Signs of the Economic Apocalypse, 11-27-06

From Signs of the Times, 11-27-06:

Gold closed at 635.40 dollars an ounce Friday, up 2.1% from $622.20 at the close of the previous Friday. The dollar closed at 0.7637 euros Friday, down 1.9% from 0.7794 euros for the week. The euro closed at 1.3094 dollars compared to 1.2830 at the end of the week before. Gold in euros would be 485.26 euros an ounce, up less than 0.1% from 484.96 for the week. Oil closed at 59.24 dollars a barrel Friday, up 0.5% from $58.92 at the end of the previous week. Oil in euros would be 45.24 euros a barrel, down 1.5% from 45.92 at the close of the Friday before. The gold/oil ratio closed at 10.73, up 1.6% from 10.56 for the week. In U.S. stocks, the Dow Jones Industrial Average closed at 12,280.17 Friday, down 0.5% from 12,342.56 at the end of the previous week. The NASDAQ closed at 2,460.26, up 0.6% from 2,445.86 at the close of the Friday before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.54%, down 16 basis points from 4.60 for the week.

The big news last week was the near 2% drop in the dollar. The rise of gold can be attributed directly to the drop in the dollar, since gold was virtually unchanged against the euro.

Dollar Drops to 19-Month Low Against Euro; Breaches $1.30 Level

By Kabir Chibber

Nov. 24 (Bloomberg) -- The dollar fell to its lowest in 19 months against the euro on speculation the Federal Reserve will lower interest rates early next year as central banks in Europe increase them.

The U.S. currency extended its losses after breaching $1.30 against the euro for the first time since April 2005, a level where traders had placed automatic orders to sell the dollar. The European Central Bank has raised rates to an almost four-year high and President Jean-Claude Trichet on Nov. 20 said inflation remains a threat. The Fed has left rates unchanged since August.

“The break of 1.30 is a strong signal that the dollar has to weaken,” said Carsten Fritsch, a currency strategist at Commerzbank AG in Frankfurt. “The sentiment for the dollar is negative. In the euro-zone, growth will remain strong.”

Against the euro, the dollar traded as high as $1.3109 and was at $1.3089 at 8:42 a.m. in New York, from $1.2945 yesterday. The dollar also fell to 115.63 yen, from 116.30, and to as low as $1.9351 versus the U.K. pound, the weakest in almost two years.

Fritsch said the dollar may drop to $1.35 by year-end.

The euro was at 151.35 yen, after reaching a record of 151.67 on Nov. 20.

...‘Wrong to Raise’

The rally in the euro may be curbed after Pervenche Beres, head of the European Parliament’s economic and monetary committee, said the region’s central bank would be wrong to push rates higher with the currency above $1.30.

“It’s not good news for the European economy,” she said in an interview in Berlin today. “It’s not the right time to raise interest rates.”

European stocks slumped today on speculation the stronger euro will hurt exports to the U.S., the region’s biggest trading partner.

The extra yield investors earn on U.S. government bonds over those in Europe has shrunk to the lowest in 17 months, attracting investors to assets in the euro region and away from the dollar.

The narrowing yield premium on dollar-denominated debt may also encourage central banks to hold more of their foreign- exchange reserves in other currencies.

People’s Bank of China Vice-Governor Wu Xiaoling said East Asia needs to reduce its reliance on dollar inflows because of the risk of a further slump in the currency. China’s foreign- exchange reserves exceed $1 trillion, the world’s largest.

Currency Reserves

Wu’s comments were released today in an article circulated during a press conference in Beijing.

“China holds most of its reserves in the dollar and these comments may lead to speculation they will sell,” said Tohru Sasaki, a strategist in Tokyo at JPMorgan Chase & Co. and a former chief currency trader at the Bank of Japan. “Diversifying reserves always puts downward pressure on the dollar.”

The U.S. currency fell for three straight years through 2004 versus the euro and the yen as the country’s trade deficit widened, reaching a record $1.3666 per euro on Dec. 30, 2004. It advanced against the euro and yen last year as the Fed pushed borrowing costs higher at every meeting…

Worries about the dollar affected the stock and bond markets:

Dollar plunge shakes stocks, bonds

By Jeremy Gaunt, European Investment Correspondent

Fri Nov 24, 7:21 AM ET

LONDON (Reuters) - The dollar plunged against major currencies on Friday, pulling the rug from under European stocks as the euro soared and sending investors scuttling into selected safe havens.

European stock indexes sank more than 1 percent, raising questions about exporters' future earnings and sparking concerns about whether the steady rises in global equities and general lack of volatility across financial markets had hit the skids.

Wall Street, meanwhile, looked set for a negative start, which would appear contradictory given dollar weakness but might presage a broader worry about the sustainability of stock markets at record highs.

"You might just find people generally quite happy to take a bit of money out of the market at this time of the year, given that they have made a lot and they might want to lock it in," said HSBC strategist Kevin Gardiner.

Buoyed by signs of solid euro zone economic growth and likely higher interest rates, the euro broke through the psychological barrier of $1.30 for the first time in 1-1/2 years as the dollar weakened across the board.

Britain's pound was up 0.8 percent at a near two-year high above $1.93 , and the dollar was 1 percent lower against the Swiss franc , and down a third of a percent against the yen at 115.8 yen.

Beyond the major players, Russia's rouble hit a 7-year high against the U.S. currency.

"The (economic) data is coming in stronger in the euro zone," said Mansoor Mohi-Uddin, currency strategist at UBS. "The U.S. data is on the weak side."

HIT A WALL?

Prospects of a slowdown in the U.S. economy and potentially lower U.S. interest rates have combined with concerns about fundamental economic imbalances to put the dollar under pressure.

However, if the current decline lasts a soaring euro could lower the horizon for European Central Bank interest rate hikes, changing the dynamics.

Many investors, meanwhile, have been wondering how long the currently benign financial market climate can last, expecting a trigger of some sort to shake things up.

Citigroup Private Bank, for example, has been telling its wealthy clients that December and January are historically the best months for hedge fund returns, implying volatility.

Other investors noted a pent up frustration at the recent lack of volatility on many markets, notably foreign exchanges.

"It's been a frustrating, rangebound market in the past few months. People feel now here is the chance," said David Simmonds, head of FX research at RBS.

Here’s this week’s bad news for the U.S. housing market:

Home sales plummet in 38 states in 3Q

By Lauren Villagran, AP Business Writer

New York - The feeble U.S. housing market showed more frailty when third-quarter home sales plummeted in 38 states, hitting Nevada, Arizona, Florida and California particularly hard, government data showed on Monday.

The once-booming real estate market's persistent weakness over the past year has reined in expectations for economic growth but hasn't been severe enough to offset a rising stock market, lower gas prices and improved consumer expectations.

The National Association of Realtors reported Monday that sales of existing homes fell in 38 states during the summer. Sales retreated to a seasonally adjusted annual rate of 6.27 million units nationwide, down by 12.7 percent from the same period a year ago. Nevada, Arizona, Florida and California led the declines.

Home prices also dropped: The realtors' survey showed that the midpoint price for an existing home sold during the summer dipped 1.2 percent year over year to $224,900. Some 45 metropolitan areas saw home prices decline.

Meanwhile, the latest report of building permits showed the slowest pace of annual growth in nine years in October. Housing construction slid sharply as builders tried to curb swelling inventories of unsold new and existing homes.

Stuart Hoffman, chief economist at PNC Financial Services Group, said he thinks the housing market still hasn't reached its low point.

"I think the permits numbers point to yet another flight of stairs down on housing before we hit the basement," he said. "On the other side, stocks are rising, consumer confidence is good and jobs are rising. Those factors are keeping this decline in housing contained."

There seemed to be some symbolic meaning to the death recently of the free-market evangelist, Milton Friedman. The thirty years since he was awarded the Nobel Prize for economics in 1976 can be seen as a coherent period that is just now coming to an end:

Milton Friedman 1912-2006: “Free market” architect of social reaction

By Nick Beams
21 November 2006

In his afterword to the second edition of Capital in 1873, Karl Marx noted that the scientific character of bourgeois economics had come to an end about 1830. At that point the class tensions generated by the development of the capitalist mode of production itself made further advances impossible. “In place of disinterested inquirers there now stepped forward hired prize-fighters; in place of genuine scientific research, the bad conscience and evil intent of apologetics.”

The economist Milton Friedman, who died last Thursday aged 94, will be remembered in years to come as one of the classic representatives of this tendency. Indeed his own career, culminating in his rise to the position of intellectual godfather of the “free market” over the past four decades, is a graphic example of the very processes to which Marx had pointed.

In the post-war boom, now looked back on as a kind of “golden age” for capitalism, at least in the major economies, Friedman was very much on the margins of bourgeois economics. When this writer begun a university study of economics in the latter half of the 1960s Friedman, and the free market Chicago School in which he was a central figure, were regarded as eccentrics, if not oddities. This was the heyday of Keynesianism, based on the notion that regulation of “effective demand” by government policies—increased spending in times of recession, cutbacks in periods of economic growth and expansion—could prevent the re-emergence of the kind of crisis that had devastated world capitalism in the 1930s.

All that was about to change. The breakdown of the post-war economic boom in the early 1970s, bringing deep recession as well as rapid inflation and high unemployment, saw the collapse of the Keynesian prescriptions. Under the Keynesian program, inflation was regarded as the antidote to unemployment. Now the two were taking place in combination—giving rise to the phenomenon of “stagflation”.

The boom’s demise was not the product of the “failure” of Keynesianism. Rather it was caused by the re-emergence of deep-seated contradictions within the capitalism economy. This meant that the bourgeoisie in the major capitalist countries could no longer continue with the program of class compromise based on concessions to the working class—the pursuit of full employment and the provision of social welfare measures that had characterised the boom—but had to undertake a sharp turn.

Friedman provided the ideological justification for the new orientation: the denunciation of government intervention as the cause of the crisis and insistence on a return to the principles of the “free market” which had been so discredited in the 1930s. Less than a decade after the collapse of the boom, Friedman’s “eccentric” theories had become the new orthodoxy and Keynesianism the new heresy.

In October 1976, the Swedish Academy in Stockholm, sensing the shift in the winds, awarded Friedman the Nobel Prize for economics. One month before, in a major speech to the British Labour Party conference, prime minister James Callaghan summed up what was to become the new conventional wisdom and its implications for government policy.

“We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

The Great Depression

…Friedman was active in Republican policy circles. In 1964 he served as an informal adviser to the presidential candidate and standard-bearer for the Republican right wing, Barry Goldwater, and was an adviser to both Richard Nixon in 1968 and Ronald Reagan in 1980. When Reagan won office, Friedman served as a member of his Economic Policy Advisory Board and in 1988 received the Presidential Medal for Freedom. In 2002, President George W. Bush honoured him for “lifetime achievements” and hailed him as a “hero of freedom” at a White House function on the occasion of his 90th birthday.

Friedman’s work on economic theory was guided by an adherence to what is known as the quantity theory of money. Friedman used this theory, which has a long history going back to the English philosopher David Hume, to formulate his opposition to the Keynesian perspective of demand management and government intervention. According to Friedman, if too much money were created by the monetary authorities, prices would increase—inflation, he insisted was always a monetary phenomenon. The task of government, he claimed, was not to regulate the economy through spending, but to ensure a sufficient expansion of the money supply to account for natural economic growth, and allow the market to solve the problems of unemployment and recession.

However if the Keynesians were to be refuted, Friedman saw that it was essential that the battle take place on their ground, with historical and statistical analyses. This was the background to his major theoretical work A Monetary History of the United States 1867-1960, written jointly with Anna Schwartz and published in 1963. Through an examination of economic history, Friedman and Schwartz sought to reveal the crucial role of the supply of money in determining the level of economic activity and, in doing so, to establish the necessary guidelines for future policy.

