August 14th, 2008 at 6:06 am
@Ron:I’m glad to see you asking the “what next?” question. I hope to see more discussion around this question, as the “there’s trouble ahead” assertion has been successfully concluded, in my opinion.The nation’s welfare centers on the household’s welfare. Today, our households consume more than they produce, hence the debt.This is not terribly complicated. It’s hard, but not complicated. Teach and induce households to switch from “consumerism” to “producerism”.Let me give you an example. The single most potentially productive device in the average household today is the personal computer. What’s it used for? Gaming and pornography. Where is the largest capital investment in durables? The entertainment center.Everyone here knows that making the leap from consumerism to producerism is political suicide, so don’t bother at the political level. This is one problem politics simply can’t solve, and you can bet that your TV will not be very supportive, either.Instead, do bottom-up associating. Find the people that are ready, willing, and able to make the leap from consumerism to producerism; join with them.Let me also address the concept of competing with the world. The leveling of incomes is a given. Get over it, there is no escape. The question becomes one of adaptation. How quick, and how well.After the leveling will come an increase, for everyone, assuming we don’t do something stupid during the leveling process.This is a normal, reasonable, perfectly appropriate adjustment. As PeterJB pointed out, however, it will be a demographically disproportionate adaptation. The demographic determinant is “rate of adaptation”.
Alessandro • August 14th, 2008 at 7:04 am
A small anecdotal fact on GDP.In the village my family come from growing vegetables in the backyard has boomed. Everybody is growing an ‘orto’, as we call it, even people who didn’t do it in the last twenty years.Note that people who grow fruits and vegetable by their own increase their wealth by doing so (unless they drop their day-work for doing so, and no one does), because they can spend less in buying food. So wealth production increases, but GDP (which measures commercially traded goods and services) decreases. Not only that, but people do trade part of their home-grown stuff for other stuff or for money, in what is an tiny scale black market. So underground economy is growing and GDP is shrinking.I guess that a good chunk of the GDP decrease during GD I was production and trade that moved out of the commercial trading to the self-production and black market.
curious • August 14th, 2008 at 7:45 am
I too am struck by the lack of independence in our media coverage lately from the economy and government statistics, to corporate accounting gimmicks, to market manipulation by the fed, tres., and sec. Truth and Trust have suffered greatly. In the recent US-Israel backed Georgian assault let us not forget that the US has its own history of dislocation/relocation and genocide of native peoples. Let us also realize that when one picks a fight, one should be able to back it up. There is an old latin saying, relating to causality: “Volenti non fit injuria”, or to the willing there is no injury. Georgia/US/Israel were willing to risk a new democracy on violence as a foundation. We should value democracy more than to gamble in such a way. After all, risk is defined as what you have to lose. In this case it is the very democracy and freedoms that we espouse. A horrible gamble.
novice • August 14th, 2008 at 8:04 am
“@Written by flipper on 2008-08-14 04:44:43″The question I ask myself is why? Why is the media being manipulated?Why don’t they want us to know the truth? And What is the end game of such deception?
curious • August 14th, 2008 at 8:39 am
We have put fledgling democracies in central asia at the tip of our sword (NATO). This is too much risk for them. Its akin to hiding behind babies, immoral.
OuterBeltway • August 14th, 2008 at 9:01 am
First, a correction. Above, I said:”Where is the largest capital investment in durables? The entertainment center.”In fact, the home and the auto(s) are the largest household-level durables investments. Of the discretionary durables investments, though, the entertainment center is probably number one.Secondly, on the question of “why is the media manipulated”? The media is a tool to push consumerism. It’s the main delivery system of the set of beliefs our society is currently based on. The “denial” is not denial so much as it is evidence that the industries built around consumerism don’t have a “what’s next” answer that makes them money and keeps them in power.Alessandro’s anecdote about local produce is worth considering closely, for those of you that are pondering the “what’s next”. Not necessarily gardening, but re-localization of production may very well be the next swing of the pendulum, and the household will likely be the operations platform.The household has lots of underutilized resources, and those resources can be used to eliminate/substitute for existing costs, and can also be used to generate tradeable goods and services. When the U.S. was doing heavy manufacturing, we needed to go to the factory. That is no longer the case, but our society is still organized around the “central work place” concept.De-centralized power, food, work, education, shelter. That’s what’s next. UPS up, auto-makers and asphalt installers down.
richinar • August 14th, 2008 at 9:05 am
@noviceControl
AfA • August 14th, 2008 at 9:19 am
WTF, inflation is 17-year high and the TNX is down while stocks are almost flat?Where are you vigilantes? Where is captain Sparrow and where are the zombie pirates?By the power conferred to me, I order you to resurrect from the dead!
ptm • August 14th, 2008 at 9:40 am
JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS – FLASH UPDATE – August 14, 2008Contrary to popular belief, there is no such thing as “core” inflation define by the Bureau of Labor Statistics (BLS) [http://www.rgemonitor.com/roubini-monitor/253301/a_wobbly_coalition_of_the_unwilling]BLS CPI-1980 inflation method now reveals an annual 2008 rate of 13.4%!BLS CPI-U annual 2008 rate is now 5.6%BLS CPI-W annual 2008 rate is now 6.2%%July retail sales Fell 0.9% Month/Month and now down 2.7% Year/Yearhttp://www.shadowstats.com/article/344
Anonymous • August 14th, 2008 at 10:25 am
Blockade of Iran?A post has been floating around the internet regarding an international naval armada sailing to the Persian Gulf. I’ve done some picking around on the internet and found that the HMS Ark Royal just pulled into port today for a six week overhaul. (cross that off the list) I’ve discovered that the USS Ronald Reagan is now in the Java Sea and is approaching the Straight of Malacca… It is on the way to the Persian gulf but it may be to relieve the USS Lincoln which is already in the region. (they usually go for six month deployments and the time for that carrier strike group is almost up) Several articles also mentioned the USS Roosevelt being sent to the region. I could find very little information on it but I did manage to find a video interview with the CSG commander recorded about a week ago mentioning that they were preparing for a deployment to the 5th fleet (persian gulf). No mention of time frame however… The commander also mentioned that roughly 40% on ship were going on their first deployment.http://www.shippingtimes.co.uk/item_10095.html [source for HMS Ark Royal][http://usn.blog62.fc2.com/blog-entry-739.html] USS Reagan movement…[Article new longer available but the clip from google news contained the following]Gonzalez on tour with USS Ronald ReaganRed Bluff Daily News, CA – Jul 23, 2008… nuclear aircraft carrier USS Ronald Reagan. Ports of Call include Guam, Hong Kong, Kuala Lumpur, Singapore, Pouson, Korea, _Dubai_ and Honolulu, Hawaii. …http://www.navy.mil/dnu.asp?id=11328 [video interview regarding USS Roosevelt]debka seems to be correct so far…
Guest • August 14th, 2008 at 10:28 am
Hank Paulson on 2008-08-13 15:33:50What a crap story, a little bit intelligent person would have figured out for himself that the usa would not remain the only power.A “little bit intelligent person” could also figure out that Russia is not some B-movie monster like Mr. GHANA and many other commenting on this blog seem to believe. But I guess this is all the result of long-term exposure to the media in the US. Some people complain about how others believe anything written on a web page. Unfortunately, the same complainers seem to be willing to believe anything they listen in TV or Radio or read in a newspaper or magazine.This is something that the governments have known for a long time. Ask A. Hitler if you see him around. Anyway…in the US what we have is a persistent portrayal of selected foreign countries as “evil”. The characterisation of the so-called evil countries or leaders is typically very similar to how a supervillain would be portrayed in a Marvel comic book: as something unchangeable, purely evil.And since there is an antagonist, there has to be a protagonist. In the US the media produces “news” for the American public. (Note that these “news” are not necessarily about recent events or people within the society at large, but anything that can be used to massage the population. Examples of such news include supposedly statistical numbers “calculated” regarding the amount of unemployed, the rate of inflation, etc.) In these news the protagonist is the American people, who are portrayed as “special”, as a sort of a guardian of the “good”.This is one of the reasons we get an entire nation to hate some ruler in the middle east back in the 1990′s, even though most of the nation had never even met the person. Another major reason is peoples willingness to accept as a truth that what seems to be believed by the majority.But back to the Russians. They are not that different from any Western European country. Certainly they have their own political interests, but so does the US. They often put forth effort in protecting these interests when they think that the interests are threatened, but USA does the same.Some journalists bring out that that hundreds could be dead in Georgia because of what Russians did. I would agree with that this is not anything good. However, we also have thousands dead in Iraq because of what US and UK did. This is not any better.
randy • August 14th, 2008 at 10:33 am
WTF? inflation up, eurozone GDP down, foreclosures up, profits down on everything except China Inc (walmart) and the DOW up 100 points because F&F’s larger home loans are accepted by the bond market? I really don’t understand this. Was there ever a doubt the bond market would accept them? That doesn’t mean they’re not going to implode?I’m really wondering if maybe the fed and treasury might just pull off this thing.
randy • August 14th, 2008 at 10:38 am
I was in the navy submarine force back in the 80′s and did a stint in the Med. I believe the navy task force that’s “on the way” to the PG is most probably going to relieve the Lincoln task group. These carrier battle groups do typically stay out for 6-7 months, then back for refit, etc. This, IMHO, is getting blown way out of proportion on the net blogs.
randy • August 14th, 2008 at 10:41 am
can someone explain to me this concept of read about recently of the “bond market” not allowing the government to do certain spending programs and they reference the Clinton years where the bond market stopped their “hillaryCare” programs? Even though I have an MBA, this still escapes me. Please help.
Anonymous • August 14th, 2008 at 10:42 am
Russia now will not want to cooperate in the incremental U.N. Sanctions against Iran that are designed to slowly wear them down into making a deal on nuclear enrichment. This will allow the Bolton crowd to say that the U N is not effective in its role of a Multinational Forum to Secure Peace. Israel, AIPAC, and the neocons will press for a strike at Iran, because U N action is useless. This could be the scenario that justified the PUPPETMASTER to give saakasvili orders to move on south ossetia. How else can his actions be explained? The Georgian Actions are inexplicable in the realm of logic, they are only explicable in the realm of the grand chess game! The europeans are now more motivated to go along with this, because Russia and Iran will now move to make energy deals to secure a chokehold on energy. We ignored energy conservation and alternative energy all the way backto the petrodollar deal with the Saudi in 1974. Wenow have been cornered into a realpolitic corner. Wenow have the U S national security energy policy line up with the Israeli policy of preventing Iran’snuclear program. The light sweet oil in the World is centered in Iran, Iraq and Saudi. The West is now more dependent than ever on foreign supplies and there is a Peak Oil problem! There is a simpleton temptation to regime change Iran and go full bore in developing the oil field in both countries. The USdollar would now be backed by military bases near the largest light sweet oil reserves in the world.Only the Unilateral Unitary Executive would attempt such a crazy idea. History is full of nutty ideas!!!
Anonymous • August 14th, 2008 at 10:47 am
@randy: “NEW YORK(Standard & Poor’s) Aug. 12, 2008–Standard & Poor’s Ratings Services today lowered its ratings on 248 classes from 20 residential mortgage-backed securities (RMBS) transactions backed by U.S. prime jumbo mortgage loan collateral issued in the first half of 2007.” Seems F & F are going to get more garbage.
Patriot • August 14th, 2008 at 10:51 am
Dear Doctor,Thank you for the creation of this site and many of the sobering thoughts it contains. May your writings and interviews never become influenced by anyone or anything other than the economic truth.As an American I can honestly write that I have never before been so concerned about America’s future. One used to search far and wide to find substantive economic opinions and analysis that were not tainted by Fed speak and other forms of misinformation. While there is still alot of static out there the truth is becoming more available to those that wish to listen and read than ever before. I hope your anaylsis, this site and some other gems on the internet continue to serve as the canary in the coal mine for many of us.So far as the political commentary is concerned, I am pleasantly surprised by the broad based opinions I’ve read. To those international blogers please don’t think that every American is fooled by the ham handed, unilateralist foreign policies our “leaders” and their cohorts have been implementing for far too long. These policies will have long lasting negative impacts for at least the next generation if not longer.The blogs concerning a build up in the Gulf are not bogus. The neocons which have been orchestrating so much of the financial and political mess which is now banging at the front door haven’t quite turned the corner and desperately need to hang on to executive level power for at least another 4 years. I fully expect the balance of 2008 to be a scary and unfortunate ride whether you have a ticket or not.
