Sunday, August 17, 2008

Wag the Dog

In the 1997 movie “Wag the Dog” the premise of the plot was to use war and threats of war to distract the public from the economic calamity that was really happening within the country. The plan in the movie was very simply to assert "There’s a crisis in the White House, and to save the election, they’d have to fake a war."

Some are wondering if the fighting between the country of Georgia and Russia, which has started three months before the U.S elections were part of the same movie premise contained within “Wag the Dog.”

Consider the facts taking place in the U.S economy. Fannie Mae and Freddie Mac had just announced record losses, and so had most reporting corporations. Unemployment was mounting, the foreclosure crisis was deepening, state budgets were in shambles, and massive bailouts were everywhere. The stock market continued to fall as has the value of the dollar.

James Turk economist and author speculated "The banking problems in the United States continue to mount, while the federal government’s deficit continues to soar out of control. So what happened to cause the dollar to rally over the past three weeks? In a word, intervention. Central banks have propped up the dollar:

"When central banks intervene in the currency markets, they exchange their currency for dollars. Central banks then use the dollars they acquire to buy US government debt instruments so that they can earn interest on their money. The debt instruments central banks acquire are held in custody for them at the Federal Reserve, which reports this amount weekly.

The Federal Reserve reported holding $2,349 billion of US government paper in custody for central banks. This amount had grown over the past three weeks to $2,401 billion, a 38.4% annual rate of growth. So central banks were accumulating dollars over the past three weeks at a rate far above what one would expect as a result of the US trade deficit. The logical conclusion is that they were intervening in currency markets. They were buying dollars for the purpose of propping it up, to keep the dollar from falling off the edge of the cliff and doing so ignited a short covering rally, which is not too difficult to do given the leverage employed in the markets these days by hedge funds and others."

Some $400 billion in Adjustable Rate Mortgages will be due by October of this year. A wide majority of these loans are expected to default leaving the strong possibility of a pending economic collapse.

Fannie Mae and Freddie Mac received a $800 billion credit line that will soon be gone once the coming mass of mortgage defaults take place. Banks everywhere are facing overwhelming write-offs, putting the entire banking system near collapse. Should the government provide another bailout it would bankrupt the nation.

Author and Commentator Mike Whitney reiterated the thoughts of many recently when he said "Washington’s bloody fingerprints are all over the invasion of South Ossetia. Georgia President Mikhail Saakashvili would never dream of launching a massive military attack unless he got explicit orders from his bosses at 1600 Pennsylvania Ave. After all, Saakashvili owes his entire political career to American power-brokers and US intelligence agencies. If he disobeyed them, he’d be gone in a fortnight.”

Is the Russia-Georgia conflict another “Wag the Dog ”scenario as many are speculating? Considering the length the Bush administration and their surrogate John McCain have already gone to force a never ending war with Iraq, and the economic collapse that is lurking around the corner as well as the upcoming presidential elections, the “Wag the Dog” tale looks more plausible everyday.