Sol Sanders Archive

Now that bin Laden’s dead, it’s back to the three-ring economic-meltdown circus

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Ring No. 1 is the soap opera — to change my metaphor — playing out with Europe’s common currency. It is becoming increasingly clear, as some of us predicted at the beginning of the crisis, the Euro cannot survive in its present form. With Greece near civil war, the markets tell anyone listening there is no confidence in bail-outs even as a new one is underway in Greece and one just put together for Portugal. Because default could come at any moment, borrowing rates are too high for recovery even where recalcitrant politicians have the courage to inflict the pain of austerity.

Joining Ireland, and soon probably Spain, clinging to the Euro vitiates unavoidable belt-tightening their separate currencies once forced on earlier regimes. Threat of a German taxpayers’ revolt grows for German Chancellor Angela Merkel’s increasingly shaky federal coalition — wounded recently by loss of the largest state after 34 years of conservative rule but still soon facing four state elections. Public opinion sees Berlin doing the heavy lifting for spendthrifts but ignores it was those miscreants who gobbled up German exports. Unfortunately, the Brussels EUrocrats’ rescue stratagems invite a future dramatic Euro crash. By procrastinating, they increasingly are making the common currency’s fate synonymous with the whole “European project” of creating a united continent to avoid wars and preserve prosperity.

Chinese delegates have decamped Washington after another annual talkathon with a befuddled Obama Administration trying to spin what is in reality a dismal impasse. Just as everyone was being lulled into myths of Beijing’s boosting consumption, April marked record trade surpluses. The combination of higher imported commodities, slackening appetite for its subsidized exports and growing concern about its real estate bubble did not stem the tide. Beijing’s escalating humongous dollar holdings show where big chunks of the Fed’s “quantitative easing” [printing dollars] have gone. Meanwhile, Beijing further screws down political repression. Announced internal security costs are larger than its understated publicized defense budget. On the eve of a generational transfer of power, there is paranoia about “Arab spring” contagion and much shin-kicking among leaders. The Communist politburo is in no mood for “experiments” but “keeps on digging its [financial] hole”. That is now leading to inflation [if paused for the moment], especially in food, the overwhelming concern for most Chinese. Thus, recruits to the tiny China-will-implode prognosticators, among them yours truly, is growing.

Now in this ring, The Ringmaster [or is it snakeoil salesman], says it’s the greedy oil companies pushing U.S. gas. Prices at the pump could just be the 2011 election eve lollapalooza rather than increasing concerns for fiscal discipline by an American public near the end of its tether with frozen joblessness and foreclosures now running three months in arrears. The administration’s finagling statistics to prove employment growth is its one “transparency”. Of course, as the markets showed in mid-May, probably temporarily, with a sudden stronger dollar and lower commodities prices, notoriously unpredictable crude oil prices could fall — but probably as a sign of a march into double-dip recession. For the moment, that relief seems unlikely for Memorial Day weekend driving with Louisiana’s 15 percent of refining capacity threatened by Mississippi flood and Mr. Obama’s clamp on offshore drilling as well as Alaskan oil. [The Trans-Alaskan Pipeline supplying 12 percent of U.S. consumption is running out of oil.]

Interconnections among all these phenomena are infinite and mostly unpredictable. But the 1997-8 crash apparently did not teach us — there are signs among our bankers — clever derivatives and exotic algorithms are not going to give us a road map to recovery. Just as the self-immolation of a single unemployed Tunisian — the least likely trip-wire in the whole Muslim world — set off a wave of unpredictable revolutionary unrest among 300 million Arabs, the world economy, too, is at the mercy of unforeseen events and their unanticipated consequences.

Tighten your seat belts!