Wild Bill • August 14th, 2008 at 11:31 am
Dear Prof. Roubini,I have come to accept your economic predictions with less skepticism because you’ve been almost supernaturally accurate. Your ability to synthesize the big picture by drawing information from far and wide is without peer. Only now, do we hear talking heads lip syncing the views you expressed two or three years ago, as if they were the analyses they generated on their own.Now you are giving your long term political predictions. I read your reasons carefully and can not disagree with anything you said. My problem with your predictions are all the things you did not include in your analysis.I am a retired biology professor. Years of study have convinced me that the principles of economics and those of ecology are not merely metaphors of each other. They are in fact one and the same. Darwin and now, Richard Dawkins point out that natural selection acts on individuals and shapes the course of the evolution of species. Others however, such as E.O. Wilson and me for that matter, are convinced that entire ecosystems evolve as units. The economy of the united states is best seen as a juvenile ecosystem, with high levels of consumption and production,low levels of diversity, inefficient recycling of nutrients, and high levels of energy and nutrient importation. A salt marsh is an example of such a system. Eventually, salt marshes fill with sediment and give rise to new ecosystems that are less productive, less consumptive,extremely efficient recycling of resources, more diverse and far more stable. I believe our economy will evolve similarly. There is no place in Earth bound ecology for infinite growth. It is simply not possible.As to your dismal view of our political future,i have to agree with the previous poster who accurately assesses the worth of our recent immigrants and their potential to innovate and help us create wealth. I’ve worked with young immigrants and have been awed by their energy and talent. Their contribution to our future leads me to make a prediction of my own. They will shape our future in ways that will make the contributions of early 20th century immigrants seem paltry. As the late Louis Rukeyser warned:”Don’t bet against America.” America remains the most fertile geopolitical soil on earth for the generation of new ideas.
steve • August 14th, 2008 at 11:41 am
gold looks so bad on the charts that it must be time to buy; fundamentals have to win out, no?
MASHIACH BEN CHANA • August 14th, 2008 at 11:52 am
THE AMERICANS ARE COMINGHELLO USA GOODBYE IRAN.THE WAR BETWEEN IRAN AND USA IS IMMINENT IS GOING TO BE THE MOTHER OF THE ALL WARS.ONCE THE WAR STARTS, THE US TROOPS WILL IMMEDIATELY MOVE FROM IRAQ TO IRAN. THIS IS THE WHOLE REASON THAT AMERICAN TROOPS HAS BEEN STATIONED IN IRAQ FOR PAST FEW YEARS. AMERICA DOES NOT MUCH CARE FOR IRAQ. IRAN IS WHAT USA IS INTERESTED.USA USA USA USA USA USA USA USA USA. ALL THE WAY TO VICTORY.
randy • August 14th, 2008 at 12:04 pm
MASHIACH BEN CHANA……………….please take your war mongering comments elsewhere
Anonymous • August 14th, 2008 at 12:18 pm
This Article in the Oil Bulletin may be quite interesting. “The devil’s seesaw”http://www.energybulletin.net/node/46223
Softwarengineer • August 14th, 2008 at 12:32 pm
GROWTH DETERIORATIONYeah, its politically correct to support more American growth [overpopulation]; but its political suicide for America to tweak the average household income numbers up adding in the top 10% of American incomes; when we all know the bottom 90% of American incomes are collapsing due to uncontrolled growth wage deterioration.Any of you Dems [or Reps for that matter] out there have a magic wand to make the bottom 90% of American wages go up to ever save housing; with simultaneous uncontrolled population growth and a relatively stagnant GDP?On our present uncontrolled growth path, without workable environmental plans to control resource depletion [i.e., feeding too many people in America; makes recycling or driving hybrids a moot point], I predict this recession we’re in now, will never end. Until we depopulate America.Demographers and scientists like me totally agree on this scientific fact [current American overpopulation]; but who are we, we’re Dr. Frankensteins to the Dems/Reps, trying to solve the world’s problems; rather than hide from them in denial.
J.K. • August 14th, 2008 at 1:18 pm
Ron:Medic is correct. The answer begins at home. Otherwise, we look outside ourselves (i.e., government), and are perpetually dependent. Best thing to do is to become aware of the issues and become politically active yourself – not just voting, but fighting for what’s important to you, questioning how much of your consciousness is based on consumption v. production, eliminating your debt (kill your credit card debt), and, recognizing the continued decline of the dollar and increase in food/energy costs, living within your means.Recognize who’s on your side. The top 1% of the country’s wealthy see the election as a visceral threat to their survival. Regardless of his sane energy policy, Billionaire T. Boone Pickens will, as he did in 2004, finance “swift boat” campaigns to scare voters away from the Democratic candidate. Rupert Murdoch’s media does the same daily. They will do anything (including, IMHO, war) to retain their position and influence. Regardless of how much of a “straight talk” “maverick” McCain may legitimately be, as Consevative John Dean has said, his election will continue the people and policies of the disastrous 8 years of Bush/Cheney.That is not to say that a Democratic administration will wave a magic wand; however, to paraphrase a colleague’s comment on the healthcare system, “the only economy we can’t afford is the one we have now”.When military powers face dire economic straits, dangerous consequences result. One scenario is Jim Fallows’ “Countdown to a Meltdown” in the Atlantic Monthlyhttp://www.theatlantic.com/doc/200507/fallows.
Guest • August 14th, 2008 at 1:30 pm
SAN FRANCISCO (MarketWatch) — The liquidation of a big hedge fund or investment-bank trading portfolio is wreaking havoc in some parts of the hedge-fund business, managers and investors said Thursday.Black Mesa Capital, a hedge-fund firm that uses computer models to track down investment ideas, said that at least one large hedge fund or investment bank is liquidating “massive” trading portfolios, according to a letter the Santa Fe, N.M.-based firm senthttp://www.marketwatch.com/news/story/portfolio-liquidation-triggers-turmoil-among/story.aspx?guid={9562090F-2CC0-4EE2-ACBF-2688F60061DA} to investors Wednesday.
Stuart • August 14th, 2008 at 1:55 pm
News/fundamentals always, always trumps charts.
biomimic • August 14th, 2008 at 2:41 pm
Mature ecosystems are resilient because nothing is done in a hurry. A recession reflection restraint economyNature is and always will be the super power !
economicminor • August 14th, 2008 at 3:01 pm
So, the end of the empire….I have been suspecting/suggesting such for a while now. Nice to see someone as renowned as Professor Roubini agreeing.Peak oil, peak debt, an over populated world putting strain on the earth’s ability to support humans in the manner some of us have grown accustomed to. And then to top it all off, an idiot is elected to the highest office in the land and he and his minions burn up money and resources like there is no tomorrow while promoting debt as an answer to income and obfuscation as an answer to regulation and criticism.We are watching an epoch paradigm shift. America has changed a lot over its short history but the changes facing us today are monumental.As with all great transitions, this will not be quick.@Ron, What can or should we be doing? I could come up with a long list but that would be my list and it would only be relevant to me. I can tell you that for the first time in 20 years I have planted a garden. I ride a motorcycle to work most of the time but I have always turned out the lights when gone from a room for any extended period. In a world of consumption, my wife and I have lived below our means for most of our marriage of over 30 years. For us the changes will be less significant than to many. Unless things spin out of control. If we have chaos and violence as a consequence of the country’s overindulgence and arrogance, but let’s think positive.America needs to live below its means and pay off debts and invest in our collective futures BUT that will not be quick or easy. Even in a perfect world that wouldn’t be quick or easy because human nature will keep most people doing what they have been doing for far longer than is advisable or appropriate because habits are extremely difficult to change. Stop smoking or eating the wrong foods or start getting up early and exercising. Most people know that overweight people tend to remain overweight because they have habits that they can’t change.The coming paradigm shift facing the US will force and is currently forcing many people to change habits against their will due to credit/economic issues. This will continue for years. Our leadership will not/ can not allow these changes to happen to rapidly as that would create chaos. Besides they are into the habit of spending and not taxing and that habit is difficult to change also. In the end, it won’t really matter much because change is happening already due to their previous poor habits. Everyone is entitled and those with power are entitled the most, in their eyes.We live in houses that are to big and to far from where we work. Most areas have little or inadequate public transportation and our system of hauling people and freight across the country are extremely inefficient in an energy audit. Even our electrical grid is inadequate and out of date. We have many changes to make to maintain even a semblance of our current standard of living, individually and as a country. I and apparently the Professor, now believe it is beyond the point of stopping or turning a corner. The Empire is Dying! Overextended and under funded and sadly managed by dumb greedy men with bad habits of self indulgence and arrogance.Life in America will change and the hardship accompanying it is the only way it happens. Change doesn’t happen just because you or I think it should. It happens because change is constant. Yet we get into habits that don’t. The irresistible meets the inevitable. Prevented as long as possible until the force of change overpowers resistance and presto CHANGE move forward in leaps and bounds.. Here we are! At the beginning of an epoch change forestalled as long as humanly possible.What can you do? Change with it! Be ahead of the change. Change your habits before the force changes them for you. Teach others by example.
sam • August 14th, 2008 at 3:15 pm
I am truly scared. I cannot sleep. cant sell my house and see the whole financial structure around me collapsing. I wish this was just a bad dream. NO RELIEF in sight.
Anonymous • August 14th, 2008 at 3:21 pm
The Caucasus —Washington Risks nuclear war by miscalculationThe trigger for such a war is not Georgia’s right to annex South Ossetia and Abkhazia. Rather, it is US insistence on pushing NATO and its missile defense right up to Russia’s door.http://www.globalresearch.ca/index.php?context=va&aid=9790
Guest • August 14th, 2008 at 3:44 pm
Anonymous: “The trigger for such a war is not Georgia’s right to annex South Ossetia and Abkhazia. Rather, it is US insistence on pushing NATO and its missile defense right up to Russia’s door.”Correct, that has just happened today:Poland has signed a preliminary deal with the US on plans to host part of the controversial US defence shield.The proposal is for the US to base 10 missile interceptors in Poland in exchange for help strengthening Polish air defences.The US says the system will protect itself and Europe against long range missile attacks by “rogue states”.Correspondents say the deal is expected to heighten tension between the US and Russia, which has condemned the plans.Moscow has said the project would upset the military balance in Europe and warned it would have no choice but to point its own missiles at the installations.http://news.bbc.co.uk/2/hi/europe/7561926.stm
Guest • August 14th, 2008 at 4:11 pm
poverty was turned into a business /Usury inc.
Gloomy • August 14th, 2008 at 4:39 pm
Oh, sinner man, where you gonna run toOh, sinner man, where you gonna run toOh, sinner man, where you gonna run toAll on that dayRun to the rock, rock was a meltin’Run to the rock, rock was a meltin’Run to the rock, rock was a meltin’All on that dayRun to the sea, sea was a boilin’Run to the sea, sea was a boilin’Run to the sea, sea was a boilin’All on that dayRun to the moon, moon was a bleedin’Run to the moon, moon was a bleedin’Run to the moon, moon was a bleedin’All on that day
Gloomy • August 14th, 2008 at 5:03 pm
@SAMHang in there buddy. You have discovered the truth and that puts you miles ahead of the crowd. Take advantage of your lead while you can.
Gloomy • August 14th, 2008 at 5:05 pm
@SamP.S.-The best defense is a good offense!
DrexelBurnem • August 14th, 2008 at 6:46 pm
The decline of the American Empire has been occurring gradually for quite some time:Of the numerous steps one can site:-Collapse of original Bretton Woods-All excuses and rationalizations that resulted in increased national debt-Diminishing cultural hegemony (Movies, jeans and American college tee shirts were once prized abroad)However there currently is no viable global alternative present on the world stage.Russia, although powerful, does not capture the imagination of the rest of the world and has a long distinguished history of self-destruction.After the Roman Empire declined, since everyone wanted a piece of Rome, a crumbling of centralized power occurred and was not restored for hundreds of years.What may be occurring is simply regression toward globally shared mediocrity as we increasingly look down every rabbit hole for “vibrant growth” while our own system founders and increasingly lilts toward socialism by default.
