Stocks Fall Back, Consumer Confidence Gets Smack, Greenback Takes Whack

After last week's rally that saw stock indices recover some of the losses suffered in the previous week's broad down market, the equities markets on Tuesday resumed what is becoming their worst slide in two years. From the opening bell, it was clear that the bears were out to make the bulls into sandwich meat in a hurricane of bad news about consumer confidence, oil prices, and corporate profits. The beating was broad based, with every major market index dropping hard in morning trading. By later in the morning, the first wave of the decline had passed and there were signs of a possible rally; but by early afternoon, any hope of a recovery vanished as the bears got their second wind and started hammering away once again on further bad news and a growing sense that the downturn is more than just a passing, temporary correction.

The Dow Jones Industrial Average lost 184.18 points, or 1.63 percent; the Standard & Poor's 500 suffered a 20.32 point drop, or 1.59 percent; the New York Stock Exchange, which took heavy losses two weeks ago before its partial recovery last week, fell 130.16 points, or 1.58 percent; and the NASDAQ composite index collapsed 45.63 points, or 2.06 percent. Although the punishment was generally indiscriminate, financial news services claimed that a weak sales report by Walmart fueled overall market pessimism, already pushed to the edge of downright melancholy by rising oil prices and the biggest one-day drop in six months of the dollar against a composite of other major currencies. The greenback's whipping came on news of the nomination of a new U.S. Treasury Secretary and on the May report of a sharp decline in consumer confidence.

Tuesday morning, the Conference Board, which has in recent months been reporting relatively strong consumer confidence despite rising fuel prices and higher costs of borrowing, released its index of consumer confidence for May showing that it had fallen from a four-year peak at 109.8 in April to 103.2, its lowest level in three months. The steep drop in consumer confidence, coupled with rising oil prices and weaker-than-expected corporate earnings reports by companies like Walmart and Apple, Inc., opened new veins of concern among market analysts that recessionary pressures are building in the economy at a time when the Federal Reserve Board has no room to back off its almost two-year battle against inflation.

On the currency front, after only a short time assessing the nominee for Secretary of the U.S. Treasury, traders sent the dollar into a hard fall against a number of foreign currencies. The final judgment seems to be that the new chief will continue to allow the dollar to slide in order to correct what U.S. officials call "global imbalances," a euphemism for the persistent, massive trade deficits the nation has been running. By declining to defend the dollar, the U.S. hopes to cause foreign imports to the U.S. to rise in price at the same time American exports abroad become cheaper. The desired result of this controversial game plan would be a narrowing of the U.S. trade deficit and a boost in domestic output through the increased economic activity in domestic export industries.

Confirming a report here at The Dark Wraith Forums and elsewhere that Treasury Secretary John Snow planned to resign as soon as a replacement could be found, the White House today nominated Goldman Sachs Chairman Henry M. Paulson, Jr. to take the reins at the embattled agency, which has had the duty of defending the Bush Administration's string of record and near-record deficits while at the same time both marshalling continued foreign lending for those deficits and taking the brunt of criticism for orchestrating or at least tacitly allowing the dollar to drop into troubling territory as a standard of valuation in international commodities contracts. Although Mr. Paulson heralds from the same firm as Clinton Administration Treasury Secretary Robert Rubin, the deep respect earned by Mr. Rubin on Wall Street appears to have earned Mr. Paulson no honeymoon with traders and analysts: the dollar's plunge slowed considerably in the minutes after the announcement of Paulson's nomination, but then it resumed in all its unstoppable certainty in a rapid vote of no confidence on the Administration's latest attempt to offer insubstantial change in its policies that have taken the dollar to almost unheard-of depths.

The blame for the woes of the dollar go far beyond the choice of nominee to head Treasury, of course. The cumulative effects of five-and-a-half years of uncontrolled deficit spending caused by ill-advised tax cuts and even more ill-advised war against a country that posed no clear and present danger to U.S. interests have left America's stature in the world community tarnished to the point where its currency, which dominated the global financial stage for more than half a century, now serves only as a means by which a Republican Administration can attempt, most likely without success, to repair a small but important seam of the nation's tattered financial fabric.


The Dark Wraith Forums will chronicle the progressive unraveling as events unfold.

Editorial: A Comment on Massacre

The Marine Corps is preparing charges against a group of soldiers under applicable sections of the Uniform Code Of Military Justice regarding the killing of civilians. The alleged incident that triggered this convention of courts martial occurred at Haditha, Iraq, in November of last year. As many as 24 civilians, among them women and children, were allegedly slain by members of Kilo Company, 3rd Battalion, 1st Marine Regiment. In what was described in several early accounts as an unfortunate involvement of civilians in a combat situation, the Marines now stand accused of literally executing non-combatants during a house-to-house search following the killing of a Kilo Company lance corporal by an improvided explosive device.

First, suffer me a minor point of decorum—a warning, if you will. So far, the Vietnam-era taunts about U.S. military personnel being "baby killers" have not found any popularity in the current era, and I hope such expressions of anti-war sentiment don't ultimately find favor. For my part, I would make it my life's gleeful and vengeful work to disgrace the user of that kind of language. Never again, that bile. (And yes, it did happen back then.) Dead civilians aren't I-told-you-so toys to prove just how right one faction was from the get-go about the awful disaster that has been this unconscionably wrongful military adventure on the far side of the world. Dead civilians don't prove anything; they're just dead.

Those women, men, and kids died unarmed, terrified beyond nighmares—wimpering, bawling, begging to young men screaming at them in a foreign tongue, maybe some translator trying to be a negotiator, some place nearby the sound of heart-wrenching POP... POP-POP... POP telling them their fate right before it befalls them. The time of endings did finally come, of course: civilians on their knees, holding as still as possible to appease the angry soldiers, maybe enough time and thought remaining to say something to God before falling through the swallowing black well of not being alive forever after.

It's their tragedy and no one else's. To the Left, don't even dream of co-opting it for a cause; to the Right, don't even bother with some disgusting idiocy about how war is Hell. Especially on the Right, how the Hell would you know, anyway, considering your hero leaders are a craven pack of cowards who couldn't even cut it back when it was their turn?

Massacres like the one at Haditha are war at its naked best, stripped of combat, denuded of goals and objectives. Massacres like the one at Haditha aren't some aberration, although that's exactly how the architects of wars fashion them after they've been discovered, sparse as the discoveries are compared to the incidence of them.

Here's the American recipe. Take young people and promise them a better life once they've done their service. Get them into basic training and scream at them from every direction—degrade them, humiliate them, punish them, threaten them, terrorize them, brutalize their bodies, their minds, and their senses until they are no longer anything but a vessel into which orders and military ways can be infused. Then let all the swaggering machismo of American butch culture come pouring in to fill the void built from the depletion of individual conscience. Once they're gutted, give them weapons; and in such machinery that destroys, kills, wrecks, and obliterates, give them the power denied them their entire lives. Make them believe that weak children become real adults through raging violence and big, metal instruments that make huge noises and tear the lives right out of souls.

Then loose them upon a shattered land where every building, every alley, even every step itself is an opportunity to get ripped apart—or worse, to watch someone else get turned into large pieces of flesh mixed with blood and blackened, purpled pulp that used to be skin.

Set them loose upon that murderous place on the other side of the muscular doors into the gigantic superstore of adulthood with a bang of instant respectability, tuition reimbursement, and a darned good excuse for not taking shit from anyone ever again.

◊            ◊            ◊
He was one of my biggest challenges in recent memory: a young man who just couldn't pass exams or quizzes in my basic algebra class. I knew he was trying. Many students lie and say they're studying but still not getting it, but this guy was different. He really was studying. He really was trying.

Looking at his high school and college records, I saw that he had been a very good student in math at one time. In fact, before a gap in his college career, he had taken courses beyond the one he was taking from me, and he had passed those courses with very good grades.

But there he was, still in the military, based stateside, trying to gather up a few more college courses before he was rotated back out to Iraq.

I spent time with him almost every class day. Usually, we'd stand together out in the smoking area. He was such an affable, decent guy. He still had a boyish sweetness to his personality, and he was respectful in a genuine way completely unlike that offered by the typical young college student. He almost never departed without patting me on the arm and thanking me. For what, I was never sure.

Maybe it was because I asked him questions about his Army life, about what he had done, about how difficult it was. He'd been jerked around several MOS designations, but he was still, at least to some extent, an artilleryman. Mortars.

Quite a few weekends, he couldn't do any studying. He had to be out on long marches, or he'd be training fresh cherries. His exhaustion was evident on Monday mornings.

He talked a lot about training Marines—making them look like fools when they charged into simulated urban combat environments and got slaughtered like fish in a barrel. He didn't have any use for Marines. I never bothered to tell him that the Marines didn't have any use for Army grunts, either.

Only occasionally would he talk about Iraq. One of the few times he said something about it, he told me about the march to Baghdad.

His cigarette was about three-quarters of the way finished, and he was holding it pinch style. He never took it more than a few inches from his lips as he talked. His eyes were almost transfixed on a brick wall near us, but every now and then they darted over to one side or the other as he spoke. His head didn't move—just his eyes. And his voice: it was almost a monotone. The words were coming through what looked for all the world like the slightest smile, almost like a barely discernible smirk.

A cluster of Iraqi tanks had been knocked out by fire from behind their position. My student and his squad were forward, no more than fifty yards from the burning, disabled wreckage.

"Those Iraqis came bailing out of those smoking tanks, and we just stood there picking them off as they popped out. There had to have been thirty of 'em."

◊            ◊            ◊
Finally, this to all of the Congressmen who are already strutting in outrage—utter, moral outrage—at the massacre in Haditha: if you voted for this war, then stop blubbering. No matter how much you condemn it now, you started it. What did you think?—that if it got ugly, that if it got brutal, that if it got really, really unpopular, you could call it off?

