Note of apology. My iMac turned up dead this morning and I got a late start by other means.
There was Japan, standing quietly offstage all these years, minding its own business, more or less - though unwinding financially and socially at some very deep level for two decades, debt rising around everybody's ankles like a silent, insidious tsunami, population dying back, young people demoralized by the "salary-man" culture with its meager consolation of nightly drinking sprees ending in micro-hotels with rooms like funerary vaults - Japan, who had been horrifically chastened after its mad military-industrial outburst of the last century, who shook all that off to become the world's most dependably, civilized nation.
And now, the sorrows of Job.
The world was very busy watching the ME/NA countries go batshit in history's center ring, but the spectacle of wreckage in Japan, unfolds now like the slow-motion blossoming of some gigantic evil chrysanthemum and you get the ominous idea that this is only the start of a story that will grind on and on as more bodies are discovered and the nuclear fiasco burns deeper and Japan's finances enter a death spiral. How could you watch those videos of the sickening wall of black water that slammed through Sendai without wondering how many doomed people it carried unseen beneath the rafts of cars, and the sideways ships, and the eerily floating houses?
I tried to follow the story on American cable TV Sunday night but with the exception of stolid, dogged CNN, all the other news channels were playing one sordid and titanically stupid program after another: meth freaks, show-biz narcissists, and sex chatter without sex. What a nation of morons we are. Over six hundred cable TV stations and only one that even tries to tell you what is going on in the world. How many citizens of this republic were watching a dessert chef undergo staged humiliation for the failure of a cupcake batch while two nuclear reactors melted down across the Pacific? We deserve what just happened to Japan three times over. And we might just get the equivalent at least in social and political trouble as our money follies unwind and normal living here becomes untenable on the old terms.
So many things are shaking loose now in this world-wrapped-too-tight that it is hard to track where they all overlap, but I will try today.
ME/NA has gone critical overnight. Saudi Arabia wants to occupy tiny-but-strategic Bahrain, and Bahrain says that would be an act of war - though it's hard to conceive how they would wage one against KSA, which is up to its eyeballs in US supplied state-of-the art aircraft and all sorts of other dangerous swag. The Shia population wants to blow the little Kingdom wide open; they'll be lucky if the Saudis don't inadvertently turn it into an ashtray, just to see if their equipment works-as-advertised. That might be exactly what Iran wants - poised, as it is across the Persian Gulf and wishing deeply to evict the US Navy from its deep-water port in Bahrain. It would be unlikely if Iran was not helping to provoke the Shia uprising that is ongoing in many of the states on the west side of the Gulf. I only wonder why Iran has not given a green light to Nasrullah of Hezbollah in Lebanon to start a rumble there with Israel. It can't be anything akin to a sense of political responsibility. More likely just fear of how the Israeli air force might answer this time, with events moving so quickly and the world's head spinning so fast, it can barely focus on one particular place. Anyway, stay tuned in the Persian Gulf.
Meanwhile, the dithering Euro-American alliance finally takes its green light from the Saudi-dominated Arab League for a NATO no-fly zone in Libya - or the eastern provinces of Libya for now - in hope of putting the schnitz on Mr. Gadhafi's shenanigans. I don't know what the political idea is behind this - perhaps little more than the notion that there must be some other colonel in the Libyan military who is less mad and more tractable than proven maniac Gadhafi. It would be nice for Euro-America (and China, too, actually) if the Libyan oil industry could survive all this intact but as Michael Klare pointed out on the Web last week, it is generally the case that oil production goes way down permanently in all nations that endure political uproars. Anyway, a no-fly zone involves a lot more than just shooting down Gadhafi's aircraft when it dares to take off. It starts with destroying the planes and helicopters on the ground, and moves forward quickly to the question of boots-on-the-ground.
At the moment, the oil markets don't know what to do. Some loose talk says that Japan will not need oil for a while, due to a wrecked economy. I dunno about that, with the reactors melting and twelve million people without electric power there. Let's remember, they are not the only people in the world who buy oil. In fact, everybody but a few savages in some tiny backwaters of the rain forest use oil - and even the savages do indirectly since they trade for things that come up the Amazon (and the rivers of Borneo) in boats with motors. (Not to put too fine a point on it.)
Most interesting to me this morning are the financial implications of all these things and let's start with Japan. Monumental doesn't seem to describe the unholy mess there, just the sheer awfulness of all that mud, twisted steel, radioactive trash, and decomposing human bodies scattered amongst and within it. The cost of it seems beyond calculation, but the first questions might be how does a deeply-in-debt Japan raise some cash to begin digging out and (possibly) rebuilding (and I add that qualification because I don't know that a lot of this lost stuff will be rebuilt at all). But it will be cleaned up and sorted out. The obvious answer to the funding question is that Japan sells foreign bonds, namely US and European.
That will not be a good thing for Euro-America. Japan was the quiet benefactor last time the European sick countries had to roll over their debt payments, and nobody wanted to buy their paper. Japan went in and hosed up their debt, allowing them to enjoy one last Christmas of seeming political normality. Now it's rollover time again in the Euro-Zone and not only will kindly Uncle Japan not be present for the bond sales, they will be selling off the stuff they already hold, and it is hard to see how the European banks digest that ugly bolus of reality.
Similarly, in the US. Japan has accumulated about 800-billion in US debt paper. They have more-than-generously propped up our operations here for years by buying the stuff. Now they would seem to have little choice but to liquidate a bunch of it and cancel their seats at the upcoming auctions of new paper issues. That leaves Ben Bernanke alone in his office with a shit sandwich for lunch. What to do now, Ben? Who on this planet is going to buy more debt of a people who spend their lives in zombie-like thrall to the Kardashian sisters? No, Ben's going to have to eat the sandwich himself, a least until the end of QE-2. Or watch interest go way way up to the point where the risks are acceptable to outside parties - but that would only destroy the US Economy and American government at all levels, since we can't meet our obligations even at ZIRP levels - and, anyway, who would step forward now to buy this crap under any circumstances? (Echo answers....)
The most beguiling financial idea of the week comes from Jim Rickards of Omnis on Eric King's interview website who says that the sheer load of stuff in the Fed's vaults is now so enormous that further QE is quite unnecessary to continue monetizing America's debt. All they have to do over at the Fed is roll over the maturing securities they hold and take the money and buy more securities! In other words we now have at our disposal a perpetual motion money-generating engine. And, by the way, if I do sound a tad facetious its not because I disbelieve what Mr. Rickards is telling us. I do, however demur when it comes to the question of consequences. Despite the elegance of that operation, it still remains a fixed law of the universe that you can't get something for nothing. What Mr. Rickards describes is a trick for buying just a little more time using the residues of wealth that already exists. But then the time comes when you have even burned through the residues of your wealth, and then what?
Under the theory that life goes on until it doesn't:
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