Mark • August 14th, 2008 at 7:16 pm
@Written by biomimic on 2008-08-14 14:41:40Nature is and always will be the super power !Or, perhaps more appropriately, Mother Nature Bats Last!Mark
Guest • August 14th, 2008 at 7:27 pm
@sam: “I am truly scared. I cannot sleep. cant sell my house and see the whole financial structure around me collapsing. I wish this was just a bad dream. NO RELIEF in sight.”The truth is, there are more important things than this financial system…There are choices and some may be good dreams come true. I have a friend who just chucked it all this spring, took early retirement and set up house in Costa Rica in July. His wife, who was suddenly disabled last November, had to choose between disability insurance (a $1100 premium a month) or full retirement. She chose the paid up insurance and a partial pension. They couldn’t sell their house here (it had dropped 50% in value) so they simply walked away…They love Costa Rica – the people, the things bright and green, the things young and happy. They have a tiny $55,000 house on a hilltop with an awesome 360 degree view of valleys and at night “the San Ramon lights look like illuminated pearls up and down the hills: we are so high up we can see many of the villages around us, not to mention being able to see the Pacific Ocean… the lady I bought the house from stopped by, she had stopped to pay her water bill and paid ours too. Ever have a neighbor do that for you? … We have parrots flying over the house all the time, very noisy…and we are surrounded by flowers.”His latest email began “It’s another awesome day in Costa Rica, sunny and warm, 75 degrees, nice breeze. Great day to be alive”… His wife already is teaching English in little improvised free classes – with more and more neighbors coming every day.My point: life is nothing without freedom – and we still have enough freedom left in America to fight for it and win it back. That is a wondrous hope very few have.Rent your house, or take in a renter or two like they do in England because of the price of housing, or share your home with your children and share the mortgage until you relocate or whatever. Don’t’ be conscientious to a fault or overburdened with minor cares – the greatest man who ever lived had no place to lay his head. Many of us, like a theater audience, are going to have to learn to dispense with fortuitous properties, lighting, and scenery and, as Frank O’Connor said in “Only Child,” begin to appreciate theater in the raw.We still have freedom and its worth every ounce of fight we have to give and every piece of property we own: but we must not be driven mad by injustice – as so many great men are.Among the first batch of Irish leaders who took over the city of Dublin in April 1916 and subsequently were shot by the English, several were poets. Wrote O’Connor, born in 1903 and part of the Irish revolution:One of them, Patrick Pearse, on the night before the execution had written some poems, one of them to his mother – which showed him a man of feeling – and another, which contained lines I still remember:The beauty of this world hath made me sad –This beauty that will pass.Sometimes my heart hath shaken with great joyTo see a leaping squirrel in a tree,Or a red ladybird upon a stalk…The beauty of this world”…his last remaining thoughts…
Jason B • August 14th, 2008 at 8:19 pm
Guest – Beautiful. Thank you.Sam – It will all be alright. Many people in this country are suffering like you are. You are not alone. We are all still Americans, with or without this government. I believe we will all come together.The sun will still rise, the birds will still sing, the stars will still shine.Please don’t be scared. Get some sleep. It will all be alright.
kilgores • August 14th, 2008 at 8:43 pm
@ Wild Bill on 2008-08-14 11:31:25Thank you for that excellent and thoughtful post, Wild Bill. As bad as things appear to be, and as bad as they are yet likely to become, I have to say that I still have some faith left in America, too. There are few problems, no matter how difficult, that an individual or a society cannot overcome through a vision of a clear goal and the will to keep striving and adapting until the goal is achieved, no matter how difficult the path may become. Every failure on the path must be treated as one more stepping stone to success. We may have temporarily lost our way, but we will find it once again, and we’ll be better, stronger, and wiser for it.SWK
Anonymous • August 14th, 2008 at 9:06 pm
I recommend that people focus on their lives, reality (which is all about love), the many wonderful things they can do with their lives. If their freedom as human beings means they should go outside the USA, then there is nothing wrong with that.Great post about Costa Rica. Don’t suffer for the sake of banks. It’s a big world and we have a right to find our way in all of it. “American values”, the really good ones, aren’t uniquely American. They are human, universal. If you find that your American experience involves slavery for a bank, I think a real American would go in search of something more American than that! It’s your free will and your universal right.
Guest • August 14th, 2008 at 9:10 pm
A Must Read by Catherine Austin Fitts.Fitts served as managing director and member of the board of directors of the Wall Street investment bank Dillon, Read & Co. Inc., as Assistant Secretary of Housing/Federal Housing Commissioner at the United States Department of Housing and Urban Development in the first Bush Administration, and was the president of Hamilton Securities Group, Inc., an investment bank and financial software developer.http://news.goldseek.com/GoldSeek/1218694140.phpThe Housing and Economic Recovery Act of 2008″A more appropriate bill title would be the Housing and Economic Takeover Act of 2008. Rather than declaring the New World Order, we are apparently going to legislate it sector by sector.”hlowe
OuterBeltway • August 14th, 2008 at 9:10 pm
@SWK:I’ve got some ideas I’d like you to take a look at and comment upon. Pls drop me a line at outerbeltway at yahoo dot com.@AllI have lots of faith in the United States, and in our friends around the world. We are a young country, and we’ve made some judgment errors. We are perfectly capable of recovering from them, and as SWK says, to be the wiser for it. Let’s choose our own character traits a bit more carefully next time around.For now, we put the one foot in front of the other, look to do right by others, and it’ll work out.
Anonymous • August 14th, 2008 at 9:31 pm
When will US economy come out of recession – any idea anyone? Also when will it be safe to invest in stocks again?
PhilT • August 14th, 2008 at 9:34 pm
Did you hear the joke about the ZEN MASTER and the HOTDOG? He said, “I’ll have one with everything !”Best …
Mark • August 14th, 2008 at 9:38 pm
How will “Americans” (USA- there’s a lot more Americans than just this though!) come out of this? For the first time there will become a real culture (or perhaps many), cultures based on family, food and love (rather than the virtual fantasy culture that has become dominant): these are the things of true staying power.Take care of those you love…Mark
AfA • August 14th, 2008 at 9:39 pm
@ SWKI like the way you project positive thoughts even when there is none. I agree with you and I would like to quote the most important part of your post:”… through a vision of a clear goal and the will to keep striving and adapting until the goal is achieved … Every failure on the path must be treated as one more stepping stone to success…”That’s the real issue. However, I don’t see that happening inside the decision making centers who still live in parallel world in denial. They would never learn, not even admit that mistakes have been made. The above assumes that choices have been made collectively and in the collective best interest and that failure was just an accident or that the recognition of the mistakes is already widely recognized.That leaves only one way if America and the world has to save itself. A narrow down-up change. Not that stupid Obama change a la B. Clinton.Stupid democracy!
Guest • August 14th, 2008 at 11:00 pm
Latest odd news about the Georgia conflict…American Girl on Fox News: “I was running from Georgian troops, I want to thank the Russian troops”http://www.antiwar.com/blog/2008/08/14/american-girl-interviewed-on-fox-news-we-were-running-from-georgian-troops-thank-you-to-russian-troops/Georgian president’s Russia claims raise eyebrowshttp://wiredispatch.com/news/?id=295154It was a claim that could have provoked a dangerous Kremlin response: The United States is readying to take over airports and ports in the former Soviet republic of Georgia.The claim, by U.S.-backed Georgia President Mikhail Saakashvili on Wednesday was swiftly shot down by officials in Washington, who denied any such designs on Georgian soil.Yet, it was the latest in a string of overstated pronouncements by the American-educated Georgian leader that are further fueling tensions with Moscow.His comments — along with a stream of biased, conflicting and often false information coming from both Russian and Georgian officials — have made it hard to figure out what is really happening in the world’s latest hotspot…. …On Wednesday, he said in an interview on CNN that Russian troops were “closing on the capital, circling,” and planning to install their own government in Tbilisi.Associated Press reporters in the area saw no sign of an impending coup. An AP reporter saw dozens of Russian trucks and armored vehicles heading south from the central city of Gori in the direction of Tbilisi, but they later turned away…. …In his Wednesday TV address, he said, “Russia has lost more airplanes than in any conflict of this scale since 1939.” While such figures are not publicly available, the calculation seemed unlikely given how brief the fighting has been and how uneven the two countries’ forces are.
Guest • August 14th, 2008 at 11:15 pm
To: Gold and SilverOuch!From: JLC
Guest • August 14th, 2008 at 11:19 pm
Perhaps directing investments into military or “war on terror” would be a good idea?‘Snooper’s charter’ to check texts and emailshttp://www.guardian.co.uk/uk/2008/aug/13/privacy.civillibertiesLocal councils, health authorities and hundreds of other public bodies are to be given the power to access details of everyone’s personal text, emails and internet use under Home Office proposals published yesterday.Ministers want to make it mandatory for telephone and internet companies to keep details of all personal internet traffic for at least 12 months so it can be accessed for investigations into crime or other threats to public safety.The Home Office last night admitted that the measure will mean companies have to store “a billion incidents of data exchange a day”. As the measure is the result of an EU directive, the data will be made available to public investigators across Europe.……Clarke campaigned strongly in Europe for the measure to be adopted after the 7/7 bombings in London.So first UK campaigns for a new directive to be adopted by EU, and then implements it “because it is required by EU”. Sorry folks – a new requirement from Brussels.
Mark • August 15th, 2008 at 12:14 am
Can you see the death spiral here? Looks like this is how the rich are going to escape paying for their blunders… but in the end even they won’t be able to escape.Merrill Lynch Books Losses Through U.K. Unit, Can Offset TaxesAug. 15 (Bloomberg) — Merrill Lynch & Co. booked $29 billion of losses from U.S. subprime mortgages and collateralized debt obligations through its U.K. unit, making it unlikely it will pay U.K. taxes for years to come.Most of the losses were recorded this year, including $5 billion from the sale of $30.6 billion in collateralized debt obligations, the New York-based firm said in an Aug. 5 filing with the U.S. Securities and Exchange Commission.Merrill’s U.K. tax losses may cut its future tax bills by as much as $8 billion, based on a corporate tax rate of 28 percent, said the Financial Times newspaper, which first reported the firm’s U.K. tax disclosure on its Web site. Merrill’s U.K. subsidiary may not have to pay taxes for as long as 60 years, the paper said.Full story: http://www.bloomberg.com/apps/news?pid=20601087&sid=ath3lo2vV08E&refer=homeMark
Anonymous • August 15th, 2008 at 12:25 am
@Mark: That seems very strange that they can book US losses in a different country. But I’m sure they had the tax laws written to permit it.So I guess they’ll be moving operations more to the City of London and out of NY, continuing the general trend. Can’t say it’s a big loss in the larger sense; the broker-dealers don’t have national loyalty anyway. UK, you can have ‘em!
JLC • August 15th, 2008 at 1:43 am
Miss America:Am I barking up the right tree?”Japanese banks report surge in quarterly bad loan charges.”http://tinyurl.com/54vpto
Guest • August 15th, 2008 at 3:12 am
I would be wary of praising to high heaven the quality of graduates in Asia. I have lived, worked and studied in this region for more than 15yrs and had the honor of living in 6 countries out here. The schools produce excellent workers and disciplined people, but that is very different from creating leaders and innovators. There are wonderfully talented people and often they go to the US for graduate studies, funding or the other benefits that come from a society that encourages entrepreneurship and risk taking. The US has its faults… without question… but its ability to welcome and fund the best talent from around the world is unquestioned and one of our greatest strengths.
Anonymous • August 15th, 2008 at 4:11 am
“… under the pretense of defending abused Russian minorities in Ukraine, the Baltics” – the abuses really exist and the issue must be handled in a way acceptable for all sides, including these minorities. Describing Russian complaints regarding these abuses as “pretenses” is misleading because the problems are real. It is a pity that a generally good thinker shares the standard Western Russophobia.
Guest • August 15th, 2008 at 4:43 am
US court rules Saudis not liable for Sept 11 attackshttp://news.yahoo.com/s/afp/20080814/ts_alt_afp/ussaudiattackscourtA federal appeals court on Thursday ruled Saudi Arabia could not be held liable for the September 11 attacks against the United States despite charitable donations that ended up in the hands of Al-Qaeda.How strange…they held Iraq responsible for it, even though there was far less funding coming from Iraq to those terrorists.What happened to the Bush axiom that anyone supporting a terrorist is themselves a terrorist?
Guest • August 15th, 2008 at 4:48 am
@Guest on 2008-08-15 03:12:04I would be wary of praising to high heaven the quality of graduates in Asia. I have lived, worked and studied in this region for more than 15yrs and had the honor of living in 6 countries out here. The schools produce excellent workers and disciplined people, but that is very different from creating leaders and innovators.And yet a lot more invention comes from Japanese than from the Americans.There are wonderfully talented people and often they go to the US for graduate studies, funding or the other benefits that come from a society that encourages entrepreneurship and risk taking. The US has its faults… without question… but its ability to welcome and fund the best talent from around the world is unquestioned and one of our greatest strengths.The only thing US is able to attract seems to be venture capital and University research money (funded partly on student school debts).
ptm • August 15th, 2008 at 7:01 am
PhilT on 2008-08-14 21:34:47 – Did you hear the joke about the ZEN MASTER and the HOTDOG? He said, “I’ll have one with everything !”After a long trip a ZEN MASTER finds himself hungry and on the streets of NY standing next to a hotdog vendor. So he says to the vendor “I’ll have one with everything.” Satisfied with his insight, he gives $5 to the vendor and takes the dog. After a few moments he says: “Change?” The hotdog vendor says: “Change must come from within.”