War is like a gasoline bomb. Once ignited by the deadly flint of passion, lies, and opportunity, it heads right straight for its own fuel source, and it combusts everything it can use: buildings, lives, treasure, innocence, will, bravado, righteousness, honor. It consumes the fuel it wants, and that's just about everything in its path. It doesn't stop until it has exhausted its fuel. It doesn't stop when you want it to stop; it doesn't stop when you order it to stop; it doesn't stop when you've had your fill. It rages on until it's finished.

If you voted for this war, you've gotten not what you wanted, but what it wanted. Spare the nation your bawling about this tragedy at Haditha. Soldiers prosecute wars as a matter of duty mixed with gruesome doses of misery and pleasure. Unarmed civilians die terrified on their knees, just as armed combatants die trying their best to kill enemy soldiers; and a whole lot of people between those extremes die, too. It's all black and white until the raging fire of war makes it all grey; and once the sky of moral clarity is grey, there's nothing to do but wait for the fuel to run out.

In Iraq, considering what we're really fighting for, there's plenty of that fuel for quite a few more years.

And for quite a few more Hadithas.



The Dark Wraith has spoken.

Special Graphic Post: The Fifth Horseman

In recognition of BlondeSense bloggers Peter of Lone Tree and Jersey Cynic, who suggested a viable candidate to replace retiring Treasury Secretary John Snow, herewith is presented what would come of such an appointment.




The Dark Wraith rides into the maelstrom.

Treasury Secretary Snow Reportedly Planning to Resign

United States Treasury Secretary John Snow is planning to step down as early as next month, according to a report by MSNBC. Sources say he had wanted to resign by early Spring, but the White House has had difficulty finding a replacement for him. CNN.com claims that few acceptable candidates want the position. Despite President Bush's assurance that under Snow's leadership at Treasury the economy has been "strong," such widespread disinterest among professionals could in itself be worrisome to financial markets, whose participants might interpret the lack of interest as a sign that Treasury is expected to be at the forefront of having to deal with serious economic problems in the foreseeable future. The apparent inability to find an eager nominee in President Bush's favor could point to an assessment by well-qualified individuals that the prestige of a Cabinet-level position is out-weighed by the risk that the office will be directly in the line of fire as the Administration, Congress, the media, and the American people start looking for scapegoats to blame for economic problems likely to plague the final two-and-a-half years of the Bush Presidency.

Mr. Snow is perhaps best known for excusing the record and near-record federal budget deficits that have consistently dogged the Bush Administration by declaring that the federal budget surpluses in the last years of the Clinton Administration were a "mirage." Among his other controversial statements was the assertion that the global supply of lendable funds was ample to continue financing the nation's chronic budget deficits. Mr. Snow was also the architect last December of such a limited printing of a dire economic report on future U.S. expenditure commitments that hardly anyone outside the Congress had a chance to see what one fiscally conservative House Budget Committee member described as the "perfect storm" of financial catastrophe starting in about a decade.

Talk of the current Treasury Secretary's imminent departure comes as the United States prepares for an important meeting of the G8 finance ministers early next month in Russia. While White House officials dismiss suggestions that Snow's talk of wanting to resign would affect the U.S. position in the talks, the very possibility that the head of the U.S. delegation wants to quit his job could nevertheless be construed by some of the ministers as indicating uncertainty about the future of American economic policy in the difficult times ahead. A swift appointment and confirmation of a new Treasury Secretary would serve to allay such concerns.

While candidates lining up for the job are few, several are rumored to be willing and favored by President Bush. Stephen Friedman, formerly the chief White House economic adviser, is the leading candidate. As a former securities industry executive, his appointment would garner favor with one of the Republicans' traditional allies among business groups. Also in the running is Commerce Secretary Carlos Gutierrez, a choice with obvious but perhaps unstated appeal as a sign to more politically aware Hispanic voters of Republican interest in gaining their voters in November. Neither of these candidates has displayed stellar leadership while working for the Administration, so the choice between them would come down to one of personal likes and dislikes of the President and his advisers, as well as the significance of the political advantage gained from the one chosen.

With the U.S. dollar weakening against other major currencies and with looming difficulties the United States may face as intractable federal budget deficits defy continued insistence by the White House that tax cuts will actually reduce them, the Treasury Department will undoubtedly need a strong hand over the coming months. With financial crises the Treasury Department itself projects within the next ten years, action now is required, and a clear, resolute voice at the Cabinet level would at the very least serve to alert the Republican leadership in Washington that serious steps must be taken in the present if there is to be any hope of averting what could be fiscal disaster in the second decade of this century.

The ideal new Treasury Secretary will be willing and able to stand up and speak the facts of fiscal responsibility, including the fact that federal tax policies must not generate debilitating, multi-year deficits that have to be financed by foreign interests. Now perhaps more than ever before in the nation's history, a President needs someone who will tell him that his and his congressional allies' course has been wrong to the point of reckless.

Given, however, that the appointment will be made by a Republican President who, with his allies in Congress, has shown no capacity whatsoever to understand the correlation between massive tax cuts and staggering federal budget deficits, little hope can be held that the individual who replaces John Snow will accomplish anything more beneficial to the United States than Mr. Snow, himself, did.



The Dark Wraith does not await the naming of a new Treasury Secretary with even the slightest optimism.

Pulp Economics: Exchange Rate Regimes

This article builds upon concepts set forth in last week's Pulp Economics installment, "Foreign Trade and Debt," in which were established some essential economic principles underpinning international trade. Important in that article was the fact that the so-called "current" and "capital" accounts are nearly mirror images of one another. The dollars we send to other countries when we buy their imports return to the United States when those foreigners use the dollars they've earned to buy long-terms assets here. So when we run a "trade deficit"—that's when the value of what we buy from foreigners is more than the value of what we sell them—we'll run a "capital surplus" as the foreigners use those dollars to buy stocks, to purchase real estate, and to lend us money for our public and private borrowing needs. Effectively, then, when we import cheap foreign goods, at the same time we export U.S. dollars. The reflection of that process is that the foreigners holding those greenbacks then import them back to the United States, and we in turn export to those foreigners claims on assets here in the United States.

This is the "balance of trade," a locked-in relationship between short-term transactions in the current account and long-term transactions in the capital account.

This, of course, does nothing to explain how the relationship between the currencies of countries trading with one another is set. That's where the driving forces behind "exchange rates" between currencies come into the picture.

Types of Exchange Rate Regimes
Broadly speaking, the exchange rate between two currencies can be establish in one of three ways.

Free float: This regime is in place when a country simply allows the global currency markets to set the exchange rate between its currency and every other country's. This is the "free-market" approach, with currency traders setting the price from day to day based purely upon supply and demand conditions for the currency. Ideally, this regime would, at least over the long haul, reveal fundamental value of a currency based upon the best information available about the economy underlying it.

Most countries would like to avoid this regime, ostensibly because exchange rates could swing pretty wildly, and this would be disruptive to international business. Underneath this quite legitimate concern is the possibility that a real, fundamental shift in the circumstances of an economy might get reflected too bluntly and rapidly in its exchange rates against other currencies.

Managed float: This regime is favored by many nations. Often, in fact, the central banks of countries will work together to ensure that currency management practices serve each country's reasonable interests within the coalition. In managed float, a country sets a range of exchange rates that it deems acceptable. If its currency gets too close to one end or the other of the range, the country, along with other countries who work together in the managed exchange rate system, intervene in the global currency markets to nudge the endangered currency away from the danger zone.

Consider this example. Suppose the target range of exchange rates for the U.S. dollar to the euro is between .95 euro to the dollar (€.95:US$1) and .75 euro to the dollar (€.75:US$1). Now, the Europeans and the Americans have agreed to work together to ensure that the exchange rate between the euro and the dollar doesn't go outside of this range; but let's say the dollar, which had been drifting around .85 euro, starts to weaken precipitously, heading down toward maybe .76 euro. (Notice that the dollar is, indeed, weakening here since it used to take .85 euro to buy a dollar, and now it takes only .76 euro to buy one.) To control this situation, if the Europeans and the Americans are coördinating their actions (which they actually do, as do the Japanese with the Americans, by the way), the central banks of both Europe and the United States will enter the global currency markets, and they'll start aggressively buying dollars and paying for them with euros. The currency markets should react as would be normal for any commodity market: the demand for dollars is going up, so they become more valuable; at the same time, the supply of euros is rising, so they become less valuable. Under normal circumstances, the result will be that the dollar firms up against the euro.

Now, understand that central banks actually keep some of one another's currency exactly for this purpose. In fact, this is why the so-called current account and capital account don't exactly match. A country won't return all of the foreign reserves it earns to investment in the currency's country of origin because it will keep a little bit just for the purpose of participating in exchange rate management regimes.

Also understand this, though: no matter how aggressively a group of nations might intervene in the global currency markets to maintain an exchange rate regime, if the conditions in an economy are such that the regime is no longer appropriate with respect to that country's currency, the central banks will be unable to stop the border of the band from being breached. In the example above, if the regime maintaining that the dollar should not fall below .75 euro is simply not economically appropriate given the relative states of the economy of the United States and that of the European Union, the Americans and the Europeans could go through all their respective reserves kept for exchange rate management, and the dollar would still eventually make its way below .75 euro.

In other words, exchange rate management is a tool that works only to prevent short-term, excessive volatility that could throw an exchange rate outside an otherwise reasonable range.

Fixed (or pegged): At first blush, this seems like just an extreme version of a managed exchange rate regime, but it is not because the mechanism for maintaining the peg is different, and the result has been wholly catastrophic in the long run for a number of countries that have tried it.

