2009-01-02 / Columnists

The Rockaway Irregular

The Jig Is Up?
Commentary by Stuart W. Mirsky

As we enter another new year many in this country and across the globe have had cause to wonder if recent events herald the end of America. It's not hard to see why, given the ongoing difficulties we've had and the hatred and anger of people in many parts of the world directed against us. Our recent financial meltdown and worst economic downturn in generations haven't helped, while the solutions adopted by an outgoing Republican administration, and promised by an incoming Democratic one, involving massive government financial intervention, can only give one pause. If deficits count, then this looks deadly because we're shelling out (and planning to shell out) trillions of dollars as we shore up financial institutions and move to bail out the auto industry and, presumably, not a few other businesses now waiting in line.

President-elect Obama, who won the recent national election on promises to spend and tax more (though he can't tax enough to cover the new spending) aims to fund massive public works to "create jobs" as localities around the nation get in line, too. Where's it coming from? If we can't tax enough to produce it (and we can't, since increasing taxes is a drag on economic growth), it has to be borrowed. Doing that puts our children, and our children's children, in hock, because someone's got to pay it back some day. Of course, not all debts get paid back. Nations, like individuals and companies, can default. But defaulters lose access to credit and without credit you can't grow economically and if you can't grow — well, it's a vicious circle, isn't it? Nearly forgotten in all this, though they shouldn't be, are the problems that existing benefit programs already pose for America. Outgoing president George W. Bush tried, rather feebly as it turned out, to get Congress to address the ticking time bomb of Social Security shortly after being re-elected in 2004.

His effort, which didn't even touch the much larger problem posed by the growing costs of Medicare (another huge government entitlement program whose costs were already in line to bust the American budget), failed. Now the current economic downturn and the near implosion of our financial system has exploded the federal deficit in a way undreamed of by the outgoing administration, while the ongoing war against terrorists further ensures we won't be able to ratchet down spending any time soon.

The new president and the folks around him think the solution is to spend lots more and, in fairness, the outgoing team hasn't exactly set them a better example. Americans, however, are ready for the promise of change. At the least, Americans appear happy they have a president who is eloquent, thoughtful and seems primed to pull us together. We're going to need that, too, if we're to avoid some of the worst outcomes some are already predicting. December 29's Wall Street Journal carried a report of the latest "rage" in Moscow: America's coming demise.

Former Russian KGB analyst Igor Panarin has made something of a living since 1998 predicting the impending dissolution of the U.S. in the year 2010. What looked incredibly outlandish then doesn't look so unlikely to Russians now and the once ignored Professor Panarin reports he is being interviewed up to twice daily.

His thesis is simple: mass immigration, economic decline and moral degradation, he suggests, will result in a new American civil war and collapse of the dollar, leading to a breakup of the U.S. into several smaller states.

Professor Panarin suggests that Texas and the American south, along with some of the southwest, will come under Mexican influence if not outright annexation, while California and the other far western states will fall under Chinese control. The American midwest and central western states will fall to Canada and the eastern seaboard, as far south as South Carolina and as far west as Tennessee, will fall to the European Union. Hawaii goes to China or Japan and Alaska will revert back to Russia. In the new world order envisioned by Panarin, and eagerly talked about in today's Russia, there's no room for the United States of America.

Farfetched? Well, yes, but then a few years ago the financial implosion of many of our major real estate, equities and banking firms seemed so, too. And there's no denying the problems ahead of us. We've been lucky for quite a few years, since Reagan's time actually, with the breakup of the old Soviet Union and the restoration of our economic capacities after the stagnation of the seventies and the loss of confidence we suffered as a result of Vietnam. Now, however, there are many in other parts of the world dreaming and hoping that the shoe is finally on the other foot. "There's a 55-45% chance," Panarin told the Wall Street Journal," . . . that disintegration [of the U.S.] will occur."

Prominent Russian TV journalist Vladimir Pozner told the Journal that Panarin's viewpoint "reflects a very pronounced degree of anti-Americanism in Russia today," an anti-Americanism which, we might add, is hardly restricted to Russia, a nation whose people still smart from the humiliation of losing the Cold War. As we've seen throughout large parts of the world in recent years, including the so-called friendly nations of Western Europe, there are many who rejoice at our travails. In large part it's this level of resentment that has fueled the substantial opposition to American policies which really took off with our decision to remove Saddam Hussein from power. Last spring, billionaire investor and aspiring philosopher George Soros published his latest book, "A New Paradigm for Financial Markets," in which he argues that the financial problems that began in August of '07 were so vast and widespread in our system that they would end America's generations-long dominance of the global economy.

Just as the Marxist model was in error and self-destructed in the Soviet Union and across eastern Europe in the late eighties because of that, so the free market laissez-faire model which seemed to have been proven by the collapse of socialism, he argues is now also about to fail. According to Soros, the underlying premise of the free market thesis, that markets tend toward equilibrium and so can be left to their own devices, is false. Because of this, he argues, we need more regulation, not less, and a global regime of oversight and control. However, America's role in this must, he suggests, inevitably diminish as the massive processes set in motion by the collapse of the American real estate marketdriven super bubble take hold.

This is a difficult time for Americans because we have to come to grips with years of excess while our government institutions have yet to demonstrate themselves as adequate to the task of dealing with the disruptions. Ahead of us lies still more of the same, including increasingly massive deficits and economic difficulties as new countries power onto the global stage and suck up investments that once flowed into our country.

China, says Soros, is the future and will benefit the most from the collapse of the American super bubble, Igor Panarin's view of a resurgent Russia notwithstanding. Soros' old partner, renowned investor Jimmy Rogers, has already put his money where his mouth is by relocating his family to Singapore and raising his daughter with a Chinese governess to ensure she is bilingual in Chinese.

Is it over for us then? History moves in cycles and no nation has a lock on things forever so some day some of these predictions will be right to varying degrees. How about now? Americans are surprisingly resilient and the predictions of an impending American civil war that will split our country and leave its fragments to other powers to scoop up seem a bit overblown, the product of wishful thinking rather than serious analysis (though Professor Panarin explains that he has a computer model, not unlike the one environmentalists depend on for predictions of Global Warming). Soros, with track record of successfully guessing market moves (he once broke the Bank of England in a currency play), may offer a more reliable scenario than Panarin. But even Soros acknowledges that he's not making hard and fast predictions because his core thesis is that we can't predict those things in which our decisions play a part. At best he's giving us guidelines for assessing the possible direction of future events. It's up to us what we do with that.

Happy New Year. rockirreg@aol.com

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