Goose the Blog 2.0

Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic "armageddon."

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, "it struck me how extreme he was - much more, it seemed to me, than in public."

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that "we'll muddle through for a while and delay the eventual armageddon."

The chance we'll get through OK: one in 10. Maybe.

That view may be a little pessimistic, but meanwhile, Republicans are planning on increasing the deficit by partially privatizing Social Security, which incurs a current cost to the government equal to the amount that is put in private accounts. This increases the year over year deficit and the total debt because no new sources of revenue have been put in place. Only, here's the good part, no one will actually see the deficit increase because they won't put it on the books. That's really clever. MaxSpeak explains it this way:

For academics, this will be a grand experiment in neo-classical fiscal policy, founded on the premise that anything that doesn't change inter-temporal budget constraints has no effect on behavior. Yuk yuk. By this logic, if the Gov borrows to pay me a billion dollars today and simultaneously passes the Revenue 3000 tax act, which levies a wealth tax on the inhabitants of Jupiter in the year 3000 to offset the accumulated debt, everything is hunky-dory. Don't laugh. These people are running the country!

MaxSpeak goes on to say that there is some bullshit argument about how this plan is actually an investment that will pay out in the future through the higher rate of return received on individual accounts relative to the government's earnings for Social Security funds. Don't believe it - no other government expenditures are accounted for this way, including ones that are also real investments, like education, child healthcare, infrastructure, or research and development.

The only reason they are making this so complicated is that GWB promised to half the deficit by 2009. Only, he also promised not to "raise" taxes (which actually means that at best, taxes won't return to their original levels when the tax cuts expire), and he also wants to privatize Social Security, and have wars, and GOP legislators cannot stop spending or they might lose their seats because voters (especially red-staters) like government spending when the money gets spent on them. The only way out is for the economy to grow so fast that revenues increase (despite tax cuts) faster than our spending grows. This isn't going to happen, so instead they invent rationales for hiding the borrowing and contemplate what would be probably be criminal behavior if the government was a public business.

Pretty soon, to our creditors out in the real world, we start to look like a giant-sized Argentina that they have to stop trying to rescue unless they drown with us. Which of our leaders is going to stand up and recognize that we can't go on like this? Two-thirds of Americans (and even half of Republicans) already know it.

Anyway, I think I'm partial to the Euro, because it's more fungible than gold (maybe?) and the EU hasn't been propping up US monetary and trade debt, so they are less tied to our collapse than China or Japan. However, if things gets really bad, my best investment might be a shotgun and a basement full of toilet paper and beef jerky. Those last two are the currencies of the future, I hear.