A pegged exchange rate "fixes" the ratio of two currencies at a level set by the central bank of the pegging country. For years, China fixed the exchange rate of its currency at 8.28 yuan to the dollar. It simply set this, regardless of what global currency markets might have determined it should have been were they to have been able to set the rate free of compelling interference from the pegging country's central bank. The fact of the matter is that the yuan was for some years far stronger against the dollar than 8.28-to-one fixed rate indicated. Realistically, because the Chinese economy was strengthening, it shouldn't have taken nearly that many yuan to buy a dollar, but the Chinese had absolutely no intention of letting the yuan start to show its power: by setting it at such a weak level, they were making Chinese imports into the United States very cheap and making American imports into China very strong.

China isn't the first or only country to have done this (or to have at least tried). It's an old trick developing countries use to grow stronger through their export industries. To a certain extent, developed countries have tolerated this game because it's sort of a back-door way of providing foreign aid to those countries that were fixing their exchange rates at some ridiculous levels. Essentially, by allowing countries to peg their currencies cheap, their imports to the developed countries remain very attractive to buy, so these developing nations earn large amounts of foreign reserves, which they can then use to earn even more money (or to at least make the payments on their foreign debt obligations). Eventually, however, the chickens come home to roost; or, in the case of currencies, a pegging country's currency comes home to rest, and that's because of how the fixing of exchange rates is accomplished.

In a simplified framework, when China set its exchange rate at 8.28 yuan to the American dollar, it was doing so by printing as many yuan as necessary, then entering global currency markets and buying dollars with them. There was never a hint of deviation from the 8.28-to-one rate in global currency markets since the Chinese would simply deliver as many yuan as it took to hold the exchange rate right smack on the mark. If currency traders needed more to keep the yuan from strengthening, they'd get them. Even as the Chinese economy began to grow robustly—which would have, in a free float regime, caused fewer yuan to be needed to buy a dollar—the Chinese just kept printing the yuan as fast as needed to keep the peg at 8.28 yuan to the dollar, thereby ensuring that Chinese imports to the United States stayed super cheap.

Unfortunately, this can—and it has had—a catastrophic end for countries pegging their exchange rate against the currencies of stronger countries. When the money supply of a country grows at a rate faster than that of the real economy represented by the currency, the result will be inflation. In fact, that's the only thing that can cause inflation, as was explained in earlier installments of Pulp Economics here at The Dark Wraith Forums. (See, in particular, "A Brief Story of Money, Part 2" for a detailed explanation of how inflation is related to the money supply.)

Sooner or later—and it's usually not only later, but too much later to salvage the currency—all those piles and piles of currency a country has been printing start washing back up on the shores of its own economy. Unless the economy is growing so fast that it can absorb all the extra currency pouring in, domestic prices of everything start to go up since the value of each unit of the currency is falling because it's getting watered down by the excess amounts of it in circulation. This so-called "overhang" can be staggering for a country that's been printing money for years to maintain a fixed exchange rate against another currency.

So suddenly the country that was trying to keep its currency cheap against other currencies is in the position where its own domestic inflation is rapidly starting to make its currency virtually worthless against other currencies. The country's currency can get so worthless, in fact, that it can't be used to buy anything overseas.

That's when the death spiral starts: to stop the free-fall of its currency in global currency markets, the central bank of the afflicted country has to enter those markets and actually start buying its own currency. (Remember, for all those years that it was maintaining a fixed exchange regime, it was buying other currencies by selling its own!) But what does a country use to buy its own currency? Well, the first and obvious thing is to use all the foreign reserves it's accumulated over the years by selling cheap imports in other countries; but recall from above that using foreign reserves to defend a currency is only a temporary mechanism to control short-term volatility. No country, especially a developing one, can use foreign reserves to do more than temporarily slow down a fundamental exchange rate shift the global markets are bound and determined to accomplish.

So the country quickly wipes out its foreign reserves, but the inflation is still raging upward at home, and the domestic economy is starting to stagger. Foreign interests start swooping in with their powerful, stable currencies to buy up everything in site because people, companies, and even the government of the country will trade anything for "hard" currencies and commodities.

This, by the way, is the reason for those old stories during the Cold War of being able to buy just about anything in Eastern Bloc countries with American dollars or even with packs of American cigarettes: the local currencies were so shot that people would trade anything just to get their hands on assets denominated in what they perceived to be a stronger currency.

Anyway, back to the main story, the country that had been pegging its exchange rate is suffering raging inflation, its currency is so worthless that it can't buy anything from overseas markets, and it has ripped through every bit of its foreign reserves trying to defend its currency. So what's the end-game?

The country's store of gold and other precious commodities, of course. The central bank starts to enter global markets and buy its own currency with gold (and maybe national treasures of diamonds and other universally accepted commodity moneys). Not only does it buy its own currency with its gold, it probably also buys critically needed other materials with it, too. It also might use metal to make the payments on its foreign debt obligations.

Sooner or later, the gold will run out. The country is, for all intents and purposes, bankrupt. Busted.

That's when one of two things will happen: either the rebels will make it to town, or the International Monetary Fund will. If the rebels show up first, they'll bring rifles. If the IMF gets there first, its representatives will bring an austerity plan. Either way, things are likely to get rough. Unless the rebels have the backing of a Western power, they'll have to start the economy from scratch with respect to currency legitimacy, foreign relations, and a whole host of internal civil and legal structures. If the IMF moves in to do a re-organization, the first thing that will happen is an old-fashioned, money supply clamp-down. Interest rates, already high and rising because of the expected inflation premium impounded in them, will go through the roof since interest rates are the price of money, so when the money supply gets knocked flat, its price—domestic interest rates—will tear into outer space. Quite a few businesses will go bankrupt, and a whole lot of poor and middle class people will get poor beyond their wildest dreams. The wealthy will do alright under the IMF fist: if they had any sense at all, they would have long before the crisis moved their wealth into foreign currencies in foreign banks in foreign lands. (Or, in the case of China, they would have completed the semi-friendly take-over of Hong Kong so they owned their own off-shore banking system to stash their money in.)

One way or the other, by the brutal regime change heralded by rebels with automatic weapons or by the equally brutal regime change heralded by financial professionals with economic policy overhaul documents, the country will slowly find its way out of the abysmal situation. Usually, anyway. And all it will take is a lot of suffering.


Economics: calling it the 'dismal science' is such an understatement.



The Dark Wraith has once again brought a story of hope and joy to an otherwise sad and hopeless time.

Special Graphic Post: Fireball Down

The Dark Wraith will have a Pulp Economics post up tomorrow afternoon.

Analysis: The Woodshed

This article will not be cross-posted. Other than with respect to references to the principals and public figures associated with the matter, no names will be used. Other than links to articles published here at The Dark Wraith Forums, no links will be provided. This is not an exercise in personal criticism; it is, instead, a pointed and critical commentary on certain aspects of and fallout from the articles by Jason Leopold, published by truthout.org, concerning the claim that Deputy White House Chief of Staff Karl Rove had been indicted by a federal grand jury. I invite Mr. Leopold, should he so choose, to respond in the comment thread for this post. However, should he attempt to publish his defense under multiple names, as has been alleged he did elsewhere, I shall ban him; and if he becomes abusive, as he is alleged to have been elsewhere, I shall eat him alive and spit him out.

The resolute damage Mr. Leopold did to himself is his business, but what he did to bloggers who not only believed him, but also believed in him, is reprehensible. That truthout.org chose first to publish his claims and then elected to prosecute those claims with further statements is appalling. That the editor of truthout.org now gives, in his words, a 'partial apology' and adds the excuse that they 'got too far out in front of the news cycle' puts truthout.org in the league of The New York Times, the publication that disingenuously pretended to explain away its complicity with a propagandist on its staff who used the newspaper to bolster the case, and in no small part to cause others to commence, a war of opportunity. As is my policy not to link to articles published by The New York Times, it is now my policy not to link to articles from truthout.org. Both have plenty of people, millions maybe, who forgive and forget. I don't—not when the stakes are as high as they are in these times and matters.

People are harmed by lies. People can also be harmed by their soft-hearted cousin, the uncritical thought brought to voice. No one, not even the most seasoned of thinkers, is immune to the poorly formed thought, statement, essay, or article. Some folly becomes so entrenched that it evolves into an intergenerational statement of truth, and rarely but sometimes even into an epical pronouncement reverberating through the ages.

Those who care for what is beyond the sensation of the moment have a duty to thwart this spiral of the wretchéd into the abyss of historically vaulted veracity.

And yes, the word "duty" was used above. It is not a dirty word. It is not some oppressive burden. It is not the chain of the dull and obsessed. Sometimes, it's good to want life to be something more than a worthless exercise in self-indulgence—the life lived, then discarded, as it were.

The Blogosphere is a vast drum, echoing back and forth across its coded surface of Websites large quantities of information. Once in a while—quite rarely, of course—something new arises within this cyberspace bunker, something meaningful that becomes known even to the tens of millions of common people who are generally unaware of this enormous place of information. In its typical mode, the Blogosphere is just the echo chamber; in its greatest strength, it is a megaphone.

When that megaphone projects the clarion call of truth to the outside world, it is magnificent. When it projects a falsehood, it is disgraceful. And simply walking away from a bad story like it never happened is the assurance that, even in its greatest moments, the Blogosphere will continue to be marginalized by the mainstream media.

Jason Leopold had burned people before. Paul Krugman was one of them. When something like that happens, it disabuses those who could make us known from doing so. One Jason Leopold is worth a thousand good stories. Is it really any wonder that the mainstream media shies away from what we report like we're infested of the Plague?

Well, we are; or at least it surely looks that way to reporters, news anchors, and commentators who see this kind of fiasco.

Bloggers had articles with titles like this: "Rove Indicted"; "Karl Rove Indicted"; "Rove Indictment"; and a clutch of variations on these, all declaring as statement of fact what was being said by a previously disgraced reporter and published by an e-mail service that sends people links to news articles.