In its statement announcing the awarding of the Nobel prize to Friedman, the Swedish academy placed special emphasis on this work. “Most outstanding,” the citation read, “is, perhaps, his original and energetically pursued study of the strategic role played by the policy of the Federal Reserve System in sparking off the 1929 crisis, and in deepening and prolonging the depression that followed.”

But it is through an examination of the 1930s depression—the most important economic event of the twentieth century—that the theoretical bankruptcy of Friedman’s work stands most clearly revealed. According to Friedman, what would have been a normal recession in 1929-30 was transformed into an economic disaster by a series of policy mistakes made by the Federal Reserve, the body responsible for regulating the money supply.

In the first instance, he maintained, the Federal Reserve had wrongly started to tighten monetary policy in the spring of 1928, continuing until the stock market crash of October 1929 under conditions that were not conducive to tighter money—the economy had only just started to move out of the previous business cycle trough in 1927, commodity prices were falling and there was no sign of inflation. The Federal Reserve, however, considered it necessary to rein in the speculative use of credit on the stock market.

In Friedman’s view, however, the most significant impact of the Federal Reserve’s policies was not in sparking the depression but in bringing about the collapse of 1931-32. As banks were going into liquidation, the Federal Reserve, instead of expanding credit and stabilising the financial system, cut the money supply and exacerbated the crisis. Altogether, he and Schwartz found that the money supply in the US contracted by one third between 1929 and 1933. As critics of Friedman have pointed out, this fall was as much a product of the contraction in economic activity as an active cause.

Human “freedom”

Notwithstanding such objections, Friedman’s analysis served important political purposes—it transferred attention from the failures of capitalism and its free market to the role of governments. As Friedman expounded in an interview with Radio Australia in July 1998, the Great Depression was not a “result of the failure of the market system as was widely interpreted” but was “instead a consequence of a very serious government failure, in particular a failure in the monetary authorities to do what they’d initially been set up to do” and prevent banking panics.

The obvious question then was: why did the Federal Reserve fail to prevent a collapse? According to Friedman, the board of the New York Federal reserve was wracked by a series of conflicts following the death of its powerful governor Benjamin Strong. These prevented the implementation of correct policy.

“The fact that bad monetary policy was carried out,” he explained in a television interview for the PBS series the “First Measured Century”, “was, in part, the result of a real accident, which was that the dominant figure in the Federal Reserve System, Benjamin Strong ... had died in 1928. It is my considered opinion that if he had lived two or three more years, you might very well not have had a Great Depression.”

Such were the absurd lengths to which Friedman was prepared to go in order to prevent any critical examination of the role of capitalism and the “free market” in bringing about the greatest economic collapse in history. What was perhaps even more absurd was that his analysis was taken seriously in academic circles, which launched a search to discover Strong’s real views and whether he would have acted differently.

Friedman’s ascendancy to the ranks of “leading economist” had little to do with the intellectual and scientific value of his work. Rather, it was the result of his continuing efforts to extol the virtues of the free market and private property in opposition to the prevailing orthodoxy. Consequently, when the post-war compromise ended, and new prize-fighters were required, he was installed as chief propagandist for a new, socially regressive era based on the unfettered accumulation of wealth by a tiny minority ... all in the name of human “freedom”.

The basis of Friedman’s ideology was the conception that human freedom was inseparable from the unfettered operation of the market and the system of private property. Moreover, the market was not a particular social formation arising at a definite point in the history of human society but had a timeless quality. Just as the ruling classes in feudal times had the priests on hand to assure them that their place in the hierarchy was God-given, so Friedman assured the ruling classes of the present day that the social system which showered wealth and privileges upon them was rooted in the very nature of human social organisation itself.

In his book Capitalism and Freedom, published in 1962, he wrote: “Historical evidence speaks with a single voice on the relation between political freedom and the free market.” Expanding on this theme in a lecture delivered in 1991, he went on to identify the market with all forms of human social interaction.

“A free private market,” he wrote, “is a mechanism for achieving voluntary co-operation among people. It applies to any human activity, not simply to economic transactions. We are speaking a language. Where did that language come from? Did some government construct the language and instruct people to use it? Was there some commission that developed the rules of grammar? No, the language we speak developed through a free private market.”

Friedman’s attempt to turn the development of language, and by implication every human activity, into a market phenomenon collapses upon even the most preliminary analysis. The free market presupposes the existence of separate individuals who exchange the products of their private labour. In language, however, people do not exchange their private creations. In order to understand and in turn be understood, the individual must learn the language that has already been developed by socialised humanity. Friedman’s assertion makes about as much sense as would a claim that individual elements engage in a “market transaction” when they “exchange” electrons to form a compound.

The Chile “experiment”

If Friedman’s free market dogmas had no scientific content, they were nonetheless extremely valuable in the service of definite class interests, as the experience of Chile was to graphically demonstrate.

In 1975, following the overthrow of the elected Allende government in a military coup on September 11, 1973, the head of the junta, Augusto Pinochet, called on Friedman and his “Chicago boys”—economists trained under his tutelage—to reorganise the Chilean economy.

Under the direct guidance of Friedman and his followers, Pinochet set out to implement a “free market” program based on deregulation of the economy and privatization. He abolished the minimum wage, rescinded trade union rights, privatised the pension system, state industries and banks, and lowered taxes on incomes and profits.

The result was a social disaster for the mass of the Chilean population. Unemployment rose from just over 9 percent in 1974 to almost 19 percent in 1975. Output fell by 12.9 percent in the same period—a contraction comparable to that experienced by the United States in the 1930s.

After 1977, the Chilean economy enjoyed something of a recovery, with the growth rate reaching 8 percent. Ronald Reagan proclaimed Chile as a “model” for Third World development, while Friedman claimed that the “Chile experiment” was “comparable to the economic miracle of post-war Germany.” In 1982 he heaped praise on the dictator Pinochet whom, he declared, “has supported a fully free-market economy as a matter of principle. Chile is an economic miracle.”

But the recovery was short-lived. In 1983 the economy was devastated, with unemployment rising, at one point, to 34.6 percent. Manufacturing production contracted by 28 percent. Between 1982 and 1983, gross domestic product contracted by 19 percent. Rather than bringing freedom, the free market resulted in the accumulation of vast wealth at one pole and poverty and misery at the other. In 1970, 20 percent of Chile’s population had lived in poverty. By 1990, the last year of the military dictatorship, this had doubled to 40 percent. At the same time, real wages had declined by more than 40 percent. The wealthy, however, were getting wealthier. In 1970 the top one-fifth of the population controlled 45 percent of the wealth compared to 7.6 percent by the bottom one-fifth. By 1989, the proportions were 55 percent and 4.4 percent respectively.

The Chilean experience was no isolated event. It was simply the first demonstration of the fact that, far from bringing human freedom, the unleashing of the capitalist free market could only take place through the organized violence of the state.

In the United States, the monetarist free market program implemented during the Reagan administration was accompanied by the destruction of the trade unions, starting with the smashing of the air traffic controllers’ union, PATCO, in 1981. As Federal Reserve Board chairman Paul Volcker was later to remark: “The most important single action of the administration in helping the anti-inflation fight was defeating the air traffic controllers’ strike.”

Likewise in Britain, the Thatcherite economic counter-revolution, based on the ideas of Friedman and one of his most influential mentors, Friedrich Hayek, led directly to the smashing of the miners’ union through a massive intervention by the police and other state forces in the year-long strike of 1984-85.

Elsewhere the same processes were at work—notably in Australia, where the program of privatization, deregulation and the free market saw state-organised suppression of the workers’ movement, all carried out by the Hawke-Keating Labor governments between 1983 and 1996.

As Friedman went to his grave, the plaudits filled the air. Bush hailed him as “a revolutionary thinker and extraordinary economist whose work helped advance human dignity and human freedom.” Margaret Thatcher praised his revival of the “economics of liberty” and described him as an “intellectual freedom fighter”. US treasury secretary Henry Paulson said he would always be counted “among the greatest economists.” The New York Times obituary described Friedman as a “giant of economics” for whom criticism of his actions in Chile was “just a bump in the road.” Australian prime minister John Howard called him “a towering figure of world economic theory” while an editorial in Rupert Murdoch’s newspaper the Australian called him “liberty’s champion”.

And so it went on. Nothing, it seems, gratifies the rich and powerful so much as the justification of their elevated position in terms of freedom and liberty. In the coming period, however, under changed social conditions and in different political circumstances, the name Milton Friedman will evoke a very different response.

The era of Milton Friedman’s ascendancy will soon come to an end. But the giant is tottering but it hasn’t fallen yet. How much damage will be caused by the beast’s death throes? Gabriel Kolko captures this strange moment in history:

"As an Economic System, Capitalism is Going Crazy"
Factors in Our Colossal Mess

By Gabriel Kolko

November 25 / 26, 2006

These are dismal days for those who attempt to run the affairs of the world. But how should we understand it?

It would be a basic error to look at our present situation as if it were rationally comprehensible. The limits of rational explanations are that they assume rational men and women make decisions and that they will respect the limits of their power and behave realistically. This has rarely been true anywhere historically over the past century, and politics and illusions based on ideology or wishful thinking have often been decisive. This is especially the case with the present bunch in Washington.

We are right to fear anything, particularly a war with Iran that would immediately reel out of control and have catastrophic consequences not only to the region but globally. We are also correct to see limits to the power of irrational people, for the United States is strategically weak. It loses the big wars, as in Korea, Vietnam, and now Afghanistan and Iraq-even though its tactical victories often prove to be very successful-but also ultimately destabilizing and ephemeral. Had the U.S. not overthrown the Mossadegh regime in Iran in 1954 it is very likely the mullahs would never have come to power and we would not now be considering a dangerous war there.

Although the whole is far more important than the parts, the details of each part deserve attention. Many of these aspects are known, even predictable, there are -- to paraphrase Donald Rumsfeld -- the "known unknowns and the unknown unknowns" -- the "x-factor" that intercedes to surprise everyone. All of these problems are interrelated, interacting and potentially aggravate or inhibit each other, perhaps decisively, making our world both very difficult to understand -- or to run. Putting them together is a formidable challenge to thinking people outside systems of power. It has always been this way; fascism was in large part the result of economic crisis, and World War Two was the outcome. How factors combine is a great mystery and cannot be predicted -- not by U S or by those ambitious souls who have the great task of making sure there is no chaos. We wish to comprehend it but it is not decisive if we don't; for those who have responsibility to manage it, this myopia will produce the end of their world-and their privileges.

What is important to watch?

We can rule out the Left, that artifact of past history. Socialism ceased being a real option long ago, perhaps as early as 1914. Since I have just published an entire book, After Socialism, and detailed its innumerable myopias and faults, I need not say more than that it is no longer is a threat to anybody. The fakirs who lead the parties who still use "socialism" as a justification for their existence have only abolished defeats at the hands of the people from the price capitalism pays for its growing follies. That confidence- freedom from challenge by the unruly masses-- is very important but it is less and less sufficient to solve the countless remaining dilemmas. The system has become increasingly vulnerable, social stability notwithstanding, since about 1990 and the formal demise of "communism".

Assume Anarchy

The failure of socialist theory is much more than matched by the failure of capitalism because the latter has the entire responsibility for keeping the status quo functioning-and it has no intellectual basis for doing so. The crisis that exists is that capitalism has reached a most dangerous stage in destructiveness -- and no opposition to it exists. This malaise involves foreign affairs and domestic affairs -- vast greed at home and adventure overseas. If the foreign policy aspects are largely American-originated, the rest of the world tolerates or sometimes collaborates with it. Its downfall is inevitable, perhaps imminent. The chaos that exists will exist in a void. No powerful force exists to challenge, much less replace it, and therefore it will continue to exist -- but at immense and growing human cost. Alternative visions are, for the moment at least, mostly cranky.

