"An Economic 9/11"

Patrick C. Doherty, TomPaine.com

When the chief economist at Morgan Stanley says we have a
one-in-10 chance of avoiding economic Armageddon, one tends
to take notice. When America's second-largest creditor tells
us to get our economic house in order the same week, two
points begin to determine a line. But the Bush administration
has not so much as flinched.

'Democrats play for lunch. We play for keeps.' — Grover
Norquist

Last week, America received two pieces of monstrously bad
news. First, the chief economist of Morgan Stanley (along
with Robert Reich, Larry Summers, Paul Krugman, China and the
currency markets) warned us that the U.S. economy is about to
collapse. Second, we learned that the Bush administration is
willing to ignore the likelihood of collapse and will push
ahead aggressively with tax and Social Security reform. Put
these two pieces of information together and you get a
nightmare scenario.Movement conservatives are willing to tank the economy while
they control the federal government in order to remake it
according to their liking.

Impending Economic Collapse

You know things aren't looking good when the chief economist
of Morgan Stanley uses the word Armageddon in a briefing to
the world's largest equity investing house.

In an article published last Tuesday, Stephen Roach
reportedly told his colleagues at Fidelity that America has a
one in 10 chance of avoiding economic Armageddon. His
comments came toward the end of a string of bad economic
omens. China's central banker told America to get our own
house in order, European and Asian central bankers began talk
of buying Euro-based securities, and OPEC felt enough
pressure to announce that it had no intention, for the
moment, of pricing oil in euros instead of dollars.

Three days later, Roach revised and extended his remarks in
an op-ed in The New York Times :

'The day could come when foreign investors demand better
terms for financing America's spending spree (and savings
shortfall).That is the day the dollar will collapse,
interest rates will soar and the stock market will plunge.
In such a crisis, a United States recession would be a
near certainty. And the rest of an America-centric world
would be quick to follow.'

Rather than focus on the downside risks on Black Friday,
Roach reframed his NYT analysis on what it would take to
secure that one-in-10 chance of avoiding the reckoning. In
short, he says the world's central banks must arrange the
world's accounts such that Americans spend less and save more
while everyone else spends more and saves less.

It's easy to see why Roach is so cynical. Such a solution
would entail reversing the flow of the global economy. China,
Japan and Europe would have to voluntarily reduce their
companies' exports, profits, and shareholder return. Not to
mention that to most world leaders, such a deal would reward
George W. Bush and the GOP-dominated Congress for their
reckless fiscal and military policies that both created the
economic crisis and increased global insecurity.

So foreign rescue is not likely. But it doesn't matter. The
Bush administration is not interested in rescuing the
economy.

Shock Therapy, Norquist-Style

In the 1980s, Reagan's chief budget adviser, David Stockman,
admitted that it was White House policy to expand the federal
deficits in order to squeeze out social entitlement spending.
The Bush administration has taken that tactic one step
further, explained by the pre-eminent Republican operative
Grover Norquist's famous goal, 'to get government down to the
size where we can drown it in the bathtub.'

And they have already declared their intentions to do just
that. The Bush administration has identified its top three
legislative priorities in the next term, and none of them
involves reducing American consumption and increasing
American savings. Instead, their priorities represent the
final operations of the battle started in 1964: tort reform,
Social Security reform and tax reform. Tort reform to curtail
consumer protections. Social Security reform to force every
working American to buy risk-filled investment accounts. Tax
reform to make taxation fully regressive, placing the highest
burden on the lowest earners through either a flat tax or a
value-added tax.

Given our severe account imbalances, this second-term agenda
of the Bush administration will signal to our global
creditors that we are not serious about our debts. That will
make dollar-denominated securities worthless and the dollar
will cease to be the global currency, as America will no
longer be the mass market of last resort. At some point, OPEC
will have to switch to a new currency-probably Euros-and the
price of oil for Americans will rise significantly as the
dollar continues to fall. As Roach's collapsing stock market
ushers in a recession, the inevitable job losses will pop the
housing bubble across the country. Americans, with trillions
of dollars of consumer debt leveraged on the value of their
homes, will find that their futures will have disappeared.
Hard-earned home equity will be gutted and stock values will
have crashed. Unemployment will be widespread.

With a full four years in the White House, two years of
hegemony in Congress, and an escalating, multi-fronted war,
the far right has plenty of time and cover to push their
agenda through. With no interim accountability, they can
ignore reality and continue to spin wildly to the American
public. Indeed, this administration has already shown that it
can use a national crisis to advance goals that in fact
reinforce the causes of the crisis. It happened with 9/11,
and it can happen again.

Too Crazy To Believe

The movement conservatives leading the GOP have decided that
the way to get what they want is to throw out all the rules-
whether that means speaking truthfully to American citizens,
comity in the Senate, stare decisis in the Supreme Court or
fiscal discipline in the budget. These concepts once defined
the American form of government and placed the republic above
partisanship. But to operatives like Karl Rove and Grover
Norquist, they represent Democratic blind spots to be
exploited. Bipartisanship, as Norquist once said, is merely
another word for date rape.

Destroying the economy in order to remake it is just the kind
of gambit that Democrats would believe so unlikely that it is
not worth considering. It defies logic and credibility. Just
like the possibility that Christian Zionists could take over
Congress or that Bush might invade Iraq with no real evidence
of a threat.

It's hard to write such a depressing analysis. It feels
overly cynical. But then I remembered Ron Suskind's profile
of George W. Bush in the NYT Sunday Magazine. In it, a senior
adviser to Bush told Suskind: 'We're an empire now, and when
we act, we create our own reality. And while you're studying
that reality-judiciously, as you will-we'll act again,
creating other new realities, which you can study too, and
that's how things will sort out. We're history's actors...and
you, all of you, will be left to just study what we do.'

And then I think I might just be right.

[Patrick C. Doherty is associate editor at TomPaine.com.
Previously, he spent a decade working on conflicts and
economic development in the Middle East, Africa, the Balkans
and the Caucasus. His column, Quo Vadis, means "Where do we
go from here?" and focuses on America's strategic dysfunction
and how to transform it.]