Good God Almighty. Think.

Does it really sound credible that insiders are going to say, "Boy, I need to get this story out. Let me call a barely known journalist who already got fired once for being unable to verify his sources. By God, he'll know how to break this story to the whole, wide world, and he'll have the connections to protect my butt when this big, huge story hits the fan."

Yes. That makes sense, doesn't it?

At best, Mr. Leopold was gamed. He is an amateur in a league of consummate pros, many of whom have done this their whole professional lives. They are where they are because they're not just good at the game, they're excellent at it.

No matter how careful you are, when you interview lions you are at extraordinarily high risk of getting eaten. Quite likely also, the big cats are going to convince you to bring your friends in to see just how impressive your interviewing skills are. Consequently, your friends will get eaten, too.

I am one to talk. I was burned once on a story I ran here at The Dark Wraith Forums. I looked like a damned fool, and I was. I was embarrassed, and I wanted to hide from what I'd done. The good that came of it was that it stopped me from what I thought I should become to be successful at this craft: a cut-and-paste, repeat-after-thee, post every day kind of journalist, flogging away no matter how useless or repetitious or otherwise banal my articles end up appearing to others. And yes, my articles are still banal, but at least they often come with nice graphics, and they come in mercifully infrequent doses.

It is not always the lies that hang you; sometimes it's the facts. The truth is not the exclusive province of the righteous: it is, at its greatest and most venal power, the weapon of choice of the malevolent. Welcome to the sea with no harbor.

The Republicans use truth. To claim that theirs is the art of lies is incorrect. Truth—selective, partial, crafted, synthesized as it is in its various forms—is one of their frequently used wedges. They lie only when a truth is unavailable to a purpose. Understand this, and you understand why you must critically, skeptically, pessimistically, cynically look at anything and everything that comes your way.

Credibility is a media phenomenon. Washington is an ocean of disinformation just waiting for a conduit. When mainstream journalists are too gun-shy to play, that's when it's time to pull out the has-beens; that's when it's time to leak into the Blogosphere; that's when it's time to game the unseasoned.

It matters not a bit what people in Washington say. What matters is why they're saying it. The same goes for the mainstream media. What they're saying isn't nearly as important as why they're bothering. News is a business. So is politics. The importance of intonations from Capitol Hill, from the White House, and even from the august newspapers is not in content but rather in context.

The medium is the message. Information is multi-dimensional, and its secrets, right there on display, are in where it's presented, to whom it's presented, and how it came to be "news." Understand this, and you are at the very heart and soul of being a solid, critical analyst. Decline the opportunity to look at the frame instead of that within it, and you become, at best, a victim of false reports and, at worst, a conspirator in the on-going game of disinformation.

Now, I shall finish with a brief, personal note on the Jason Leopold fiasco. In February of last year, I published the first two in a three-part series entitled "The Valerie Plame Scandal." In July, I published the final installment. I pulled no punches in those articles: I made no effort not to offend those who saw Valerie Plame and her husband as heroes. Neither did I leave any room for doubt about my disdain for everyone else—from Karl Rove to Patrick Fitzgerald—involved in the scandal and its aftermath. In October of last year, I published an op-ed piece, "The Color of Whitewash," in which I lambasted the investigation by U.S. Attorney Fitzgerald, who had just announced the indictment of I. Lewis Libby on charges of perjury and obstruction of justice. While pretty much the entirety of Blogosphere Left was celebrating, I was not, and I made my case as clearly and as sharply as I possibly could. To my knowledge, not one link other than a few of my own in comment threads on other blogs came of that post.

On May 5, 2006, one week after Jason Leopold's startling article that Rove was about to be indicted, I published "The Gaming Game" in which I did everything I could to point to the risk of believing Jason Leopold's claims. I did my best to wave off the building feeding frenzy.

About twelve hundred people read or at least saw that article, according to the hit logs at my server. Two individuals, both of whom were writing in comment threads on other blogs, noted my dissent from the prevailing, virtually uniform declaration that Mr. Leopold was stating facts.

In the days following, one blogger—a fellow I consider something of a friend—good naturedly announced how wrong I was: Mr. Leopold's second article announcing that Rove had 24 business hours to get his affairs in order proved it, and the proof was that the Washington Post had gotten suckered into the game.

Note here: truth and the reporting of truth are not the same. It's like your death and your obituary: the latter can be published without the former occurring, and if that happens, it's most annoying; but when you actually do die, it's rather more than a mere annoyance.

But it didn't end there. As late as Monday, May 15, some bloggers were still defending Mr. Leopold. One blogger openly declared as if fact that George W. Bush had forced the mainstream media to suppress the news that Rove had been indicted. And there in the comments, every bit supportive of this take, was a link to one of the very high traffic blogs, where the Leopold defenders were on the conga line bragging that his professionalism was so high that he was going to out his source if the source turned out to be wrong. (No, outing the source that gamed you is being a squealer who got caught repeating a fib.)

"Reality-based community," my backside.

If you hear the flapping of wings in your death throes, do not for a minute think it's your guardian angel coming to take you to a better place. It's not. It's the vultures coming to eat your carcass.

The Age of the Neo-cons is still ascendant. Its venal foot soldiers are still on the loose, laying havoc everywhere they choose to turn. Hoping reality is somehow different from this doesn't make it so. Reporting that it is doesn't make it so, either.

The truth of the matter is that the night of our discontent is still gathering, and it will be for a long time to come. Measure your connection to reality by how many heroes you have. When you can honestly say, "Zero," you've made it to the place from which you can get down to business.

Who knows? You might find out you are, all by yourself, the hero you were looking for all along.



The Dark Wraith has spoken.

Analysis: Index Portfolio Performance during the Bush Administration to Date

After sustaining punishing losses earlier in the week, the major market indices staged a modest recovery on Friday. Such a minor uptick is often believed to be the result of bargain hunters purchasing stocks that were taken down in the heavy trading of a broad-based sell-off. Friday's recovery offered little, however, in the way of glad news for investors. Over the span of the Republican control of the Executive and Legislative Branches of government in this still-young 21st Century, the performance of the equities markets in the United States has been nothing short of disastrous. The blame for this significant erosion of real stock portfolio values goes directly and unequivocally to the GOP, which rode into office on a long-standing platform of fiscal prudence and policies tilted toward economic growth through low taxes and reduction of regulatory hurdles to business investment and growth.

As of Friday, May 19, 2006, George W. Bush had been President of the United States 1,945 days. Other than for a brief period in mid- to late-2001, when a Republican who had become an Independent created a near-even major party split in the U.S. Senate, both Houses of Congress have been controlled by the Republican Party to which Mr. Bush belongs. Economic policy during these nearly five-and-a-half years has been completely controlled by President Bush and his Republican Party members in Congress. Democrats have had no control over the formulation of economic policies and the federal budgets arising therefrom: they have been largely shut out of taxation and spending decisions by iron-fisted, uncompromising rules and actions imposed by the Republicans, who have displayed no intention of or interest in consensus in governance. Consequentially, responsibility for the spiraling, year-over-year federal budget deficits that have hallmarked the reign of the Republicans rests squarely with the Republican Party, its legislators in Congress, and the policy-makers in the White House, including George W. Bush, himself.

The public sector has suffered the long-held hope of certain branches of conservativism that the federal government could be reduced in size, crippled in carrying out certain of its regulatory duties, and diminished in it tax revenue generating capacity. The desirable goal of this political prescription of "limited government" has been that, through the degradation of the public sector, the private sector would flourish. No reasonable argument could be made that, if the private sector were indeed the great beneficiary of entrepreneurialism at its most productive, ownership in business would reflect this through substantial returns on equity. Investors in the stock markets of the United States, particularly investors abiding by prudent portfolio diversification rules and reasonable buy-and-hold strategies, should have seen appreciation in the real value of the money they invested in stocks. This is the necessary reward to induce surrender of current consumption. It is the motivation for investors all the way from the individual of modest means to the giant mutual fund to invest: the goal is to realize more purchasing power at in a future time through consumption opporunities surrendered in the here and now. For many Americans, long-term investments in stocks and other securities are to the end of having some degree of financial security in retirement. For businesses, the accumulation of equity positions in other companies is in its ideal a signal of conviction that gain is to be had through the long-term, expected future cash flows of enterprises acquired.

From the first day of trading, January 22, 2001, after President Bush became the 43rd President of the United States, until the publication date of this article, May 19, 2006, the performance of the major stock markets—measured by the index portfolios of the Dow Jones Industrial Average, the Standard & Poor's 500, and the NASDAQ Composite—has been catastrophic.

January 22, 2001, was the first day of trading after Mr. Bush became President. Three major indices stood at the following levels at the close of trading on that day:

January 22, 2001, Index Closing Values
     Dow Jones Industrial Average: 10,578.24
     Standard & Poor's 500: 1,342.90
     NASDAQ Composite: 2,757.91

At the close of trading on Friday, May 19, 2006, these same three averages stood at the following levels:

May 19, 2006, Index Closing Values
     Dow Jones Industrial Average: 11,144.06
     Standard & Poor's 500: 1,267.03
     NASDAQ Composite: 2,193.88

If an investor were to have formed a portfolio based upon each of these three indices and managed each portfolio in terms of composition and balance to mirror the relevant index, the investor would have earned the following total nominal returns on investment over the 1,945 days from January 22, 2001, to May 19, 2006:

Total Nominal Portfolio Returns over 1,945 Days
     Dow Jones Industrial Average: +5.35%
     Standard & Poor's 500: —5.65%
     NASDAQ Composite: —20.45%

Expressing these returns on an annualized (that is, "percentage return per year compounded") basis, the nominal results just presented are as following:

Annualized Nominal Portfolio Returns over 1,945 Days
     Dow Jones Industrial Average: +0.98% per year
     Standard & Poor's 500: —1.09% per year
     NASDAQ Composite: —4.21% per year

The above are nominal (that is, "not corrected for inflation") results. Taking into account the erosion of purchasing power (that is, "the effect of inflation") on portfolio values over the holding period requires adjusting each of the current values to its equivalent purchasing power value on January 22, 2001. From the Bureau of Labor Statistics Consumer Price Index data for January 2001, the CPI stood at 175.1, and for April 2006, the CPI stood at 201.5. The May 2006 figure can be estimated by various methods, and here, a conservative projection of 202.9 is derived from the three-month moving average of the CPI, implying an annualized inflation rate for the current month of 8.8 percent, based upon the average of the annualized inflation rates for the previous three months, respectively, of 2.4%, 6.8%, and 10.7%. The chart below shows the month-by-month annualized inflation rates for January 2005 through April 2006, along with the attendant three-month moving average.