Ingenious and precarious schemes in the world economy today have great legitimacy and flourish in the sense that the postulates of classical economics postulated are fast becoming irrelevant. It is the era of the fast talker and buccaneer-snake-oil salesmen in suits. Nothing old-fashioned has credibility. Joseph Schumpeter and other economists worried about pirates, but they are more important today than ever before-including than during the late 19th century when they were immortalized in Charles Francis Adams Jr's Chapters of Erie. The leitmotif is "innovation," and many respectables are extremely worried. I argued here in Counterpunch recently (June 15 and July 26) that gloom prevails among experts responsible for overseeing national and global financial affairs, especially the Bank for International Settlements, but I grossly underestimated the extent of anxieties among those who know the most about these matters. More importantly, over the past months officials at much higher levels have also become much more articulate and concerned about the dominant trends in global finance and the fact that risks are quickly growing and are now enormous. Generally, people who think of themselves as leftists know precious little of those questions, questions that are vital to the very health of the status quo. But those most au courant with global financial trends have been sounding the alarm louder and louder.

The problem is that capitalism has become more aberrant, improvisatory, and self-destructive than ever. We are in the age of the predator and gamblers, people who want to get very rich very quickly and are wholly oblivious to the larger consequences. Power exists but the theory to describe the economy which was inherited from the 19th century bears no relationship whatsoever to the way it operates in practice, a fact more and more recognized by those who favor a system of privilege and inequality. Even some senior IMF executives now acknowledge that the theory that powerful organization cherish is based on outmoded 19th century illusions. "Reconstructing economic theory virtually from scratch" and purging economics of "neoclassical idiocies," or that its "demonstrably false conceptual core is sustained by inertia alone," is now the subject of very acute articles in none other than the Financial Times, the most influential and widely-read daily in the capitalist world.

As an economic system capitalism is going crazy. In late November there were $75 billion in global mergers and acquisitions in a 24-hour period-a record. Global capitalism is awash with liquidity -- virtually free money -- and anyone who borrows can become very rich, assuming they win. The beauty of the hedge fund is that individual risks become far smaller and one can join with others to bet big -- and much more precariously. Henced, spectacular chances are now being taken: on the value of the U.S. dollar, the price of oil, real estate -- and countless others gambles. In the case of Amaranth Advisors, this outfit lost about $6.5 billion at the end of September on an erroneous weather prediction and went under. At least 2,600 hedge funds were founded from the beginning of 2005 to October 2006, but 1,100 went out of business. The new financial instruments -- derivatives, hedge funds, incomprehensible financial inventions of every sort-are growing at a phenomenal rate, but their common characteristic, as one Financial Times writer, John Plender, summed it up on November 20. , is that "everyone [has] become less risk adverse." Therein lies the danger.

Hedge funds will bet on anything, natural disasters and, soon, longevity of pension fund members being only the latest examples of their addiction to taking chances. London is fast replacing New York as the center of this activity, and the capital market in general, because the regulatory regime of the government the British Labour Party established is much more favorable to this sort of activity than that Bush's Republican minions allow -- though this may change because Wall Street does not like losing business.

On September 12, 2006, the International Monetary Fund released its report on "Global Financial Stability," and it was unprecedented in its concern that "new and complex financial instruments, such as structured credit products," might wreak untold havoc. "Liberalization," which the "Washington consensus" and IMF had preached and helped realize, now threatens the US dollar and much else. "The rapid growth of hedge funds and credit derivative mechanisms in recent years adds to uncertainty," and might aggravate the "market turbulence and systemic impact" of once-benign events. Hedge funds, it warned, have already "suffered noticeable losses."

…Power in Washington

President Bush made the election a referendum on the war and was badly repudiated; his party suffered a disaster. Disorientation, depression, and defeat have left the president and his neoconservatives adrift. They have power, two more years of it, and we are at the mercy of people who are irresponsible and dangerous. Their rhetoric proved a recipe for disaster in Afghanistan and Iraq -- a surrealistic nightmare. The American public is largely antiwar (55 percent of those who voted disapproved of the war, most of them strongly); they voted against the war and only tangentially for Democrats, most of who vaguely implied they would do something about the Iraq war but immediately after the election shamelessly reaffirmed their support for its essence. But people, and voters in particular, are such a nuisance everywhere. More quickly than in the past, they respond to reality, which means that traditional politicians must betray them very speedily. They create certain decisive parameters that ambitious politicians flout at greater risk than ever because the people have shown themselves ready to vote the rascals-whether Democrats in 1952 and 1968 or Republicans last November -- out of office. The American public is more antiwar than ever, and no one can predict what the future holds, including some Republicans outflanking the Democrats from a sort of antiwar left so that they can remain, or gain, office. That the people are subsequently cynically ignored-as they have been immediately after the last American election--is a fact also, but their role can neither be overestimated nor gainsaid. Experience shows that politicians, whatever they call themselves or in any nation we can think of, can never be trusted. Ever. But the facts on the ground -- reality -- are today very bad for those who advocate wars.

Israel: the Dream Comes Apart

Hawks in Israel, ascendant since the founding of the Jewish state, are still debating their thirty-three day war in Lebanon and the decisive limits to their once awesome, ultra-sophisticated modern military power exposed by their Lebanon adventure. The Israeli press is full of accounts of ministers' sexual offenses and corruption. Ehud Olmert's government is badly divided, backbiting, and may fall soon. The army is openly split and Olmert would like to dump its chief of staff, Dan Halutz, and the minister of defense. The Zionist project is in an unprecedented state of disrepair, with profound demoralization taking hold. Olmert himself is a complete mediocrity, a minor Likud politician who parlayed himself into the number two spot and was lucky. His comment when he visited the U.S. in the middle of November that America's Iraq war had brought stability to the region either infuriated or embarrassed everyone. He is basically a shrewd politician but very stupid man.

The most devastating analyses of Israel's war in Lebanon have appeared in Israel itself, and "the fact the Israeli army is at a low point," according to a writer in Haaretz, has goaded rather than deterred Iran. "Almost every weapon lost its significance and effectiveness as soon as it was used," Ofer Shelah wrote in the Jaffee Center's Strategic Assessment. The Israeli military relied on massive, overwhelming firepower delivered by the most modern means possible and it failed to stop incoming rockets and enemy mobility, much less win the war. Hizbollah not only showed Syria how to defeat the Israeli army but made Iran much more confident they can carry on what it is doing. The entire government and army leadership was incompetent.

…There are many dangers, from fascistic politicians like Avigdor Lieberman becoming even more powerful, to yet greater emigration abroad of those Jews with high skills. The latter is happening. Israel's ability to flout European opinion with impunity or to have Washington embark on military adventures from which Israel gains is increasingly limited. France has warned Israel that should it initiate a war with Iran it would create "a total disaster" for the entire world". Oil prices would rise, the entire Arab world would unite behind the Iranians, and Israel would be targeted but so would other nations. Even more important, Israeli strategists admit that Iranian nuclear weapons would only create a stable deterrent relationship between the two nations, and are not an "existential threat."

Repentance or Rapture?

Above all, in Iraq the American government is facing the failure of its entire Middle East project, an illusion in which the Israelis have a profound interest. Bush and gang are in a state of denial, but the U.S. is going the way of its defeat in Korea and Vietnam, and its military is increasingly overstretched and demoralized. It has based its foreign policies on fantasies and non-existent dangers, neo-con dreams and desires, only partially to meet equally illusory Israeli objectives to transform the entire Middle East so that it accepts Israel in whatever form the fickle Israeli electorate presents it. American foreign policy has been fraught with dangers since 1945, and I have documented them extensively, but this is the worst set of incompetents ever to hold power in Washington. It "shocked and awed," to use the departed Secretary of Defense's phrase, itself. Things are going disastrously for conservative warriors.

But it is very difficult to anticipate what this administration will come up with, though disasters over the past six years have made a number of alternatives far less probable. In a way, that is a good thing, although the cost in lives lost and wealth squandered has been immense. The Baker/Hamilton bipartisan commission is deeply split and if -- with emphasis on "if" -- if it happens to come up with a clear alternative the president is free to ignore it. The Pentagon has formulated alternatives, summed up as "go big," "go long"-both of which would require 5 to 10 years to "Iraqize" the war-- or "go home", but it is divided also. One thing certain, however, is that it has neither manpower, materiel, nor political freedom to make the same mistakes as in Vietnam-as the first two alternatives would have it do. There are no options in Iraq because the U S has traumatized the entire nation and created immense problems for which it has no solutions. No one can predict what it will do in Iraq because the administration wishes to preserve the illusion of success and is genuinely confused how to proceed. It has produced chaos. Iraq is very likely to remain a tragedy, one wracked by violence, for years to come. The Bush administration has created a massive disaster involving the lives of many millions of people.

A great deal depends on the President, whose policy has utterly failed in Iraq, is failing in Lebanon, and one of his options is escalation -- war with Iran. Israel might attack Iran in order to drag America in, but by itself it can only be a catalyst. Olmert and Bush approach these issues in a remarkably similar fashion. Either way, Bush has not ruled out war with Iran despite warnings from many military men that such a conflict would have vast repercussions, probably last years, and the U.S. would likely lose the war, even if it used nuclear weapons, after creating an Armageddon.

A number of the neocon theoreticians have repented the Iraq adventure, and even criticized some the basic premises that motivated it, but it would be an error to assume that this administration has some contact with reality and can be educated-by the electorate or by alienated neocon intellectuals. There are still plenty of people in Washington who advocate going for broke, who still retain fantastic illusions. There remains the imponderable factor of rapture -- fantasy and illusions mixed with desires. Is victory around the corner if we escalate with more troops? Will the Iraqi troops the Americans train attain victory over enemies that eluded U.S. forces? Many much wiser presidents have pursued such chimeras. Why not Bush too? Facts on the ground, which are much greater in constricting American power than they were six years ago, are a critical factor. They may not be sufficient to prevent irrational behavior. We simply cannot know.All of these factors, and perhaps others not mentioned here, will affect each other. The whole is very often no stronger than all the parts. All surprises that thwart the Bush administration's freedom to act are now to be welcomed, and while the world's financial system is the leading candidate for upsetting the U.S.'s calculations, it is scarcely the only one. The facts on the ground, realities rather than decisions, are usually crucial, and here the U S is losing in its megalomaniac ambition to shape the world. It has been this way for many nations led by men far superior in intellect to George Bush.

Wishes are not reality and the U S has an endemic ability to hold onto its wishes and fantasies as long as possible. Desire often leads to its acting despite itself. But its resources are far more constrained now than they were six years ago, much less for the United States during the Vietnam War-which it lost. The American public is already deeply alienated, the world financial system is teetering, the U S' military resources are virtually exhausted.

We shall see.

Signs of the Economic Apocalypse, 11/20/06

From Signs of the Times, 11-20-06:

Gold closed at 622.20 dollars an ounce on Friday, down 1.1% from $628.90 at the close of the previous Friday’s trading. The dollar closed at 0.7794 euros Friday, up 0.1% from 0.7785 euros for the week. The euro closed at 1.2830 dollars Friday, down from 1.2846 at the end of the week before. Gold in euros would be 484.96 euros an ounce, down 1.0% from 489.57 for the week. Oil closed at 58.92 dollars a barrel Friday, down 1.2% from $59.62 at the close of the previous week. Oil in euros would be 45.92 euros a barrel, down 1.1% from 46.41 for the week. The gold/oil ratio closed at 10.56, up slightly from 10.55 at the end of the week before. In U.S. stocks, the Dow closed at 12,342.56 Friday, up 1.9% from 12,108.43 at the close of the Friday before. The NASDAQ closed at 2,445.86, up 2.3% from 2,389.72 for the week. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 4.60%, up one basis point from 4.59 at the end of the week before.

