... And the doldrums are upon us. If it wasn't summer, then the chances are that all hell would be breaking loose. Here is a loose roundup, in no particular order of importance, of all the potential smashups which are presently being held at bay
Paul Wolfowitz, Donald Rumsfeld's deputy at the US Defense Department and one of the prime architects of the US war in Iraq, has stated that the US was unprepared for the breakdown of law and order in Iraq and that there was no way that he or his colleagues in the Bush Administration could have foreseen it. This is a truly mind boggling statement, implying that to a man and woman, the Bush Administration is ENTIRELY ignorant of ALL past history, notably including the history of the US involvement in Vietnam. To put it in perspective, it is very like Mr Greenspan's repeated contention that there is no way to recognise a financial bubble until it bursts. Mr Greenspan was, of course, the man who provided the "air" to blow up the bubble in the first place, just as Mr Wolfowitz was one of the men who provided the "reasons" why it was so necessary for the US to invade Iraq.
On another "front", at the end of June, Donald Rumsfeld himself was ridiculing statements that the US occupation of Iraq had degenerated into a guerilla war. Two weeks later, General John Abizaid, the man Rumsfeld made responsible for military operations in Iraq, stated that the US faces a "classical guerilla-type campaign" there. This is obviously correct and anyone who has given a passing glance to events in Iraq knows it. No matter, says Mr Rumsfeld, if I deny it, it simply ain't so.
Wolfowitz says that there's no way the US could know what they were getting into. Rumsfeld says that there's no way that the US ARE in what they've gotten into. Is it any wonder that calls are beginning for both Mr Wolfowitz and Mr Rumsfeld to be fired? When high Administration officials like Mr Wolfowitz and Mr Rumsfeld start to deny the painfully obvious, one may know that it will not take much more to tip US "policy" entirely off the rails. And speaking of denying the painfully obvious, did you catch Mr Greenspan's testimony before Congress this week?
While Mr Greenspan, in his usual inimitable fashion, spends 2 or 3 thousand words telling us that he can see "growth ahead", several other individuals are pointing in growing alarm at exactly the kind of "growth" that THEY are seeing. Comptroller General David M. Walker, head of the US General Accounting Office, is worried that runaway red ink could push the US economy into truly dangerous territory - "over the next few decades". Mr Walker is worried that US government spending might double from 20% of GDP today to 40% of GDP - by 2050 - all to "fund" entitlement programs like Medicare, Medicaid, and Social Security.
Dear me, a crisis in 2050. Given that the "time horizon" of most people does not stretch past the next "quarter" of economic statistics, this is a fairly "safe" item to raise the alarm about. The US economy might be in trouble - in 47 years. What's happening NOW? Oh heck, there's no problem, Mr Greenspan sees "growth ahead".
Want to see "growth" NOW? Consider the Treasury's debt to the penny. As of Thursday, July 17, the debt to the penny was listed at $US 6.722 TRILLION. At the start of the US fiscal year on October 1, 2002, it was listed at 6.228 TRILLION. With more than two months to go in fiscal 2003, the debt has risen by $US 494 Billion. Since the debt limit was raised by $US 984 Billion to its present level of $US 7.384 TRILLION on May 27 (less than two months ago), debt is up by $US 262 Billion. If the present rate of debt build up since May 27 were to continue unchanged, the Treasury's $US 7.384 TRILLION debt limit will be hit in the first week of December - THIS YEAR! Now THAT'S "growth", no wonder Mr Greenspan can "see it ahead".
The problem, for Mr Greenspan, is that many other people can see the "growth" too, but they are not looking where he wants them to look. They are looking at the blowout in the budget deficit and at the Fed's own pumping of new "reserves" into the US system. The most dangerous result of this "growth", so far, is a report that on July 18, the ECB and/or individual European Central Banks were selling US "agency" debt. US "agency" debt is debt issued by the two pillars of the US mortgage bubble, Freddie Mac and Fannie Mae. Foreign Central Banks own MASSIVE amounts of this debt paper, and even more massive amounts of Treasury debt paper.
It is a well known fact that Asian Central Banks have been absorbing GIGANTIC amounts of $US denominated debt paper of all descriptions and that they have accelerated this accumulation since the $US topped out at the beginning of 2002. Partially, this has been a recycling of their trade surpluses with the US. But even more, especially since the $US started falling, it has been done to keep their own currencies from rising against the US Dollar in order to preserve their VITAL US export markets. US bond markets hit their highs in early/mid June and have been falling ever since. Now, European Central Banks are beginning to divest themselves of US assets. This report of sales of US "agency" debt by Europeans will have scared Asian Central Bankers - particularly Japanese and Chinese Central Bankers - CHALK WHITE!
As we said, thank goodness it's the (Northern) summer and therefore the doldrums. Gold is certainly in the doldrums, having risen $US 2.20 this week, despite its "sudden" $US 5.60 fall on July 15 - just as Mr Greeenspan was preparing to tell the US Congress about his visions of "growth". Gold has built a support base in the low $US 340s and is now waiting patiently (as are we all) for the doldrums to be shattered by a blast of the cold wind of reality.
That usually happens sometime in the period between July 4 and Labor Day. Every year since 1997, US stock markets have suffered significant corrections which began in that time period. But there has been no "summer doldrums" in the memory of this writer during which there was a more determined attempt to refuse to see what is right in front of one's eyes. The divergence between reality and perceptions becomes wider by the day.