What Gives
The awesome exertions of the global banking system to evade the
mandates of reality finally yield in a sickening slippage to epochal
unwind. What a bad idea: to try to juke nature itself. In case you
weren't paying attention over the weekend - and who really wants to? -
the cosmic Brinks truck of free money went over a cliff, and the darn
thing will keep free-falling until (at least) the American markets open
again on Tuesday.
So, everybody and his uncle over in
Europe got a sovereign debt downgrade and now the math changes for all
the pretend bail-outs and back-stops that had been so exquisitely
rigged through the long, nauseating autumn. Math is an annoying
representation of reality, but hard to argue with. Bail-outs and
back-stops finally became unaffordable even as poetic constructs.
Thus, we also approach the dreaded inflection point for the credit
default swaps. Nobody believes that this Mount Everest of jive bond
"insurance" can actually pay out, since the first instance of any
attempt will bankrupt everybody. And yet there are the holders of all
that paper who will object to, say, an 80 percent haircut on their
Greek (and other) bonds. Surely some of them will try to invoke their
CDS contracts. What then? Three possibilities that I see: 1) all
parties and counter-parties go down the drain faster than you can say
Benedict Cumberbatch; 2) all parties declare in unison that CDS were a
prank that should now just be ignored, as if the cast of Downton Abbey
showed up naked at the dinner table; and 3) every sort of loan on God's
Green Earth is instantly re-priced and the entire world turns into a
flea market. How will America do with its stock of slightly pre-owned
Dunkin' Donuts stores, a million-odd Elvis lunch-boxes, and all those
old videos of Friends? Don't you wish you'd invested in some hand tools?
In the background of these grave machinations lurks the tragedy of
Iran. Subtract the Islamic maniacs who seized the levers of government
there thirty-three years ago, and you'd actually find a perfectly
modern society, complete with industries, skyscrapers, highways, TV
shows, and people eating nice food in restaurants. One can understand
why the last Shah was hated and resented. But here you now have a whole
class of despotic maniacs much worse than the Shah ever was and they
cannot be gotten rid of. Worse, they are devoted to exacting vengeance
on the USA and its kindred western nations.
This may be
just a tragic case of collective psychological scripting, but it is
tending in the direction of a full-dress play-out. Our government
believes that their government is determined to build an atomic bomb.
Iran's government says, over and over, "...what an idea...!" The
trouble is, our guys don't buy their vaudeville act. They will not be
allowed to have a bomb, and that's all there is to it. We are doing
everything short of all-out war to prevent it, but let's face it, a lot
of these things could be construed as acts of war: Stuxnet attacks...
blowing up nuclear scientists in their cars. These things are making
already-crazy people even crazier, and more reckless.
If
events continue down this path then there will be some action in the
Persian Gulf. The oil markets will be thrown into disarray. Iran may
sink a US naval vessel or two, but we know about their sunburn missiles
and we won't put the whole fleet in harm's way, and before too long we
will fuck them up very badly. The Iranians are capable of busting up a
lot stuff in their neighborhood even as their air force is vaporized
and their electric grid goes down. They could launch missiles into the
Saudi Arabian oil terminals, for instance. Surely they will try to rain
hell down on Israel. That would be a recipe for turning Teheran into an
ashtray and a terrible tragedy for those otherwise normal Iranians who
are not religious maniacs who wanted nothing more than to raise their
children and once in a while go out for a nice lamb dinner.
I don't see any percentage in China and Russia coming into this
rumble, though more than a couple of European nations may want to
forget their troubles for a moment and, at least, cheerlead from the
sidelines.
The result of all this - if the action
doesn't get totally out-of-hand - is sure to be a gigantic step down in
worldwide energy consumption, trade, and advanced economic activity. It
would make the Great Depression look like a sit-com. The American
suburban nexus would fail in a matter of weeks. The USA would have to
commence the greatest work-around the world has ever seen. In the
event, governments everywhere are liable to fall, even here, with
elections postponed. There will be little in the way of real money to
repair all the things that are falling apart.
Most
amazing of all is how quiet the world scene has been, really, since
2001. The buildup of tensions must be out-of-this world. Something had
to give.