Expressing the closing index portfolio values as of Friday, May 19, 2006, in terms of their January 2001 purchasing power equivalents yields the following:

May 19, 2006, Index Values in January 2001 Purchasing Power Value
     Dow Jones Industrial Average: 9616.35
     Standard & Poor's 500: 1093.34
     NASDAQ Composite: 1893.13

The total real return on investment for each portfolio is then the quotient of the January 2001 index value when divided into the adjusted May 19, 2006, value:

Total Real Portfolio Returns from January 22, 2001, to May 19, 2006
     Dow Jones Industrial Average: —9.09%
     Standard & Poor's 500: —18.58%
     NASDAQ Composite: —31.36%

Finally, expressing these real returns on an annualized (that is, "percentage return per year compounded") basis, the total real return results just presented are as follows:

Annualized Real Portfolio Returns from January 22, 2001, to May 19, 2006
     Dow Jones Industrial Average: —1.77% per year
     Standard & Poor's 500: —3.79% per year
     NASDAQ Composite: —6.82% per year

The results above are summarized in the following chart:


The total and real returns to the selected portfolios are presented below in graphical form:

   
An investor forming a portfolio tracking the Dow Jones Industrial Average from the beginning of the Bush Administration in January of 2001 until May 19, 2006, would have suffered a total loss in real value of the portfolio of more than nine percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of one-and-three-quarters percent per year; the investor forming a portfolio tracking the Standard & Poor's 500 over that period would have suffered a total loss in real value of the portfolio of more than eighteen-and-a-half percent, which is equivalent to a compounding annual rate of loss in purchasing power of the portfolio over the term of the Bush Administration of more than three-and-three-quarters percent per year; and the investor forming a portfolio tracking the NASDAQ Composite index over that period would have suffered a loss in total real value of the portfolio of more than thirty-one-and-a-third percent, which is equivalent to a compounding rate of loss in purchasing power of the portfolio over the term of the Bush Administration of almost seven percent per year.

From a well-balanced portfolio of the common stock of reasonably low-risk, very large public corporations to an equally well-balance portfolio of the common stock of relatively riskier, small-cap public corporations, common stock—the equity, or ownership claim on corporations—has provided significantly negative real returns over the course of the Bush Administration.

Securities markets do not make long-term assessments of the value of the American economy based upon political biases for one party or against another: billions of shares of stock trade each day, and the total value of these trades is an order of magnitude or more greater than this. Over the period of the past nearly five-and-a-half years, the absolute control of the government by the Bush Administration and its Republican allies in Congress has been subject to an on-going, objective assessment by the securities markets of the United States. The result to date of this real value assessment is that the American economy, as represented by the market values of stocks of large, medium, and small companies, has eroded. This is an undeniable, unavoidable fact, regardless of the particulars of the grandly positive economic news that proceeds from the Administration and the agencies thereof.

Regardless of how large the nearly daily dose of good economic news the Bush Administration induces the mainstream media to repeat, the Administration can neither manipulate the stock market data, nor can it find a scapegoat for the broad-based, long-term depletion of private equity value its policies have caused. For the average American who contemplates retirement in part or in whole based upon investments made and held in the stock market over many years, the Bush Administration's record is nothing short of catastrophic in terms of the financial security for what will be generations of citizens in their retirement years. For most, however, the full realization of the value lost and the disrupted, nearly irreparable damage to future capital appreciation of their investments in the stock markets will come only after the era of the neo-conservatives has come to an end.

The masterminds of this financial wreck that has been loosed upon the American people will be able to exit public life long before the full and dire consequences of their disastrous incompetence is fully, or perhaps even partially, understood by the millions upon millions who will suffer as a result. As such, it will be for future politicians to repair as much of this damage as possible while quite probably bearing the brunt of citizens' ire for what was done in the current era, when malfeasant radicals governed so recklessly.


During the course of that degraded and dim future, the Dark Wraith will offer frequent and pointed reminders about those who bear the blame.

Inflation Surges, Stock Markets Plunge

UPDATE for Thursday, May 18, 2006
The beating continued on Wall Street today, despite early indications that yesterday's pounding was the extent of it. Thursday, the Dow Jones Industrial Average lost another 77.32 points, or 0.69 percent; the Standard & Poor's 500 shaved off an additional 8.51 points, or 0.67 percent; the NASDAQ composite index slipped a further 15.48 points, or 0.70 percent; and the New York Stock Exchange composite index, the biggest loser on Wednesday, surrendered yet another 51.20 points, or 0.62 percent. The losses today indicate, as noted below, that more than just unexpectedly bad inflation news is driving the markets down.

Off its 52-week high of 11670.19 earlier this month, the Dow has lost 4.64 percent; off its 52-week high of 1326.70, the Standard & Poor's 500 has lost 5.14 percent; off its 52-week high of 2375.54, the NASDAQ composite has lost 8.21 percent of its value; and off its 52-week high of 8651.74, the NYSE composite has lost 5.82 percent of its value.
◊ End of UPDATE for Thursday, May 18, 2006 ◊
Wednesday, May 17, 2006, was the worst day on Wall Street in recent memory. Market bulls, who had only recently stampeded the Dow to within 80 points of its all-time high, were taken to the slaughterhouse and turned into ground beef in a rout that began earlier in the week. The Dow Jones Industrial Average of 30 blue-chip companies lost more than 214 points, shedding 1.88 percent of its value. The Standard & Poor's 500 lost almost 22 points, surrendering 1.68 percent of its value; and the NASDAQ Composite Index of thousands of smaller-cap companies fell 33.33 points, or 1.50 percent of its value. By far the biggest loser, however, was the composite index of the massive New York Stock Exchange, which dove over 188 points, representing a loss in value of 2.24 percent.

The spirals downward in major stock indices were attributed by mainstream financial news networks to the back-to-back reports of unexpectedly strong inflation at both the wholesale and retail levels. On Tuesday, May 16, the Bureau of Labor statistics reported that the producer price index, measuring price inflation in wholesale goods and services, rose in April by 0.9 percent, which translates into an annualized inflation rate of 11.4 percent. Excluding the food and energy sectors, the so-called "core" wholesale inflation rate for April was 0.1 percent, for an annualized rate of 1.2 percent. Wednesday, the Bureau released the April consumer price index data, which showed that price increases at the wholesale level were being passed to goods and services on the shelves at an aggressive pace. The consumer price index for April rose an unexpectedly sharp 0.6 percent, for an annualized rate of retail inflation of 7.44 percent. Excluding food and energy price increases, the "core" inflation rate at the consumer level came in at 0.3 percent, for an annualized rate of 3.7 percent.

The conventional wisdom is that market participants had been hoping for an end in the near future to the Federal Reserve Board's string of short-term interest rate hikes that goes all the way back to the Summer of 2004. Recent statements by both the Fed Chairman and by other Fed governors had been interpreted to this effect, and stock markets had reached near-record levels in recent weeks in the belief that the Fed would soon be taking pressure off interest rates because the fight against inflation had been successful and the economy could use a breather from higher and higher costs of borrowing. Such a move by the Fed would translate into stronger business growth and consumer spending in the months ahead. However, with the one-two punch of bad inflation numbers at both the wholesale and retail levels in April, the hopes of an end to Fed rate hikes were dashed: the central bank simply cannot shift its monetary policy in the foreseeable future. Clearly, inflationary pressures are still present and perhaps even more ominous than they have been in previous months, which means rising interest rates and the risk of a resulting economic slowdown will dog the economy at least into the Summer and quite possibly well beyond.

This week's stock market losses came on the heels of the financial news media breathlessly panting about "near-record" highs for the major market indices early last week. Unfortunately for investors lured by what appeared to be the good times rolling, long-simmering effects of disastrous U.S. economic policies are finally beginning to wash up on the happy beaches of securities and commodities markets around the world: staggering U.S. budget deficits coupled with debilitating, month-after-month, year after year trade deficits have left the American economy on the verge of significant difficulties, despite the constant stream of good economic news that pumps from the Bush Administration in its unrelenting effort to convince average Americans that the mounting economic problems they're experiencing in their own lives are entirely at odds with the great economic success everyone else is having.

Global currency markets aren't buying the hype anymore. The U.S. dollar has been dropping since late last year against major foreign currencies. Relative to the euro, the greenback has lost about eight percent since its intermediate high last November. Even against the yuan, the dollar is finally losing noticeable ground: for the first time in memory, the Mainland Chinese currency has strengthened to a level above eight to the dollar. The brutally efficient, mercantilist Chinese Communists—willing and able as they have been to prosecute a years-long policy of exchange rate manipulation against the dollar—can no longer hold back the tide of the collapsing greenback. The current sentiment that interest rates in the U.S. are on the rise will only temporarily halt the long-term decline in the value of the American dollar against other currencies.

