Chris Sanders: Cover-Up Kerry Rides Again

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Human beings are best characterized by a restless discontent that is irrational, not rational, and “human nature” is not fixed and unchanging, but variable in terms of the changing relationship between the repressed and consciousness. There is thus a dimension of irrationality involved in power and subjugation that is untapped in our most honoured theories.
- G. William Domhoff (1990) The Power Elite and the State: How Policy is Made in America, New York, Aldine de Gruyter, ISBN 0-202-30373-X, pp. 5-6

It isn’t what you know but when you know it that counts.
- Orville X

The Old Man and the Fed

Last week Federal Reserve Chairman Greenspan opined that inflation was not a threat to US growth, sparking a large rally in bonds. Market rates have been climbing since June 2003, a fact that is beginning to leave this bear market in bonds looking a little long in the tooth. Stocks rose on larger volume than has recently been the case, and the dollar held up nicely. All in all, the American capital markets did not look so bad.

This is all quite amazing when you think about the trade deficit, which rose to more than $48 billion in April, or nearly 4% month on month, and the current account deficit for the first quarter of 2004 which grew sharply to an annual rate well in excess of $500 billion. The sanguine view of all this is that foreigners are still willingly financing the US external deficit, ergo the deficit is not a problem. Actually, there is truth to this point of view, although the fact that the foreigners doing the lending are mostly Asian governments makes the idea of “willing” foreigners a little difficult to agree with. More accurately we can observe that as long as foreign governments are prepared to continue behaving as they are then the US capital markets are probably not threatened.

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US bonds have already discounted a major round of Fed tightening over the next six months, which considering that the Fed’s new chain weighted core CPI inflation measure actually fell in May seems like an excessive amount of pre-emptive selling. This does not imply any endorsement of the accuracy of the inflation index on our part. We have thought for some time that as a measure of the value of money the government’s inflation indices are pretty useless. But that does not matter so much in an administered market, which is what we think these markets are. About the only thing that one has to go on in markets in which governments intervene through their control of money, foreign exchange and credit on a protracted and systematic basis are the arithmetic relationships between traded assets. For the billions of dollars in managed pension assets worldwide and the large leveraged hedge fund industry, this means that short duration positions are painful with the yield curve so steep. The amount of foregone income resulting from a position in cash is large enough to be material to performance and hence to jobs.

There are other considerations as well. The effect of the Bush tax cuts will have run its course by autumn, and in December the provisions for accelerated depreciation that have supported corporate profits will also run out. Thus two of the props supporting Federal fiscal policy will be gone. This undoubtedly explains the desire of both Bush and Kerry to enact more tax cuts, but in the near term that rabbit will remain it its hat. That returns the responsibility of stimulating demand squarely to the Old Man and the Fed, and that suggests that the bias in policy is most definitely not for higher rates, but if anything for lower ones.

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Other variables suggest the same conclusion. We flagged the stocks cycle at the beginning of the year as an emerging support for industrial output and growth. That is no longer news; in fact it is more likely now that we are nearing the end of the stocks cycle, removing another source of demand. Consumer confidence is weakening, and why not? War, a President rumoured to be insane and rocketing gas and food prices are just a few of the reasons that consumers ought to be cautious.

Outside of the US, Chinese administrative restrictions on credit are slowing demand in that economy. This should have knock on effects in Japan, where the improving output and liquidity picture is heavily dependent on exports to China. So far, none of this is enough to worry about, but cumulatively the marginal impact will be to cool global industrial output growth, which we consequently think will peak within the next four months. If that is the case then interest rates will also peak. Indeed, in the US they may already have done so.

There is more. The Bush administration has depended heavily in its fiscal program on major weapons contracts for economic stimulus. It is arguable how effective this has been. For instance, employment in military products industries has fallen since 1990. The effect is to boost corporate profits a lot, but there are fewer American workers to receive and transmit the impact of the increased spending. What is likely is that the fiscal impact is being distributed more and more abroad at the expense of domestic workers. On reflection this is not as surprising as it might at first seem; the collapse in manufacturing employment that we have flagged for years has to at some point impact military contractors too. This raises questions about the political sustainability of spending of this sort. Support in Congress is not likely to be so automatic going forward, especially as the War on Terror is proving less than successful in achieving its stated objectives and approval for the administration’s policies falling. More narrowly, support for the president amongst Republicans is wavering, and within the intelligence and military communities, civil war is irrupting. This sort of disarray is not conducive to the sort of united front that is necessary to sustain a profoundly unpopular set of policies.

Bubble bubble, oil and trouble

The administration’s ability to cope with an increasingly challenging set of circumstances must be judged as near nil. Stories of presidential mental and emotional instability are becoming more open and common. Within the cabinet, fissures have opened publicly and are widening. Virtually open war has broken out between what loosely appears to be the intelligence community on the one hand and the Israel-oriented neocon management at the Pentagon and the White House on the other. This has surfaced in the form of the Plame affair, the Chalabi espionage scandal, and CIA Director Tenet’s resignation. This is not an administration that is capable of any constructive initiatives this year and possibly ever again. It is a government whose days are numbered.