More bad news on the housing front in the United States:

Housing construction plummets in October

By MARTIN CRUTSINGER, AP Economics Writer

Housing construction plunged to the lowest level in more than six years in October as the nation's once-booming housing market slowed further.

The Commerce Department reported on Friday that construction of new single-family homes and apartments dropped to an annual rate of 1.486 million units last month, down a sharp 14.6 percent from the September level.

The decline, bigger than had been expected, was the largest percentage decline in 19 months and pushed total activity down to the lowest level since July 2000.

Applications for new building permits, seen as a good sign of future plans, fell for a ninth consecutive month, the longest stretch on record. The October drop was 6.3 percent, pushing permits down to an annual rate of 1.535 million units, the slowest pace in nine years.

David Seiders, chief economist for the National Association of Home Builders, said he believed construction would fall by about 13 percent this year as builders scramble to deal with plunging sales.

"We had an unsustainable boom in housing in both 2004 and 2005 and now we have a correction on hour hands," he said.

The sharp slowdown in housing this year stands in stark contrast to the past five years, when the lowest mortgage rates in four decades had powered sales of both new and exiting homes to five consecutive records.

The housing weakness trimmed a full percentage point off economic growth in the July-September quarter, when the economy expanded at a tepid 1.6 percent rate.

Housing is expected to continue acting as a drag over the next year but analysts believe the adverse effects of falling sales and construction cutbacks will not be enough to pull the country into a recession.

There were signs that the steep plunge in housing was beginning to level off. The monthly survey of builder sentiment edged up slightly in early November following another small increase in October. It marked the first back-to-back improvements in builder sentiment since June 2005.

The level of building activity in October was 27.4 percent below activity in October 2005, the biggest year-over-year decline since March 1991.

Construction of single-family homes fell by 15.9 percent in October from the seasonally adjusted September level, dropping to an annual rate of 1.177 million units. Construction of multi-family units dropped by 9.1 percent to an annual rate of 309,000 units.

The drop in construction was led by a 26.4 percent decline in the South. Construction fell by 11.7 percent in the Midwest and was down 2.1 percent in the West.

The only region showing strength was the Northeast, where construction jumped by 31 percent.

As usual there has been a lot of talk about “soft landings” and “corrections.” Richard Russell is not buying it:

Dow Theory Letters

November 9, 2006
Extracted from the Nov 8, 2006 edition of Richard's Remarks

Russell Comment -- November 8, 2006 -- The verdict is in. The majority of the American people by their vote have said "enough" to Bush and the neo-cons. The House went to the Democrats and as I write the Senate is in doubt. Was it Iraq, was it the economy, was it the lies, was it the sleaze, was it the incompetence? It was probably all of these. The vote has rendered President Bush a "lame duck." The nation now faces gridlock. But Iraq will continue, and the deficits will continue.

Much power has now been transferred to the Democrats. They don't deserve it. They went along passively, cowardly, and cluelessly with the Bush caravan. Their real claim to power is not courage or intelligence, their real claim to their new power is simply that they are not Bushies or neo-cons. In all, it's a sad story. But it's a story, less sad than it was a day ago.

…Economically, the big picture will now boil down to four phenomena: (1) Iraq, (2) the continuing massive US deficits, (3) the longer-term effects of the deteriorating housing picture, (4) the incredible disparity between Wall Street and the rich -- and the great mass of struggling Americans.

Iraq will be a continuing cancer. I have no idea how it will be resolved.
The deficits will probably be ignored despite much hand-wringing.

The housing situation (in my opinion) will deteriorate and become a huge problem.

The disparity between the rich and the poor will remain an unsolved cancer -- it will also be a source of anger on the part of most Americans.

The consensus continues to be that housing is due for a "soft landing." In my opinion, the soft landing is a fantasy. I think it will be well into next year before we know what kind of landing housing is headed for. I think it's going to be a very hard landing, one that will work a hardship on the entire nation.

But even the market bears and gold bugs don’t seem to be able to grasp the true scale of the calamity. David North just published the text of a two part address entitled “War, Social Inequality and the Crisis of American Democracy” in which he uses history to give proper scale to the calamity, a calamity whose outward expression is the crime that was the invasion of Iraq. According to North, the war, the crime, was the consequence of the takeover of the United States by a two-party dictatorship designed to concentrate wealth and power in the hands of a very few.

…In 1815, two veteran politicians, somewhat past the political wars of their earlier lives, engaged in a lengthy correspondence. One of the pieces of that correspondence was a letter written by one of the parties, John Adams, the second president of the United States and one of the major leaders of the American Revolution. He was writing to an old adversary who, in the last years of the two men, became his closest friend—Thomas Jefferson.

Jefferson had posed the question in an earlier letter: what was the revolution in which we both participated and to which we had dedicated our lives and our sacred honor? Adams said something very interesting. He said the revolution was not the war. The war was a consequence of the revolution.

The real revolution did not take place after 1775. It took place before 1775—between 1760 and 1775, a period of 15 years marked by an extraordinary growth of political consciousness among the masses of colonials. The revolution took place in the minds of the people. And it was that which made possible the extraordinary development of consciousness which found its most sublime expression in Jefferson’s Declaration of Independence and, later on, in the drafting of the Constitution and the Bill of Rights.

Adams actually said that if you want to trace the development of consciousness, read the newspapers, read the pamphlets, read the leaflets which were being circulated by the tens of thousands in the old colonies, and there you will see the real development of revolution.

At a somewhat later period of history, on the eve of the Civil War, the great debates between Lincoln and Douglas took place. Lincoln’s contributions remain to this day an extraordinary summation of the issues that led to the abolition of slavery in the United States.

As a matter of fact, Lincoln himself was a candidate whose political life was, to a major extent, dependent upon his ability to articulate and explain the great issues of his age. The turning point in Lincoln’s candidacy actually came in February of 1860. The candidate from Illinois was invited to participate in a speaking tour. He went to Massachusetts, Pennsylvania and Connecticut, but the big meeting was to be held in New York, where the lions of the new Republican Party were going to take the measure of the provincial from Illinois.

When Lincoln appeared on stage in an ill-fitting suit—he was hardly the most handsome man in the world and wouldn’t pass muster with our media today—there was something of a chuckle. Then he began to speak. He laid out in the next 90 minutes an extraordinarily comprehensive assessment of the constitutional issues posed by the slavery question.

He reviewed the position of all the founders. This was a detailed, concise, brilliant analysis, which almost overnight made it clear to everyone that Lincoln was a major force. And it transformed his candidacy into something that was credible. He became the Republican candidate and, fortunately, the president of the United States.

Look at the situation today. What issues have been discussed? What questions have been raised? Let us put it somewhat differently? What has been suppressed? What can’t be discussed?

The bloodbath in Iraq

This morning the media was full of reports of the conviction of Saddam Hussein and the decision that he is to be hanged. He was convicted for putting to death hundreds of Iraqis.

Let us consider another fact that has not been widely reported or discussed. It was briefly mentioned in the press but that was about it. It was a study put out by Johns Hopkins University in October. Johns Hopkins is a major institution, and it presented a study which established, based on the most advanced statistical methods, that the number of Iraqis who have died since March 2003 as a result of the American intervention and occupation is 655,000.

Six hundred fifty-five thousand human beings have perished as a result of this country’s invasion of Iraq. Six hundred fifty-five thousand!

I have heard various reports of the crimes committed by Saddam Hussein and the number of people killed. Even if one accepts the highest figure that I’ve seen, in the area of 150,000 to 200,000, that’s less than a third of the number of people who have died in just three years as a result of the American invasion.

Six hundred fifty-five thousand people represent approximately 2.5 percent of the population of Iraq. Two-and-a-half percent of the population! Apply that percentage to the United States. A cataclysm of that scale would have cost the lives of 7.5 million Americans out of a population of 300 million.

Saddam Hussein is to be held accountable for his crimes, though I must make the point that no one can accept, if one is serious about democratic rights, the procedures that were adopted by that court. But he’s been given the death penalty—a penalty that we oppose. But what shall be the punishment for those who have carried out a war, based on a violation of international law, resulting in the deaths of 655,000 people? What level of accountability shall there be?

One has an indication in the way the media responded. One would think that the report that 655,000 people had died would produce a massive shock throughout the country. Well, there were brief reports in the press. The day after the report appeared, Bush was asked at a press conference what his response was, and he simply said that the report was not credible. There was no follow-up question, and I haven’t seen a single article in the mainstream press—the New York Times, Washington Post, Los Angeles Times—in which the statement by Bush that the Johns Hopkins University report was not credible was subjected to critical investigation.

The editor of the New York Times, Bill Keller, came to the University of Michigan, and one of our reporters asked him to explain the silence of his newspaper. He just brushed it off. The story has been simply dismissed. Yet it should be the subject of the most intense discussion and debate within the United States, especially when one asks oneself: what will be the consequences? What must follow from a nation being implicated in so great a crime? Does one really think that the United States could wipe out two-and-a-half percent of a population of another country and not suffer consequences, not just in Iraq, but in our own country?

During the constitutional debates of 1787 in Philadelphia, one of the delegates, George Mason from Virginia, addressed the question of slavery. He was a slave owner, but an opponent of slavery. He said, in words that sent a chill down the spine of every delegate, “Unlike individuals, the crimes of nations are not punishable in another world, in the hereafter. The crimes of nations are punished in this world, and the form of that punishment is a national calamity.”

Seventy-five years later, the nature of that calamity was revealed: the American Civil War. And Lincoln, in his great second inaugural address, invoked the words of Mason when he said that the scourge of the war was the punishment for the crime of slavery, in which both North and South had participated.

The bloodbath orchestrated by the government of the United States, with the full collaboration of the Democratic Party and the media, has definite implications. The state of American democracy, its visible disintegration before our eyes, is one of the forms being taken by the developing national calamity.

North again:

Social inequality in the United States

How did a situation arise where such massive and undemocratic violations of rights take place, and they go unchallenged and even un-discussed in any serious way? Life-and-death questions of democratic rights that resound through our history have emerged, yet an election campaign is conducted where they are not discussed and cannot be examined.

In order to understand this, one has to look at the nature of the society in which we live. What is the real source of these diseases—of war, of dictatorship? They must be symptoms of a deep social ill that exists within the United States.

…What has been the cause of this profound deterioration of the democratic immune system of the United States? We have to look at the nature of our society, and here we see that the most significant feature is the extraordinary level of social polarization, the extraordinary degree of wealth concentration in a very small section of American society.

A study was recently done by two economists from UCLA, Piketty and Saez, entitled “Income Inequality in the United States, 1913-1998.” It is based on federal income taxes, and it shows that in 1929, economic inequality, wealth inequality, and income inequality were at their highest levels.

Then came the Great Depression, and there was a sharp decline because of the enormous losses experienced by sections of the elite itself when Wall Street crashed. Later, particularly after World War II when the GIs came home and there was an enormous wave of labor struggles and social struggles, inequality declined and the level of social equality increased. That persisted into the 1970s, and then the process reversed itself. Social inequality accelerated during the Reagan administration. It accelerated with extraordinary rapidity during the Clinton administration, and now it is back at its highest levels since 1929.

If one looks at income distribution in America, one sees certain extraordinary features. First of all there, is a very, very sharp differential between the top 10 percent and the bottom 90 percent. People often use the phrase, “The rich get richer and the poor get poorer.” When we talk about the poor getting poorer, we are talking about the lower 90 percent of the American people. That embraces a very substantial population—270 million out of 300 million, i.e., the vast majority of the American people.

Then, if one examines the top 10 percent, one is struck by the very sharp differential there as well. The social position of those in the top 5 percent is dramatically different than those in the bottom 95 percent. And there is an extraordinary degree of differentiation between the top one percent and the bottom 99 percent. The top one percent receives approximately 19 percent of the entire income paid out every year in the US. The top 0.1 percent, one in a thousand, receives approximately 9 percent. We are dealing with astonishing levels of social inequality.