Guest • August 15th, 2008 at 7:30 am
A telling world-wide poll last year showed a large majority regarding usa as the main threat to world peace. They were also more comfortable with anything to redress the world balance even if that meant china and /or russia.This is how much damage the bush years have beend done.I suppose us could continue to bully the world at large with its total military supremacy, but as the islamists and the israelis and now the russians have shown us, it has its limits.Unfortunately I don’t see much wisdom anywhere ready to come in and start changing the position
Anonymous • August 15th, 2008 at 7:37 am
True, but this is nothing new, at least for some. The decline of US power has been noted and studied by Dr Immanuel Wallerstein and his colleagues for almost 20 years in his world-systems analysis. It is difficult to believe that Professor Roubini is unaware of this.Have a look at this: http://ofamerica.wordpress.com/2007/10/18/interview-w-i-wallerstein-on-the-inevitable-decline-of-the-american-empire/
Ron • August 15th, 2008 at 8:20 am
@outerbeltwayApologies for the late follow up.I understand the concept of leveling of incomes, but let me ask you, orall the others here, a question.Why will protectionism not work in the face of this leveling?Sincere thanks.Ron
Guest • August 15th, 2008 at 8:42 am
Perhaps Nouriels article should have been titled “The Decline of the Anglo-American Empire”…http://news.yahoo.com/s/afp/20080815/wl_uk_afp/britaineconomypropertyRepossession orders rise by 24%The number of homeowners in England and Wales threatened with mortgage repossession orders has gone up by nearly a quarter over the past year, figures revealed Friday.The Ministry of Justice said that 28,658 homeowners faced repossession orders in the second quarter of 2008, an increase of 24% compared to the same period in 2007 and 4% more than in the first quarter of 2008.The gloomy figures suggest homeowners are feeling the pinch as mounting food and energy bills are squeezing their finances.
Guest • August 15th, 2008 at 8:43 am
bold off…
Guest • August 15th, 2008 at 8:50 am
NR,this so called housing bust hasn’t been able to put $VIX above 40 at all. and Soro has started adding stakes in LEH. may be you are wrong about your housing bust call? and dollar has started to strengthen. are you ready to admit that you are wrong?
Ron • August 15th, 2008 at 9:01 am
@ MedicAppreciate your response.I have been digesting what I think the current issues are for the past three years or sothrough sites such as this, so I think I have a fair handle of what is going on.The problem I see with myself now at this point is this. Some of this can get pretty complicated,even if you like it and pay attention. Even though that is true, the reality is there are a lotof basic concepts that can be applied that would “fix” these current issues. (By the way PhilT,your suggestion of Daniel Alpert’s article was helpful, the leasing concept, thanks.)How do we drill simple concepts back into the heads of the populace?They borrow excessively because they don’t feel any consequences. (Yet…)They are disinterested in politics (and more importantly, running for office, “participating”) becausethey feel they should leave issues up to experts or they have a distaste for professional politicians.I agree with Hank Paulson’s message of “self-reliance”. But I think it has to be applied further thanjust growing a vegetable garden. (“I don’t have time to grow a vegetable garden, I’m too busy hoofingback and forth to work to pay my bloated mortgage!”)I feel like things might have to get worse for awhile, so that people will start to understandwhy we need to take the medicine. My fear is that they get very bad, very quickly, so thatsimple medicine is no longer effective.But why let this happen? How do we (1) agree on a “platform” of what needs to be done (2) communicatethat platform out to the populace (or a subset that is willing to act. From what I have read, onlya third of the population supported actively the American Revolution) and then (3) execute (agree on themethod of execution and politely but firmly carry it out.)I think the good people, the ones with their heads down everyday, the americans you don’t read about much,would be interested if they understood the problems and the potential solutions. Their minds are busy becauseNBC is pushing Brittany Spears out in front of them every night.@ Hank, Should we escape the burden of the ‘we’? Don’t I owe to those who came before me, and to thosewho will come after?@ Guest on 2008-08-14 19:27:15: I’ve been to Costa Rica, I love it. Hawaii too. But moving there seems like running away. And,if we all decide to move there, the problems only follow, no? The banks will see everybody moving there, all that opportunity andthey’ll jack up real estate, kill you with excessive fees, develop that lovely valley right below you with concrete skyscrapers, etc…How does it begin to turn around? Or, do we just accept that every twenty or thirty years the big boys will spin us all upside down for a spell when they decide to run things up and then drop the bottom out?Ron
Anonymous • August 15th, 2008 at 9:17 am
The “War on Terror” has two terrific downsides. How the heck are you going to sell high tech, expensive,high profit war products to the world fear market, when you are fighting unconventional decentralized terror cells. There has to be a better boogie man out there. The chinese are a totalitarian market economy producing for the multinationals and they present more upside than downside for the World Economic Forum crowd. The Russian are perfect. At one point Putin was lobbying to become closer to NATO and he was rebuffed. Doesn’t he know that we need to sell weapons! How do you sell weapons without a powerful state enemy? How do you get the American electorate to vote against their economic interest without an IDEOLOGICAL BOOGIE MAN? The Russians have been carefully maneuvered by pushing their buttons. Putin gave his blessing for Bush to put provisional bases in the ex-soviet republics around Afghanistan after September 11,2001. The bases were then converted to permanent bases, and the Russians had to push back. The Russians are no longer ideological. They presently are a kleptocracy moving in the intellectual direction of a totalitarian market economy based on the Chinese model. They are scared of the Chinese demographic invasion in the Far East by the han chinese, and the NATO accretion in the West. They are a Gazprom dependent economy with a great stake in Hydrocarbon Production. They know they have Energy on their side. They just want to sell the heck out of energy!! They are merchants!! However, they are the perfect boogie man to get another 8 years of Financial Multinational Control of the Media zombie american electorate. The new cold war has no nuances.If you are an american and you don’t hate the Russians, you must be non-patriotic! Make a highly analytical nuanced argument in favor of diplomacy and incentives and you will not win an election!!!
Anonymous • August 15th, 2008 at 9:53 am
“The response in Washington is to turn the dial on the “BS Meter” to maximum.”PeteCAThey must have it turned up to 11
Anonymous • August 15th, 2008 at 10:29 am
It seems to me that we do not have as much control over our own destiny as we may believe. (See cognitive biases at Wikipedia). I would ask regarding the inflation/deflation question: What do our creditors want? They do not appear to want to be paid back with cheaper dollars. They will fight inflation of the USD. How? By limiting purchases of US Treasuries going forward, causing (long-term) rates to rise and the dollar to continue to strengthen, and in the process keeping their exports more affordable. The rise in long term US rates will be the “shock” Minsky describes as debtors engaged in distressed selling of assets to pay off debt. The paying of debt thus contracts the money supply and decreases velocity. Attempts to inflate using short term rates will be ineffective since consumers are over-indepted, and banks are tightening lending standards. Thus, deflation has the edge. Let us hope for at least a stable versus unstable deflation.
randy • August 15th, 2008 at 10:32 am
i just finished reading this article by Catehrine Austin Fitts. Great article!….Thanks….Hlowe.I have to say, it made me depressed to see the level or corruption we have in our government and corporations.How can anyone on the outside (like me) make $$ in the market with all this going on????????help.
randy • August 15th, 2008 at 10:32 am
sorry. here’s the link again.http://news.goldseek.com/GoldSeek/1218694140.php
PhilT • August 15th, 2008 at 10:35 am
@ ptm on 2008-08-15 07:01:34Well told PTM …Best …
PhilT • August 15th, 2008 at 10:42 am
@ Ron” How do we drill simple concepts back into the heads of the populace? “A very delicate point … insight might be gained from reading PTM’s well delivered ZEN MASTER story.Be well, sir …
OuterBeltway • August 15th, 2008 at 10:42 am
@Ron:You have zeroed in on the core questions facing us faster and better than anyone I’ve seen yet in the blogosphere. This is really excellent thinking and exposition.”Won’t protective tariffs help?”Yes, they certainly would help us in the short run. Tariffs face mixed political forces. It’ll play well with union workers, but I’m not sure how it’ll go with most shoppers. Walmart’s prices would rise by whatever the tariff percentage is, and you’ll note that Walmart’s the only retailer making their numbers right now – that tells you where America is shopping, and everyone knows why.The immediate reaction to the tariffs by China would be to start selling elsewhere, and the vendor financing (buying US national debt instruments) would slow down (not stop, just slow down). This would be painful, and it would cause interest rates to climb almost instantly. This would hurt the wave of mortgage re-setters that are coming in to port over the next three years, and will really exacerbate the housing slump. Protective tariffs are a mixed bag, and they create hostility between nations at just the time we don’t need that problem. We need wealth creation within the U.S., not trade shutdown around the world.The better solution is re-establish the entrepreneur class at the base of the pyramid, where households and small businesses are. Get people to produce locally, and buy from one another. That’s where all the job creation and innovation has come from in the past, and it’s where it’ll come from in the future. This needs to get started very soon.Ron, if you’re interested in reading a white paper I’ve written on the topic, drop me a line at outerbeltway at yahoo dot com and I’ll provide you with a copy.SWK, you are MIA. There are aspects of this project that need an economically-aware atty’s input, and you may well be that person, or know someone that is the right person. Please get in touch. Identities will be carefully protected.
Guest • August 15th, 2008 at 10:43 am
You might be right that the US is losing economic power, but its military power is unrivaled and will remain that way for the next 50 years. No other nation could voluntarily occupy to hostile nations thousands of miles away without resorting to either a draft or a wartime economy. Not to mention, no other military can match the advanced weaponry we have. Our assumed weakness right now is frankly, voluntary because President Bush wants to occupy a nation without a draft. We’re “stretched thin” so to speak voluntarily.I agree with you on most things Professor but you are dead wrong on this. Political and military power comes from the barrel of a gun. The US is, and will remain, the one super power as long as China’s military remains a joke and Russia remains a basketcase.
OuterBeltway • August 15th, 2008 at 11:08 am
@Guest on 2008-08-15 10:43:11I think you overlooking something vital. If the U.S. economy continues to erode, the force projection comes directly at the expense of household welfare. The trend of the past 30 years continues.That is politically unsustainable, particularly when the alternatives are so well known. This is the well-trod path of former Empire decline, and we seem to be following that path with – forgive me for this – laser-guided precision.By the way, this very phenomenon, the military-induced economic and political over-extension, was the expressed strategy of Osama Bin Laden.
Guest • August 15th, 2008 at 11:45 am
what is with CNBC’s bear clip? where are all bears now? people at CNBC are ridicule the poor bear.
Anonymous • August 15th, 2008 at 12:02 pm
Running away, when a bully is after you, is just good sense and is entirely your right.An economist might call it “moral hazard” but Leviticus calls it “jubilee”, a wiping out of debts. We’re supposed to have a jubilee every 50 years. We are overdue.
Mark • August 15th, 2008 at 12:02 pm
Bloomberg article:MBIA, Ambac Shares Jump After S&P Decides Not to Downgrade Credit RatingsWTF? Do can we just pretend all the bad stuff away?Mark
Guest • August 15th, 2008 at 12:11 pm
@Guest: “And yet a lot more invention comes from Japanese than from the Americans…”The number of patents is meaningless, just as the number of books published, or papers published by university researchers is meaningless. The point is, who is making the significant inventions that change things. Through the years, that has been America. It is no accident that the story is being rewritten. A lot of large corporations because of a powerful computer capacity, based in the US or not, are able to nail down thousands of areas to patent to use for their own future protection when the majority never amount to any meaninful invention. It also stops small inventors from developing a competitive product. Phyllis Schlafly is an expert in patent law:“The Globalists’ Plan To Give Away U.S. Patents” by Phyllis Schlafly, August 1, 2007 excerptsPrior to 1999, the U.S. Patent Office was required to keep secret the contents of a patent application until a patent was granted, and to return the application in secret to the inventor if a patent was not granted. That protected the legal rights of the inventor, who could then go back to the drawing board to perfect his invention and try again.A mischievous congressional “reform” in 1999 authorized the U.S. Patent Office to shift to the Japanese and European practice of publishing patent applications 18 months after filing whether or not a decision is yet made on granting a patent. Congress allowed a patent application, under certain conditions, to be exempt from the publication requirement, but the default procedure is to publish…By 2006, the U.S. Patent Office had placed 1,271,000 patent applications on the internet, giving access to anyone anywhere in the world. This foolish practice created a gold mine for China to steal U.S. innovations and get to market quickly.Chinese pirates don’t roam the high seas looking for booty but sit at their computers, roam the internet, and steal the details of U.S. inventions that the U.S. Patent Office loads online. This practice became China’s R&D program, and it is even more efficient than China’s network of industrial and military spies…The U.S. patent system is the vital factor in the technological lead that gives us the edge over competitors and enemies. We must not let the globalists destroy it.Read this article online: http://www.eagleforum.org/column/2007/aug07/07-08-01.html
Anonymous • August 15th, 2008 at 12:32 pm
Hm, Merrill is booking huge tax losses in UK, setting themselves to operate tax-free there forever. Merrill also announced yesterday a hiring freeze in NY, I’m not sure if it applies also to London.So those pieces go together: they won’t hire any more in NY and will downsize their NY operation, moving to London. Those broker-dealers have no national loyalty at all. London can have ‘em, and that goes for Goldman, Morgan Stanley and Lehman too.
