A buddy of mine - we'll call him "Brendan" for the purposes of this discussion - is in the habit of messaging me with dire economic news on a regular basis. Often these days, it's oil prices or crashing credit markets or the collapsing dollar. Yesterday, it was the price of gold, which blew by its all-time high as investors sought that traditional safe haven in precious metals against catastrophic losses in other markets. "$1,000!!" was the flashing message on my screen.
So there I was at 3 a.m. last night, lying awake and looking at the ceiling. I don't know if the red telephone was ringing in the White House - I suspect they keep it on mute - but it was buzzing in the red-hot worry center cortex of my brain as three adorable children slumbered down the hall. And there are frightful buzzers and ring tones keeping millions of Americans up at night, as our economy nears collapse.
It's 3 a.m. in American alright - but the evil-doers aren't keeping us awake. The red phones are ringing across the nation in one giant, cacophonous margin call on our super-leveraged consumer economy. Something's happening in the world, and it's a slow-motion attack on the American middle class.
And as the Democrats slowly realize their primary season isn't yet over, the fraying economy is sliding its sorry carcass into the issue lead for the fall, clouding a choice that began under the gauzy billboard of "change election" and morphing this endless presidential slugfest into a "recession election."
The only change in this election is what's left of our shattered dollar.
Paul Krugman in today's Times says the current outlook appears "increasingly like one of historyâs great financial crises." Warns Krugman (who is not loved by the Obama campaign):
I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what itâs doing to an angry public.
Mark Ambinder wonders when the recession will finally make the front page in the electoral gazette:
When the rebate checks hit mailboxes and people discover that they'll be good for paying the difference between what gas costs now and what gas will cost this summer, what then?
When will the Democratic presidential candidates begin to acknowledge that the economic conditions may well delay universal health care and all of their other spending projects?
The sub-prime crisis and it's massive fall out is moving up on the election scoreboard, as more Americans realize their economic futures are rapidly clouding; over at the DMIblog, Mark Winston Griffith has done some great reporting on the melt-down. The failure of Bear Stearns after 85 years is just another threatening cloud, an indicator of a coming storm - one that's been on the fiery Jim Kunstler's Doppler screen for months. Kunstler has been warning of a massive American crisis and he's pretty hard core - here's a bit of his latest:
The US faces a pretty stark choice right now: it can let the losers take their losses -- both the big institutions who created and traded in fraudulent securities, and all the "little guys" who borrowed too much money trying to get rich quick, or trying to live like the millionaires they see on TV. We can let them go down, and suffer the consequences of their bad choices (and maybe prosecute some of the culpable bankers and corporate executives), OR, in an effort to let these losers off the hook we can wreck the whole machinery of capital by making our medium-of-exchange worthless.
The people in charge -- both in and out of government -- can't face the losses, so for now they've apparently decided to wreck the currency. The dollar has lost two percent of its value against the Euro just in recent weeks, as cheap loans from the Fed pour into the black hole on Wall Street (never to be seen again). Other soft-pedalers in the media claim that the financial markets have "already priced in" yet another expected .75-point interest rate drop by the Fed this week, but I'm confident that such a move will only accelerate the dollar's vanishing act.
I'll admit, it's hard to believe what's going on in the American finance sector. But incredulity in the face of a rare catastrophe isn't the same as pretending that it's not happening. A whole flock of black swans is flying in front of the sun. Don't expect to work on your tan this month.
In New York, you can feel the nerves - the big Wall Street failures, and the looming threat to all the services that support the financial sector, from the law firms to the ad agencies have the very streets themselves in a cold sweat. Everybody talks the economy, watches the Dow, complains about the dollar, and cuts backs on discretionary spending. There's a slow panic out there, and it's going to hurt the little guy in every corner of the country.
It's 3 a.m. and the red phone is ringing. Who will answer?
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