This is not the same as saying that US policy or economic prospects are likely to be substantively altered. The sorts of changes that we imagine a Kerry administration would introduce are more in the way of alterations at the edges rather than root and branch reform. The military budget is probably the easiest thing to attack on the fiscal front. Most of current spending is in any case irrelevant to the challenges faced by the US armed forces in its War on Terror generally or specifically in Iraq. This is spending on big ticket items that are generally conceded everywhere outside of those making money from the contracts to be irrelevant to American security or to any realistic likely threat. Cutting back would be smart public relations and practical as well.

The military budget could be cut in half without threatening American security if the government were able to rein in the systematic abuse of its spending and financial control process. The idea that it cannot do so is rooted in the notion that government’s size and the incompetence of its employees is the cause of “waste.” This proposition simply does not stand up to serious scrutiny. Without intending to dress those involved in the mantle of competence, we think that a more accurate model of the government is a highly centralized and controlled one. A handful of firms control the key IT, administrative and financial systems in Defense, HUD, Justice and Treasury. The means are there for control; what is at issue is how they are used.

Expectations of a Kerry administration are wildly overblown by Democrats who are naturally eager to win the election and regain control of the national purse strings. However, wishing to have control of patronage and a rich flow of inside information is not the same as support for change, never mind reform. The truth of the matter is that for over a hundred years public policy has been remarkably consistent whichever party is in power. Differences are probably attributable as much as anything to their respective electoral constituencies as opposed to real goals. For instance the Republicans long since conceded the universities to the Democrats. The Republican idea of an intellectual is the likes of Michael Ledeen, long a CIA and Mossad asset, first as a journalist and later on as a propagandist and agent of influence. Ledeen would not know a footnote if it hit him in the face. The Democrats can actually boast of people who can really write and do research such as Paul Krugman. Krugman is a partisan, to be sure, but he is at least a thinking partisan. The Ledeens of the world are not bothered by facts except to the extent that they are inconvenient.

Setting the stage for the Kerry cover-up

In power however a Kerry administration will have to deal with the same realities as does the Bush regime. That the basic view of these is not substantively different is attested by the fact that Kerry has yet to challenge a single fundamental policy of the present administration. Kerry is a mainstream Democrat, which these days means that he is supported by the Democratic Leadership Council who are in our view nothing more than Republicans in drag. The people around him and who will be back in power when he wins are the same people who staffed the two Clinton administrations and articulated that administration’s economic policy. Paul Krugman was no critic of Clinton, and we daresay he will be no critic of Kerry. Indeed, he may well be promoting Kerry from a vantage point at Treasury or the Council of Economic Advisers. This can hardly be anything but an improvement, but it is well to remember that the Clinton’s reputation for economic competence was largely self-referenced and still is. Fiscal discipline was bought at the price of housing and stock bubbles and one of the most corrupt administrations in American history, a legacy to which Democratic memories seem impervious.

CBS Prime Time Segment On Skull and Bones
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Last week 60 Minutes, CBS television’s prime time showpiece of investigative journalism ran a segment on Skull and Bones (watch it here). It was only a matter of time before something like this happened, with both candidates for the presidency being members of the secret society. This is fascinating for all sorts of reasons, one of them being the long association of CBS with the Bush family. CBS was careful to make S&B sound like a branch of the Rotarians. This is too bad, because they could have profitably examined the origins of the Russell Trust as it is properly called, its German intellectual roots, and its immersion in a Kantian worldview that sees power as the operative principle in life. They might well have reflected on the extreme right wing and even totalitarian orientation of various S&B members and activities over the last hundred years, from Skull and Bones member William Howard Taft to the financing of the Nazi Party’s rise to power in Germany in the 20s and the 30s. But they didn’t, and it makes you wonder about CBS and its Masonic eye.[i]

This is the stuff of successful cover-ups in the best American tradition, showing a little truth while keeping a veil firmly tied over the whole truth. It is what is known in the intelligence trade as a limited hang out. And it is the beginning, we think, of an even bigger limited hang out.

John Kerry’s career has been blessed with one plum job after another, from his seat on the Senate Foreign Relations Committee as a freshman Senator in the 80s to his romp through the oligarchy-controlled primary season this year. This is the man who by virtue of his experience with the Iran-Contra and BCCI cover-ups in the Senate is uniquely qualified to do one more service: to manage the cover-up of 911 and the origins of the War on Terror. The only question in our mind is where the cover-up will stop, or more exactly, who will take the fall.

Chris Sanders
csanders@sandersresearch.com

FOOTNOTES:

[ i]See www.sandersresearch.com Inside Track, Campaign 2004: Can we handle the truth? Part 1, by Linda Minor for a discussion about the origins of CBS and its long connection with the Bush family.