Anonymous • August 15th, 2008 at 12:32 pm
Hm, Merrill is booking huge tax losses in UK, setting themselves to operate tax-free there forever. Merrill also announced yesterday a hiring freeze in NY, I’m not sure if it applies also to London.So those pieces go together: they won’t hire any more in NY and will downsize their NY operation, moving to London. Those broker-dealers have no national loyalty at all. London can have ‘em, and that goes for Goldman, Morgan Stanley and Lehman too.
AC • August 15th, 2008 at 12:34 pm
@Guest on 2008-08-15 10:43:11You are right about the strength of the US military. But don’t you see, that this war machine and the wars are financed by foreigners, especially by China, Russia, and the oil states? How would this military work without external the financing of the US? See the latest post on Brad Setser’s blog: http://blogs.cfr.org/setser/2008/08/14/the-changing-balance-of-global-financial-power/ . As he says: “To me, one of the world’s greatest ironies is that US dependence on authoritarian governments for financing has soared over the last four year. US rhetoric hasn’t matched financial reality. Though I guess it is equally ironic that Russian purchases of Treasuries over the past few months have helped to finance the current US aid mission to Georgia.” What if they decide not to continue to finance the US?
Guest • August 15th, 2008 at 1:10 pm
“Inflation Research as Propaganda” by Per Bylund – August 15 (excerpts)It should be clear to anyone with some knowledge in how the economy works that all the individuals in it work together like an invisible hand to produce goods and services and that they tend to do so ever more efficiently…In such a market the natural tendency is for prices to fall – anything else would be incomprehensible… Competition spurs cost-cutting and efficiency-increasing measures for the actors to gain advantages in the market through satisfying consumers’ wants by offering better products at lower cost. So how could prices ever increase in such a setting?…Yet the definition used for inflation is the general increase in prices. Of course, even those trained in mainstream neo-classical economics should realize such a phenomenon is a symptom of something being wrong. But what is commonly overlooked or not understood… is that inflation is not something going wrong as shown in price increases – it is wrong because prices don’t fall.In other words, if inflation is taken as only the price increase the statistic necessarily and systematically overlooks the natural price fall that is also a part of inflation.If prices in the market would naturally fall by 5% in a specific year but we instead experience a 5% increase in prices, the real “price increase inflation” isn’t the experienced 5% increase compared to the level of prices the previous year but the new level compared to what the level would have been, i.e. 105%/95% = 10.5%.In this simple example the official inflation statistic would only take into account less than half of the real price increase inflation.The inflation statistic of 5% in the example doesn’t take into account that the market is never static; it simply compares the price level of one year with the price level of another year…It is also true that it is literally impossible to tell how much prices would have fallen, which means the inflation statistic is nowhere close to the real inflation rate and also that it is impossible to even guess how wrong it is.For obvious reasons the State benefits quite a lot from using this definition of inflation. After all, it covers up most of the effects of its tampering with the market. But why in the world would anyone doing economic research use such a statistic that is so totally flawed? …Per Bylund is a Ph.D. student in economics at the University of Missouri and the founder of Anarchism.net. Visit his website http://www.PerBylund.com or his blog where he comments on this article and morehttp://www.lewrockwell.com/bylund/bylund24.html
Guest • August 15th, 2008 at 1:10 pm
“What if they decide not to continue to finance the US?”that will not happen. do you think those stupid Russian and Chinese will be smart enough to stop finance the losing trade? look at Russian and Chinese balance sheet, they are still accumulating USA dollar and debt. haha, those stupid Russian and Chinese.
Anonymous • August 15th, 2008 at 1:32 pm
Wag the Dog: How to Conceal Massive Economic Collapsehttp://www.globalresearch.ca/index.php?context=va&aid=9828
Gloomy • August 15th, 2008 at 1:34 pm
STRAWS ON THE CAMEL’S BACKThe fact that banks are now being forced to buy back auction rate securities is seriously stressful for them. While it is true that ARS’s don’t necessarily represent losses for the banks, the repurchases soak up precious capital which is extremely hard to come by and is gotten only under highly dilutive terms. The ARS market was 300 billion and a good chunk of that has been and will be repurchased, adding huge stress to the credit crisis. You can almost hear the pilings creak as the financial system heads for collapse
Guest • August 15th, 2008 at 1:35 pm
“The Downturn Is Good News” by Llewellyn H. Rockwell, Jr.August 15, 2008 — Sometimes the bad news is the good news. So it is with the report that retail sales are down by 0.1 percent in July, the sharpest drop in many months.Why good news? It means that consumers are starting to cut back. They could be going into less debt. They might be saving more. They are being more careful about long-term plans pending short-term trends.These are all preconditions for recovery. It’s only bad news if one adopts the crude theory that economies are sustained by consumer spending. The truth is nearly the opposite. Consumer spending is the final payoff for the less visible foundation of growth, which is real saving and investment – that is, making the choice for the future over the present. What declines in retail spending indicate is a coming to terms with reality.I’ll state again what everyone familiar with the Mises-Hayek business cycle knows: the downtown is a response to an artificially inflated economic structure. Loose credit, courtesy of the Federal Reserve, has been sucked into certain sectors and industries in a way that cannot be sustained. The response of sell-offs and business failures represents an injection of reality into an unreal bubble.Far from being something to regret, the economic downturn should cause us to breathe a sigh of relief. And by the way, this is not new knowledge. F.A. Hayek spelled all this out in his amazing writings between the wars, now recently collected and available for the first time in decades in a new book published by the Mises Institute: “Prices and Production and Other Works”.These essays explain not only the Depression but also our current plight, which stems from the same root in a Fed-driven banking system that turns credit on and off like a monkey playing with a fire hydrant. It does damage by sending false signals to investors.But the free market will not be fooled in the long run. And what we are seeing now is the market process…http://www.lewrockwell.com/rockwell/downturn-goodnews.html
Guest • August 15th, 2008 at 1:42 pm
“The ARS market was 300 billion and a good chunk of that has been and will be repurchased, adding huge stress to the credit crisis”no it is not, bank can swap with FED for cash.
Anonymous • August 15th, 2008 at 1:50 pm
It’s very important now that the Fed stop rolling over those loans based on garbage collateral. Those Fed-dependent financial institutions have had enough time (more than they deserved, which was no time), now it’s time to start demand real collateral on the next rollovers.
Gloomy • August 15th, 2008 at 1:53 pm
“no it is not, bank can swap with FED for cash.”Written by Guest on 2008-08-15 13:42:41Yes they can. But that will only bring us closer to the end point of the credit crisis. Huge new debt issued by the government to support this nonsense will eventually lead to hyperinflation and dollar implosion.P.S.-Be happy. It’s FDIC Friday!!
Guest • August 15th, 2008 at 1:57 pm
Today on RGE Monitor’s Daily Digest“CFOs and CPAs say U.S. is in recession; predict rough 12 months ahead — More optimistic about their own company’s prospects for growth”Financial Times –August 15, 2008A majority of chief financial officers and senior executive accountants believe the U.S. economy is already in recession and will continue its slowdown for the third consecutive quarter, according to a survey conducted by the American Institute of Certified Public Accountants.To make matter worse, the executives doubt the economy will improve over the next 12 months. “Our members are still seeing increased pressure on profits from rising costs without the ability to raise prices,” Chris McKittrick, the AICPA’s director of members, said in a statement released on Thursday. “Expectations for revenue and hiring are trending downward.”Mark Lang, a professor of accounting at the University of North Carolina’s Kenan-Flagler Business School, which helped conduct the survey, added that “the fact that firms continue to reduce planned growth in capital investment, staff development and employment is particularly troubling since it suggests that the slowdown could have long-term implications.” …
Gloomy • August 15th, 2008 at 2:25 pm
MUST READ POST!!!Here is an excerpt (don’t miss the graphs)”The USA: Double BubbleWhile the Dow has fallen substantially in the last year, its inflation-adjusted value is still three times its long-term average, and more than 4 times its average prior to the start of this bubble. Even if the index falls merely to its long term average, it still has another 62% to go (in real terms) from its current level. If it reverts to its pre-bubble average, it has another 73% to go.”Overall, if US markets fall back to their pre-Bubble levels, the stock market will plunge about 80% from its peak (much the same degree of fall as applied in Japan) and the housing market will fall 55% (rather more than happened in Japan, where average house prices fell 44%–but less than Tokyo, where they fell over 70%).The unique feature of this US asset bubble is that it affects both stocks and houses. There have been three Stock Market Bubbles in the USA in the last century: the “usual suspects” of the 1920s and 1980′s, but also one that doesn’t normally rate a mention: a ’60s Bubble that peaked in 1966, and was followed by a slump that only ended in mid-1982 (see Figure 6).”"As Figure 6 indicates, this dual bubble[stocks and housing] has no precedent. Not only is it a bubble in both asset markets, both bubbles dwarf anything previously experienced. Even the great Roaring Twenties stock market bubble barely pokes its head above the long term average, compared to the 2000s Stock Market bubble–and in the 1920s, as Figure 6 shows, the housing market was relatively undervalued. “http://www.rgemonitor.com/asia-monitor/253266
Flanders • August 15th, 2008 at 2:42 pm
@GloomyMore from Keen on his own website. This kind of information was already available some time ago on his website.http://www.debtdeflation.com/blogs/
Gloomy • August 15th, 2008 at 3:05 pm
@FlandersI guess I’ll have to add him to my list!!
Guest • August 15th, 2008 at 3:15 pm
“Huge new debt issued by the government to support this nonsense will eventually lead to hyperinflation and dollar implosion.”no, it is not. cuz, if it is, then we should feel that by now. and we are not feeling hyperinflation and dollar implosion now.
Guest • August 15th, 2008 at 3:23 pm
“It’s very important now that the Fed stop rolling over those loans based on garbage collateral.”that is not gonna happen, helicopter Ben will be more than happy to take in garbage collateral for his wall street buddies. record speaks everything. read my lips, helicopter Ben will replace FED balance sheet will toxic waste. cheers.
Gloomy • August 15th, 2008 at 3:27 pm
@Guest on 2008-08-15 15:15:52Have Fannie, Freddie, Citi, Morgan Stanley,AIG,other financials, automakers, airlines, FDIC, and Pension Guaranty been bailed out yet? Coming to a theatre near you soon.
Anonymous • August 15th, 2008 at 3:28 pm
The Fed is withdrawing money from general circulation via open-market operations and lending that same money to the banks in exchange for garbage collateral. Then the banks can lend the money back into general circulation (multiplied of course) and their garbage-asset problem is at least temporarily relieved.Santa Claus doesn’t begin to describe how friendly the Fed is to the banks and especially the broker dealers. Basically they are stealing the money from the people and giving (lending, with rollovers on into the future) it to the banks and broker-dealers.But because they take it from the people, they aren’t printing extra and therefore have “sterilized” their intervention.
Softwarengineer • August 15th, 2008 at 3:31 pm
IT COMMUNICATIONS TECHNOLOGICAL INNOVATION RATINGS FOR 2007I’m not saying the Japanese are subpar in technological inventiveness, its just they rate a mediocre #19 in the world, below even Mexico. China and India are like #44.America was #1 in 2006, they’ve plummetted to #7 in 2007.Most of the top 10 technological innovation slots go to European countries [dinky Denmark is #1]; i.e., mostly all countries controlling their population with wonderfully low birthrates.These are the facts, you can go into some incoherent/unscientific tirade on how “reverse engineering” manufacturing is the same as inventiveness, but the internal combustion engine was invented in 1900 and we haven’t replaced this old antique technology yet.Book worms from universities just take orders and duplicate old technology, while real inventors [some like Gates, had no formal education] think outside of books. I believe it takes the hope of “wide open spaces” and uncrowded environments to grow real inventors. America is definitely losing this edge to Europe.
The D • August 15th, 2008 at 3:34 pm
“Helicopter Ben” sneaks into people’s houses, takes their money, then drops it from a helicopter to an area that only banks can access.A different nickname might be appropriate. What’s the opposite of Robin Hood?
