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2009 and beyond
by Siegfried Lemelson
| May 14, 2008 |
Here's a link to an interview with George Soros. He has been called a financial pirate, and
I cannot vouch for the merits of his philanthropic enterprises. I can vouch for his Theory of Reflexivity"
(which you can hunt down using Google), and I swear to you that the content of this interview is worth studying. (I provide a few comments at the end.)
Key points:
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The overall situation is nearly irreversible because the world already has more than enough US government and agency bonds -- and it is obvious to even the most casual observer that, thanks to the magic of compounding interest, US government and agency debt may never be fully repaid.
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a) something like the S&L Crisis' Resolution Trust Corp will be set up by the government, but not by the current administration.
b) "... you can't make any unconditional predictions because it very much depends on how the authorities are going to respond now to the situation. But the situation is definitely much worse than is currently recognized."
c) "...we are close to a tipping point where, in my view, the willingness of banks and countries to hold dollars is definitely impaired. But there is no suitable alternative so central banks are diversifying into other currencies; but there is a general flight from these currencies. So the countries with big surpluses -- Abu Ghraib Dhabi, China, Norway, and Saudi Arabia, for example -- have all set up sovereign wealth funds, state-owned investment funds held by central banks that aim to diversify their assets from monetary assets to real assets. That's one of the major developments currently and those sovereign wealth funds are growing. They're already equal in size to all of the hedge funds in the world combined. Of course, they don't use their capital as intensively as hedge funds, but they are going to grow to about five times the size of hedge funds in the next twenty years."
d) 'Woodruff: You write, "We are at the end of an era." When this current credit crisis ends, will the US still be, no doubt about it, the world superpower when it comes to the economy?
Soros: Not at all. This is now in question. And you now have entered a period of really considerable uncertainty and turmoil because of the general flight from currencies, which manifests itself in the commodities bubble that has developed. The price of gold hasn't yet gone as high as it might. So what comes out of this turmoil is very open to question. I think that you will have to somehow reconstruct the global financial architecture because you have recognized that, in effect, the economic weight has changed considerably among the different countries. China has become much more important and also India, and so on. What kind of system will evolve from this is, I think, a very open question.'
e) "The price of goods at Wal-Mart is rising and will probably continue to rise and then accelerate."
f) 'Woodruff: Let me mention two other points because they are so much on the minds of our leaders today. One is fighting the war on terror. Should the next president be prepared to sit down with the leaders of organizations like Hamas, like Hezbollah, countries like Iran?
Soros: Absolutely. I wrote another book arguing that the entire idea of a "war on terror" is a misleading concept that has got this country off on the wrong track. It is responsible for our invading Iraq under the wrong pretenses and for a decline of our political influence and military power that has no precedent.
Woodruff: Where do you see the "war on terror" ten years down the road?
Soros: I hope that we will put it behind us. If you think in terms of human security and you say that the role of governments is to make the people secure, then it leads you to a completely different line of action. And even in Iraq, the surge, which was quite successful militarily, tried to provide protection for civilians, instead of just chasing terrorists whom we couldn't find after breaking into houses and terrifying the people. Concern for human security, making us feel safe and making the people in other countries feel safe: I think that would get you to a totally different line of action.' |
(my comments)
President Obama will confront immense problems in 2009. Recessions are allowed to occur during the first term of a presidency because it is possible to blame the previous president while taking the necessarily painful steps to fix old problems. Also, the outgoing administration generally tries to delay "bad stuff" prior to the November elections precisely so that a deluge of shit falls on the successor!
The Federal government's spending has exploded during the Bush Regime. April 2008 spending was $240+ billion compared to $210+ billion in April of 2007. And the budget deficit is growing again, currently estimated at $340 billion (the deficit is in spite of spending your FICA withholdings and putting IOUs in the Social Security "lockbox".)
Since there is no way to easily, cheaply and quickly end military quagmires -- if for no other reason than the desire of politicians and especially new presidents to get re-elected -- so the US will likely continue to hemorrhage and gush buckets from our financial arteries just for Bush's Global War of Terror. If you take into account mortgage and financial bailouts which WILL occur in 2009 and 2010, the US budget deficit is likely to increase even more. And if you take into account that the trillion(s?) of dollars of financial losses will result in magnificent tax deductions in future years, it will be a long while before Federal deficits become surpluses (if ever) ... to say nothing of reduced tax collections as a result of the freaking recession(s).
Furthermore, even though the US dollar has recently "bounced" and foreigners are generally gleeful at the prospect of Regime Change in Amerika, global inflation will persist. It has to persist because the US is printing mass quantities of currency unmatched by domestic production and exports, and central banks are using their trillions of dollars to buy "stuff" instead of purchasing US treasury and agency bonds.
The overall situation is nearly irreversible because the world already has more than enough US government and agency bonds -- and it is obvious to even the most casual observer that, thanks to the magic of compounding interest, US government and agency debt may never be fully repaid. The main reason other countries are propping up the American system is so that they can either a) prop up their own systems, or b) give us more time to dig our financial and economic graves deeper (this is like a game of strategy ... like 'Go' in which our stones are encircled and we lose mobility bit by bit by bit.)
Plus, continued outsourcing of US jobs is inevitable. Some jobs are insourced however, as foreign overlords hire qualified Americans (especially in cases where it is beneficial to have actual Americans to deal with other Americans. The US has many positive characteristics and retains considerable resources, so the outlook for global corporations doing business in and with America is quite positive. Our entire system of government is dedicated to servicing global corporations and guaranteeing positive returns on their pseudo-capitalist adventures. :-)
Now, the outlook for some Americans is really super. If you are a talented professional with charisma and a really high IQ you are in luck in spite of the tragedy of being born in the United States ... and this applies even to Caucasians, in spite of their genetic affinity for white collar crimes. :-)
I can only guess what your experience will be during the next year, 5 years or decade. The whole System is chaotic! Clearly there will be inflation in many areas of the US economy, even as real estate stagnates and excess debt constrains new productive investments.
I think we might be surprised at how well some parts of America adapt to the hard times ahead. But communities that cling to the past and are incapable of changing will suffer -- on average (while the big fish in these little ponds will grow even fatter than before, of course).
I guess, in the end, it is up to you how you do in the coming years. If you are even reading this then that means you're plugged into the internet and you are going to have a fantastic life! I hope so.
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