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“Today I settled all family business...”
By Bob Kanan
Professional member of the World Future Society
The title quote is from Don Michael Corleone in the movie Godfather (1972). In the story line, the Corleone family was locked in a grim Mafia interfamily war. Also, there was increasing public pressure for more anti-Mafia law enforcement action. It was a losing situation for the Corleone family. But, by taking advantage of the chaotic circumstances, Don Corleone executed (literally) a plan eliminating all the other New York Mafia family bosses in one day. Then, it was just a matter of cleaning up internal family business; and hunkering down to absorb the financial losses, negative public opinion, and police flack, to quickly rise up out of the ashes as the unchallenged “boss of bosses.” Observe how this story relates to our government, the Federal Reserve and China.
Bashing Sir Alan Greenspan is the favorite economic sport of late. He and his masters have been referred to as political hacks, incompetent bumbling fools, and clueless about history, or classic economic theory. And, that’s just some of the milder comments from the Mogambo to the Mises Institute. Poor Sir Alan has already been consigned to a resting place on history’s garbage heap. When any economic sentiment reaches such extreme proportions, all contrarian investors should be jumping up and down, waving a red flag, and screaming at the top of their lungs that something else must be unfolding.
It’s time to consider the exact opposite. That is, Sir Alan and his minions, not only understand classical economics much, much better than given credit for, they really understand the true potential power of practical application of that economic theory. They have a grand plan, and the groundwork for that grand plan is being carefully laid.
The grand plan’s goal is to simply ensure that the US remains unchallenged as the global “boss of bosses.” The plan’s goal would have unending, absolute national popular and political support.
In the past, national rivals have usually been defeated by military action. Today, there are too many potential rivals that also have nuclear capability. A nuclear exchange is completely unacceptable. The risks of collateral damage are far too great to even contemplate. However, economic warfare has worked well and been extremely effective in the past. For example, President Reagan gets credit for winning the Cold War by simply outspending the Russians in the high tech arms race. All it took was escalating the US deficit, and debasing the US dollar by rolling printing presses 24/7. The Russian Communist economy was inherently weak, inflexible, and slow to react. The Russian economy and the Ruble currency collapsed. The following internal unrest quickly brought the Communist government down. And that was the end of that story.
There are new national rivals to the US today. Number one on the hit list is China. Along with Russia they are also potential (nuclear) military rivals. Japan, India, and the Euro-zone are economic rivals, but unlikely military rivals. Nonetheless, all of them will need to be taken down, and put in their subordinate place to the US if the United States should continue world domination.
A unique, once in a life time opportunity, is about to present itself to carry out the economic grand plan. The Kondratieff economic cycle is in process of rapidly entering the Winter phase.
Here’s a link to those cycle charts: http://www.thelongwaveanalyst.ca/cycle.html
At this point there is nothing to stop it. The global economic imbalances are likely irreversible using conventional wisdom. If one starts with this> premise, then the only thing to do is make sure it is as severe as possible for your chief rivals. The name of the game is to make the contrast between good times and bad times for them as great as possible. In effect, exaggerate the effects of the K-winter, even if it means taking some lumps ourselves.
With respect to China, that means pumping up their economy as much as possible. The US consumer will be encouraged to spend with borrowed money at low interest rates using the real estate ATM. It costs the US nothing, because it just means printing dollars and running up public and private debt another one or two trillion dollars more. It doesn’t make any difference, since there is absolutely no intention of ever paying off these debts anyhow. The US dollar may plummet close to its intrinsic value (zero). The hyperinflationary deflation of the K-winter can be solved by simply re-evaluating the US dollar to revalue both public and private debt for a few cents on the dollar creating a defacto default of all debt. For example, one “new””dollar is worth a hundred “old” dollars. Many other nations have taken this route as a solution before. The K-winter is a global phenomenon, so even at the depths of a US dollar value it can still be stronger than any other fiat currency. If managed properly, the US dollar never has to lose its status as the preferred global reserve currency as investments shift from paper assets to hard assets.