Guest • August 15th, 2008 at 3:42 pm
Keen’s charts look like the coming first wave of a massive manmade tsunami. The unleashed economic devastation these financial tremors will leave behind in the wake of their recede is nothing short of multiple disasters. What have the central planners wrought?Those, like you Gloomy, who have sensed the coming of this economic tsunami are like the elephants that have special bones in their feet enabling them to sense seismic vibrations long before others. It’s time to be running to the hills.Thank you, RGE Monitor, for posting this graphic warning of an unstoppable economic rupture already traveling through the financial system – the result of mega-stresses Roubini warned of many, many months ago.And thank you, Gloomy, for the Yeehaww!
Guest • August 15th, 2008 at 3:47 pm
Written by Gloomy on 2008-08-15 13:53:56I am not so sure. Do we really know all the possibilities in the fed and treasuries toolbox? Are you considering what MA posted on 2008-08-08 16:26:31 ?”…but what if the debt today is already too big???Simple!You eliminate it. Poof!You shall see. The FASB has already started working this magic. By allowing corporations to write down their debts on level 3 assets, you are seeing the back door to this “disappearing man in the box” routine. (The FASB has allowed this as the counterbalance to writing down their assets on level 3 assets. BUT IT’S NOT!!! …and that’s the beauty.) In much the same way, as these corporations take back auction rate bonds back onto their books, they will also mark up, their write down of overall debt.Eventually, in round robin fashion, you will see the off balance sheet debt being paired off against other counterparty debt to eliminate overall debt. Debt will evaporate. It has already started. It is the only answer for a debt that can’t be paid. Sorta like Chapter 11, it’s a restructuring that’s going on.”The gov and other manipulators leave me unconfident. Especially after reading Solari http://www.solari.com/archive/housing_bill/#PartIXDoes anyone think perhaps New York Attorney General Andrew Cuomo is facilitating what will ultimately result in “POOF”?MA, am I off base?hlowe
Guest • August 15th, 2008 at 3:47 pm
By The D: “What’s the opposite of Robin Hood?”Daddy Warbucks?
Guest • August 15th, 2008 at 3:52 pm
New thread.
Guest • August 15th, 2008 at 3:55 pm
The D on 2008-08-15 15:34:41 – What’s the opposite of Robin Hood?Easy – Hood Robin
WAWAWA • August 15th, 2008 at 4:49 pm
This is from Northwest Territorial Mint.http://bullion.nwtmint.com/ The US Mint has again announced production delays and rationing for silver American Eagles. We will continue to ship silver Eagles from our stock when they arrive from the US Mint, but in order to expedite delivery will need to ship dates of our choice (unless 2008 coins were specifically requested). In some cases, orders placed after August 1 may experience significant delays, but you can be confident that all trades locked in will be shipped expeditiously as we receive supply of product from the US Mint. For those of you who wish to ensure a place in the queue, we will continue to lock in trades at our low premiums over spot. ALSO,From the Kitco home page (http://www.kitco.com/) :IMPORTANT NEW NOTICE: Due to market volatility and higher demand in the entire industry, we are anticipating delays in supply of all bullion products. Please note that you can continue to place orders and prices will be guaranteed; however, cancellation fees will still be applicable regardless of the length of the delay. Consequently once inventory is received there may also be delays in processing and shipping by our…
cregula • August 15th, 2008 at 4:57 pm
Although I have been reading Professor Roubini, and Brad Setzer’s blogs for a couple years now, this is my first post to this blog. I certainly like the perspective and blunt analysis of what is happening and being done to our world.I first came across a good analysis of what’s wrong with the global financial system when I read “The Dollar Crisis” by Richard Duncan in 2003. He was one of the first to warn of an unwinding of BW2, which I know is a prediction shared by N.R and B.S. In 2003 he was first thinking it would be the high level of corporate debt that would be the catalyst that breaks our ever growing credit bubble. Then in 2005 he came out with a second edition stating that corporate America had largely cleaned up balance sheets and it was the high level of consumer debt that bothered him now. Then a year later he said he may have underestimated the willingness of foreign central banks to finance the US, and stated that maybe the US could keep growing the National Debt to something like 70%, 80% or even a Japanese like 140% of GDP before we have Armageddon and are forced to become real again. Of course the dollar did slide about 30% over this time frame, so I guess he is trying to predict when it hits zero.Since then we found out that banks and GSE’s have very poor balance sheets, especially when they put the off balance sheet items back on, the consumer is leveraged to the hilt against declining home equity, has a zero savings rate, the home ATM is shut down, and may have difficulty getting a third job to pay for it all due to a weakening economy. And now the US government put out next years budget that shows a $480B deficit, excluding war costs. (new Orwellian slogan…”War is Free”.).So we are addicted to growing the credit bubble, and all the associated financial engineering of creating artificially low interest rates that keep it growing.I’m getting worried that we are past the point of curing the disease without killing the patient, even if we had the political will to withstand some pain.So now we are coming to the realization that future wars may become games of paper, scissors, rock on Wall Street, where paper beats scissors, beats rock.I think the first shot was fired already when Paulson and Fannie offered up the US taxpayers services to appease Asian mortgage bond holders. Not to mention US pension and investment bank holders, of course.But its good to know who is on our side. It’s oneself against the world.My tongue in cheek populist solution to the country’s problems is pull back our armed forces, default on Treasuries, then invade Canada and secure the Tar Sands for the proletariat.But I guess that probably won’t happen.
Guest • August 15th, 2008 at 5:08 pm
“This problem dwarfs the “Great Depression” and no one wants to know or hear about it. “http://www.theinternationalforecaster.com/International_Forecaster_Weekly/Economy_of_the_Living_DeadHo humPeterJB
Guest • August 15th, 2008 at 6:03 pm
Ho hum:“This problem dwarfs the “Great Depression” and no one wants to know or hear about it.”It is a taboo, for goodness sake. You are not supposed to come out and say that.
VegasBob • August 15th, 2008 at 6:13 pm
The opposite of Robin Hood is George W Bush. I never would have thought anyone could be worse than Jimmy Carter, but George Bush is definitely worse than Jimmy Carter. I apologize to the world for having voted for Bush twice.
Guest • August 15th, 2008 at 8:21 pm
The USA´s power has been eroded due to the wrong-headed thinking of 2 seemingly opposing groups: Liberal peaceniks and conservative globalizer capitalists. The LP´s see no value in national power (the ability to outgun, out-finance and out-arm-twist) and have done everything to promote a global egalitarian can´t we all get along world view never caring for a moment that other nations might not be so opposed to fighting and striving to be king of the hill.The CGC´s have allowed America to be bled dry through the greatest technology and manufacturing transfer the world has ever seen. Yeah, it´s great to have cheap costs for manufactured goods, but not at the cost of allowing the US to sink like the Titanic. Using China and the Middle East as financiers is stupid. US corporations have been falling all over themselves to set up shop in China with the latest and greatest production technology. It´s only a matter of time before those factories are modified to produce world class military equipment.So, the LP and CGC camps while seeming to be mortal enemies, through their misguided views, have started the country in the slow spiral around the toilet bowl. Who will save us and the USA?
Guest • August 15th, 2008 at 8:23 pm
The USA´s power has been eroded due to the wrong-headed thinking of 2 seemingly opposing groups: Liberal peaceniks and conservative globalizer capitalists. The LP´s see no value in national power (the ability to outgun, out-finance and out-arm-twist) and have done everything to promote a global egalitarian can´t we all get along world view never caring for a moment that other nations might not be so opposed to fighting and striving to be king of the hill.The CGC´s have allowed America to be bled dry through the greatest technology and manufacturing transfer the world has ever seen. Yeah, it´s great to have cheap costs for manufactured goods, but not at the cost of allowing the US to sink like the Titanic. Using China and the Middle East as financiers is stupid. US corporations have been falling all over themselves to set up shop in China with the latest and greatest production technology. It´s only a matter of time before those factories are modified to produce world class military equipment.So, the LP and CGC camps while seeming to be mortal enemies, through their misguided views, have started the country in the slow spiral around the toilet bowl. Who will save us and the USA?
Guest • August 15th, 2008 at 8:28 pm
>>>
Guest • August 15th, 2008 at 8:29 pm
>>>> NEW Thread
Guest • August 15th, 2008 at 8:44 pm
“Who will save us and the USA?”@ Guest on 2008-08-15 20:21:42My position is that the World is in the mid-pangs of a global economic collapse and that the USA has led this rush since the days of Mr Greenspan, who actively promoted the invasion of Iraq – due to the obviously then; the systemic collapse of the US economy.The situation in every (demographically speaking) aspect of human socio-economic activity is now in decline and the time comes when every seemingly honest men and women and children will act dishonestly in order to survive: survival.Desperation is rapidly permeating society and this “cause” is to be found in the depravity of “leadership” and the ruling elite, which includes, politics, bureaucrats, science, the priesthood, the body corporate, finance and the media; etc.The lesson: Wake up to “leadership” or pay the piper.The fact that the USA and then Europe and then Asia, led by China, and then the rest of the World, will plunge into the abyss is now indisputable.I have to admit my seething prejudice; it is applied stupidity! We will get that which we deserve.Save yourself as no one else is interested or has time to be interested!Ho humPeterJB
Guest • August 15th, 2008 at 9:02 pm
Economic power certainly eventually is a source of military power, but not the only source.The US has an enormous technical and talent lead in military technology than any other nation. That cannot disappear over night. This is not 1914 with the British army ignoring the obsolescence of their infantry forces in the face of the machine gun. Our military has planned enormously for the type of proportional conflicts posed by China and Russia. Our technology is advanced, our troops better trained, and our navy capable of repelling any threat posed at sea. If anything, terrorism, which is really not a threat to us, is our weakest spot.The fact that we’re not intervening in Georgia comes down to one thing: we don’t need to. We are frankly only strengthened by this crisis. The Europeans have come back into the fold and now every satellite nation of the USSR wants in with the US. Certainly, we won’t allow Georgia to be conquered– our air force alone could turn the Russian army into lawn ornaments in about 6 hours– but we also aren’t going to escalate a conflict over 2 provinces that A. don’t want to be in Georgia and B. don’t matter to anyone who matters. The real threat, if any, is a coup in Georgia, and something that we couldn’t prevent anyway. And there are plenty of places through which to run an oil pipeline.Even in the face of enormous economic difficulties the US could still afford its military. Most of our spending, frankly, is on butter, not guns, and I could see this country getting rid of Medicare before it forfeited its military edge.And as for our Empire, we’re not Britain. We don’t need to send our marines around the world to safeguard colonies. American power has and will always be diplomatic and commercial. Sure, we can project power when we need to, to select locations, but domination by military force has never been the way we primarily advance our power, with World War 2 (a war forced on us) as the rare exception.I totally agree, the US has too much debt, the banks are messed up, and pain is due. But our military dominance is not going away, and frankly was never the way we lead the world in the first place.
caesar (spain) • August 16th, 2008 at 5:02 am
once the peak oil has been reached with several thousends of US military troops controlling the middle east and the main oil reserves it seems clear that the twin deficits are going to be paid and furtherly financed by the petro-monarchies of the Gulf. no dubt about that is the main reason for the Iraq world.I fear that we are going to have american empire at least until the oil is over. after that point we will have the chaos and the new “madmax age”.regards.
Knute Rife • August 16th, 2008 at 10:22 pm
The US’s great opportunity for setting the world on a positive new course has spun away into the abyss, for the reasons NR spells out, which boil down to hubris and debauchery, which in turn boil down to a supreme lack of gravitas. In other words the usual reasons an empire collapses.Contrary to Guest’s comments, the US has been sending the Marines around the globe to protect colonies for 200 years. Just isn’t presented in high school history books that way.The only thing in the article I’d take issue with is that he picked the wrong World War for the end of the British Empire. In 1914 the UK was the world’s creditor, and the US was one of the debtors. By 1918 the roles were reversed, and Britain never recovered.
phil100a • August 17th, 2008 at 2:59 am
My first time here. It’s been a good experience. My sense for some time is that we’re coming to a nasty head in all this. we’re not going to crash into a Depression, or anything like that, but we’re going to feel a lot of pain.Someone above said it will probably take a lot of hurt to make our dumbed-down populace sit up and take notice; I agree.That said, we do have an enormous font of diversity. diversity leads to inventiveness and adaptation. What’s troubling is that so many are going to be left behind.Americans are going to have to learn what “enough” is. That won’t be easy for people who have always thought that “enough” = everything.Hang in there; learn to garden; make friend; learn the benefits (and challenges) of cooperation; go easy on yourself.
