The Reckoning

Rested and Ready to … Retch

Italian liner Costa Condordia on the rocks - Like Italy's economy.

“Really, guys, these were uncharted economic waters!”

Photograph by VINCENZO PINTO

So, what did I miss on my brief, blissful vacation in the Caribbean?

— An Italian captain sank a cruise liner with a maritime version of “Look mama, no hands!” The metaphors for Italian economic stewardship are very tempting.

— I see an Occupy Nigeria movement forced its corrupt government to reinstate fuel subsidies that are the only tangible evidence most Nigerians ever see of their alleged “oil wealth.”

— Mitt “Mr. 15 Percent” Romney won in New Hampshire. No shock there in either his victory or the tax rate a private equity guy pays, though it is worth noting this is a full 2 percentage points less than Warren Buffett paid. But then, Romney’s staff would no doubt retort, a full 15 percentage points more than General Electric paid.

So, it appears it was a fairly good week to be on vacation—cruises off the Italian coast notwithstanding. The only real news of note appeared late last night, when the World Bank revised downward its previously rosy global growth estimates for 2012—down from 3.6 to 2.5 percent overall.

Obviously, this will be unwelcome news around the world. The causes are many but can be primarily blamed on the “leading industrial powers,” to use a now quite obsolete phrase. 

Most of the blame can be traced to two sources:

1)   the incompetent reaction of the Eurozone’s member countries to their sovereign debt crisis. (I notice Greece is actually tiptoeing up to the use of the word default, something that has been painfully obvious to all but a few powerful German-speaking officials for years now.)

2)   the continued process of U.S. consumer deleveraging after American financial wizards caused the worst financial crisis since the Great Depression.

As I’ve been arguing for years now, the 2008-09 debacle not only led to massive layoffs, foreclosures, bankruptcies, and global contagion—aka, the Great Recession, but it also permanently damaged America’s potential growth rate and its ability to stoke economic growth in the wider world.

You have to wonder what George W. Bush’s third act would have been, having destroyed American foreign policy credibility in Iraq, then U.S. economic credibility with radical financial deregulation? Maybe he could have torn up the U.S. highway system and returned us to an agrarian society? An excellent argument for term limits (maybe one would be enough). But I digress …

How will the U.S. react to the fact that emerging nations—the BRICS and others—are now being dragged down by “rich world” mismanagement? During an election year, we can expect the United States to react to this latest news with denial (“recovery just around the corner”) and deeply cynical and parochial rhetoric blaming political rivals for the entire mess.

Note the idiotic exchange this week on joblessness between the White House and Romney campaign staff on Twitter. To anyone vaguely familiar with what has happened in the job market since the real estate bubble began deflating in 2007, the back-and-forth is just insulting—each side just lying with statistics to make political points. 

Some of you wondered why I’d want to take a holiday right as New Hampshire was issuing its historic verdict. I say, “Yawn.” This entire primary season is more disgrace than democracy so far, with the campaign finance floodgates flung opened by the wise jurists of our Supreme Court for wealthy and powerful interests to manipulate, and with (no surprise) a representative of that very wealth and power looking like the inevitable GOP candidate.  

No wonder Obama hasn’t bothered campaigning much yet; after I spent a blissful week away from this charade, lounging in the sun of the Dominican Republic, I wouldn’t blame him for running a Rose Garden campaign right into the summer.

I’ll get serious tomorrow. All this has me thinking “mojito.”

Follow me on Twitter and preorder my book, “The Reckoning: Debt, Democracy and the Future of American Power,” coming in April from Palgrave Macmillan.