Similar figures present themselves if one measures not just income, but control of wealth, in the form of share ownership. We live in a society that has become incredibly stratified.

If history teaches us anything, going back to the days of the Roman Republic, it is that the higher the level of wealth concentration, the more eroded and unsustainable the previous democratic forms of rule. If democracy means anything, it embodies the rule of the people. But the people in their broad masses represent a great threat, a danger, to those who control the vast aggregates of wealth.

How would the democratic interests of the masses express themselves? In social policy, in a progressive income tax, in taxes on wealth, in health care programs, educational programs, programs of public works. From the standpoint of the ruling elite, all of these demands of the “grubby masses” subtract from the revenue flowing into their pockets.

What is the secret of political life in America? What is the aim of both parties of corporate America? To remove all constraints—political, economic, legal, moral—on the accumulation of personal wealth. Every social demand is seen as a threat. That is domestic policy.

What is its international expression? Militarism and war.

The ruling elite has global interests. It is striving to establish the supremacy of the United States over all other countries—to control oil, to control raw materials. The United States has a military budget that is a multiple of the combined military budgets of all other country in the world. That only tells you that the American ruling elite, arming itself like Chicago gangsters, is waging its international turf wars to make sure it has its hands on the levers of power—whether in Asia, Africa or South America.

And the American people have to pay for it—in Iraq, billions every month. Immense sums of money are squandered. That is why, when the Iraqi military budget came up last time for a vote in the Senate, it was passed 100-0, without any questions asked. That was less than a month ago.

But these problems are bigger than just American problems. Capitalism itself, that system whose assumptions we simply take for granted now, can be seen as a trick that enables concentration of wealth and power. It did it by separating the accumulation of wealth from any moral or social consideration, from conscience. It is no accident that capitalism has paved the way for a takeover of society by psychopaths.

What seems normal to us can be seen as sick and perverted if we look at it from the point of view of the past, of tribal type organization, or from the point of view of a healthy future. Tribal societies have as their hallmark the deep, systematic prevention of concentration of power. Tribal societies, in a kind of reverse causality, organized themselves toward the prevention of something that hadn’t taken place yet but what is taking place now. According to Ran Prieur, one of the ways this is done is by forbidding purely utilitarian relationships, or those we would call economic:

In a tribe, purely utilitarian relationships are forbidden! The economic is a subset of the social, and in a land-based tribe, the fundamental social relationship is between the people and the land. But in civilization, the social and the economic are carefully separated. It's uncool to accept money from your family -- you're supposed to "earn" it through a utilitarian deal with strangers. We don't want to chat with the person behind the counter -- we just want our coffee. We love people we don't depend on, and we depend on people we don't love, or even know.

This is what enables a large-scale domination system! Tribes can be repressive, abusive, even ecologically destructive, but they can't be big, or grow past a certain size, because everyone has to know everyone for them to work. And for a tribe to be mean, everyone in it has to be mean. But you can build a global hell-world out of nice people with just one trick: the purely utilitarian relationship. It's the basic chemical bond of Empire. And we can dissolve Empire, one cell at a time, by befriending the people we exchange money with, and building gift economies on our friendships.

Laura Knight-Jadczyk, in her fascinating series on John Kennedy published in her blog and in the Signs of the Times, approached the subject this way:

Monday's SOTT carried a couple of articles that caught my eye. The first one was The harmless people, an interview with Elizabeth Marshall Thomas.

In 1950, a 19-year-old girl left the elite Smith College in Massachusetts to join her family on an expedition that would change their lives. Prompted by her father's desire to visit unexplored places, the family set off for the Kalahari desert in search of Bushmen living out the "old ways" of hunter-gatherers. The girl, Elizabeth Marshall Thomas, went on to celebrate them in her 1959 book The Harmless People, which became a classic of popular anthropology. Nearly 50 years on, Marshall Thomas's latest book The Old Way revisits the story - and finds that the Bushmen's fate is more complex than it seems.

Marshall Thomas returned to her English degree at Smith College, Massachusetts...

The interviewer asks Marshall Thomas: Westerners mourn the loss of this hunter-gatherer society, but you take a rather different view...

Marshall Thomas responds : Yes, for me they are living in somewhat the same way, but with different economics. The idea that you help your own is still present. This is what kept the human race alive for 150,000 years.

The hunter-gatherers told anthropologists they don't define themselves by how they get food but by how they relate to each other. We saw that. They tried to keep jealousy at a minimum, with nobody more important or owning more things than anyone else. You gave things away rather than keep them. You wanted other people to think of you with a good feeling.

Q: Is that the "old way" of your book title?

A: Yes.

There was a time when the playing field was level and all species lived in this way. How people and their domestic animals live now is profoundly different. [...]

Q: What do you make of the accusations by some academics that your writing is too sentimental?

A: My mother Lorna also wrote about the Bushman culture and we were both accused of over-emphasising the lack of violence in Bushman culture, but we were only reporting what we had seen. In the Bushmen groups we visited, we observed that there was much emphasis on cooperation and on avoiding jealousy. The reason was that life was pretty marginal and one way to get through was to have others who help you in your hour of need. Everything in their culture was oriented to this.

So it isn't that they have a natural "niceness" - I never said that they did. They're just like everybody else. What they have done is recognise the damage one person can do to another and try to put a limit on it.

The second article relates directly to what Marshall Thomas has remarked above about how societies that live on the edge manage to survive: Survival of the nicest
ALTRUISM - helping others at a cost to oneself - has been a stubborn thorn in the side of evolutionary biologists. If natural selection favours genes that produce traits which increase the reproductive success of the individuals in which they reside, then altruism is precisely the sort of behaviour that should disappear.

Darwin was acutely aware of the problem that altruism posed for his theory of natural selection. He was particularly worried about the self-sacrificial behaviour that social insects display: how could natural selection explain why a worker bee will defend its hive by stinging an intruder and dying in the process? In On the Origin of Species, he summarised the topic of social insect altruism as "one special difficulty, which at first appeared to me to be insuperable, and actually fatal to the whole theory". But then he came up with an explanation.

Since worker bees were helping blood relatives - especially their queen - Darwin hypothesised that natural selection might favour altruism at the level of blood kin.[...]

Huxley, also known as "Darwin's bulldog", outlined his thoughts on this topic in an 1888 essay entitled "The struggle for existence":

"From the point of view of the moralist, the animal world is on about the same level as the gladiator's show... Life [for prehistoric people] was a continuous free fight, and beyond the limited and temporary relations of the family, the Hobbesian war of each against all was the normal state of existence."

For Huxley, altruism was rare, but when it occurred, it should be between blood relatives.

Kropotkin, once a page to the tsar of Russia and later a naturalist who spent five years studying natural history in Siberia, thought otherwise. In Siberia he thought that he saw altruism divorced from kinship in every species he came across.

"Don't compete!" Kropotkin wrote in his influential book Mutual Aid: A factor of evolution (1902). "That is the watchword which comes to us from the bush, the forest, the river, the ocean. Therefore combine - practice mutual aid!"

How could two respected scientists come to such radically different conclusions? In addition to being a naturalist, Kropotkin was also the world's most famous anarchist. He believed that if animals could partake in altruism in the absence of government, then civilised society needed no government either, and could live in peace, behaving altruistically. Kropotkin was following what he saw as "the course traced by the modern philosophy of evolution... society as an aggregation of organisms trying to find out the best ways of combining the wants of the individuals with those of co-operation". He saw anarchism as the next phase of evolution. Huxley was no less affected by events around him. Shortly before he published "The struggle for existence", his daughter, Mady, died of complications related to a mental illness. In his despair over Mady's passing he wrote, "You see a meadow rich in flower... and your memory rests upon it as an image of peaceful beauty. It is a delusion... not a bird twitters but is either slayer or slain... murder and sudden death are the order of the day." It was in the light of nature as the embodiment of struggle and destruction - the antithesis of altruism - that Huxley saw the death of his daughter and it was in that mindset that he penned his essay [...]

A mathematical theory for the evolution of altruism and its relation to blood kinship would come a generation later with Bill Hamilton, who was both a passionate naturalist and a gifted mathematician. While working on his PhD in the early 1960s, he built a complex mathematical model to describe blood kinship and the evolution of altruism. Fortunately, the model boiled down to a simple equation, now known as Hamilton's rule. The equation has only three variables: the cost of altruism to the altruist (c), the benefit that a recipient of altruism receives (b) and their genetic relatedness (r). Hamilton's rule states that natural selection favours altruism when r × b > c.

Hamilton's equation amounts to this: if a gene for altruism is to evolve, then the cost of altruism must be balanced by compensating benefits. In his model, the benefits can be accrued by blood relatives of the altruist because there's a chance (the probability r) that such relatives may also carry that gene for altruism. In other words, a gene for altruism can spread if it helps copies of itself residing in blood kin. [...]

While working with Hamilton on kinship and altruism, the atheist Price underwent a religious epiphany. In an irony that turns the debate about religion and evolution on its head, Price believed that his findings on altruism were the result of divine inspiration. He became a devout Christian, donating most of his money to helping the poor. [...]

Since Hamilton published his model, thousands of experiments have directly or indirectly tested predictions emerging from his rule, and the results are encouraging. Hamilton's rule doesn't explain all the altruism we see but it explains a sizeable chunk of it.

…I don't think I have to spell out the connections between all of the above and the probable forces behind the assassination of John F. Kennedy to my regular readers. But for the sake of those who are not regular readers, let me suggest that you check out my article on Ponerology which tells us that there is a statistical minority of human type beings on our planet that are quite simply not really human. As Professor Robert Hare says, they are an "intraspecies predator." Are they "alien/human" hybrids as might be inferred from the remarks of Padre Freixedo? Anything is possible. But what is important is to remember the above stated rules of Altruism; and to remember that they can apply to genetic pathological deviants as well as normal human beings. That is to say, that networks of deviants, as described by psychologist Andrzej Lobaczewski, can and do act "altruistically" toward each other to some extent, and have done for millennia. Of course, that is only so long as those "others" continue to exist that they can "gang up" against. When they finally achieve dominance, it can be seen that they are quite likely to turn against each other as the recent Neocon abandonment of George W. Bush has shown us. But even with their infighting, they still work to keep a solid front of secrecy imposed between themselves and the majority of humanity, the masses of people whose energy, blood, sweat and tears, keep them on the top of the heap. In short, more than anything else, genetic deviants survive due to their ability to induce altruistic behavior from others - self-sacrifice - by deceiving the others into believing that they are conspecific; they are parasites. And thus it is absolutely crucial for all of us to begin to learn about these matters because the very survival of humanity may depend on it. As Lobaczewski points out, the very fact that there are more normal people than deviants suggests to us that normality, having a conscience and empathy and altruism, are those things that helped humanity to evolve and survive over hundreds of thousands of years. It is going to take a lot of altruism and empathy to get us through the next few years!

Maybe the “altruism” among psychopaths led them, at crucial points in history, to encourage the development of capitalism, a system that, by freeing energies, enabled sufficient concentration of wealth to eliminate freedom for the non-psychopathic.

Signs of the Economic Apocalypse, 11-13-06

From Signs of the Times, 11-13-06:

Gold closed at 628.90 dollars an ounce on Friday, down less than a tenth of a percent from $629.10 at the close of the previous Friday. The dollar closed at 0.7785 euros Friday, down 1.0% from 0.7863 euros for the week. The euro closed at 1.2846 dollars compared to 1.2718 at the end of the week before. Gold in euros would be 489.57 euros an ounce, down 1.0% from 494.65 for the week. Oil closed at 59.62 dollars a barrel Friday, up 0.8% from $59.14 at the close of the previous week. Oil in euros would be 46.41 euros a barrel, up 0.2% from 46.50 for the week. The gold/oil ratio closed at 10.55, down 0.9% from 10.64 at the end of the week before. In U.S. stocks the Dow Jones Industrial Average closed at 12,108.43, up 1.0% from 11,986.04 at the close of the previous Friday. The NASDAQ closed at 2,389.72, up 2.5% from 2,330.79 at the end of the week before. In U.S. interest rates the yield on the ten-year U.S. Treasury note closed at 4.59%, down twelve basis points from 4.71 for the week.

