Dollar Seceding from Community of Currencies

Somewhere we got caught up in the political swirl, our true task neglected to the extent we are babbling about politics without making any related analysis about money.

So we now set aside our brief Obamic delirium, but will follow in his footsteps by lifting liberally from an article by one Judy Shelton in last Friday's Wall Street Journal. She is an economist and someone we've never heard of before, but her piece, "Security and the Falling Dollar", is important reading. Indeed if an anonymous rabbit had written it, or a rock cried it out with verbal eloquence, I would be all over it, nearly plagiarizing it for your benefit.

Friday's Journal actually had more than a few worthy articles, including one on the rising prices of agricultural commodities, which fit quite nicely with what Jim Rogers (the bow tied investor once connected to George Soros, and now living with his wife in, I believe Singapore) was saying in an interview almost two years back in the book, "Inside the House of Money" which I have been slowly making my way through.

Judy starts off by informing us that the Director of National Intelligience pegged the falling dollar as one of the major national security issues facing the United States. Not merely the fall of the dollar, but the ascendency of foreign governments with new resources at their disposal, and their ability to influence the world (and the U.S.) financially for political purposes.

The fact that it takes very little on the part of a few nations to greatly cause the quality of life in America to meander in unpleasant directions is a message not preached at the campaign rallies.

And when we read of the general triumphant applause by U.S. political elites over Kosovo's rash decision to unilaterally declare independence, there seems to be a certain lack of realization that our financial world position grows more tenuous to the extent we are actually not considering other nations, their rational (or irrational) choices, and the impact of those choices. In other words, you can't walk tall, or straight, if you have no pants or carry no stick.

And increasingly we are that naked Emporer.

In her article Ms.Shelton points out various realities that ought to be somewhat disturbing, though not because the events are in themselves wrong actions by others. I fully expect the world to play up to their potential. That is, I expect nations to build huge piles of currency if they feel it's in their interest. It's rational for an Iran to want nukes or China to want more nuclear subs. I fully expect Valdimir Putin to be praised in his country for pulling it together and snatching the assets back from the democratic kleptobillionaires who grabbed up assets as the country collapsed, because it's natural for people to want a country they feel is strong, stable and benefitting more than a lucky seven. These attitudes and events should, however, be expected, considered normative, and factored into our expectations and how we conduct ourselves.

(Interestingly, in the same book, the ever astute Jim Rogers points out the rational reality of Putin's actions, while still proclaiming that the country is crooked and will ultimately disintegrate into multiple parts).

Our leadership has a tendency to expect the world to be rather thankful for mere existence, and we, deep down, are not ready for them to do a bit more than exist, for them to compete. We certainly are not ready for say, a situation where one of OUR native ethnic groups decides to secede, with the support of say, Russia and the UN, though we are well able to have the lack of judgement that European nations like Spain and Greece have. (Both knowing that they themselves have restive separatist groups, and that such groups exist all over the planet, and thus it behooves them to avoid getting the jollies over Kosovo secession).

Our shortsightedness and deliberate disregard extend to the U.S. dollar.

The article continues:

If gold and foreign currency reserves were the only prerequuisite for harboring global ambitions in the monetary arena, China could make impressive claims of its own with $1.7 trillion as of December 2007., the world's highest level. Japan comes in second at $973 billion.

It goes on to say that the European states have $511 billion, and Russia has accumulated $484 billion.

The article points out that Putin has called for denominating its vast oil sales in rubles instead of dollars and certain middle eastern nations have been making noises along the same lines.

American citizens by and large do not fully appreciate the benefits of having the language and currency that greases the world's transactions, but to the extent we grow financially weaker, and the dollar also loses value, a very wealthy world will not necessarilly sit back and watch it for long.

Judy suggests a "perfect storm of dollar desertion" with Russia and China and other nations banding together to create a kind of Asian reserve currency.

All of these musings and thoughts by other countries are important to the extent that the world is interconnected and to the extent we are the world's leading debtor needing foreign funds to keep us chugging along. Right now we happen to be in a position where the promise of even lower interest rates does not inspire confidence in those who must sell their assets in dollars, nor do our economic woes give us much room to be less inflationary in our policy.

These are issues that need to be discussed, and by the candidates.

Ms. Shelton then takes what I call a "sharp right turn." I have a friend who does that. We can be having the nicest conversation about some woman, how lovely her she is, how sweet, how smart, how tasteful in dress and then, bang, out of nowhere, he says, "I would do her really hard".

Whoa, whoa what??!?!? Ms. Shelton does the economic equivalent by suggesting that we return to the gold standard, by virtue of the U.S., Germany and France having the highest level of gold reserves. After pointing out the competitive threats to the United States under the system of fiat currency, she irrationally suggests that the world (who is in competition with the United States) would embrace a hard currency system dominated by the U.S, and at Russia's expense.

Right questions, ridiculous answers.

How about this:

How about we balance the budget, and reduce the national debt?

Our problem is not being on gold, or off gold, or even the dollar fluctuating. Our problem certainly is not other nations trying to do what we have always done.