Ultimately, unless dramatic action is soon taken to display to the world that the United States leadership has finally and resolutely come to grips with its fiduciary duties, and unless that leadership puts on clear and earnest display meaningful and perhaps even draconian measures to return policy to a responsible course with respect to taxes, budgets, and international relations, the status of America as the premier and most powerful economy on Earth will fade permanently into memories of a previous century, one in which a far better breed of stewards guided the republic.

Further analysis of the looming and dire situation currently facing the country will be forthcoming here at The Dark Wraith Forums.


In the meantime, the Dark Wraith certainly wishes everyone a good and profitable investment experience in the days and years to come.

Pulp Economics: Foreign Trade and Debt

Start with a principle of international finance: assets in a country can be purchased only with that country's currency. If an American wants to buy a French chateau, he or she needs to use euros; if a fellow from the United States wants to buy a factory on the outskirts of Toronto, he'll have to use Canadian dollars; and if the Chinese government wants to buy a United States Treasury bond, it must have U.S. dollars to do so. That's how assets and currencies trade. So if you want to have something in another country, either you have to trade your own currency for some of that country's, or you have to earn some of that country's currency. In the latter case, you are said to be accumulating "foreign reserves" of the desired currency, which you can then spend as you like in the country of the currency's origin.

The Chinese have been manipulating the yuan/dollar exchange rate for many years. They held a "fixed" exchange rate that used to be 8.28 yuan to each dollar. Recently, they disingenuously pretended to let their currency "float" against the dollar, but the exchange rate can't seem to find anything much below 8.08 yuan to the dollar, even though by many estimates the price of a yuan in dollars in a free float would be higher, perhaps even as high as 1.84 yuan per dollar, which would imply that the yuan is currently artificially undervalued by a whopping 84 percent. The Chinese keep their currency super cheap against the dollar by printing tons of yuan and buying dollars with them. The over-supply of yuan makes them worth little, and the over-demand for dollars makes them strong. This, in turn, makes Chinese goods very cheap in the United States at the same time it makes American goods very expensive in China. We then buy those cheap Chinese imports, paying with our U.S. dollars, which then end up in the hands of the Chinese, who collect them by the billions because of the mind-boggling amount of cheap stuff we buy.

So the Chinese have a massive foreign reserve of greenbacks accumulated over the years they've been trading their cheap exports to the U.S. for muscular dollars that we export to them in return. This is the so-called "current account," which is the flow of "liquid" (readily convertible to and from cash-money) assets. The United States constantly runs huge current account deficits simply because American dollars flow to the Chinese in exchange for their cheap goods, which flow into the U.S.

Now, the only place the Chinese can spend all those greenbacks they gather is in the country of origin of the currency—the United States of America. This is where the mirror image of the current account deficit comes into play. The Chinese have to spend their cache of greenbacks here in the United States, and they do so by purchasing our tangible and intangible assets—things like real estate and corporations. Notice that these are not liquid assets: they're long-term things, what we call "capital goods," and the account that recognizes these transactions is called the "capital account." The most important capital investment the Chinese (and other foreign interests) make here is their purchase of debt instruments, both public and private. In other words, once the dollars have been exchanged for cheap Chinese goods, causing the U.S. to run huge current account deficits, those greenbacks come right back here, where we sell the Chinese things like stocks, bonds, and real estate, thereby getting our dollars back. The level of this capital account, then, is almost identical, but of opposite sign, to the current account. If we run a $100 million current account deficit (what some call a "trade deficit"), we'll run almost exactly the same $100 million capital account surplus as we repatriate those dollars by selling long-term, capital goods to the Chinese.

When someone borrows money, what he or she is actually doing is selling (the technical term is "issuing") a security, usually called a "bill," a "note," or a "bond" (the exact term depends upon the length of time to maturity of the instrument under consideration). So when the United States government borrows money, it does so by selling (i.e., "issuing") so-called "Treasury" debt instruments. Our U.S. Treasury holds regular auctions where buyers from around the world have the opportunity to bid for these debt instruments. In other words, people, institutions, and countries come to these Treasury auctions bidding for the right to lend our government the money it can't raise through taxes to pay its bills.

Generally speaking, the Chinese are regular participants in these auctions. So are the Arabs and other nations that have dollar foreign reserves they need to use. Essentially, then, what these buyers are doing is trading greenbacks for a "close substitute," government debt instruments.

Think about it this way: a dollar is a "Federal Reserve Note," an intermediate-term debt instrument issued by the semi-autonomous Federal Reserve Bank. The United States of America, through its government, guarantees that loan paper with its full faith and credit. The Treasury instruments are loan paper, too, but they're directly issued by the United States government. Hence, the greenbacks and the Treasury paper are rather close substitutes to investors, since both are as safe as any investment could be: at their essence, both are backed by the full faith and credit of the sovereign republic of the United States of America, which can satisfy its debts (to the extent that it so chooses) through taxes on the productive output of the largest economy in the world. Therefore, the Chinese are buying Treasury instruments—a claim on American assets—with the greenbacks—again, a claim on American assets—they earn through trade. Hence, the Chinese end up having a claim on American assets through their legal claim on cash flows promised in loans taken out by the U.S. government.

Of course, the Chinese don't buy just government debt; they go for the quasi-private paper, too.

The secondary mortgage market is a great example of where private debt instruments backed by the U.S. government or agencies thereof are sold. In a simplified nutshell, here's how a secondary mortgage market works.

A person goes to a bank to secure a loan to buy a house, and the bank agrees. The bank has the home buyer sign a "promissory note" that represents the borrower's obligation to pay the loan back, usually in installments, with interest. The borrower also signs a "mortgage agreement" that backs the promise to pay with the obligation to surrender the home in the event of default on some or all of the promissory note covenants, the most important of which are the covenants having to do with timely payments (although other covenants can be violated by the mortgagee that would trigger a "call" on the note).

Together, the promissory note and the mortgage agreement represent not just a contract, but a special security: what has happened is that the borrower has actually issued a standardized, if somewhat complicated, "bond" (a long-term debt instrument), which the lender has pre-arranged to purchase under the terms of the lending agreement.

From a financial perspective, that's what has happened, and the bank is now the "holder" of the bond; but it has no intention whatsoever of being for very long in that kind of relationship with the issuer (the homebuyer/borrower) of the bond. The bank is going to unload that bond very quickly, and it does so by bundling that bond with a bunch of others it has recently purchased (a number of other mortgage loans it has made) and selling them to one of several secondary mortgage market companies, which are for the most part nothing more than wholly-owned entities within agencies of the U.S. government. The one to which the bundle is sold depends upon the particulars of the mortgages in the bundle, as in what agency of the government underwrote or backed the original loan: "Ginnie Mae" is the Government National Mortgage Association; "Fannie Mae" is the Federal National Mortgage Association; "Freddie Mac" is the Federal Home Loan Mortgage Corporation; and so on. Even a student loan, another type of fairly long-term loan backed by the federal government, has a secondary market: it's called "Sallie Mae."

Once one of these government quasi-corporations—Ginnie Mae, Fannie Mae, Freddie Mac—has purchased enough bonds from banks, it puts them all together into a single re-issue, a massive bond that is then sold to private investors at very attractive terms. The terms are attractive for several reasons, one of which is that there are tax advantages to owning and receiving cash flow from these secondary mortgage market instruments; another big attraction is that the cash flow from these instruments, which ultimately arises from people making their mortgage payments, is effectively backed by the full faith and credit of the United States of America, as well as almost always being guaranteed by private mortgage insurance, the insurance premiums for which are paid for by that hapless homeowner/mortgagee as part of the total monthly payments. In other words, by the time the original mortgages—all mashed together and sometimes even chopped up into various cash flow components—get to the secondary mortgage market investors, they are so safe you could bet your favorite grandmother's virtue on them.

The Chinese, using the huge piles of dollars they've earned by selling their cheap goods in the U.S., are big on these giant secondary mortgage market bonds. So, too, are other countries with lots of dollars to invest. So, too, are huge institutional investors like insurance companies, which favor safe securities that return cash flow over a nice, long period of time.

But that's not the end of the story with secondary mortgage markets: those secondary mortgage market governmental quasi-corporations are selling these Ginnie Maes and the like, so they're receiving money in exchange, and some of that money is lent right back to the mortgage-originating banks so they can make more mortgage loans, which are then bundled, sold to the secondary mortgage market corporations, which then package them and sell them into the secondary mortgage markets, where they are again bought by—you guessed it—among others, the Chinese, the Arabs, and all the other countries with foreign reserves of dollars they've earned because we run trade deficits with them. And as long as everyone plays nice in this game, that circular flow of money from current account deficits to capital account surpluses keeps rolling right along, which ultimately means that credit is easy to obtain here in these United States of America.

So it's not just the federal government that's been slurping at the foreign reserves teat of the Chinese, who have all those billions and billions of dollars because they sell us cheap stuff; it's everyone who takes out mortgages, even the folks who take out second ("home equity") loans on their houses.

The United States government—running staggering, near-record deficits under the Republican Administration in the White House and the Republican majority in both Houses of Congress—has every reason to be very nice to the Chinese because it's the folks in Beijing (and Riyadh and other places, of course) who are funding our public profligacy. However, anyone who wants a nice home with a tolerable mortgage interest rate also has to be nice to these foreigners because it's those same Chinese (and Arabs and others, of course) who are also providing the liquidity to keep American households happy piling on debt up to their eyeballs.

Finally, and in conclusion, guess what happens if the dollar becomes so worthless that the Chinese, the Arabs, and all the other countries with piles and piles of greenbacks in foreign reserves decide it's not worth holding them anymore. If you guessed something along the lines of "Oh, God," you get an "A" for this lesson in Pulp Economics.


The Dark Wraith bids readers a pleasant journey on the narrowing road over the canyon of economic catastrophe.