The U.S. stock market seemed to react well to the victory in the midterm elections by the Democratic party last Tuesday. The rise began late the week before the election as it became more clear that the Republicans were in trouble. The rise probably had to do with the clear signals that the Realist faction around George H.W. Bush is making a move to take power from the Neocons. The firing of Rumsfeld and the appointment of Robert Gates as Defense Secretary is a clear example of that, as is Gates’s replacement on James Baker’s Iraq Study Group by Lawrence Eagleburger (another Bush I national security/defense/State Department bigwig). Both Baker, the Democrats, and many Republicans are talking about a “diplomatic settlement” of the Iraq War, in other words negotiations with Syria and Iran as the only way to reestablish any kind of stability in the Middle East. The markets naturally respond well to the idea of wise grown-ups reestablishing control over U.S. policy. But is it too late? In addition, we cannot expect Israel to take the ousting of the Neocons lying down. Nor can we expect Cheney to go quietly. This is Caesar versus Pompey. Who will cross the Rubicon? What is the Rubicon in this instance?

Pundits in the United States keep telling us that “there are no good options in Iraq.” This means that the United States has suffered a significant defeat. The dispute among the elite is how to minimize the damage of that defeat. As much as one might wish for a complete dismantling of the American Empire, the world is usually better off when great empires decline gradually rather than swiftly and catastrophically. In the economic sphere the decline of the empire will manifest itself as the decline of the U.S. dollar as the world’s reserve currency. So far, however, the dollar has remained strong and U.S. stocks are at historic highs. Why?

Defeat In Iraq

by Martin D. Weiss, Ph.D.
Editor, Safe Money Report & MoneyandMarkets.com

November 7, 2006

I’m in London, in transit for our return flight to Florida, and I have a brief, but painful, message for you this morning:

We’re going to lose the war in Iraq.

This is hard to swallow, I know. But it seems blatantly obvious to everyone except those who have the most to lose.

Every single newspaper on this side of the Atlantic is headlining the deepening chaos in Iraq. Even the sentencing of Saddam on Saturday, heralded in the U.S. as a victory, is likely to deepen the sectarian strife and inflame the anti-American insurgency, according to the Wall Street Journal’s Europe edition this morning.

In Washington, most politicians now seem vividly aware of the crisis — not to mention the sweeping impact it’s likely to have at the polls tomorrow.

But, strangely, the movers and shakers on Wall Street still seem oblivious to the impact the war could have on investors.

The Iraq war is the elephant in the living room. Investors look at it but don’t see it. They feel its presence but don’t want to touch it.

Nearly UnanimousWarnings of Chaos

I now count over a dozen warnings of chaos, many from the highest-placed sources:

Three weeks ago, a special briefing by the U.S. Central Command declared that Iraq is “on the brink of chaos,” slamming home four tough-to-swallow-but-hard-to-dispute conclusions:

Conclusion #1. Iraq’s urban areas are suffering wave after wave of ethnic cleansing, the fundamental driver behind civil war.

Conclusion #2. Violence in Iraq has reached an all-time high and is spreading geographically.

Conclusion #3. The massive U.S. effort to hastily recruit and train a large Iraqi army and police force is backfiring. These forces, overtly and covertly loyal to warring militia leaders, are no longer part of the solution. They’re the focal point of the problem.

Conclusion #4. The pivotal event that sealed the fate of America’s enterprise in Iraq was the bombing of the Golden Dome Shiite mosque in Samara — precisely what I told you in Money and Markets on the day that it happened…

Cleary, Politicians See the Handwriting On the wall. So Why Don’t Investors?

Why are most investors so complacent? Why do they see only the rosy side of the news?

A key reason is that investors have so far been shielded from the economic impact of the war because the U.S. government has failed to raise taxes to pay for it. Instead ...

· Virtually the entire cost — a whopping $200 billion or so each year — is being financed by debt, and ...

· Nearly all of that money is being borrowed from overseas — China, Japan and Europe.

But this doesn’t reduce the war’s economic impact. It only postpones it.

What will happen when the war ends in defeat?

First, worldwide confidence in the U.S. will plunge, prompting foreign investors to sell their U.S. investments. The U.S. dollar and U.S. bonds will plunge.

Second, due to fears of the Iran-Iraq axis, oil prices will go berserk, likely surpassing the $100-per-barrel level.

Third, gold will skyrocket, as investors flee the dollar for safety.

My recommendation: Don’t be deceived by the false optimism that has overcome Wall Street. Stay the course.

The defeat in Iraq has led to an intensification of the behind-the-scenes civil war among the ruling elite in the United States between the Realists and the Neocons. The Iraq War is widely seen as a Neocon project. All responsible parties are simultaneously trying to assign blame to others and incorporate as many enemy factions as they can into the tent so as spread the blame around. As mentioned above, those enemy factions include Iran, Syria and even the Democratic Party. Here is the Attytood blogger, Will Bunch, on the dog that didn’t bark in last week’s elections:

Tin-foil hat time: Were Bush and Rove "The Producers" of an intentional flop?

"Under the right circumstances, a producer could make more money with a flop than with a hit."-- Accountant Leo Bloom, from "The Producers."

There are five stages of grief -- anger is the second, right after denial, and that's where the Republicans are at right now. The sudden ouster of the highly unpopular defense secretary Defense Secretary Donald Rumsfeld, just hours after the GOP electoral bloodbath, has led to most angry Republican fingers pointing straight at Karl Rove & Co.:

"The White House said keeping the majority was a priority, but they failed to do the one thing that could have made a difference," one House GOP leadership aide said Thursday. "For them to toss Rumsfeld one day after the election was a slap in the face to everyone who worked hard to protect the majority."

Maybe it's just because the Democrats actually won something, but for the last few days, something has just not felt quite right about either Tuesday's election, or the White House's handling of the voting and the aftermath. We have no doubts that a majority of American voters wanted change on Election Day, and they wanted the Democrats to be the agent of that change.

But we've also followed politics -- and the rise of George W. Bush and Karl Rove -- intensely these past six or seven years, and so beginning on Tuesday night, we were increasingly surprised at all the dogs that did not bark in the 2006 election -- dogs that raised quite a ruckus in the last three national elections.

The exit polls that leaked out in the late afternoon ended up matching the final results almost exactly -- nothing like what happened in those other Bush-era elections. The razor-close races all broke late for the Democrats, unlike Florida in 2000 or Ohio in 2004...and when that happened, there were no major charges of fraud, no "Brooks Brothers Riot," and no demand for a recount. The last two losers -- Conrad Burns of Montana and George Allen of Virginia -- went quietly into the autumn night, despite relatively close vote tallies. There appear to be no other Rovian stunts, like calling in the GOP's chits with Joe Lieberman to get him to caucus with the Senate Republicans. And there was no October surprise, not in Iran and not back home.

And we thought most of these things before Bush's makes-no-sense-at-all handling of the Rumsfeld matter. We don't think a pre-election firing of Rumsfeld would have changed many voters' mind, but what if had changed just 1 percent. Burns and Allen (heh) would be returning to the Senate, and the GOP would at least control one house. Likewise, a lot of nailbiters like Rep.-elect Patrick Murphy's win in Bucks County would have gone the other way if Rumsfeld had been canned a week sooner.

All this is a long prelude to our thinking the unthinkable.

Is Karl Rove even more of an evil genuis than we think? Did he and Bush just produce an election flop...on purpose?

It sounds completely off-the-wall, and before this post is over we'll give some good reasons why they wouldn't do that. But we'll also give you a couple of good reasons why life could be better for the Bush White House and the future presidential ambitions of the GOP with the Dems running Congress.

But any good conspiracy theory -- and even a whacked out one -- needs evidence, so here goes:

1. Here in Pennsylvania, why did the Bush-led Justice Department step up its investigation of vulnerable U.S. Rep. Curt Weldon just weeks before Election Day. Weldon had a tough challenge from Joe Sestak, but few pundits thought he would lose before Oct. 13, that unlucky Friday when word leaked out that the lobbying activities of Weldon's daughter was the subject of a federak probe. His fate was sealed three days later, when FBI agents raided the daughter's home and other locations, in plain view of a stunned news media.

2. How did it come to pass that the predatory sexual habits of Rep. Mark Foley -- which we now know was a closely held secret among GOP insiders for years -- suddenly leaked out to ABC's Brian Ross a month before the election. There is one political operative in this country who is notorious for using rumors or allegations of homosexuality or pedophilia to destroy his election rivals -- and that operative is Karl Rove. According to accounts of how the story broke, it was Republican staffers who leaked the emails to Ross and to other D.C. insiders on the summer of 2006.

3. Given that Bush's approval rating hovered in the 35 to 40 percent range thoughout the election season, why did the White House suddenly make the president more visible by having more press conferences -- and thus taking more hostile questions on Iraq and other unpleasant subjects -- than at any other time in his six-year presidency, including two in roughly one week during the October home stretch?

4. Despite voters' increasingly strong dislike of Rumsfeld, the Defense Secretary was deliberately put in front of the cameras at a key time in the race, on Oct. 26, just 12 days before the election. His news conference was alternately awkward and combative; he said that "that anyone demanding deadlines for progress in Iraq should 'just back off,' because it is too difficult to predict when Iraqis will resume control of their country."

5. Likewise, given Bush's low popularity and approval ratings, why was he dispatched at the last minute to the closest races, when other Republicans thought that his presence did more harm than good? Bush appeared with Sen. Conrad Burns in Montana just five days before the election, and for Missouri Sen. Jim Talent the day after that; and made frequent visits on behalf of Virginia Sen. George Allen. All three lost by narrow margins. Tennesee's GOP candidate Bob Corker got the more popular Laura Bush instead...and won.

6. Just four days before the election, and with polls showing the Iraq war highly unpopular, you had these comments from Vice President Cheney: The Bush administration is determined to continue "full speed ahead" with its policy in Iraq, regardless of Tuesday's midterm elections, Vice President Cheney said Friday. Cheney said in an interview with ABC News that the administration is convinced that it is pursuing the right path in Iraq. "It may not be popular with the public. It doesn't matter, in the sense that we have to continue what we think is right," Cheney said. "That's exactly what we're doing. We're not running for office. We're doing what we think is right."

7. Then you had the whole Cheney-Rumsfeld fiasco. Bush went out of his way to praise the two men just five days prior to the election, knowing full well how unpopular they were: He said he valued Cheney's advice and judgment. "The good thing about Vice President Cheney's advice is, you don't read about it in the newspaper after he gives it," the president said. Bush credited Rumsfeld with overseeing wars in Iraq and Afghanistan while overhauling the military. "I'm pleased with the progress we're making," the president said. He replied in the affirmative when asked if he wanted Rumsfeld and Cheney to stay with him until the end.

8. And of course Rove made a number of confoundingly bad decisions, dumping millions of dollars into Senate races that seemed hopeless for the Republicans -- and ultimately were -- in the solidly "blue" states of New Jersey and Maryland, where in hindsight a few dollars spent in the right ways might have salvaged the once-"red" Montana and Virginia.

And that's on top of all the things that that the Rove-Cheney-Bush White House didn't do, as we mentioned in the outset -- recounts, massive voter intimidation, or -- as proven by those accurate exit polls -- even worse.

So why in the name of God would Bush and Rove want to produce a flop in 2006?

