The Clusterfuck Nation Chronicle

Commentary on the Flux of Events

We have to make a distinction between an economy and finance.

An economy is a complex web of value-producing relations within a hierarchy of networks from the neighborhood up to the global scale.

Finance is the management of money and related abstract instruments of trade and investment.

In the US today, both are unsound.

The simple trouble with our economy is that the hierarchy of networks has been destroyed, especially at the fine grain: the community level. The American economy is now geared to only operate at three levels -- global, national, and regional. We have virtually no local commerce in goods anymore, only services like plumbing, massage, hair-cutting. That's why our main streets are occupied (if at all) by "craft" shops, antique emporiums, and tanning studios, etc. The regional scale is pretty weak too. There are regional supermarket chains. There are regional convenience store chains.

That's about it. The national scale is huge. Most ordinary household goods are now sold out of big box stores like WalMart and Lowe's. Yet, even that scale is weakened by the fact that most of the merchandise purveyed is actually made in foreign countries. We send billions of dollars to other countries every month to obtain these foreign goods, and the amount we spend each month exceeds our income from exports by about $40 - 50 billion. That's called the trade deficit. A big portion of that outflow goes to buy foreign oil, without which our car-dependent, highway-dependent can't operate.

These out-of-scale economic relations are a train wreck waiting to happen. I believe we have begun to come off the rails.

US dependence on foreign manufacturing and foreign oil depends, in turn, on peaceful global shipping lanes and other supply lines. Introduce military mischief, terrorist acts, rogue armies, foreign insurrection, religious hatred, and those supply lines will not operate.

Probably sooner than later, America is going to have to reorganize its economy, to rebuild those local webs of relations that were destroyed by the WalMarts and RiteAides. Even if you put aside the moral and ethical issues of predatory corporate behavior, or Americans' own willingness to let their towns and communities be destroyed, we are left with the practical problem of having to rebuild. (see the Clusterfuck Nation Manifesto)

US finance expresses itself in parallel to our economic predicament. As the economy increasingly becomes a process of trying to get something for nothing (manufactured products made by foreign wage slaves for "credit"), our finances increasingly take on the character of malinvestment, diminishing returns, and hallucinated value. Finance by definition involves the management of money and securities, and management can easily evolve into manipulation. Because financial manipulations are abstract and abstruse, it is often difficult for a financial civilian to detect what is being manipulated and by whom. This problem has increased tremendously with the computerization of finance and the increased velocities of monetary movements around the planet.

Many readers no doubt have heard of the Plunge Protection Team, the supposed clique of Federal Reserve, US Treasury officers, and major bank officials who operate with as much secrecy as possible to prevent financial train wrecks in the increasingly unstable securities, currency, and commodity markets. I am by nature not a conspiracist. I generally dismiss most conspiracy theories because I believe that 1.) people are incapable of keeping secrets, and 2.) people are not that smart, including the governing classes. But I do believe that a Plunge Protection Team has been operating steadily since the Crash of 1987 as a kind of brake on the natural tendencies for markets to respond catastrophically to fear.

The best explanation for last week's stock market rebound (coming from The Market Privateer) is that the major US banks made a tremendous effort to repatriate US dollars invested in foreign assets and securities and to put those dollars into the collapsing US equity markets. It is not a strategy that is liable to work for long. I suppose the hope is to give the markets the appearance of stability just long enough to staunch the panicked withdrawal of funds by middle-class people with retirement funds (those who have some say in how it is invested). There are a lot of these people. Probably enough to take the Dow down to 4000 or 5000 points before September.

The consequences of calling in dollars in foreign investments is liable to be severe in the slightly-more-than-short-term as the dollar weakens and falls to its knees.

Meanwhile pass the chips and salsa. America heads off for vacation.