STEVE PIECZENIK TALKS

Greece is the  Opening Act of the Fiscal Tragedy Called “Over-Leveraged/ Under-Funded Economies” 

Including Brazil; Turkey; Italy; and Most Importantly –China!!! 

For some time now, I have felt like the Greek seer—the infamous, Cassandra. Clearly, I did not create the fiscal tragedies that I could foretell. However, I had the unique experience of having been involved in the crisis management of the Maryland Savings & Loan disaster of the late 1980’s.

One unidentified S&L requested my help to stem the flow of dollars leaving that particular institution in a suburb of Maryland. I soon learned that America can also suffer liquidity shortages. During that time, any check from any Maryland S&L was not accepted as a legitimate currency, even if the person had more than sufficient funds to cover that check. In particular, I remember how ordinary people were refused service at Giant Food Stores for the most basic consumer goods [bread, meat, vegetables]. Cash was king yet these S&Ls were forbidden to dole out more cash that a small stipend. Sound familiar? Thousands of Marylanders had to suffer because a S&L crisis was precipitated in a Colorado S&L called Silverado.

Who were the culprits in the Silverado fiasco?
None other than two spoiled, noisome, entitled brothers who never had any experience doing anything more than leveraging their identifiable names into dangerous deals that frequently ended up raping the public. By now those two brothers are well known—Neil Bush and Marvin Bush.

What made the S& L crises so hard to manage was the convenient editorial ignorance of the major newspaper in Washington D.C. In particular, the then highly esteemed team of Ben Bradlee and Bob Woodward were completely incapable of helping to stem a rush on the S&Ls because they had no comprehension of the difference between net worth and liquidity. That was the beginning of my crisis experience in managing a dysfunctional banking system and the ancillary variables that contributed to that S&L meltdown.

I will say that the Maryland prosecutors in Baltimore, along with the FBI, prosecuted those individuals who had started the rush on the S&Ls. Of  course, Neil and Marvin were never indicted. 

Now, for the present situation.

China has just entered a stock market crisis where the large amount of leverage in their markets have created a ‘bubble’ where the highly inflated values will lead inevitably to a crash. That is not wishful thinking on my part. China has had an artificial economy where in the political leaders have granted large sums of liquidity to friends, family members of the elite Communist Party. The political cronyism has led to a depressed economy where the GDP may be entering negative territory. All these highly leveraged assets, stocks and housing will fall in value because there is not enough liquidity to maintain the artificial values created by the inveterate Chinese speculators.

Unlike the EU, China has its own currency. However that currency, once lauded as the next substitute to the dollar, is basically a worthless piece of paper based on the bad faith of the political system.

What do I mean?
China for too long has based its economy on political cronyism and not the principles of economic entrepreneurial growth. As a result, the present leader, Premier Xi has no other option than showing that he is in charge of a failing economy by arresting many of his former comrades who had helped this princeling to attain his position of leadership.

In addition,  Premier Xi has created an elaborate strategy of reviving the concept of the Silk Road Trade from Russia back to the Middle Kingdom [China].

At best that narrative is a distraction from the more serious issue of unemployment for millions of highly trained university students; as well as, inculcating some hope in a desperate China which can barely provide water for over 500 Million of its inhabitants in the western part of the country.

So like the Bush family that keeps on giving us miscreant crises, the Chinese, like the corrupt Turkish, Brazilian and Italians are now in the cross hairs of financial meltdown.

Nothing taints a currency more than self-delusion and wishful thinking conflated with self-serving political corruption. For now,  Americans will weather out the storm; despite the fact that our political elite have absolutely no idea as to what to do.

The reason is simple. 

This country is so big geographically and blessed with all the natural resources that we could literally seal our borders and remain viable.

Also, we must thank those geniuses at Bretton Woods [N.H.] who had the foresight to dominate all future assets, commodities and properties all over the world in United States Dollars. Now that is American ingenuity!

Let’s see if we can’t bring it back one more time with someone who has economic experience and strategic foresight.

Let’s work to get that individual amidst the herd of bovine contenders.

Choose wisely!