Since China is the primary target, what happens there? The K-winter shuts off US consumer spending which is the primary driver of the Chinese export economy. China is left holding the bag with billions of worthless US dollars. The weak, immature Chinese banking system will fail. Tens of millions of Chinese have recently migrated to coastal industrial areas from northern dry rural regions looking for city work. China is just now being exposed to consumer upward mobility that a rapidly expanding economy with full employment and informational freedom is bringing. Once the economic door slams shut during the K-winter, potential for internal unrest takes hold and spreads rapidly. Chinese citizens on the street will take exception to any “good times” being denied to them. It will be the mother of all riots. The knee jerk reflex of any Communist government is to suppress the unrest with brutal force on a grand scale. Even the huge Chinese army will not be able to kill enough protesters to prevent downfall of the Chinese Communist government. China and any other rival nation will cease to be a military threat to the US, because they cannot afford to continue expansion of a high tech military. Besides, their military will be much too busy quelling internal unrest. China is an easy mark and they will never know what hit them until it is too late. It is not critical what kind of government replaces the Communists; since China will be set back for decades in their economic development. Their military will be even longer in repairing itself and trying to grow to parity with the US.
All potential rivals to the US can be economically eliminated in the chaotic confusion of the K-winter without the use of military means.
What about the US? The K-winter will be very, very painful. It will probably be much like our 1929-1930’s great depression in many ways, with unemployment, and investment losses, bankruptcy, and despair on a grand scale. The debt-derivative and housing bubbles will burst. However, the outcome is likely to be much less severe than what takes place in the rest of the world. The US has some experience and history to fall back on. There will be recovery programs, not unlike the FDR New Deal to jump start our economy increasing employment. The US, during the K-winter will be unlike other nations, such as the division of Europe into nationalistic priorities including a natural demise of the Euro currency. The US has a proven running record of pulling together, as after the great 1930’s depression extending into WWII. Yes, a new war would help move things along. The social mood certainly will be ready to take it out on someone. A K-winter recovery in the US can be rapid enough to maintain its global leadership. A re-evaluation of the US dollar just returns to square one, and the cycle of artificially managed inflation begins anew once again.
Who will be the last man standing in the economic ashes shall largely depend upon who has access to the best energy sources for fastest recovery after the K-winter. Oil fuels the industrial and military machines. That puts the Iraq war into perspective. Of the worlds top 10 oil fields with the highest remaining percentage of easy to access oil, (not necessarily the largest reserves), 8 are in Iraq, and one each are in Iran and Russia. This is the “low hanging fruit” of oil reserves. The US is not going to be run out of Iraq easily. Commodities, in general, and especially the precious metals and energy sectors are likely to be the next hard asset “bubbles”.
US politics is the biggest unknown at the onset of the K-winter. If the Fed Funds rate can be reloaded to at least 4% soon, there will be running room to lower rates keeping the real estate bubble inflated headed into our 2008 elections. Assuming withdrawal of US troops from Iraq and Afghanistan before the 2008 elections, the US electorate will vote their pocket books as never before. If K-winter effects are underway before the 2008 election, Democrats could run a Mickey Mouse and Donald Duck ticket and win in a landslide. However, it doesn’t make any difference which party is in power. The potential for economically taking down all US rivals will prevail no matter who is in power at the time. There will plenty of scapegoats to assign blame for the K-winter disaster. The best spin candidates are the other political party, China, terrorists, peak oil, or you name it. Properly managed media spin on this grim situation can convince any and all of the gullible.
Should a new US administration come to power in 2008, it will see all the advantages of K-winter circumstances, fully exploiting them. The full Godfather dialog quote of Don Corleone to son-in-law Carlo Rissi before killing him is:
“Today I settled all family business, so don’t tell me you’re innocent, Carlo.”
Besides the nationalistic goal of remaining top dog, there are other advantages. It shall be time to take care of internal family business, by eliminating those disloyal, settling long time personal grudges, political pay-back time, and economically crushing business rivals. How could any politician pass up that grand opportunity?
If this scenario to eliminate all US rivals to assure global supremacy is successful, Sir Alan and his masters are more likely to go down in history as patriots and true American heroes that rescued our nation. Wouldn’t that make some folks turn over in their graves?
This scenario also leads to the question: Who are “they””that are pulling political and economic strings behind the scenes to control everything in a new world order. Well, you can just choose your own favorite pick of the dozens of plausible conspiracy theories we’ve heard floating around for decades. However, you’ll know for sure after the global K-winter dust settles by following the money to see just who gains the most from this final solution.
Trader Rog, Roger Wiegand
Editor, Trader Tracks