The November Rebellion

No, I'm not talking about the race riots almost sure to break out if "The One" blows his lead. This is about the conservative rebellion taking shape regardless of the elections outcome. A Democratic victory will cause a much more open revolt, but even a Republican win will not stop a general move away from the neo-conservatism that has been infiltrating the movement since the end of the Reagan era. Alvaro Vargas Llosa writing in The Independent Institute, identifies the battle lines:

The Republican Party has indeed deviated from conservatism as it is understood by those who consider Edmund Burke the founder of the conservative idea, William F. Buckley the intellectual midwife of modern-day American conservatism, and Barry Goldwater the flint that sparked a vast political movement in favor of small government in the United States.

This deviation expresses itself in different ways. First, in the confusion between Jeffersonian populism—a salutary mistrust of economic power allied to political power—and class-based populism, which is what Republican leaders promote when they scorn America’s coastal and big-city culture. Second, in the contradiction between a low-tax, low-spend policy and an interventionist foreign policy that, by definition, is costly—as every empire in the history of mankind eventually and painfully found out. Last, in modern-day Puritanism, which started, perhaps understandably, as a reaction against the cultural excesses of the 1960s but ended up turning into what H.L. Mencken described decades earlier as “grounded upon the inferior man’s hatred of the man who is having a better time.”

I'll admit that the philosophy of Edmund Burke is "above my pay grade", as they say. Of the three pillars of modern conservatism, the populist mis-trust of economic/political power and adherence to traditional modes of conduct, seem to be pretty well rooted in the Republican party. It's the small government versus strong defense problem that is the biggest obstacle to a coherent modern conservatism. Eisenhower's nightmare scenario of the "military/industrial complex" has not only come to pass, it has left the country behind.

A stout defense is essential in the modern world, but since the end of the cold war we have found ourselves with few adversaries to defend against. The current war against the Jihadi movement has proven to be an expensive undertaking with little to show for it. Killing a few terrorists with a multi-million dollar satellite guided smart bomb is just not cost effective. Meanwhile, NATO expansion and military commitments defending wealthy client states proceeds unabated.

What is needed to complete a Republican inter-party revolt is the recognition of the limits of military power. Either the hawks will need to find a new home, or the libertarian right will. With the neo-cons seemingly in full retreat, there is an opening here for the limited government/limited military option to recreate the third pillar.

The Road to WW III?

Karl Denninger at The Market Ticker notes some strange happenings between Treasury and the 9 banks receiving bail-out money. It seems the $250 billion was never intended to help the credit squeeze. The banks will not be lending it to other banks. They'll be hoarding it to improve their own bottom lines. So, what was the point of it all, besides letting Paulson's friends keep their jobs?

F. William Engdahl at 321 Gold adds some interesting history to our current situation. In 1931, the Bank of England, together with JP Morgan (the bank) combined in a hostile take-over bid of the German commercial banks. The result was that the German banks collapsed, leading to a severe recession and high inflation. The German government at the time had to cut social programs and raise taxes, leading to the unfortunate rise of Adolph Hitler.

Fast forward now, to our own time. After Treasury's $750 billion grab was OK'd by congress, Paulson was set to play the game by the standard set of rules. On Oct. 8th the British government abruptly nationalized 8 banks, including the Bank of Scotland. This move may have been as much about thwarting Scottish independence as saving the British banking system. Two days later, the Germans announced they would follow England's lead.

Since the whole credit mess started in the US, that left $68 trillion in debt sitting on the American table. Paulson, forced to play defense, had no choice but to socialize the 9 largest US banks. Not doing so would have left them sitting ducks for a European take-over.

It's an interesting theory, and the facts and timing seem to fit. Two things we can say with certainty: (1) there is a very high stakes game being played that has little, if anything, to do with Main Street, (2) the government story, echoed in the press, is not the real story.

The Right & Proper Way To Cover A Debt

California is selling bonds as high as 4.5% tomorrow reports Bloomberg via The Drudge Report. Seeking cash until tax revenues start arriving next spring, Governor Schwarzenegger is even buying an undisclosed amount.

Bank of America is offering the 2 sets of notes, one due May 20, 2009 yielding 3.75 to 4.0%, and one due June 22, 2009 yielding 4.25 to 4.5%. The yield will be finalized on Thursday. Even 4.25% ain't bad for a 8 month loan, and you know California won't be nationalized. California notes have the highest possible ratings from Moody's, S&P, and Fitch.

This is a good example of why the Federal Reserve should not be setting interest rates. Buyers and sellers are perfectly capable of finding an agreeable deal by themselves. So far, less than half the notes have been sold. If the state can't sell them all, they will simply raise the rate of return to attract other buyers.

If a guy in his underwear in Reno Nevada can figure this out, what's with the boys in New York having problems? This is not rocket science.

The Gravy Train Rolls

If you have a few hours, here's the plan. It looks like we're going to put off the inevitable and the party's still on, for the time being anyway. Sell on the peaks. Cash will be king again shortly.

Socialists Run Amok

There were some interesting statements coming out of the "Boss of Bosses" meeting at the White House yesterday. It seems that the banking crisis is about to join forces with the climate change crisis. World Bank President Zoellick had this to say:

"Expanded help for energy-deficit countries to improve energy efficiency and improve domestic production to reduce their vulnerability to future price shocks.
Playing a stronger role in helping countries deal with the causes and effects of climate change, and the recent launch of the new Climate Investment Funds to which 10 countries recently contributed over $6 billion."

Let me guess, the US put up $5.9 billion and the other 9 countries chipped in the other $0.1. But, it gets worse. As we nationalize the banks worldwide, we're also going to nationalize energy production.

"The events of September and October have underscored that we need to modernize multilateralism and markets for a new global economy. Our publics expect no less.
The architects of Bretton Woods laid the foundations for the future, even as they still fought the armies of the past. We need concerted global action now not just to deal with this crisis, but to put in place new architecture, new norms, and new oversight...We must build a better system for the future."

Where do I sign up for the "armies of the past"? And, what did the Treasury Secretary for the Beacon of Freedom have to say about it?

"The next year will be a critical one for the Bank on issues of environment and climate change as we move toward a climate agreement in Copenhagen . The United States supports the Bank's increasing focus on climate change as it is clear that the issue must be addressed in the context of development financing."

Rather than have the crowd who's mismanagement caused this mess give us a "better system for the future", shouldn't we be finding new people to recreate the old system? You know, the system that used to work. The only system that has ever led to prosperity anywhere at any time. It seems to me, the last thing we need now is these clowns building us "new architecture, new norms, and new oversight".