November 27, 2009
By Douglas McIntosh
One wonders what the whore press will make of Dubai's effective default on some $60 Billion in debt. I imagine they will try and spin it in their usual fashion. Unfortunately for the spin meisters, some things are simply to big to spin. Economic centrifugal force comes into play, as does the second law of thermodynamics called entropy. Entropy is the tendency towards disorder or chaos. It is the economic version of a teenager and his room and it will eventually undermine the $600 TRILLION derivatives market. Synergy is another fact of nature that comes into play with the Dubai debt default. And let me be very clear here: DUBAI HAS DEFAULTED. The politicians and economists may claim this is not the case. They may use weasel words like "debt standstill" or a six month breather to reorganize the debt for repayment. Again, this is an effective default, whatever the powers that be call it.
I would also remind my readers that is was none other than Alan GreenSpan a.k.a. Mr Magoo who several years ago assured us that the derivative market needed no regulation. The vile beast called the Federal Reserve solemnly assured government officials, the shill media and the global populace that the derivative markets were safe. Warren Buffet's famous statement defining derivatives as "economic weapons of mass destruction" was ignored. The government regulators, flush from lowering interest rates to near zero after 9-11 allowed several bubbles to form. One of these bubbles was in real estate. The unwinding of the real estate bubble, created by Mr. Magoo has been hammering the US economy for several years now. I expect no real estate recovery until 2011 at the earliest. Further, the decline in real estate prices is still continuing and will do so for the foreseeable future. Once a bubble, or balloon pops, it takes a while for the air to escape.
As bad as the utterly incompetent Mr. Magoo screwed us with his creation of the real estate bubble, he has outdone himself with his failure to regulate the derivative market. Mr. Magoo, along with Braying Bernie have doomed the global economy to years of pain and suffering by allowing the mother of all bubbles to be created. Many years ago over at www.gold-eagle.com I wrote an essay called "Mr. Magoo's Name will Rot." And it will. Oh it will. Alan GreenSpan will share the fate of US President Herbert Hoover and his permanent linkage to the Great Depression in the United States. Such is fate. Such is the judgment of economic history. It is a well deserved judgment in my view. For it is upon the hands of Mr. Magoo, he who once admired Ayn Rand and was a gold bug, the economic blood will coagulate. Nor will Mr. Magoo be able to wash his hands clean, however many books he writes and shill media interviews he does. Mr. Magoo should be in jail, but instead is allowed to wander around pontificating like some elder economic statesman. How pathetic Mr. Magoo truly is. The way life works, one should get wiser the older he gets, but in Mr. Magoo's case he gets stupider. And Mr. Magoo's stupidity will be the economic doom of all of us. Woe unto the shepherd who allows the economic wolves to savage the widows and orphans. Woe unto the shepherd who allowed open greed and corruption to flourish during his twenty year reign of economic terror. Woe unto us all for his arrogance, stupidity and desire for the acclaim of the media, the politicians and the masses. Mr. Magoo has brought us to the this place of economic desolation. For that the judgment of history will be savage and brutal, just as his policies have created savagery and brutality for the rest of us.
Not that it matters much anymore what Mr. Magoo did in the past. The Rubicon has been passed; the die is set. The idea a $600 TRILLION unregulated, openly corrupt and clear as mud derivative market can be unwound without causing a global economic meltdown is delusional. Yes, the derivative market will be wound down, much as a jet liner falls from 35,000 feet to the ground. Screaming and panic on the way down; a big explosion once it impacts. Burning jet fuel everywhere, along with scattered body parts and a debris field stretching for miles. The derivative market can only end that way. No matter what spin is applied, or how many media interviews, or whatever the economic experts and pundits say, or the politicians plead, economic reality is economic reality. You reap what you sow in life. If you allow an idiot like Mr. Magoo to create a $600 Trillion derivative bubble, then you will have to suffer the consequences.
People forget the reason Adolph Hitler came into power was due to the Great Depression. People forget the political consequences of economic greed, corruption and bubble creation is always the rise of a strong man to deal with the chaos. It has always been that way and I see no reason for things to be different now. If you sow your wild oats, then you had better develop a taste for eating oatmeal the rest of your life. We are going to be eating economic oatmeal for years and years to come. The excessive debt will be unwound. It is no longer possible to unwind it slowly, or safely. There can be no soft landing for the global derivative market. Dubai is merely the first of many shocks to the economic system we will endure. For it was in Dubai, that playground in the Persian Gulf for the rich and greedy, that the derivative bubble took full shape, full form and reached its logical conclusion. It was in Dubai delusional fantasy become economic reality. It was in Dubai where islands were created to form homesteads for the rich fools to build their mega mansions. It was in Dubai where skyscrapers were built to rival the Tower of Babel. It was in Dubai where every economic excess was courted, wooed and then wedded. There will be no happily ever after for Dubai. No matter how high the price of oil goes, Dubai will be unable to service its massive debt. Dubai will not be able to pay it off, not now, not in six months and not in sixty years. Dubai has defaulted on its debt, whatever the spin meisters say. The fact of that default will shake the global economic system in an 10.0 economic earthquake. The Dubai debt default will roil the markets as our court jester economists put it so quaintly. Already the Shanghai market lost over 3%, as well as Europe's markets getting creamed.
Microeconomics is the study of small economic issues and macroeconomics is the study of big economic things. The Dubai debt default is a macroeconomics matter. It is a seismic event that will unhinge the credit default market. Already, the insurance rates for insuring debt are skyrocketing higher than the skyscrapers Dubai has stopped building. This increase has already increased the cost of insuring debt in the Gulf States by double digits. The political impact of the Dubai debt default will be profound in the Gulf States. The large and restive Shia populations, already angry over being treated as second class citizens, will become even more open to Iranian subversion. Just as Iran is subverting Yemen, to get at Saudi Arabia, Iran will now exploit the economic chaos in Dubai and the other Gulf States. By doing so, Iran will increase its regional political and military power. The Dubai debt default opens the flood gates of Iranian subversion everywhere from Eritrea in East Africa, Yemen and Saudi Arabia, all the way to Kuwait, Oman, Dubai and the others. It is now open season for a populist based Shia uprising all through Yemen and the Gulf States. Such is the political legacy of economic folly and such is the current reality facing our second rate Obama administration.
My last essay was about the Yemen/Saudi Arabian/Iran proxy war. Left out of that essay was the fact Iran has now sent active duty naval ships into the area. Further, Iran has now sent mini subs into the area. Given the economic chaos now unfolding in the Gulf States, one may be assured Iran will further exploit the destabilization underway. Unlike holders of Dubai debt, you can take that fact to the bank.