It appears that the late playwright Tennessee Williams is a big favorite here in Dymaxia. Several times we've echoed Bill Bonner of the Daily Reckoning intoning on the "kindness of strangers' when talking about the massive US foreign debt, which by the way, in case you didn't notice, bumped up a bit last month to a rate that is close to $600 billion on an annual basis. Those dollars go for things like Arabian oil, IT outsourcing and the mass of manufactured goods that flow into the nation's malls. We've warned that if ever the holders of those dollars lose confidence in our capacity to borrow and spend, there will serious consequences.
But where Tennessee Williams comes in today, is in his deftness in putting the word "mendacity' into the railing mouth of Big Daddy in perhaps his most famous play, "Cat on a Hot Tin Roof". We have to admit we were pretty naive back in those days and that play, actually the movie version, with Elizabeth Taylor and Paul Newman, was the first time we had perhaps ever heard the word "mendacity". And so we learned from this master that there are lies and damned lies and, most importantly, that glossy surfaces can be highly deceptive.
In Washington last week, among the plethora of cliches that flew around regarding the great imperial funeral procession (for more, see the Holy Teflon Emperor) was this nugget: " Washington rises to the occasion when it comes to pulling off big events". This is of course the same city that failed to tell its residents that their drinking water was full of lead, that has by nearly every standard one of the worst school systems in the country, the highest per capita murder rate of major cities and list of firsts in poor health statistics that covers an entire page. Yes, Washington loves big events.
For some reason we couldn't keep Big Daddy's admonitions from ringing in our ears all week long. Yesterday, it was ADM, the guys who feed a starving world, Archer Daniels Midland `copping a plea that they had conspired to fix the sweet syrup market. They didn't admit guilt but agreed to pay what amounted to the largest antitrust fine in history, $100 million. In the Business Section of the Washington Post today there was a story that two of the largest newspaper companies in the country, Tribune Co. and the Chicago Sun Times have both admitted that they have been lying about their circulation figures and, of course, thereby overcharging their advertisers. On the same front page in the lower right hand corner there is a story about IBM lobbyists secretly altering a Treasury report on pension plans. That's what they call thinking ahead, these days, it seems.
A couple of weeks ago it was Boeing being penalized for massive government fraud regarding military contracts. Actually, this kind of mendacity is so common that we hardly blink as it rolls in one eyeball and out the other.
But events aside, what Washington actually does best is spin. We were glued to our TV's this week watching the hearings of the 911 Commission. It was just the kind of fascinating stuff that makes our wonky weeks. Here was the rare occasion when someone was actually checking the facts and doing the hard work of looking and comparing the numerous pieces of a story with the precision and fearlessness of a master stone sculptor tapping on a massive piece of Carrara marble. And so we heard pretty much everything the Committee's staff had to say about the famous Bin Laden, Saddam Hussein connection.
Here, in our minds, at least, was one of the major rationales for the invasion of Iraq: It went like this: Osama Bin Laden is clearly bent on attacking the US with whatever he can get his hands on. He, and his organization, al Qaeda are patient, adequately funded planners who have proved what they are capable of in spades. On the other hand, Saddam Hussein hates the US --who has him in a box-- is oil rich, has weapons of mass destruction and just might supply them to OBL and company.
There was even an oft-stated report that Mohammed Atta, the leader of the 911 attack, met secretly with Iraqi intelligence in Prague at a certain point leading up to the main event. What the Commission staff report stated went something like this: there was no meeting between Atta and Iraqi intelligence in Prague on the day it was reported. There was substantial evidence placing Atta in the US within a time span that would have made it impossible for him to have traveled back and forth to Prague. Further, the Commission reported that Bin Laden and Hussein were known ideological enemies who may or may not have negotiated a truce in a few scattered meetings during the 90's.
Sensing the criticality of this link, the Administration put up a major "it depends on what the meaning of is, is" campaign. On Wednesday and Thursday we heard both the President and Vice President say that they had never claimed that Saddam Hussein was directly linked to 911, only that the emissaries of the two parties had met on more than one occasion over the last decade and a half. By that logic, it could have been argued that the Soviet Union and the US were busy conspiring, given the number of summit meetings that occurred during the Cold War.
The other major twist of the week came from Alan Greenspan in his testimony before Congress. According to Greenspan, who apparently doesn't buy food, pay for his own fuel and utilities or for healthcare, send anyone to college but spends a lot of time buying cheap computers (yes, CPU for the buck is part of the way inflation is measured), inflation is under control; that despite the fact that producer prices (the costs producers pass on to wholesalers) rose .8% in May. "The PPI rose 5 percent in the 12 months that ended May 31, the fastest such rise since 1990" according to the same Washington Post of June 18.
Greenspan needs to start raising interest rates. Here's his dilemma: if he raises them in any serious way he risks taking the sugar out of the diet, so to speak. This is the most stimulated recovery in US history with the printing presses running day and night. Greenspan knows that Bush needs the illusion of "solid growth" if he is to stand any chance of winning the upcoming election. The chance that anything but images of bloodshed and chaos will come out of Iraq in the summer and autumn are pretty much null. And as we noted above any credible rationale for the war other than oil has also pretty much washed out of the picture.
But Greenspan also knows that the only reasonable tool the Fed has to influence the economy, it's hold on short-term interest rates, is presently running on empty. In other words, come next Spring, if economic conditions begin to sink back to where they were or if the economy is hit by another major attack, the Fed will be powerless to play the only stimulus it knows it can truly manage, the interest rate card. There just isn't any way down from 1% and the speculators and hedge funds know it. Meantime we are beginning to see the signs of price rises throughout the economy.
If the Fed can't use interest rates to restimulate, it will have to start pushing down on the value of the dollar. But even there, the dollar is trading at 1.20 to a Euro, a rate that is probably at the outer band of what is sustainable for the major trading partners in the West. Petroleum prices also threaten to throw a further monkey wrench into the mix.
And so the next time you see your favorite pundits touting the strength of the present recovery, wish them Godspeed and hope they know what they are talking about. On the other hand, if that character that Burl Ives played so well keeps intoning "mendacity" into your mind's ear, well, think shelter and safe harbor and whatever you do, don't bet on continuing low interest rates.