Inflammatory Opinion: Before the Storm, the Rant

The stock market has just had two of the hardest slaughterhouse days for bulls in recent months, platinum is at its all-time high, gold is in the stratosphere, and so are a whole host of other metals. The dollar has slid against the euro to the point where what I thought wouldn't happen becomes rather likely: full and swift movement of the global financial community toward denomination of international commodities contracts in euros instead of dollars. That means more than just the end of the heady days when every commodity trader, regardless of native language, said "dollars": it means the United States no longer serves as the world banker, so it doesn't get banker's privilege in capital markets and neither do its citizens; it also means commodities prices are no longer tethered to dollars, so as the dollar sinks into Third World status, imports become more and more expensive. It shouldn't take a math-geek economist to figure out what that's going to mean for the price of gasoline in the years ahead (the chorus of apocalyptic types and their refrain about "Peak Oil" notwithstanding).

Now, put skyrocketing prices on imports together with all the U.S. companies that have headed overseas because the reverse was true for so long, and you've got a pretty dire mix. Throw into that brew the fact that many, many Americans are trying to hold onto their lifestyles by drawing down their net wealth through debt, which will become more expensive in a world where we aren't the bankers who get the preferred rates, and that mix starts to turn pretty toxic. Finally, add in a dash of seething inflation that's going to be the only way the Fed can help to control the situation, and we'll eventually have a cocktail strong enough to knock a neo-con right off the gallows that have been built for him.

Meanwhile, the Shangai Coöperation Organization—an organization of which, I might point out, almost no one has ever even heard—is rapidly tying up oil and natural gas resources, along with pipeline routes, throughout Central Asia and into the Middle East, putting our own allies like Turkey and India into the vice grip between a war organization called NATO and a rabidly mercantilist organization comprising China, Russia, and (shock of all shocks) Iran.

This is happening in the context of China plowing into full commercial relationship with Cuba to get to massive offshore oil reserves in that latter country; and this is happening in the context of that same China slithering all around the newly-minted Leftist states of South America, snuggling into bed with those nations' little populist governments to gain leverage on even more strategic hydrocarbon assets and general trade routes.

And here we are, sitting on our fat butts waiting for the world to crawl to us because our guns go "BOOM-BOOM" really loudly, which is good because about the only way the neo-cons in Washington have in their limited intellectual repertoire for us now to stop the Shanghai Coöperation Organization from just about wrapping up a major piece of the planet for its own, exclusive playground for the remainder of this century is if we bomb Iran so massively that, not only does the Persian Pest go away in a vaporous crater, but the Chinese and the Russians are so stunned by our sheer willingness to violence that they back down... at least for a while. Don't bet on that being a great solution, though. The claim that the United States spends enormously more on its military than do the Chinese is elegantly flawed: that calculation is based upon the artificial exchange rate, about eight yuan to the dollar, China maintains. If the real exchange rate were used for comparison—purchasing power parity puts it at maybe two to three yuan to the greenback—instead of the phony exchange rate, the Chinese military budget would get a whole lot more attention inside the Beltway and at the Pentagon.

That means the neo-cons, backed into a corner far enough that they simply have to clobber Iran, will learn an old lesson from the history books: mercantilist cartels can transform with lightning speed and stunning lethality into mutual defense accords.

Ah, but the Bush Administration is trumpeting how great the economy is, and the media can't help itself but keep parroting all the good-news statistics that don't have even the remotest connection anymore to what real people are experiencing.

Those of you who have read articles here at The Dark Wraith Forums know there is a tendency toward pessimism. The more the government and the lackeys in the news media pretend that what's happening isn't happening, the more pessimistic the articles here will become.

Ignoring the problems, as has been and will continue to be the culture of the politicians and the mainstream news media, is going to make the river out of Hell just that much less navigable. So, until that river turns to ice—which will most likely entail Hell freezing over—I shall remain the darkest Dark Wraith; and what I predict will in retrospect probably have been rather on the optimistic side. This is not an exercise in "speaking truth to power"; the powers in Washington—both Republican and Democrat alike—listen not to unvarnished truth, but rather to rhetorical affirmation. No one—not the Republicans, not the Democrats, and certainly not the mainstream news media—wants to be shown the straight-as-an-arrow road from here to the abyss.

That's fine, though: they'll see it when we all get there.


The Dark Wraith will proceed without delusion of grand effect on outcomes.

Special Blog Post: Open Thread, Blog Maintenance, and a Note on Neo-Con Disingenuity

Consider this an open thread as your host works to complete several articles. While doing that, blog maintenance is in progress.

Most of you have politely declined to point out that this blog is loading with all the speed of a Republican politician coming to grips with how stupid the President and his policies are. While the GOP can take nearly five-and-a-half years to finally understand the nature and consequences of imbecility in high office, we in the Blogosphere haven't the luxury of responsive sloth. A blog can deliver quality content, but if it loads with the speed of a dead dog chasing a wrecked car, only the most dedicated will visit.

I ask that you, good readers, let me know if the blog is loading perceptibly faster.

And while I am working on this project over the next 24 hours, consider this bit of stunning news from the Cabinet Officials on Good Meds file: In its semi-annual report on international trade, Bush Administration Treasury Secretary John Snow declares that China is not—and let me repeat that: not—manipulating its currency against the greenback to gain trade advantage over the United States.

China, I shall simply point out, has for years been pegging its exchange rate with the dollar. It does this by printing billions and billions of yuan and using them to purchase greenbacks. This makes the Chinese yuan artificially and ridiculously cheap, and it makes the dollar artificially and ridiculously expensive. That makes Chinese goods in the U.S. artificially cheap and American goods in China artificially expensive. This, in turn, provides the Chinese with huge amounts of American currency that can then be used to invest in U.S. assets, including (and most importantly) Treasury debt instruments to feed the Bush Administration's insatiable appetite for budget-busting expenditures and low-low taxes on the rich.

Ah. The Bush Administration is cool with China doing this exchange rate manipulation because it's the only way the Republicans can live beyond the country's means in federal expenditures.


Say something here. No purpose is served by holding your tongue: most details of your life are already in one or more government databases, and it's only a matter of time before you pay dearly for your willfully defiant thoughts and actions.

So you might as well speak your peace.


The Dark Wraith is cruising through the template code tonight.

Inflammatory Opinion: The Gaming Game

On April 28, 2006, truthout.org published a Perspective article by journalist Jason Leopold entitled, "Fitzgerald to Seek Indictment of Rove," in which were written the following words:

Despite vehement denials by his attorney, who said this week that Karl Rove is neither a "target" nor in danger of being indicted in the CIA leak case, the special counsel leading the investigation has already written up charges against Rove, and a grand jury is expected to vote on whether to indict the Deputy White House Chief of Staff sometime [sic] next week, sources knowledgeable about the probe said Friday [April 28, 2006] afternoon.

As of the dateline of this post on May 5, 2006, no media outlet has indicated that the grand jury to which Mr. Leopold referred had issued any indictment against Mr. Rove or anyone else in the matter of the outing of intelligence operative Valerie Plame. Patrick Fitzgerald, the U.S. Attorney overseeing the investigation into the matter, has made no indication of a plan to call a press conference to announce indictments; and truthout.org has thus far today been silent on the matter despite having issued more than 30 of its news link e-mails since the article referenced above was published a week ago. On the same date that truthout.org published Mr. Leopold's article, MSNBC was reporting that no indictments would be issued within the next week-and-a-half.

Mr. Leopold's colorful history has been chronicled previously: Guerilla News Network, while more or less confirming Leopold's version of events in a dust-up with Salon over an Enron story, nevertheless gave the following characterization: "Leopold has had trouble in the past producing verifiable sources." That Enron matter came to embroil such highly respected journalists as Paul Krugman.

Mr. Leopold's latest speculative journalistic venture masquerading as fact has ensnared a number of bloggers, hoping as they did that a journalist had a nearly indisputable inside source who knew exactly what was about to happen and when it would come down.

This will be a relatively short lecture.

No one—I repeat, no one—in the Valerie Plame scandal wears a white hat.

Valerie Plame, herself, was a non-official cover operative working first for the Central Intelligence Agency and later possibly for the State Department. Hers was the business of lies: her career was one of misrepresenting herself to those from whom she could extract information that could then be refined and issued to the intelligence community for further refinement, analysis, and synthesis. Spies are not above killing people; it happens, sometimes of necessity, sometimes of motivation frightfully less. Valerie Plame may be a hero of the state, but she is not the stuff of admiration by those less inclined to a life of subterfuge, manipulation, and the ruin of others.

Her husband, Joseph Wilson, has displayed a curiously consistent behavior bordering on self-promotion. He went to Niger at the suggestion by his wife, a consummate insider, to certain CIA employees. He had no obvious, prior credentials as an expert in document authentication, and yet that was his mission to Niger: to determine the authenticity of one or several documents rendering evidence that Saddam Hussein was trying to procure yellowcake from the African state. That the document was a forgery is separate from Mr. Wilson's involvement. That he was willing to publicly denounce a sitting President of the United States for using that false evidence as pretext for war is admirable, but only to a certain extent: it will never be a matter of more than blind speculation how much Mr. Wilson cared about the venality of the Bush Administration and how much he cared about putting himself into the spotlight that he has worked ever since then so diligently to hold upon himself through his spouse.

Those in the White House who planned and executed the outing of Valerie Plame acted in a wholly self-serving manner that became, because of the national security implications of the scheme, sedition against the United States of America. They who cart obsessive vengeance against political opponents, willful destruction of our government, and defiance of standing law to the door of madness number many, and they infect the halls of power in Washington from the White House to the CIA to the Department of State to the Treasury to the Justice Department and even into the federal judiciary. Their names are legion: Cheney, Feith, Powell, Bolton, Abrams, Wurmser, Rice, Hanna, Card, Ashcroft, Gonzales, Negroponte, and Alito, to name but a very few of the neo-conservatives, Dominionists, and extremists of other and varied stripes of a political discourse degraded by perversions from a better human spirit that would seek civility and progress.

