Saturday, October 25, 2008

US, Banana Republic?

"The ongoing financial meldown is just the latest example of a disturbing trend that, to this adoptive American, threatens to put the Land of the Free and Home of the Brave on a par with Zimbabwe, Venezeula, and Equatorial Guinea. ... What are the main principles of a banana republic? A very salient one might be that it has a paper currency which is an international laughingstock: a definition that would immediately qualify today's [US]. ... In a banana republic, the members of the national legislature will be (a) largely for sale and (b) consulted only for ceremonial and rubber-stamp purposes some time after all truly important decisions have already been made elsewhere", Christopher Hitchens at Vanity Fair, 10 October 2008, the link:

"Talk about your role reversals. In the past few weeks, officials at the [Fed] have discussed the unfolding crisis with at least one central banker from a developing nation who witnessed his own country's financial system implode: Mexico's Guillermo Ortiz. ... The so-called Tequila Crisis, named after Mexico's national drink, is today seen as the first financial crisis of the globalized economy. The U.S. put together a massive credit line that helped Mexico emerge from the crisis and grow prosperous in its wake. ... Nonetheless, many of the lessons of the Tequila Crisis and others like it apply to the U.S. ... 'Do whatever it takes to restore confidence,' Mr. Ortiz said in an interview. 'Once you lose it, it's very difficult to get it back.' ... In nearly all financial crises, the government usually reacts too slowly at first. ... What lasted longer was political bitterness linked to the bailout, which was seen as having helped rich bankers at taxpayers' expense. ... Much like Washington, the Mexican government expected to break even and possibly make some money on the bad loans that it purchased. The reality: The government lost money--lots of it. The bailout's final price tag of about $75 billion was three times what the Mexican government expected", my emphasis, David Luhnow at the WSJ, 13 October 2008.

It's fun to relive your youth. All the US needs to achieve banana republic status is 20-35% annual inflation rates. Be patient. I refer back to my 15 December 2007 post:

Do"whatever it takes". There is no rule of law in such a country. The US really is becoming Mexico.


Anonymous said...

A banana republic isn't characterized only by a rotten political system, ruled by a small, wealthy, and corrupt clique usually put in power or supported by foreign interests (in the 20th century, in the case of several Central and Latin American countries, by the US), but also by huge wealth and income inequities, poor infrastructure, backwardness in many sectors of the economy, low capital spending, a reliance on foreign capital, money printing and budget deficits, and of course a weakening currency.
A banana republic is also characterized by a ruling class that curtails people's personal freedoms and is moving towards a heavy-handed military dictatorship under the excuse of fighting guerrilla (or terrorist) opposition groups or enemies. Moreover, the fact that the ruling class or the elite comes from different political parties isn't a relevant factor in classifying a country as a banana republic; what is relevant is the determination of the elite, irrespective of which party its members belong to, to shift wealth from the majority of the people (the masses) to themselves, usually through simply printing money and incurring chronic budget deficits, and frequently also through senseless warfare.

Dr. Marc Faber
Le Bananna replublio

Anonymous said...

From your December '07 post:

"HB has a choice, destroy the dollar or let the market destroy the banks. It's that simple."

Oct. ' 08 ... HB has let the market destroy one rotten carcass... the cotton brokers... but otherwise frozen it all in place.

Now the dollar?

Independent Accountant said...

Anonymous 1:
I agree with all you said about banana republics.

Anonymous 2:
I am surprised by the dollar bull market that took down the Euro, Pound, gold and various commodities. That said, in my opinion nothing has changed. Zimbabwe Ben has determined to keep the banks afloat and will destroy the dollar to do it. Have you been following the monetary base statistics recently? Anyone who owns US dollar denominated debt is crazy

printfaster said...

I kind of like this graph of the monetary base:[1][id]=BASE

What is interesting is that the base has become unstable week to week after Y2K and more unstable after 9/11.

The Fed's ability to control the monetary base has now become impossible, unless they trade by the minute. Look for a massive crash in the monetary base like after both of these events.

I have heard rumors of the base collapsing, having something to do with tank in the market and gold prices.

What kind of oscillations in M0 this causes will be something to behold. This pattern looks like the sound you get from banging on a bell. We could see the whole monetary system explode here in days. This is creepy.

Anonymous said...

Thanks for the graph PrintFaster. Looks like the doctors have lost control of the patient. Creepy indeed.

IA... I don't follow monetary stats. I come here to learn from you all. And the truth at this point seems pretty painful. Exceptionally rough sledding ahead.