Who’s Drivin’ That Train

And, back on the The City of San Francisco line, as promised, another attempt to drive all metaphors neatly into the ground with this from Zero Hedge this morning.  As may be obvious, globalism has made for strange bedfellows, errr, passengers. 

In the end, the degree to which we’ve lost sovereign control to our foreign creditors might well prove to be our undoing.  As noted in the original Bloomberg article referenced by ZH, Hank Paulson’s soon to be released memoir discloses that “Russia urged China to dump its Fannie Mae and Freddie Mac bonds in 2008 in a bid to force a bailout of the largest U.S. mortgage-finance companies.” 

Apparently, Russia made good on the threat by selling their $65 billion holdings of GSE securities, in advance of the September 2008 takeover.  The Chinese, inscrutible as ever, declined, that time at least.  Not that it mattered a great deal in the end.  If the purpose (or hope) was to shake confidence in US markets and/or demonstrate to our government just how exposed we were (and continue to be), well, to quote GW, “mission accomplished”. 

The report doesn’t suggest that Russia’s selloff triggered subsequent events or even whether Chinese participation would have magnified those effects.  It does, however, remind the us that these events took place during the August Olympic Games in Beijing, which coincided, you may recall, with the Russian war with neighboring Georgia.

All of which serves to underscore the notion that this but one of the ways that wars are fought in this modern age of globalism.  (We’ll look at Cyber Warfare at some point in the future.)  Some might argue that China’s dependence on US markets have, thus far, actually “saved our bacon” and that might well be true.  It is also reasonable to assume that China wasn’t then (or isn’t yet) ready to play those cards.  They are in their hand, however.

Regardless, to the extent that we continue beg the world to finance our insatiable appetites, we should understand the extent to which we are mortgaging our independence.  Seems obvious, but the same principles apply in our own lives too.   

Harry Tuttle

Trouble ahead, Lady in red,
Take my advice you’d be better off dead.
Switchman’s sleeping, train hundred and two is
On the wrong track and headed for you.

– Casey Jones


2 responses to “Who’s Drivin’ That Train

  1. Tuttle,

    You know the joke:
    “If you owe the bank a million, the bank has you under its thumb. If you the bank a billion, you have the bank under your thumb.”

    Foreign creditors trying to use our debt to manipulate us is worse than pushing on string. It won’t work.

    Default isn’t that big a deal.

    You should read that Reinhard and Rogoff book. Everybody defaults. Nobody cares.


    USA defaults.
    Interest rates rise.
    USA borrows less.
    Austrians pleased.
    Repeat as necessary.

    Kind regards,

    -Ben B

    • Helicopter Ben:

      Appreciate your input. Truthfully, it is a daunting task keeping track of all those thumbs.

      Your “pushing on a string” argument has merit, of course, as risk abounds on every path. To my way of thinking, it’s something akin to playing a game of liar’s poker, even as described in Michael Lewis’ book.

      More aptly, “pushing on a string” is possibly the most dangerous, but often most successful, strategy in that old game of tug of war. We’d best remember that, when the stakes are high enough, even our own behavior becomes unpredictable.

      Austrians Pleased: Yeah, maybe so. But, that’s not to say there aren’t winners and losers in the rubble. By losers, of course, I really mean “pain and suffering”. Would I personally like to see that happen? I’ll have to chew on that.

      Everybody Defaults: I suspect you’re referring to “This Time It’s Different“, which, thanks to our HDW, I’m currently “wading” through. I expect I’ll have more cogent review comments in the future. For now, I’ll concede that, yes, this is recurring historical pattern, more-or-less consistent with the Austrian view. As to “nobody cares”, well, in the words of the “real” Harry Tuttle, “that’s a pipe of a different color”, ha, ha.

      Again, we (individually or as a nation) ought to be mindful of the consequences and plan accordingly. Even when it’s unavoidable and inevitable.

      Thanks again for your input.

      Harry Tuttle

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