Well, on the domestic front, there may actually be some advantages for Bush with a Democratic Congress. For one thing, they'll probably pass a favorite program of the president and his big-business buddies, the guest worker program for immigrants, since it was the conservatives in the House holding that up. The GOP was probably also ready to relent on the minimum wage, which was becoming a political albatross for them.

The other stuff that Bush wouldn't like -- higher taxes on oil companies and the rich -- he can always veto, if his 49 senators (nine more than necessary) don't block a vote before it gets that far. He's already been promised by Nancy Pelosi and Howard Dean that he won't be impeached. From what we've seen, Bush didn't like the Republican leaders in Congress (especially the ousted Tom DeLay) all that much anyway.

But it really boils down to one word:

Iraq.

Everything we watched Bush do since Wednesday morning seems to be geared in one direction: Bringing Democrats to the table on Iraq. The problem for the Democrats is this: They came to office without a plan for Iraq. Bush doesn't seem to have one either. Nobody does, although James Baker and his friends are said to be working on one. But now whatever emerges from the coming discussions will not longer be the GOP plan. It will be the Bush/Democrats' plan.

And we're afraid that the war planners are expecting things to get worse over there in 2007. Good politicians are able to ensure that when bad fallout is inevitable, that the blame can be shared. A GOP majority in Capitol Hill would have guaranteed that "the Republican war in Iraq" would dominate the 2008 presidential race, and that equation would hand the keys to the White House to the Democrats for sure. And Bush's patrons -- oilmen and the defense contractors -- need the White House a lot more than Congress, especially after the recent expansion of presidential powers. And now both parties will have a stake in Iraq, and the mostly likely in the coming fiasco there…

Mike Whitney also thinks the election was fixed, fixed by letting people’s votes be counted correctly and by the well-timed orchestration of news events leading up to the election. The fix was a power grab by the Realists.

Dead Ender, Gone Hunting ...
Cheney in a Box

Mike Whitney

November 11 / 12, 2006

It was the worst outcome imaginable.

They lost the House and the Senate in one night with one savage blow. Even the Confederate flag at Senator "Macakaw's" house was flying at half-mast. Suddenly the Reich that was "built to last a thousand years" had been reduced to small blocks of dusty-rubble extending from sea to shining sea. At the very epicenter of the twisted-iron and smoldering wreckage; was George W. Bush, President Hologram, the celluloid executive whose smirking puss had appeared daily on every American TV and in every American newspaper spreading the "good news" of domestic repression and nonstop war. Now, here he was, once again, convening a news conference, dazed and ashen, propped up amid the scattered debris of a midterm massacre; his party left in utter ruins.

Ouch!

In a moment worthy of Shakespeare, the Fraudster-in-chief had been scuttled by his own party; knifed in the back by his own friends and family who knew that it was finally time to extract the drunken driver from behind the wheel of a Mack Truck.

The Democrats didn't win anything; that's all hogwash. Bush was buried beneath an avalanche of bad news which was timed to begin with the release of Bob Woodward's book "State of Denial", followed by the National Intelligence Estimate (NIE), Lancet's Iraqi casualty report, the Mark Foley page fiasco, and a barrage of ethics-scandals, corruption investigations, and intensified coverage of the war. It was a carefully-coordinated coup intended to install "adults" (like Robert Gates) in positions of power, change the policy in Iraq, and remove Rumsfeld and Cheney from office.

One down; one to go.

The "vanilla" Democrats had nothing to do with Tuesday's results. It was a "planned demolition" from the get-go.

Robert Dreyfuss said it best in a recent article when he opined that Bush was handled in the same way "a family confronts an alcoholic. You bring everyone in, and you say, Look, my friend, it's time to change.'" (And then you remove the bad influences)

Elite powerbrokers and Republican Party kingpins extended their hoary grip all the way into the Oval Office and took the country back from the teenagers. But the boulder is still only half way up the hill. After all, what are their plans for Cheney?

Cheney wisely decided to go hunting when he discovered that friend Rumsfeld was being led to the gallows. Cheney's no fool. He knew that if he hung around, he'd be blamed as the co-conspirator of the Iraqi debacle and the subsequent destruction of the Republican Party.

So he did what Cheney always does; he skedaddled. He suddenly discovered that he "had more important things to do"; just like Vietnam.

He said he was going hunting, but that's rubbish. He wanted to be as far from the political fallout as humanly possible, so he vamoosed. There's nothing more to it than that. Besides, there've been no reports of "downed lawyers full of birdshot" this week in Wyoming so we know that Cheney's firearms are still safely tucked-away in the family vault.

Right now, Cheney is probably huddled somewhere with his national security team, rubbing his sweaty-hands together, figuring out how he can get back in the game and keep his fetid plan moving forward.

Cheney is smart; real smart. Smart like a cobra. He's not going down without a fight and he doesn't give a damn if he takes the whole country with him.

This is all about Cheney now; Dick Cheney, political survivor and skilled bureaucratic infighter. If anyone thinks that he's going to sit around waiting for the Democrats to start sniffing around the Republican corruption-cesspool; they're crazy.

He knows what's going on. He knows that Bush Senior, and Brzezinski, and Baker, and the rest of the "old order" Republicans have muscled in and are taking over. He knows he won't be able to bomb Iran, kill another 650,000 Iraqis, or declare martial law at home. And, he also knows that Conyers and the rest of them will be nosing-around the Halliburton "no bid" contracts; going through every sordid detail with a fine-tooth comb, and dredging up new scandals on a daily basis.

He grasps all of that. He understands the political climate and he knows that he only has two choices left; offense or defense?

Either he steps down or he collects his wits, gets his team together; Addington, Abrams, Chertoff, Gonzales etc; all the guys who are "one step ahead of the hangman"; and slaps together one "last-ditch" effort to establish absolute-dictatorial power that will put him forever beyond the reach of the law or of any future accountability for his war crimes.

It's a tough task. Bush is teetering and he's probably left the Cheney-Rumsfeld orbit already. Robert Gates' job is to influence Bush, to win him over with reason and, thus, move the country away from the brink of disaster. Cheney has been removed from the policy-making apparatus and he knows it.

So, what'll he do next?

What will Cheney do now that he's been backed into a corner and his power is oozing away like the blood from a sucking chest-wound?

Will he quietly retire and disappear into the political vapor or "lock-n-load" and go down with both guns blazing?

Here's a clue: Cheney is "dead-ender". He won't go peacefully.

What will Cheney and the Neocons do? Easy, let Israel attack Iran, thereby pinning hundreds of thousand of Americans and British inside Iraq with the escape routes cut off. Maybe that’s the Rubicon. Then either public anger will be turned on the leaders who lied us into war, and mass protests will allow the clampdown Cheney has been dreaming about, or the anger will be turned against Muslims again and they can once again lead a fascist nation at war. The economic consequences of such murderous folly would be immediate and severe:

Insanity Then And Now

…Currently, we are being told that Iran is threatening our very existence. What would happen to America if either it or Israel launched at strike at Iranian nuclear facilities many of which are located underneath crowded cities? Iran would regard the attack as a declaration of war by the U.S. and Israel even if only the latter made the initial air assault. The Iranians could fire Russian made SS-29 and SS-22 anti-ship missiles plus NATO Exocets simultaneously from 5 different angles totaling 140 degrees at every ship in the Persian Gulf. We would lose over 10,000 sailors in the first few minutes. 40% of the world's oil supply would be taken off the market and the price of oil would soar to $300 a barrel and gasoline to $10 a gallon. The world would correctly perceive that the American Navy was s floating death trap and dump the dollar. Prices would double and triple overnight. And then prices would spiral even higher cutting after tax wages by more than 50% and pensions by more than 90%. And those 40,000 Iranian suicide volunteers armed with the same missiles Hezbollah used in Lebanon would cut off American troops in Iraq from their supply lines. They could take many troops hostage. Of course the American public would demand we strike Iran, Syria and what's left of Iraq and the Mideast with nuclear weapons. But that would not restore the lives of our soldiers and sailors nor would it bring back the American economy and the country we knew as children. It certainly would not restore the Constitution and the Bill of Rights. Israel would survive and quickly make arrangements with Vladimir Putin's Russia to replace the United States as the world's sole remaining super power.

The problem is that the U.S. dollar-based economy will most likely crash even if peace in the Middle East is declared. The damage has gone too far for anything like the status quo to survive. An imperial nation with as much debt as the United States cannot remain economically or politically dominant. The dollar’s status as the world’s reserve currency will not long survive the defeat in Iraq. But, it has survived until now in the face of massive multiple deficits that would have destroyed any normal currency by now. Here is Der Spiegel:

PLAYING WITH FIRE
America and the Dollar Illusion

By Gabor Steingart

The dollar is still the world's reserve currency, even though it hasn't deserved this status for a long time. The devaluation of the dollar can't be stopped -- it can only be deferred. The result could be a world economic crisis.

The two things investors crave most are high yields and high security. Since you can never have both at the same time, the moods of investors are like an emotional roller coaster. They shift constantly from fear to greed and back -- although major investors, like corporations and states, clearly prefer security over fancy returns. Their fear is stronger than their greed. They'll freely relinquish the really fat profits as long as the stability of their billions is guaranteed. They're afraid of political unrest, they loathe overly dramatic changes in currency value and the mere thought of creeping inflation sends them into a state of panic.

Few countries are able to provide the greatest possible security in the face of these dangers. They include the United States and Switzerland. Indeed, this security is why the dollar isn't just used in trading and investment, but also functions as the world's reserve currency. Almost every country in the world distrusts its own currency to the extent that it prefers to invest the money from its treasury in the United States.

One can almost completely rule out the possibility of political unrest in the United States. Inflation is combated by the Federal Reserve Bank. Given the size of the currency's spread and the quantity of dollars circulating worldwide, speculators have no cause to get overly anxious about the dollar.

Thus, those who have money prefer to keep it in dollars. The United States disposes of a virtual monopoly on the commodity called security. For many investors, purchasing a US government bond is nothing other than a way of preserving their money. In 2005, only 20 percent of all currency reserves in the world were held in euros, whereas more than 60 percent were held in dollars. The introduction of the euro was a considerable success, and one should not downplay it. Nevertheless, the dollar has remained the world's currency anchor. As long as this anchor rests firmly on the ocean floor, stability is guaranteed for the national economies that invest in the dollar.

But if that anchor should tear itself loose and begin to drift freely in the ocean of global finance, the chaos that ensues would result in trouble for more than just exchange rates.

Buying to avoid selling

But why are the same traders who used to purchase products now so mad about dollar bills? Why do they rely on the good called security -- a commodity whose quantity cannot be increased at all? Doesn't every business student learn that the currency of a country is only as stable -- and hence as valuable -- as what the national economy of that country has to offer and produces? Does no one see that the tension between the dream and the reality is increasing and that this tension will snap, leading to suffering for millions?

Of course they see it! Investors can see what is happening. They wonder about it and shake their heads. It even scares them a little, sending chills down their spine. But they keep buying dollars as though possessed. The greater their doubts, the more greedily they order dollars. Indeed, that's exactly what is so crazy about these investors and their behavior: The client isn't just a client. He creates the security he's purchasing by the very act of purchasing it. If he were to stop buying dollars tomorrow, suspicion about the currency would spread and insecurity would grow. Then the dream would end. The dollar would start to falter and all the wealth held in dollars would lose its value. Of course, that's not something investors want to see happen.

The only way to fight a weak dollar is to strengthen it. Many people no longer care whether the US currency still justifies the faith people seem to have in it. The new game, which amounts to playing with fire, works exactly the other way around: The dollar deserves the faith it gets because otherwise it loses that faith. Dollars are bought so they don't have to be sold. The dollar is strong because that's the only thing that can prevent it from growing weak. Reality is ignored because only by ignoring it can the dream come true. Or, to put it still more clearly: Behaving irrationally has become rational behavior.