Our problem is shortsightedness and not taking care of our own business. It's investment banks providing funds to mortgage companies that don't do due diligence. It's the United States applauding separatist movements despite the fact that a bazillion nations run the risk of having to deal with now encouraged separatists (the Basques and Kurds are smiling). It's lowering interest rates to bail out banks that should have had a better grasp on risk. It's individuals seeking things they cannot afford. It's funding Saddam to fight Iran then having to kill Saddam. Or funding revolutionaries in Afghanistan to kick out Soviets only to have to go back in to push out the people you financed.

We can quibble on certain details, but we really need leadership that takes a more nuanced view, and a more long term view. I can already see the looks on the faces when the Serb section of Kosovo decides to secede from Kosovo. What will we say then and will we be so supportive?

It reminds me of a person on a blog I was reading. The question was posed about ethnic groups seceding in the U.S. and the person responded, "Oh it can't happen here because it's not constitutional, simple as that". As though countries typically write in secesson rules for their minorities, prenuptial style. Only in the American mind.

Albanian Independence or Afghanistan Redux

Today is a peculiar time, and a time that might come back to bite the United States down some long unseen curve of the American derriere. With the backing of the European Union and the United States, Kosovo, up till now a part of Serbia, has unilaterally declared independence.

ABC News reports on their website that:

"Ninety percent of Kosovo's 2 million people are ethnic Albanian most of them secular Muslims and they see no reason to stay joined to the rest of Christian Orthodox Serbia.

And this is all well and grand, accept that Serbia main, and Russia, are not entirely pleased, with Russia explaining that this will only encourage separatist groups around the world.

And it means jack nothing to most Americans that the U.S. government is not so much making an argument for democracy as they imagine, but rather, for people to split themselves up into groups based on religion and ethnicity.

Putin is astutely aware of the broad number of conflicts that can be resolved by secession, though leaders here never imagine how such ideas, once caught, can spread like a fever.

In and of itself secession is not be such a bad thing, but there is a certain amount of American and European hypocrisy and shortsightedness on the matter.

But let's daydream a moment. Let us suppose that one day black Americans have a candidate who is running for president in a land where they were enslaved and denied rights for many years. Now let us also suppose that in the process of the election he is denied the right to be his party representative through the use of non-elected superdelegates.

Now let us further suppose, that the aggrieved party has core constituents of the same ethnicity who do not look favorably on what they consider to be theft and disenfranchisement. They become even more disillusioned with the nation. They form a BLO, a Black Liberation Organization, with political, military and terrorist wings. They petition the government to let them secede from the country in a state they dominate.

Our government's response is a clear and quick "No." Then Mississippi is declared Blackland, and with the support of the U.N. and E.U., secession is declared.

If the government thus does not give in to this version of "democracy," one would see a situation much like in Israel. Imagine living in a U.S where, periodically, bombs are going off on Wall Street, at your local Cinnabon, in the car parked along the Macy's Thanksgiving Day Parade, in the F train coming from Queens. Imagine four gunmen with automatic weapons and grenades standing at the intersection when your light is red, and the hundreds that can be killed quite easily.

It's a far fetched idea, and yet, those are the things we should be thinking about when we so freely apply solutions to other places that we would not dare consider for ourselves.

It's not so much that anything like that could possibly happen here, but rather, our inability to imagine the long term consequences of these actions we support.

Not to mention that the Albanians who seem to love us now for backing them in their pursuit of independence, might be the very same people who are fighting us in the future as radical Islam gains wider ground. Afghanistan redux.

It's a shame when Putin has to do the thinking for us. Granted there might have been no proper way to resolve this situation, but there should have been more discussion and slower progression so as not to build resentments as a nation sees itself cut down to size.

Oil and the Blood

Will there be blood?

That is the question answered in the Paul Thomas Anderson movie I saw last night, an odd psychologically black and white film where evil, stupidity or hypocrisy is affirmed in nearly every character. In brief, it's the story of Mr.Plainview, an oil man, who builds his fortune by buying up the land at the expense of his own humanity. He serves the dual gods of oil and hate, with a special loathing for people, and people of faith.

Religion is represented by a cherubic faced man-boy named Eli, who is from the family that sold Mr. Plainview drilling rights in the first place. Eli is the town's minister, and essentially a false prophet, and uses every opportunity he can to try to get at the wealth that Plainview represents. His congregation--always seen in groups--are presented as sheep, unable to see Eli for the manipulate imposter he is.

Surprisingly, considering the genius of Magnolia, the director faulters here in the presentation of religion. By making Eli the obvious hypocrite, and his flock the willing stooges that the wily Mr. Plainsview thinks they are, the film almost confirms his worldview, siding us with an alcoholic and murderer.

The oil world is much different now. All grown up and run by huge corporations and national entities. Exxon Mobil announced record earnings on the level of $40.6 billion for the year, the type of attention getting number that let's people without perception skills get outraged. Exactly what a company with over $400 billion in sales should earn is open to question, with those outside the industry supplying the most easily constructed and far fetched non-answers. But they know it should be lower, so that it creates less confusion between having your cake (driving whatever car you like to wherever you like) and eating it too (paying ridiculously low commodity prices at the same time a good portion of the rest of the world-China, India- is industrializing).