There are lots of games being played these days: mind games, financial games, forecasting games, economic games, money diversion and re-allocation games, Wall Street games, to cite but a few. Transcending in importance all of these games is the one game being played by those who occupy the commanding highs of politics, the economy, and the financial apparatus. This Transcendant Game, if we may so term it, is NEVER CITED IN THE MEDIA or by all and sundry economic and financial and political observers, commentators, and "analysts." To what then, do we have reference? We are speaking, of course, of the PLAUSIBLE DENIABILITY GAME, necessitated urgently by the rapid approach of the END of the FREE LUNCH GAME. There is mad, and rather unseemly scramble among those responsible for, and those who have benefited from, the FREE LUNCH GAME to position themselves so that they can credibly DENY their responsibility for the approaching reality: the jig is up on the economic and monetary policies which spring from free lunchism, a special subset of the wishful thinking which rules the minds and actions of policymakers -- at the White House, in the Congress, in the bureaucracy, at the FED, and at the airiest spheres of Wall Streetdom. This Alice in Wonderland mindset was summarized most aptly by our former Vice-President, who commented: "DEFICITS DON'T MATTER." Hello? Is anyone home? We think not. Another facet of this species of mindset was demonstrated by the man crowned by the media as "The Maestro" (since demoted to into the ranks of fools or cads). Chairman Greenspan effectively blocked REGULATION of the great banks, the hedge funds, and other giant financial players with the ludicrous justification that the banks could be counted upon to REGULATE THEMSELVES. This is akin to saying that it is perfectly rational to let the fox guard the henhouse. (Just this week the CEO of Morgan Stanley noted his happiness with intensified government regulation, stating that Wall Street "cannot control itself). If we note the games Wall Street has resumed playing in earnest, this truth becomes apparent. Nevertheless, Greenspan eagerly parted with common sense. Apart from non-regulation, he also supported eagerly repeal of the Glass-Steagall act, which separates commercial banking from investment banking (otherwise known as the Big Crapshoot). In any event, the Plausible Deniability game is now in full swing. The White House, in addition to blaming the prior administration for all the nation's financial and economic ills, is busily rushing to and fro, holding international meetings, summits, and conferences, working feverishly to reform and refurbish. See, they are doing everything they could possibly do, and WHAT COMES NEXT is hardly their doing. Ditto Congress, Ditto the FED, Ditto the army of advisors, economists, the informal but permanent Washington government. So, what is coming? If things are on the upswing, why the frenzied efforts to build the Case for the Defense on Capitol Hill, at the White House, at the FED, on Wall Street?? Well, here is how we see it. FREE LUNCHISM has been the predominant economic, political, monetary, and financial dogma for the past 30 years. Increase spending, cut taxes, borrow, borrow, borrow and consume, consume, consume. And, guess what? All will come out WELL. There will be no price to be paid for all the fun and games: tax cuts produce MORE INCOME TAX RECEIPTS overall because they stimulate growth and prosperity; increased government spending is costless because it produces jobs, more income, more growth, and MORE TAX RECEIPTS overall. Borrow a l'outrance because this will finance more growth and the positive increase in financial, economic, and tax yield will more than suffice for debt service AND debt paydown. So, what is the problem? The problem is that all of this is bologna; you can only kick the can down the road AS LONG AS THERE IS A ROAD, BUT NO FURTHER. In plain English, we are at the end of the road. Payback time, which began with the bear market in equities, the financial panic, and the economic crisis is approaching a new, possibly steeper cliff. Since we doubt the FED possesses super-human capabilities -- we are more inclined to believe that their abilities do not rise much beyond the simian -- and since we do not believe in fairy tales, all we can do is buckle the seatbelts and hope for the best, while preparing for the financial and economic turbulence which lies ahead: government-directed re-distribution of wealth and income, punishment of the prudent, de facto dishonoring of national obligations to creditors, a severe and long-lasting decline in living standards, inflation, deflation in God knows what order, and, ultimately, a depressed economy for a prolonged time, a la Japan. Oh, and by the way: Happy Thanksgiving. Moneysage 2009 - copyright |
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