Fw: chief economist of Morgan Stanley uses the word Armageddon in a briefing to the world's largest equity investing house.

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Friday, December 10, 2004 7:27 AM

chief economist of Morgan Stanley uses the word Armageddon in a

briefing to the world's largest equity investing house.

 

 

Quo Vadis: Playing For Keeps

Patrick C. Doherty

December 02, 2004

When the chief economist at Morgan Stanley says we have a one-in-10 chance of

avoiding economic Armageddon, one tends to take notice. When America's

second-largest creditor tells us to get our economic house in order the same

week, two points begin to determine a line. But the Bush administration has not

so much as flinched. In the latest installment of Quo Vadis?, Patrick Doherty

says that when GOP strategists ask, " Where do we go from here? " they answer,

" toward an economic 9/11. "

 

Patrick C. Doherty is associate editor at TomPaine.com. Previously, he spent a

decade working on conflicts and economic development in the Middle East, Africa,

the Balkans and the Caucasus. His column, Quo Vadis, means " Where do we go from

here? " and focuses on America's strategic dysfunction and how to transform it.

 

" Democrats play for lunch. We play for keeps. " -Grover Norquist

 

Last week, America received two pieces of monstrously bad news. First, the chief

economist of Morgan Stanley (along with Robert Reich, Larry Summers, Paul

Krugman, China and the currency markets) warned us that the U.S. economy is

about to collapse. Second, we learned that the Bush administration is willing to

ignore the likelihood of collapse and will push ahead aggressively with tax and

Social Security reform. Put these two pieces of information together and you get

a nightmare scenario.

 

Movement conservatives are willing to tank the economy while they control the

federal government in order to remake it according to their liking.

 

Impending Economic Collapse

 

You know things aren't looking good when the chief economist of Morgan Stanley

uses the word Armageddon in a briefing to the world's largest equity investing

house.

 

In an article published last Tuesday, Stephen Roach reportedly told his

colleagues at Fidelity that America has a one in 10 chance of avoiding economic

Armageddon. His comments came toward the end of a string of bad economic omens.

China's central banker told America to get our own house in order, European and

Asian central bankers began talk of buying Euro-based securities, and OPEC felt

enough pressure to announce that it had no intention, for the moment, of pricing

oil in euros instead of dollars.

 

Three days later, Roach revised and extended his remarks in an op-ed in The New

York Times :

 

" The day could come when foreign investors demand better terms for financing

America's spending spree (and savings shortfall).That is the day the dollar will

collapse, interest rates will soar and the stock market will plunge. In such a

crisis, a United States recession would be a near certainty. And the rest of an

America-centric world would be quick to follow. "

 

Rather than focus on the downside risks on Black Friday, Roach reframed his NYT

analysis on what it would take to secure that one-in-10 chance of avoiding the

reckoning. In short, he says the world's central banks must arrange the world's

accounts such that Americans spend less and save more while everyone else spends

more and saves less.

 

It's easy to see why Roach is so cynical. Such a solution would entail reversing

the flow of the global economy. China, Japan and Europe would have to

voluntarily reduce their companies' exports, profits, and shareholder return.

Not to mention that to most world leaders, such a deal would reward George W.

Bush and the GOP-dominated Congress for their reckless fiscal and military

policies that both created the economic crisis and increased global insecurity.

 

So foreign rescue is not likely. But it doesn't matter. The Bush administration

is not interested in rescuing the economy.

 

Shock Therapy, Norquist-Style

 

In the 1980s, Reagan's chief budget adviser, David Stockman, admitted that it

was White House policy to expand the federal deficits in order to squeeze out

social entitlement spending. The Bush administration has taken that tactic one

step further, explained by the pre-eminent Republican operative Grover

Norquist's famous goal, " to get government down to the size where we can drown

it in the bathtub. "

 

And they have already declared their intentions to do just that. The Bush

administration has identified its top three legislative priorities in the next

term, and none of them involves reducing American consumption and increasing

American savings. Instead, their priorities represent the final operations of

the battle started in 1964: tort reform, Social Security reform and tax reform.

Tort reform to curtail consumer protections. Social Security reform to force

every working American to buy risk-filled investment accounts. Tax reform to

make taxation fully regressive, placing the highest burden on the lowest earners

through either a flat tax or a value-added tax.

 

Given our severe account imbalances, this second-term agenda of the Bush

administration will signal to our global creditors that we are not serious about

our debts. That will make dollar-denominated securities worthless and the dollar

will cease to be the global currency, as America will no longer be the mass

market of last resort. At some point, OPEC will have to switch to a new

currency-probably Euros-and the price of oil for Americans will rise

significantly as the dollar continues to fall. As Roach's collapsing stock

market ushers in a recession, the inevitable job losses will pop the housing

bubble across the country. Americans, with trillions of dollars of consumer debt

leveraged on the value of their homes, will find that their futures will have

disappeared. Hard-earned home equity will be gutted and stock values will have

crashed. Unemployment will be widespread.

 

With a full four years in the White House, two years of hegemony in Congress,

and an escalating, multi-fronted war, the far right has plenty of time and cover

to push their agenda through. With no interim accountability, they can ignore

reality and continue to spin wildly to the American public. Indeed, this

administration has already shown that it can use a national crisis to advance

goals that in fact reinforce the causes of the crisis. It happened with 9/11,

and it can happen again.

 

Too Crazy To Believe

 

The movement conservatives leading the GOP have decided that the way to get what

they want is to throw out all the rules-whether that means speaking truthfully

to American citizens, comity in the Senate, stare decisis in the Supreme Court

or fiscal discipline in the budget. These concepts once defined the American

form of government and placed the republic above partisanship. But to operatives

like Karl Rove and Grover Norquist, they represent Democratic blind spots to be

exploited. Bipartisanship, as Norquist once said, is merely another word for

date rape.

 

Destroying the economy in order to remake it is just the kind of gambit that

Democrats would believe so unlikely that it is not worth considering. It defies

logic and credibility. Just like the possibility that Christian Zionists could

take over Congress or that Bush might invade Iraq with no real evidence of a

threat.

 

It's hard to write such a depressing analysis. It feels overly cynical. But then

I remembered Ron Suskind's profile of George W. Bush in the NYT Sunday Magazine.

In it, a senior adviser to Bush told Suskind: " We're an empire now, and when we

act, we create our own reality. And while you're studying that

reality-judiciously, as you will-we'll act again, creating other new realities,

which you can study too, and that's how things will sort out. We're history's

actors...and you, all of you, will be left to just study what we do. "

 

And then I think I might just be right.