Everyone knows the danger

Of course, those playing this game know that, in the long term, currencies can't be stronger than the national economies from which they derive. Consumption without production, imports without exports, growth on credit -- these are all things that can't last in this world. Ken Rogoff, the former chief economist of the International Monetary Fund (IMF) and a man who thinks as clearly as he speaks brashly, recently criticized US economic policy even as he seemed to be praising it: Rogoff said the current boom in the United States is "the best economic recovery money can buy."

But if things have become that obvious, why aren't investors recoiling in fear? Why do foreigners, US presidents of all stripes and even Federal Reserve presidents known for their seriousness allow themselves to get involved in such a risky game, when the risk is that of destroying everything? Why aren't those mechanisms of market regulation functioning that are supposed to represent the advantage of the capitalist system over planned economies?

The answer is terrifyingly simple: Everyone knows how dangerous the game is, but continuing to play it strikes them as less dangerous than quitting. After all, what's to be gained from overreacting? Investors allowed themselves to get caught in the dollar trap years ago, and there's no easy way out. If they start taking their dollar bills and government bonds to the market themselves, they would lose money -- either gradually or all at once. They would like to avoid both scenarios, at least for a time. A president who does no more than recognize the situation as an important issue may lose his position as public discontent looks for a vent. Though the governors of the Federal Reserve Bank are under the strongest obligation to tell the truth, they have let the right moment for effective intervention slip by.

… So why aren't the markets correcting themselves in this instance as they normally do? Who or what is preventing investors from behaving differently towards the dollar than they behaved towards New Economy stocks?

They're going to do it. The only question is when. Financial investors aren't tax collectors or accountants: Their job isn't that of a meticulous overseer. They love excess, and they regularly cause markets to overheat. After all, speculation is the business they're in, and being in that business involves living with the risk of going too far. Their professional attitude resembles that of race car drivers whose goal is victory and not avoiding accidents at all costs. What remains unclear is just how dramatic the crash will be. Experts have often forecast the effects of a dollar meltdown. If the downward trend were to begin, interest on credit would rise step by step in an attempt to curb devaluation. That way, the dollar crisis would spread from the world of currencies to the real world of factories, businesses and household accounts within days.

Major and minor private investments yield lower returns when interest rates climb. People would start to save, the economy would falter and eventually shrink. The first mass layoffs would arrive soon afterwards. US citizens would have to once more drastically reduce their level of consumption, as unemployment and waves of bankruptcy would shake up the country. Millions of households would become unable to pay back their bank loans. Then real estate prices and share values would begin to drop, having been overpriced for years and used as mortgages for consumer credit. When the real estate bubble bursts, consumption inevitably dwindles even further. The hunger for imports would fade, causing problems for exporting countries as well. It would only be a matter of days before newspapers would once more feature a term that seemed to have disappeared decades ago: world economic crisis.

Steroids for the giant

Last century, the United States already suffered from one deep economic crisis that gradually spread to the rest of the world. The Great Depression lasted 10 years and brought mass unemployment and starvation to the United States. The country's economic power sank by one-third. The crisis virus wrought havoc all over the West. Six million people were unemployed in Germany when the economic fever was at its peak.

Today's investors face a difficult choice, one they're not to be envied for. They can see the relative weakness of the US economy and they're registering the tectonic shifts in the world economy. They know that a great statistical effort is being made to prolong the American dream. For some time now, government statistics have announced sensational productivity leaps for the US economy -- productivity leaps that, strange as it may seem, haven't led to any rise in wages for years. This is in fact genuinely bizarre: Either capitalists are reaping the fruits of increased productivity all by themselves -- which would be a political scandal even in capitalism's heartland -- or the productivity leaps exist only on paper. There is much to suggest that the second hypothesis is correct.

Half the world is impressed by the low levels of unemployment in the United States. The other half knows that these statistics aren't official, but the result of a voluntary telephone survey. Many of those who declare themselves employed are assistants and day workers. Working just one hour a week is enough for one to be classified as "employed." Given that it's considered antisocial to declare yourself unemployed, the US statistics may well say more about American society's dominant norms than about its actual condition.

The US economy's high growth rates aren't to be completely trusted either. They are the result of high public and private debt. In no way do they express an increased output of domestically produced goods and services that the United States has achieved by its own strength. They say more about the successful sales ventures of Asians and Europeans. New loans taken by the US government were responsible for fully one-third of US economic growth in 2001. In 2003 they were responsible for a quarter. The United States is an economic giant on steroids -- doped so its decline in performance doesn't become too apparent…

The crash can be deferred, but not stopped

The dependence of foreign central banks on the dollar will defer its crash, but it won't prevent it. Today's snowdrift will become tomorrow's avalanche. The masses of snow are already accumulating at breathtaking speed. The avalanche could happen tomorrow, in a few months or years from now. Much of what people today think is immortal will be buried by the global currency crisis -- perhaps even the leadership role of the United States.

Incidentally, the commission that former US President Bill Clinton created to investigate the negative balance of trade concluded in clear terms that the government has to do whatever it can to put an end to the growing disparity between imports and exports. It demanded that the public give up its optimism and return to realism, that people start saving again and that the state reduce its imports in order to prevent too hard a crash landing.

None of that has been done. In fact, what is being done is the opposite of everything the experts recommended. Debt is growing, imports are increasing and an optimism now lacking every basis in reality has become official state policy. Lester Thurow, a member of Clinton's commission, draws the sober conclusion that no one will believe the US balance of trade could produce a crisis "until it happens."

Nick Beams puts the defeat of the United States in Iraq into a larger historical perspective:

The crisis of US imperialism in historical perspective

By Nick Beams
8 November 2006

The 2006 American elections have a truly global significance. They are taking place in conditions where the Bush administration and the entire US ruling elite is embroiled in a deep-going political crisis, precipitated by the disastrous consequences of the invasion and occupation of Iraq. As numerous books, articles and comment pieces—many of them echoing positions articulated within the American military—have made clear, the invasion of Iraq has been a fiasco. The underlying position of the various critics from within ruling circles is that it has weakened both the immediate and the long-term strategic position of the United States.

…Aside from these immediate questions, the Iraq debacle has provoked discussion in American foreign policy circles about the long-term position of the United States.

…Michael Lind of the New America Foundation, a thinktank established in the recent period to promote alternatives to the Bush administration, points to the decline in the long-term strategic position of the US and the collapse of the perspectives developed in the post-Cold War period.

In a recent article entitled “The World After Bush”, he writes:

“…Much of America’s weakness will be the result of self-inflicted wounds: the unnecessary invasion of Iraq, along with the Bush administration’s gratuitous insults to allies, its arrogant unilateralism and its hostility to international law. But as tempting as it may be to put all of the blame on the Bush administration, the truth is that most of the trends that will limit American power and influence in the next decade are long-term phenomena produced by economic, demographic and ideological developments beyond the power of the US or any government to influence. The rise of China, the shift in the centre of the world economy to Asia, the growth of neo-mercantilist petro-politics, the spread of Islamism in both militant and moderate forms—these trends are reshaping the world order in ways that neither the US nor any of its allies can do much to control.”

..Turning to the underlying economic issues, he writes:

“[T]he collapse of the neoconservative perspective in the Middle East and the world does not mean success for what he calls the neoliberal perspective of the Democratic Party. “Neoliberals agree with neoconservatives about the goal of US foreign policy—a global free market in a world policed by a benevolent, hegemonic US. Their differences are in the details. Although they are as opposed in practice to a multipolar world order as neoconservatives, neoliberals argue that the US should make its global hegemony more palatable to other countries by endorsing international law and working through international institutions like the UN and NATO.”

He notes that while some neoliberals call for a vast program of investment in developing countries, the Middle East in particular—a kind of new Marshall Plan—this will never be tested, because the money is not there in the first place.

While Lind does not go on to develop the argument, this fact does point to the underlying reason for the resort to militarism—the economic decline of the United States. His perspective is for what he calls a “concert of great powers, organised and led by the US” as the best hope for reconciling international peace with liberal order.

But what happens if those powers do not find it in their interest to be led and organised by the US? Such a concert is only possible provided the US is prepared to make concessions to its rivals and potential adversaries. Here, however, lies the fundamental problem. The US is not in a position to do that. As we have previously noted, the invasion of Iraq was directed not so much against Saddam Hussein, as against the European rivals of the US in the Middle East. The aim was to establish a puppet regime in Iraq and in that way reinforce the position of the US against its European and Asian rivals. The same is true of Iran.

The reason the US pursues such a belligerent policy is rooted in its long-term economic decline. In the immediate post-war period, the US financed the Marshall Plan and consciously rebuilt the other major capitalist powers—except Britain whose empire it was seeking to dismantle. Under today’s conditions, a “concert of great powers” can at best only be an unstable truce.

The historic context

The present situation has to be placed within its broad historical context—that is to say, examined on the basis of the historical development of the world capitalist system.

…The world economic crisis of the early 1970s, when the profit rate began to fall, signalled the onset of a new downswing in the curve of capitalist development. Over the next two decades, the fall in the rate of profit became the driving force for vast changes in the structure and functioning of capitalist production. These changes, bound up with the application of computer technologies to all aspects of communication and production, have resulted in a quantum leap in the globalisation of production.

Whereas in all previous epochs, surplus value was extracted from the working class within the confines of a given nation-state, this now takes place on a global scale. Capital exists in three forms: as money (the end of the capitalist production process with the sale of commodities and the start of a new round of production), as commodity capital (which emerges from the production process) and as productive capital (the means of production that are employed to extract surplus value from the working class in the course of the production process). Commodity capital and money capital became citizens of the world in an earlier period. Productive capital, however, still retained a certain national identity. But now the disaggregation of the production process beyond the framework of the nation-state means that productive capital has become truly global.

The globalisation of production since the mid-1970s has had vast social and political implications. If the downswing in the latter part of the nineteenth century was the trigger for the establishment of the mass organisations of the working class that held sway for the majority of the twentieth century, then the changes over the past three decades have brought about their disintegration and collapse. This was the significance of the demise of the Soviet Union in 1991.

Capital responded to the downturn in the rate of profit in the 1970s in the same way as it had in the past. It undertook a desperate struggle to revolutionise the process of production. The globalisation of production is the outcome.

…There are distinct parallels with the period before 1914. Then, the upturn in capitalist profit was occasioned, at least in part, by the first phase of globalisation—the exploitation of cheap raw materials and agricultural products. Today, it is being fuelled by the increased supplies of cheaper labour. But this mode of accumulation is bound to bring social and political instability because it is dependent on ever-deepening social inequality, which can have far-reaching consequences in both the advanced capitalist countries and the new entrants into the global market.

Like the period before 1914, there is an intensifying conflict among the major powers. The relative economic decline of the US, like that of Britain before it, has extended over several decades. However, it has now become an explosive factor in world politics, as the US attempts to compensate for its loss of economic hegemony by military means. There are criticisms of the Bush doctrine of militarism from within American ruling circles, given the disaster that has unfolded in Iraq. But whenever one reads the alternative proposals—a concert of powers, a return to multilateralism—one is struck by the fact that they all involve some weakening of the position of the US. For three and a half decades, ever since it unilaterally removed the gold backing from the US dollar and ended the Bretton Woods monetary system because it was not able to honour its obligations, the US has been seeking to resolve its economic problems at the expense of its rivals. That process is not going to be reversed. In a sense, the turn to military means represents the intensification of a process that has been unfolding over the entire preceding period.

…Just as in the late nineteenth and early twentieth centuries, the previously dominant imperialist power, Great Britain, had to increasingly resort to military means in the face of rising challengers (Germany, rival European powers and the US) so today the US faces direct threats to its position. These are the underlying driving forces of the deepening political instability, growing great power rivalry and war that we are witnessing today.

The next several months should be interesting indeed.