June 27, 2005
The east coast is a steambath, the Dow Jones is tanking, oil has crossed the $60 barrier, and Don Rumsfeld says the Iraq insurgency could run for twelve years.
Taking these things in reverse order -- why twelve years? Why not forever? Actually, twelve years might as well be forever. What Rummy seems to be saying to the US public is: better be prepared to keep Fort Apache going indefinitely. The part he left out was. . . "if you want to keep making that eighty-mile round trip commute from Cherokee County to Peachtree Street."
Even that simple equation assumes a lot. For instance, that Mr. Suburban Atlanta Commuter will still have that job in the office tower on Peachtree. Or that he can continue to make a monthly payment of $3200 on a 4000-square-foot house in Hickory Flat. Or that the Fox TV News fans will maintain their enthusiasm for a war of attrition lacking in cineplex quality battles, while their property taxes are being jacked out of sight to cover the rising cost of maintaining senior parking privileges in the centralized school districts.
The public indeed may be losing its appetite for the Iraq project, but not for Nascar racing, fried chicken buckets, car trips to Six Flags, and round-the-clock air conditioning. What shock of recognition will flash across the TV screens when the connection is finally made that keeping all these things going is why we're in Iraq? War is the answer. Sooner or later even the folks making those jitney trips to East Hampton are going to get it.
Oil's remorseless up-ratcheting past $60 is as much a symptom of a weak dollar as a strained global energy allocation system, and the dollar is weakening because the way of life it represents is becoming more and more unreal. The harsh truth is that we've reached the limit of our ability to expand our suburban sprawl economy and there is no alternative US economy in the background ready to take its place. The world can't fail to notice this weakness. The inability to generate even fake wealth, in the form of ever more WalMarts, will take its toll on the consensus that the American Dream has enduring value.
The stock market contraction ought to reflect this reality -- apart from desperate attempts by US government proxies to levitate share prices -- and it is hard to imagine a rally in the face of $60 oil. I'm inclined to predict a gruesome journey down for the Dow Jones into the 4000 range by the end of the year. Until now the dollars created by the Federal Reserve's supernaturally loose credit policy have sought shelter in the "hard assets" of houses? A meltdown of the stock markets will translate into vanishing leverage in all other areas of finance, especially in real estate (as well as a swath of destruction through hedge funds, retirement accounts and, eventually, the entire creaking superstructure of the hallucinated mortgage industry). A few Americans are actually going to get the message that this is not a good time to buy an overpriced raised ranch house. A lot of real estate geniuses are going to witness their own ruin with wonder and nausea.
The striking aspect in all this is that the US appears to be reaching a breaking point in the absence of any precipitating disaster. Apart from the daily meat-grinder in Iraq, the geo-political scene is temporarily placid. The potential for disaster is huge, of course. Five pounds of Semtex in a crucial spot could crater the global economy. Sooner or later something will blow. But the US slide is commencing without a big shove. Phase change is a curious condition. Things just slip. Lahar rules.
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