Wednesday, March 5, 2008
Prepare To Panic!
Maxwell Smart and Agent 99 have been taken captive aboard a U-Boat commanded by their KAOS arch-nemesis, Siegfried.
A Navy destroyer pursuing the KAOS sub releases depth charges that detonate nearby.
“Look, Siegfried," Agent 99 exclaims, "your men look like they are about to panic.”
“Never!" Siegfried defiantly cries. "My men have been thoroughly trained. They will not panic unless I give the order to panic.”
Less than a split-second passes before the sub is tossed around by an even stronger explosion.
“Prepare to panic!” bellows a rattled Siegfried.
"There will probably be some bank failures."
Federal Reserve Commissar Ben Bernanke, in a presentation to Congress last week intended to forestall panic.
The U.S. economy is sinking, and it will take the global economy with it. This is the perfect time to panic. If we wait until our rulers give us permission to panic, we'll be dragged to the bottom along with everyone else.
One needn't be a devoted student of history to recall the proud boast that attended the launch of the Titanic: "Not even God could sink this ship." As it happens, God didn't have to bother, since an iceberg -- not one of his more notable creations -- proved adequate to that task.
Just as the Titanic was too mighty and cunningly designed to sink, Citigroup is supposed to be too big and too powerful to fail. In fact, Citi is supposed to help rescue smaller banks when they get in trouble.
After England's Northern Rock began its terminal swoon last fall, Citi was called in to help rescue the ailing bank, that country's eighth-largest mortgage lender.
That rescue plan, which would have involved Richard Branson as well, didn't work out. I suspect this is due, at least in part, to the fact that Citi is poised on the brink of oblivion itself. Just shortly before offering to help save Northern Rock, Citi was given a lifeline by the United Arab Emirates in the form of a buy-in by the Abu Dhabi Investment Authority (ADIA).
It looks like ADIA is experiencing severe buyer's remorse.
The Citi rescue is a collaborative effort of two Gulf State sovereign wealth funds and one Saudi mega-investor. Of this multi-billion-dollar bailout, ADIA's Sameer al-Ansari warns: "It's going to take more than that to rescue Citi." But it's doubtful that the Arabs are going to pony up the petro-dollars like they used to now that Alan "The Annihilator" Greenspan has urged them to abandon the dollar he destroyed.
So Citi is going to implode, most likely this year. Another possibility is a huge taxpayer bail-out -- socialism for the uber-wealthy investor class disguised as humanitarian intervention for homeowners facing foreclosure -- of the sort Bank of America has discussed in a memo quietly making the rounds on Capitol Hill.
Of course, the $739 billion BoA talks about is pitifully small when compared to the volume of bad mortgage debt we confront: A "fix" that size would be as useless as using a band-aid to treat decapitation.
So it's not an "either/or" proposition for the economy: We'll probably see huge bank failures and even larger taxpayer bailouts. And Washington will continue to hemorrhage on that unique imperial fixer-upper project in Mesopotamia, which has already cost us $2 trillion (plus an incalculable fortune in lost lives).
Expect to see this kind of thing frequently in the near future: A 1933 bank run in New York City.
Ambrose Evans-Pritchard warns that "economic winter" is setting in, and not just in the northern part of the Western Hemisphere.
"Half the eurozone is grinding to a halt," he writes. "Italy is slipping into recession. Property prices are flat or falling in Ireland, Spain, France, southern Italy and now Germany. French consumer morale is the lowest in 20 years."
And, let us not forget, in terms of the exchange rate, the eurozone is doing much better than the U.S.
The Fed and its comrades are doing what they can to hold winter in abeyance, and failing.
John Williams, publisher of the U.S. Government Shadow Statistics news-site, summarizes:
"[If not] for systemic intervention and manipulations by the Federal Reserve, it appears we might be contemplating a collapsed U.S. banking system and a looming deflationary great depression that could have dwarfed the bad times of the 1930s. Such is the good news. The bad news is that with those same systemic interventions, the Fed is locking in a hyperinflationary great depression in the decade ahead, with the turmoil possibly breaking by 2010 or earlier."
There are people who will be genuinely surprised when this happens, just as there are people who are taken by surprise when winter returns every year.
We can't avoid winter, but it is possible to mitigate its impact.
Get liquid. Get out of debt. Get some food stored up in quantity, against the possibility of sudden price spikes and shortages.
And to the extent possible, apart from what's necessary to pay expenses and debts, get out of FRNs in favor of real money -- right now.
If I seem to be counseling panic, remember: Now -- not after we've been given permission -- is the perfect time to panic.
Liberty in Eclipse is on sale now.
Dum spiro, pugno!