Michael Schub • August 17th, 2008 at 10:59 am
I have lived through times when wise men thought the power of Nazi Germany was inevitable and how can we forget the recent past when everything that corporate Japan did was brilliant and everything that American managers did was “sort sighted”? Let’s have a reality check.We are not in crisis because our President is a moron (though moron he be) because all presidents rely on economic advisers; the sin of the government was picking advisers based primarily on political orthodoxy. For this failure to govern the Republican Party will be punished regardless of who is elected president. In other words American policies will be subjected to a reality check (“Its the economy stupid”).Russia should be included among the list of unstable petro-states. Excessive dependence on oil extraction, lack of mature political institutions, politicized military and destabilizing ethnic and nationalist movements don’t make Russia appear the waive of the future. Muscle flexing in Georgia and the inevitable quick military victory over a very weak opponent can hardly be reckoned as a great success. Aside from alienating NATO, Russia’s actions helped push Poland into signing the missile defense treaty with the USA, spurred Ukraine to seek American military aid and hardly cowed the Baltic States whose leaders rushed to Tbilisi to show solidarity in the face of Russian aggression.China seems an even better example of an economy cooking along in a pot with a thin bottom. Eighty percent of China’s population live by subsistence agriculture and depend on the labor of the remaining 20% to keep them from starving. How do the Chinese weather the economic decline of their biggest customers? How does China even handle the usual capitalist economic cycles (we are about to find out as unemployment spreads in China)? Two years of frittering around with backyard kilns during the 1950s led to a famine that killed over 30 million Chinese? China has a long history of violence and political instability in the face of hard times. The Chinese government has little communication much less administrative control over vast parts of the country which is run by local political “warlords” or the military. Does anyone expect the newly prosperous and educated Chinese to face famine stoically as of day of yore?The United States of America has risen to economic dominance not only because of its wealth and industry but because of the absence of war within its territory and political stability – something that has yet to be achieved even in Europe within my lifetime.
Guest • August 17th, 2008 at 10:09 pm
If by sending Marines around the world for 200 years you mean fighting the Barbary Pirates, sure you have a point. Otherwise, I don’t see your point.We intervene just like any other nation intervenes in our sphere of influence. But we have never, ever had a traditional Empire (big E) in the form of the French, or English or Romans or Persians or Japanese. America has traditionally exercised soft power, occasionally backed up with force, which is what has made us so influential. But by far, prior to 1917, we have pretty much stayed in our hemisphere with the occasional foray into some backwater banana republic.Comparisons to other previous powers are absurd, unless perhaps you are talking about the Phoenicians. America has and never will be an Empire by force. We aren’t good occupiers, it’s anathema to our Constitution, and frankly, we don’t have the stomach to kill an entire village in front of the neighboring villages a la Romans to ensure we are obeyed– just look at Vietnam and the Philippines, and compare it to what the previous occupiers would do. If we had the stomach, there wouldn’t be Indian Reservations or a Japanese Constitution, or a Ho Chi Min City. There would just be us and our underlings.Similarly, we don’t have the patience or expertise to administer colonies and have our Viceroys painstakingly balance political wills in the divide and conquer strategy backed up by a few hundred Marines. Had a President sent our men to Rourke’s Drift to build a bridge, they would have mutinied. We have never been a people that wanted to colonies like ourselves, with some rare southern business interests in the 1800s as an exception.
Manch • August 18th, 2008 at 12:43 am
I want to read up on past empires’ downfall, eg the Roman Empire and the British Empire, esp from a economical/financial point of view. Anybody has a reading list of books on such topics? I too suspect US is on a long, downhill road to 2nd rated power, but want to learn from past histories to see if I can find parallels.History repeats itself, you know. This time is never different.
Guest • August 18th, 2008 at 1:32 am
Conservative Republican Pat Buchanan’s take on Russian conflict is spot on…a must read. (Sure wish the bully-headed unilateralist Bush & Cheney would do the same)…”Is Not Western Hypocrisy Astonishing?”http://www.lewrockwell.com/buchanan/buchanan93.html
Anonymous • August 18th, 2008 at 8:41 am
A little bit of a side comment – but since the subject of war as the extension of politics has come up; does anybody know when and why the US has adopted the Eagle as a national symbol after all a symbol with history, lots of history and if there is any background reading on the subject.And just to put a bit of a contrast to some of the blaming culture of the above posts:”Freedom is the responsibility of the individual and all individuals. Questioning and challenging assumptions and believes is as much part of that responsiblity as the naked pursuit of wealth.”Further it is interesting to see how many American citizens one can meet in Europe, that casually state that they sometimes hadn’t felt comfortable expressing certain opinions amongst friends during the heyday of this republican administration.As a final comment I apologise if I have offended anyone, but I’m just questioning wether relevant or not.How many times does one have to hear “This time it is different” in a life time?
Mike • August 18th, 2008 at 10:07 am
Definition of empire:”An extensive group of states or countries under a single supreme authority.”Exactly which group of countries are under the “supreme authority” of the US? Iraq? Afghanistan? Germany?! Maybe you should be clear on the definition of words, before throwing them around so carelessly.
USA #1 • August 18th, 2008 at 12:45 pm
I’ve heard these doom and gloom scenarios by entire life and one thing is certain, they have always been wrong. The war in Iraq and Afghanistan will reap great rewards going forward, add stability to the Middle-East, and reduce military costs in the future, let alone FREE millions of people. Just last week Iraq announced new drilling ventures, their first in 20 years. Both the deficit and debt are very manageable on a percent of GDP basis, and if they were a problem, interest rates wouldn’t be falling through the floor while the headlines highlight inflation. China and India will introduce over 2 billion new consumers to the world market and all the workers in America won’t have a hope of supplying all their needs, and many of those needs are made right here in the good ole USA. Just watch Yum brands over the next ten years. America ignored global warming? Was that a joke? Temperatures peaked over a decade ago, the globe is cooling. The 45 trillion global warming solution is 3X our annual GDP. Of course Europe likes the idea, the US would pay most of the bill, also you didn’t see China, Russia and India signing on either. Lastly, the reason we have these huge debts and deficits aren’t because of our successful venture in Iraq and the UN venture in Afghanistan, it is because of your entitlements. The 70 trillion unfunded liabilities left to our children by FDR and Johnson dwarf the drop in the bucket of the 600 billion war. Sooner of later the US will be forced to reform those programs, and when it does, a huge weight will be lifted from our shoulders. Oh, news of China slowing is hitting the news today, as oil plummets the US economy will explode, and Russia will falter. If the US does develop an alternative to petrolium, or develops new sources, America will be off to the races once again.
Florida Economist • August 18th, 2008 at 2:47 pm
It’s unfortunate that some are pushed into a defensive posture, rather than an offensive one based on positive ideas and constructive criticism when confronting reality, as is evidenced is some posts. However, admitting that the United States is facing a downgraded future, especially if it continues on course is about as patriotic and one can get. The United States did not become the greatest superpower that ever existed by accident. It happened because it was smart. Smart in its alliances, smart in its investments, smart in its debt management and smart in its politics. It didn’t always chase the money and sometimes chose principles and patriotism over the greenback.We’ve had almost ten years of irresponsible federal management, but all is not lost. If we change course now, if we begin to address economics based on long term goals instead of near term ADD principles, we can turn the train around, away from the eventual derailing it will face.The fact is that corporate ethics in America has eroded and corporate America is now managed by attorneys (no offense to all you Esq.s out there). Political ambition has defeated ethical principles and logic. The general public’s respect for itself is at an all time low. The term “sound economics” has been replaced by massive “debt management”. And our education system is ranked as one of the worst in the developed world as is evident by how far our students are behind other nations at time of high school graduation.These are facts. They are indisputable; no they can not be plugged into a neat economic model, but they are there. And they are having real negative impacts on our great country. To ignore them and hide behind patriotic gibberish is an exercise in unpatriotic behavior. And to suggest that certain rivals are not our rivals because they are buying and investing in America is completely wrong. What better way to control and ultimately defeat your enemy than by owning and profiting off of your enemy! There may come a time when corporate America owns less than 25% of America and the rest of the nation is owned by foreign interests. What will America have become then? Can it truly be considered a sovereign nation when even 51% of its wealth is owned or managed by foreigners?Will it have become nothing more than a Global mall where international players buy storefronts to suck the American consumer dry? And what happens after the American consumer is dry? Will the players withdraw from the U.S. to bask in the glow of their economic success and leave the U.S. consumer to fend for himself? These and many others are all very serious questions and very real possibilities that America has to address right now or forever hold its peace. Dr. Roubini argues that the fall of the American Empire has begun and he is probably right, at least in terms of superpower status. One thing is fore sure though, he will be absolutely correct if we do not even give the nation a fighting chance.
charlieMc • August 18th, 2008 at 5:28 pm
interesting read with a thoughtful bent on the SocioPolitics of the “Georgia Issue.” Hope You find it thought provoking–I did.By George FriedmanOn Sept. 11, 1990, U.S. President George H. W. Bush addressed Congress. He spoke in the wake of the end of Communism in Eastern Europe, the weakening of the Soviet Union, and the invasion of Kuwait by Saddam Hussein. He argued that a New World Order was emerging: “A hundred generations have searched for this elusive path to peace, while a thousand wars raged across the span of human endeavor, and today that new world is struggling to be born. A world quite different from the one we’ve known. A world where the rule of law supplants the rule of the jungle. A world in which nations recognize the shared responsibility for freedom and justice. A world where the strong respect the rights of the weak.”After every major, systemic war, there is the hope that this will be the war to end all wars. The idea driving it is simple. Wars are usually won by grand coalitions. The idea is that the coalition that won the war by working together will continue to work together to make the peace. Indeed, the idea is that the defeated will join the coalition and work with them to ensure the peace. This was the dream behind the Congress of Vienna, the League of Nations, the United Nations and, after the Cold War, NATO. The idea was that there would be no major issues that couldn’t be handled by the victors, now joined with the defeated. That was the idea that drove George H. W. Bush as the Cold War was coming to its end.Those with the dream are always disappointed. The victorious coalition breaks apart. The defeated refuse to play the role assigned to them. New powers emerge that were not part of the coalition. Anyone may have ideals and visions. The reality of the world order is that there are profound divergences of interest in a world where distrust is a natural and reasonable response to reality. In the end, ideals and visions vanish in a new round of geopolitical conflict.The post-Cold War world, the New World Order, ended with authority on Aug. 8, 2008, when Russia and Georgia went to war. Certainly, this war was not in itself of major significance, and a very good case can be made that the New World Order actually started coming apart on Sept. 11, 2001. But it was on Aug. 8 that a nation-state, Russia, attacked another nation-state, Georgia, out of fear of the intentions of a third nation-state, the United States. This causes us to begin thinking about the Real World Order.The global system is suffering from two imbalances. First, one nation-state, the United States, remains overwhelmingly powerful, and no combination of powers are in a position to control its behavior. We are aware of all the economic problems besetting the United States, but the reality is that the American economy is larger than the next three economies combined (Japan, Germany and China). The U.S. military controls all the world’s oceans and effectively dominates space. Because of these factors, the United States remains politically powerful — not liked and perhaps not admired, but enormously powerful.The second imbalance is within the United States itself. Its ground forces and the bulk of its logistical capability are committed to the Middle East, particularly Iraq and Afghanistan. The United States also is threatening on occasion to go to war with Iran, which would tie down most of its air power, and it is facing a destabilizing Pakistan. Therefore, there is this paradox: The United States is so powerful that, in the long run, it has created an imbalance in the global system. In the short run, however, it is so off balance that it has few, if any, military resources to deal with challenges elsewhere. That means that the United States remains the dominant power in the long run but it cannot exercise that power in the short run. This creates a window of opportunity for other countries to act.The outcome of the Iraq war can be seen emerging. The United States has succeeded in creating the foundations for a political settlement among the main Iraqi factions that will create a relatively stable government. In that sense, U.S. policy has succeeded. But the problem the United States has is the length of time it took to achieve this success. Had it occurred in 2003, the United States would not suffer its current imbalance. But this is 2008, more than five years after the invasion. The United States never expected a war of this duration, nor did it plan for it. In order to fight the war, it had to inject a major portion of its ground fighting capability into it. The length of the war was the problem. U.S. ground forces are either in Iraq, recovering from a tour or preparing for a deployment. What strategic reserves are available are tasked into Afghanistan. Little is left over.As Iraq pulled in the bulk of available forces, the United States did not shift its foreign policy elsewhere. For example, it remained committed to the expansion of democracy in the former Soviet Union and the expansion of NATO, to include Ukraine and Georgia. From the fall of the former Soviet Union, the United States saw itself as having a dominant role in reshaping post-Soviet social and political orders, including influencing the emergence of democratic institutions and free markets. The United States saw this almost in the same light as it saw the democratization of Germany and Japan after World War II. Having defeated the Soviet Union, it now fell to the United States to reshape the societies of the successor states.Through the 1990s, the successor states, particularly Russia, were inert. Undergoing painful internal upheaval — which foreigners saw as reform but which many Russians viewed as a foreign-inspired national catastrophe — Russia could not resist American and European involvement in regional and internal affairs. From the American point of view, the reshaping of the region — from the Kosovo war to the expansion of NATO to the deployment of U.S. Air Force bases to Central Asia — was simply a logical expansion of the collapse of the Soviet Union. It was a benign attempt to stabilize the region, enhance its prosperity and security and integrate it into the global system.As Russia regained its balance from the chaos of the 1990s, it began to see the American and European presence in a less benign light. It was not clear to the Russians that the United States was trying to stabilize the region. Rather, it appeared to the Russians that the United States was trying to take advantage of Russian weakness to impose a new politico-military reality in which Russia was to be surrounded with nations controlled by the United States and its military system, NATO. In spite of the promise made by Bill Clinton that NATO would not expand into the former Soviet Union, the three Baltic states were admitted. The promise was not addressed. NATO was expanded because it could and Russia could do nothing about it.From the Russian point of view, the strategic break point was Ukraine. When the Orange Revolution came to Ukraine, the American and European impression was that this was a spontaneous democratic rising. The Russian perception was that it was a well-financed CIA operation to foment an anti-Russian and pro-American uprising in Ukraine. When the United States quickly began discussing the inclusion of Ukraine in NATO, the Russians came to the conclusion that the United States intended to surround and crush the Russian Federation. In their view, if NATO expanded into Ukraine, the Western military alliance would place Russia in a strategically untenable position. Russia would be indefensible. The American response was that it had no intention of threatening Russia. The Russian question was returned: Then why are you trying to take control of Ukraine? What other purpose would you have? The United States dismissed these Russian concerns as absurd. The Russians, not regarding them as absurd a
