Tuesday, May 1, 2007

Cheney's Banker: Beware the Global Ponzi Scheme

I am at times accused of being a pessimist. While I maintain that hope is essential, I am inclined to the belief that things must and will get a lot worse before they get better. By worse, I mean a serious confrontation with deprivation and the limits of nature; by better, I mean a reordering that will bring our civilization closer to the rule of nature, in which our communities will be strengthened and we will re-learn the ancient virtues, including frugality, prudence and self-governance. It seems likely that we will, very soon, hit a wall that will hurt Americans more than the citizens of most other developed nations, precisely because of the binge of gluttony and avarice we have enjoyed for the past sixty-odd years. James Howard Kunstler has described our era as "the greatest misallocation of wealth in the history of the world." Think suburbs; think SUVs; think strip malls and miles and miles of concrete everywhere. Think the death of downtown after downtown, empty storefronts killed by the interstate and the chain-ification of American retail. Think the loss of patrimony, the demise of actual production of goods, the loss of knowledge of how to do things. Think the depletion of resources and the "conquest" of nature. Think of our insistence upon our liberated "lifestyles," purchased by the outsourcing of American jobs to cheap overseas labor, a "lifestyle" based upon slavish dependence upon the petroleum of dictators and tyrants, a "lifestyle" supported by the removal of such obstacles as unwanted pregnancies or marriages until unhappiness do us part. Think the gigantic transfer of American wealth, built by generations, to the nations of the Middle East and Asia.

Our age is one fueled by the belief in limitless growth. Everyone believes that the future will be better than the past - better, that is, in the sense of having more stuff and more ease. Well - almost everyone. It turns out that Dick Cheney's investment banker doesn't think so. He believes that we are in the throes of a worldwide asset bubble - one that is about to burst. This is reported not on "dieoff.org" (a fine website for those 3 a.m. insomnia attacks), but on as button-down and mainstream a site that one can imagine - Bloomberg.com. Particularly worth noting is investment banker Jeremy Grantham's warning: the bursting of this global bubble "will be across all countries and all assets, with the probable exception of high-grade bonds. Risk premiums in particular will widen. Since no similar global event has occurred before, the stresses to the system are likely to be unexpected." Unexpected, indeed - especially for a nation with no savings, either in the public or private spheres. How will a nation grown accustomed to luxury and ease confront the evaporation of its purported wealth? With little help by way of local community ties and the cultivated capacity to tighten belts, and with government equally bankrupt, I'd say that "the stresses to the system" are going to be downright scary.

Oh, and where's Cheney placing his bets? A recent Kiplinger magazine article tells all. The article, entitled "Cheney's betting on bad news," provides an account of where Cheney has invested more than $25 million. While the figures are estimates, the investments are the real deal. According to Tom Blackburn of the Palm Beach Post, Cheney has invested heavily in "a fund that specializes in short-term municipal bonds, a tax-exempt money market fund and an inflation protected securities fund. The first two hold up if interest rates rise with inflation. The third is protected against inflation." I guess these are those "high quality bonds" about which Grantham was speaking - a nice bet when you believe the economy is going to tank or inflate - or, as an energy man would likely know, both at the same time.

Even more interesting: Cheney has invested another (estimated) $10 to $25 million in a European bond fund, suggesting that he is counting to strike it rich on a steadily weakening dollar. I guess "Old Europe" isn't all bad after all - at least not their currency. As Blackburn wryly notes, "Not all bad news is bad for everybody." Money talks; patriots walk.


Black Sea said...

It's always nice to know where our masters are investing their money, so that we may place whatever slight crumbs we've been able to horde into similar accounts.

It's perhaps more useful to know that our masters anticipate a global financial collapse, which will no doubt hit the rest of us far harder than it will ever hit them.

The mind of Dick Cheney is strange to contemplate; he seems to have arrived at the conclusion that everything in life is either money or bullshit, which is where a lot of wealthy old warhorses eventually end up.

You have an interesting site.

TomM. said...

Head for the hills! Dick Cheney has a diversified bond portfolio!

Anonymous said...

> Think the loss of patrimony

err, what? This really seemed out of place in that list. How is it lost? If lost, how is that a bad thing?

I have no hope that the adjustment expect/hope for will occur without global war first. Does that make me pessimistic?