Robert Novak hid behind the crumbling wall of journalistic authority to further the scheme of White House insiders. He then went on to become curiously, even fascinatingly, immune to public, rough treatment by a federal prosecutor for his role. It is utterly bizarre that the man who actually disclosed the name of the operative has suffered no legal punishment whatsoever for what he did.

Judith Miller used the cover of a national, formerly reputable, newspaper, The New York Times, to promote through disinformation a pro-war agenda that has led to a draining, long-term conflict that has killed and maimed tens of thousands of Iraqis, killed and maimed tens of thousands of American soldiers, and sent the federal budget deficits into territory that threatens permanent degradation of the American dominance on the stage of global finances. Ms. Miller had become close to Valerie Plame long before the outing of the latter. Ms. Miller's facile work on a book on weapons of mass destruction gave her an excuse to come into contact with Ms. Plame. Whether Judith Miller was playing her own hand or was an asset of some foreign interest, Valerie Plame probably understood that Ms. Miller's rapproachment was not entirely what it seemed on its face. Miller was trying to game a CIA operative to get into her close confidence. To what end that would serve is subject to speculation, but it is not beyond the realm of reasonable speculation that Miller knew before Libby and Rove started spilling beans that Plame was a non-official cover operative. It is very likely the case, in fact, that Miller did not need I. Lewis Libby, a fundamentally stupid man, to tell her information from the National Intelligence Estimate about Plame’s status.

And finally, Patrick Fitzgerald must be noted. He is a U.S. Attorney; he has successfully prosecuted all manner of scum and in the process has left more than a few unheralded and innocent lives damaged or disrupted. That's what prosecutors do: if they want something, they will use the inordinate power of their station to get it. They are not bound to always tell the truth; in fact, because of the white circle federal judges place around their courts with regard to truthfulness of officers of the court, what goes on outside that area can be and often is troubling to civil libertarians. The experience of a grand jury—as a witness or as a juror—can be life-altering. As a witness, you have no right to counsel present, and if you try to protect yourself with claims of constitutional rights or even common decency, a federal prosecutor grilling you will trot right down to the presiding judge's chambers and prevail upon said judge to virtually hang you in the street; and almost without exception, the judge will comply as if the U.S. Attorney has an affirmative relationship with the court utterly absence from any relationship the citizen has with the Constitution. And if you are a juror, may God help you if you make that prosecutor angry. You could end up being physically hauled into an isolated room by that prosecutor, court reporter in tow, for a session you'll never forget. Think about democracy and the rule of law; then think about grand juries: what you believe about civil rights and liberties in this nation should vanish into thin air.

Jason Leopold is just one of many journalists who have been gamed. The litany of claims about Karl Rove's imminent indictment goes back at least to the late Summer of 2003, when journalists for reputable news media outlets were predicting that the Deputy White House Chief of Staff was on the verge of being charged with crimes. Since then, the waves of rumors have lapped up from time to time, with each cycle being characterized by fewer and fewer seasoned journalists biting. But invariably, every time one journalist from the more reputable world of the mainstream—or in Mr. Leopold's case, formerly from that more reputable world—opens the door and declares that indictments are imminent, those below in the journalistic food chain have a feeding frenzy and in so doing are handed a bomb that hurts their credibility.

None of us are immune to this frailty. It is part of learning how to be wise, seasoned journalists that we occasionally get caught reporting what is not so. We get better as we go along, and we develop not just a sense of who is and who is not a good upstream source, but we also gather a forensic ability to understand what makes sense and what doesn't. Part of that is asking not just who is providing us with information, but also what that person's motivations are.

Mr. Leopold might have obtained his information from sources playing Karl Rove's hand. Rove has gamed the media before and nearly wrecked careers in the process. Mr. Leopold could otherwise have obtained his information from those close to Mr. Fitzgerald, a man whose utter contempt for journalists has resulted in the government's long-sought elimination of the fragile and wholly informal doctrine of journalists' source confidentiality. It is no mere coïncidence that the very same government that now so rabidly militates to secrecy chose to field into the Valerie Plame scandal investigation a prosecutor who has successfully destroyed the very most essential means by which a free press could frustrate that drive to secrecy. Mr. Fitzgerald is an agent of the state; to the extent that the state comes to see its people as unworthy of the full and open truth, the duty-bound agent of that state will jealously and with prejudice serve to separate it from guardianship of the will of its people.

Here's the inside scoop. Karl Rove will be indicted next week.

Or he won't be indicted next week.

Now, take that information and run with it; and always, always be suspicious of your source, even when it's the Dark Wraith speaking to you.



Thus, once again, has the Dark Wraith spoken.

Financial Journalist Louis Rukeyser Dies

Louis Rukeyser, formerly the host of the long-running weekly PBS television series Wall Street Week, died Tuesday at the age of 73. Known to millions of stock market investors as the silver-haired wise man of the Street, Rukeyser's television show was as inviting to the amateur investor as it was to the savvy professional. Never able to fully suppress his trademark wry grin, Mr. Rukeyser consistently displayed rare wit he as rattled off groaner puns while covering the news about everything from the macroeconomy to the details of a potential investment. His showed featured a regular panel of commentators that included respected technical and fundamental market analysts, and each week he would interview a notable figure from the ranks of corporate executives, mutual fund managers, economists, and others involved in the world of finance. Even though he was a businessperson's journalist, he was not above taking jabs at both Democrat and Republican politicians. His humor was a blessing during rough times for investors: after one serious market correction, he dead-panned that he was thinking of changing the name of his weekly television show from Wall Street Week to Wall Street Wake. His sauve good looks of a well-heeled corporate CEO earned him the honor of being the only financial journalist ever to be named one of People magazine's Sexiest Men, an accomplishment for which he seemed at the time almost as embarrassed as proud.

Before hosting his famous Public Broadcasting TV show, Mr. Rukeyser served as a reporter first for the Baltimore Sun and later for ABC News. His stint as the host of Wall Street Week began in 1970 and would last until 2002, when the producer of the show, Maryland Public Broadcasting, wanted to set him aside in favor of younger talent. Rukeyser's on-air criticism of the producer ended the decades-long relationship, with Maryland Public Broadcasting claiming that it had "fired" him and Rukeyser responding that he had never been an employee. After he departed Wall Street Week, he launched a similar program on CNBC; but as he began to succumb to the ravages of a rare form of cancer called multiple myeloma, he asked the producer to cancel the series, which it did in 2005.

Louis Rukeyser will be remembered as a man who made finance and economics inviting to millions of people. Despite his light-hearted approach to covering the world of investing, financial analysis, and economics, he was able to draw serious investment advice from both his panelists and his guests. Regular viewers learned greatly both about the tools of the trade and about how to use economics and financial information.

In the disciplines of economics and finance, perceived by many as being the domain of all things boring and all people even more so, Louis Rukeyser stood tall as one who could make the dull become interesting and the arcane applicable.


The Dark Wraith stands down for a moment of respectful silence.

Special Blog Post: The $100 Plan

Despite the obvious appearance of trying to buy votes in the November elections, the Republican majority in Congress is still considering a scheme to provide every American with a $100 check to compensate for the current high price of gasoline. President Bush has already rejected a revenue-matching windfall profits tax on oil companies, which means the money sent to American consumers would expand the already near-record federal budget deficit without significantly helping people with the skyrocketing fuel costs they are facing.

The opposition to this rebate plan is significant, as Shakespeare's Sister and BlondeSense Liz, among many others, have noted. Your host here at The Dark Wraith Forums has posted comments at both of the aforementioned blogs offering an alternative to opposing the Republican rebate plan. Herewith now is the formal statement of that alternative.

If the hundred dollar checks are indeed disbursed pursuant to an Act of Congress approved by the President, all who are opposed to the Republicans pledge as follows: Upon receiving the check for the sum of One Hundred dollars ($100.00), I shall immediately sign the back of the draft and send it to the non-Republican political party or candidate of my choice.

The Republicans will, then, have instituted de facto public campaign financing on a scale that could rival any formal campaign finance reform proposal. If one million households were to honor the pledge suggested above, one hundred million dollars ($100,000,000) would flow into the coffers of the Democrats, the Greens, and other non-Republicans for the 2006/2008 election cycle. If the Republicans in Congress chose not to back down from their hare-brained, transparent vote-buying scheme, they would stand their shaky ground knowing very well that the commitment of non-Republicans to use their checks this way would be far greater than that of Republican voters to use their checks to support the GOP, especially considering how unpopular the Republicans are as we head into the jaws of the 2006 campaign season.

If you would be willing to make the pledge to commit your rebate check, please say so and pass this plan on to those you know. With a modest effort and a willingness to surrender a hundred bucks you wouldn't have had anyway if we had responsible leadership in Washington, the Republican attempt at naked vote-buying will turn into a catastrophe for the Grand Old Party.



The Dark Wraith has thus laid his counter-proposal on the table.

Update:
CNN.com is now running an article with the following headline: "Senate GOP backs off $100 gas rebate proposal," but the article itself tells a very different story:

"[Senator Bill] Frist said he will still push the rebate, but abandoned the accounting change [on how oil company crude inventories are taxed that would have paid for the rebates] and said the Senate Finance Committee planned a hearing on the issue in the near future."

This, of course, means that the rebate is still in play, but the oil companies have prevailed upon the Senate to abandon any plan that would have included a revenue-generating tax on oil companies to offset the estimated $10 billion cost of the rebate scheme.

Now, who says the Republicans aren't responsive to those they serve?