t all, began planning on the assumption of a hostile United States.If the United States had intended to break the Russian Federation once and for all, the time for that was in the 1990s, before Yeltsin was replaced by Putin and before 9/11. There was, however, no clear policy on this, because the United States felt it had all the time in the world. Superficially this was true, but only superficially. First, the United States did not understand that the Yeltsin years were a temporary aberration and that a new government intending to stabilize Russia was inevitable. If not Putin, it would have been someone else. Second, the United States did not appreciate that it did not control the international agenda. Sept. 11, 2001, took away American options in the former Soviet Union. No only did it need Russian help in Afghanistan, but it was going to spend the next decade tied up in the Middle East. The United States had lost its room for maneuver and therefore had run out of time.And now we come to the key point. In spite of diminishing military options outside of the Middle East, the United States did not modify its policy in the former Soviet Union. It continued to aggressively attempt to influence countries in the region, and it became particularly committed to integrating Ukraine and Georgia into NATO, in spite of the fact that both were of overwhelming strategic interest to the Russians. Ukraine dominated Russia’s southwestern flank, without any natural boundaries protecting them. Georgia was seen as a constant irritant in Chechnya as well as a barrier to Russian interests in the Caucasus.Moving rapidly to consolidate U.S. control over these and other countries in the former Soviet Union made strategic sense. Russia was weak, divided and poorly governed. It could make no response. Continuing this policy in the 2000s, when the Russians were getting stronger, more united and better governed and while U.S. forces were no longer available, made much less sense. The United States continued to irritate the Russians without having, in the short run, the forces needed to act decisively.The American calculation was that the Russian government would not confront American interests in the region. The Russian calculation was that it could not wait to confront these interests because the United States was concluding the Iraq war and would return to its pre-eminent position in a few short years. Therefore, it made no sense for Russia to wait and it made every sense for Russia to act as quickly as possible.The Russians were partly influenced in their timing by the success of the American surge in Iraq. If the United States continued its policy and had force to back it up, the Russians would lose their window of opportunity. Moreover, the Russians had an additional lever for use on the Americans: Iran.The United States had been playing a complex game with Iran for years, threatening to attack while trying to negotiate. The Americans needed the Russians. Sanctions against Iran would have no meaning if the Russians did not participate, and the United States did not want Russia selling advance air defense systems to Iran. (Such systems, which American analysts had warned were quite capable, were not present in Syria on Sept. 6, 2007, when the Israelis struck a nuclear facility there.) As the United States re-evaluates the Russian military, it does not want to be surprised by Russian technology. Therefore, the more aggressive the United States becomes toward Russia, the greater the difficulties it will have in Iran. This further encouraged the Russians to act sooner rather than later.The Russians have now proven two things. First, contrary to the reality of the 1990s, they can execute a competent military operation. Second, contrary to regional perception, the United States cannot intervene. The Russian message was directed against Ukraine most of all, but the Baltics, Central Asia and Belarus are all listening. The Russians will not act precipitously. They expect all of these countries to adjust their foreign policies away from the United States and toward Russia. They are looking to see if the lesson is absorbed. At first, there will be mighty speeches and resistance. But the reality on the ground is the reality on the ground.We would expect the Russians to get traction. But if they don’t, the Russians are aware that they are, in the long run, much weaker than the Americans, and that they will retain their regional position of strength only while the United States is off balance in Iraq. If the lesson isn’t absorbed, the Russians are capable of more direct action, and they will not let this chance slip away. This is their chance to redefine their sphere of influence. They will not get another.The other country that is watching and thinking is Iran. Iran had accepted the idea that it had lost the chance to dominate Iraq. It had also accepted the idea that it would have to bargain away its nuclear capability or lose it. The Iranians are now wondering if this is still true and are undoubtedly pinging the Russians about the situation. Meanwhile, the Russians are waiting for the Americans to calm down and get serious. If the Americans plan to take meaningful action against them, they will respond in Iran. But the Americans have no meaningful actions they can take; they need to get out of Iraq and they need help against Iran. The quid pro quo here is obvious. The United States acquiesces to Russian actions (which it can’t do anything about), while the Russians cooperate with the United States against Iran getting nuclear weapons (something Russia does not want to see).One of the interesting concepts of the New World Order was that all serious countries would want to participate in it and that the only threat would come from rogue states and nonstate actors such as North Korea and al Qaeda. Serious analysts argued that conflict between nation-states would not be important in the 21st century. There will certainly be rogue states and nonstate actors, but the 21st century will be no different than any other century. On Aug. 8, the Russians invited us all to the Real World Order.
Keith • August 19th, 2008 at 2:23 am
Although I largely agree with the thoughts of Dr. Roubini much of his thoughts remind me of a 1988 interview with Paul Kennedy, who had recently written Rise and Fall of the Great Powers. At that time we were consumed with anxiety about the rise of Japan. Today I believe the situation is dramatically different but American decline could be reversed, if, a big if indeed, we choose to elect better leaders. It’s been clear to me for many months that John McCain will be elected in November. I believe his policies will hasten the decline of this country and we’ll have to wait and hope that better prospects arise in 2012.
Guest • August 19th, 2008 at 3:20 am
The relative decline of the US was inevitable as about 2billion other people got somewhat on their feet (China, India), but with Bush and the Neo-Repubs, we seem to have done everything possible to convert a long term slow decline into a rout.What will happen in a multi-polar world? C’mon it will be a disaster. The global view of history is either there is a large dominant empire or there is a relative dark age. There is no power that stands to replace the US that, for example, stands for freedom. Do you think, say, the internet as a free medium of information exchange would have happened under a dominant China power?What drives me nuts with the economists of doom is they never state what could possibly be done to turn the situation around as a nation, nor do they say what to do as an individual. My debts are zero, I have lots of stocks and mutual funds, heavily American. All my currency is in dollars. What to do to hedge???As a nation, I know what we could do, but I doubt we will: Invent our way off of oil. Bring back manufacturing with a heavy national program to develop flexible robotics. In truth, the analysis is wrong. Empires don’t end in debt — that’s the result, not the cause. Empires stop making things, stop doing their own work. If we bring back strong manufacturing via robotics, we will remain the dominant power.
Anonymous • August 19th, 2008 at 6:14 pm
There is a lot of crashing and bashing here. However what seems to get overlooked is that part of what took down the US is that everyone wanted the mobility privileges of the late 20th century, that could only be secured by the viciously militarized oil industry. I gag when I see signs that say “no blood for oil”–every gallon of it was always saturated with heme. And every fossil energy mile driven and flown always had vast externalized costs including military ones.I agree with the perspective that the definition of an “empire” is a sociopolitical or geopolitical entity that ceases to do its own work and expects others to do it, for a much smaller share of the pie. Concentration of wealth, socialization of costs. Yet from my perspective, the imperialists are not as easy to identify as some would claim. While GW Bush played sock puppet talkinghead cheerleader for the Oil Lords and subprime financiers, liberals and conservatives alike lined up to buy their products. For instance, most of the “liberal environmentalists” I know spend a lot of time talking about places they just jetted to, or are planning to. Liberals as well as conservatives sought to get rich by flipping houses, rather than working.We have an economy of privilege that supersedes any sensible political category, other than haves and have nots. The goal of those in charge is to make the vast majority of people have nots. This seems to be a sickness of our species, and probably marks our end game as a species as well now that we have completely carpeted the globe.But we’re also seeing something else unfold, and we don’t have the analytical abilities at this point in history to deal with it: the rise of mass broacasting, the engineering of mass opinion, the rise of mass propaganda, and now the fractional fragmentation of the Internet. The automation of information, making possible things like statistical aggregation, macroeconomic modelling based on teraflop speeds, and instantaneous asynchronous telecommunication, was bound to make any more human level experiments in social organization inevitable. And that’s what this Republic used to be: a dream of humans, not of machines, about certain values, not profit.Our President Eisenhower tried to warn us about the “military-industrial-Congressional” complex. Today it is an aggregate of a vast, unsleeping, rapid network of imaginary money backed up by real power (violence). One good EMP would take this out…but I doubt that would happen…nor that I’d be happy if it did, given that all my life’s savings exists pretty much only as electrical impulses in various computers.Tama PainePhiladelphia, PA, USA
Anonymous • August 20th, 2008 at 4:24 am
All that is true, sadly.I observe many commentors be happy with the inevitable fall of America. I can´t agree.The empires fall when… But Us is not an Empire… It is an Hegemony countrie. In any case, it is true that its external position has gone very bad recently. But, I think, is not there a “deja vu” music? Remember the end of Vietman war and the pessimism invading all the America´s society. In that times, there was also a very difficult financial problem.I hope this is not the end of the most benevolent “Empire” in history.Luis H Arroyo, Spain.
Anonymous • August 21st, 2008 at 4:02 am
This doom and gloom conjecture of a falling “Empire” is exaggerated. America has always shown great resiliency. Why? America is a melting pot of cultures, ideas, dreams and, yes, greed from all over the world. This chaotic mix is a breeding ground for ingenuity. America is both madness and genius. This freewheeling “Empire” is built to survive.
hans.brough • August 22nd, 2008 at 2:20 pm
There should be a distinction made between the fall of the ‘American Empire’ and the fall of ‘America’. Good riddance to the empire and ‘foreign entanglements’. As a temporary American Expat living abroad I see the benefit of spending less on a military and more on society – an investment in human capital is worth more to a country than ‘pre-emptive’ war based on groundless premises.Such an investment takes a long time to come to fruition true, but without it a country loses it’s middle class. Without a large middle class feeling they have a piece of the franchise (or can at least attain a piece thru hard work) stability is lost. After all if you have nothing to loose and no hope of success – bad things happen … witness the LA riots of the 60′s and 90′s.In the long run the loss of an empire will be good for America if it means we get back to focusing on building our country from the inside out.
Guest • September 2nd, 2008 at 2:44 pm
Certainly the coverage of the select terrain is excellent, but many of the prognostications (especially the timing of the various stages of decline and the severity of social, political, and economic disorganization and accompanying chaos) probably depend more on internal factors then they do on the external international factors considered. The internal picture is not exactly rosy. We have vastly depreciated our manufacturing base together with its accompanying work ethic. We in fact have a service economy with no visible means for internal support of such. Look out for the following: class warfare, development of dictatorial government and a police state, internment camps, economic disasters, social disorganization as the disappearance of cheap gasoline changes the social and geographic structure of the nation, a continual lowering of academic standards, the disappearance of our unsustainable agricultural system, health problems of the population and of the health care system, etc., etc.I do not think that our social fabric and our political institutions are well suited for coping with the social and cultural disorganization that’s in store for us in the next decade or two. It would probably be well to shift power from the federal level to the state level, and to allow states and territories to secede from the union if their population so desire it (this might be a good thing for Hawaii, Alaska, and Puerto Rico, among others).
Anonymous • September 15th, 2008 at 12:11 am
what are you on? it’s only been a world power for 50 years and it’s already slipping.
Jean La Salle • October 11th, 2008 at 12:53 am
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