Crash 2: How the hard of brain will destroy us all.

“The EFSF will need to be leveraged up,” Lael Brainard, the U.S. Treasury’s undersecretary for international affairs, said to a Senate subcommittee yesterday in Washington.

I would hazard a guess that Mr Brainard didn’t do much hard brain-work on that one. Or it could be that he was dumbing it down for the sake of all those senators who probably, let’s face it, don’t really have a clue where the EU is, let alone what the debt crisis is about. When I was in corporate life, I was often told two things by Americans: “we have a can-do attitude, and the British  won’t get behind things”. American suits  start from the assumption that their solution must by definition be the best, and so any criticism of their ideas is greeted by the charge that one ‘isn’t getting behind’ the cawncept.

The trouble was (and is) that the American ideas almost always involved borrowing a barrowload of money in order to go do some leveraging. You see, leveraging isn’t using credit in the States, it’s getting all your resources together and Going For It. This is also known as betting the farm, and it’s a risky strategy because, on the whole, most people who lose the farm don’t have a back-up farm hanging around doing nothing. If they did, it would’ve been leveraged in the first place, right? It’s the American way.

What your US corporate is best of all at, however, is telling other folks to leverage things up. And Mr Brainard’s addition of ‘up’ does put me in mind of the American business approach to all things – let’s Big It Up. Or rather, you big it up.

This strikes me as a profoundly odd thing to say in a public medium. I mean, I grasp the idea of a bank going to a client and saying in private, “What you have to do in this takeover deal is give the City the idea that you’re bigger than you really are”. I grasp it because, in the 1980s, I had investment bankers putting such a proposition to me on a more or less weekly basis. And of course, that was where these investment banking chaps came in: they were always very good at drumming up the money.

But it would be harder to get my brain around publicly announcing the scam – even if I was called Brainard. Because then the City would say “Ah, this is just a bunch of lowlifers pretending to be high-fliers”. Yet throughout this eurozone nightmare, if you think about it, time after time, politicians have stepped up to the mic and said – for example, Geithner in Polandlast month – “What you guys should do is make $400 bn look like $2.3 trillion.”

Just to reiteate for those who are ard of brain, there is no big bazooka, and there is no money to borrow a big bazooka. The only way we’re going to get a big bazooka is by printing money and borrowing. And this has been, ever since Greenspan’s missed No-Brainer in 2004, precisely what the American Treasury’s strategy has been. Unsurprising, therefore, that this is their idea now.The credit and bondholding markets are not impressed by it. They don’t know what to do, mind you: they just know what not to do. (In this, they are way out in front of the Brussels Sprouts).

In Wroclaw a few weeks back, I thought the grumbling anti-Americanism of EU pillocks like Radio Juncker was nothing short of pathetic – and incredibly rude to Tim Geithner, who did at least have an idea…even if it was barking mad. But sooner or later we must all face one simple fact: the model of global capitalism that has landed us in the doodoo swamp is an American one. It didn’t drop from space on two tablets of Prozac: it was and is the American way – and for all the GOP’s posturing about thrift, it started with Reagan. By the time “George’s no-account Goddamn son” (Ronnie’s own words from the Collected Diaries) Dubya had turned up, it was a way of life for almost every American.

Leveraging is that way of life: I Want It Now, and I Want It Big. The Fed in general (with honourable exceptions in Texas and Chicago) and Bernanke in particular do not know any other Way: they have only the American Way. And that is to borrow, consume, and then borrow some more.

Calling this idea of economics insane is actually being unnecessarily rude about the mentally ill. Not only can it not continue ad infinitum, it only boosts the domestic economy, and increases imports if one’s own output isn’t cutting it. In those two sentences, you have – right  there – all you need to know about the joint UK and US problem. We live too high, we want too much, and we don’t make enough desirable things at the right price any more. Now we’re being taken to the cleaners, and it looks like we’re going to be chucked into the carbon tetrachloride tumbler along with the clothing.

“The EU can afford to sort this probleem right now,” said some clinically obese, puce-faced senator yesterday. But in American culture now, “afford” is judged entirely by “ability to borrow”, not ability to pay. This is where most Anglo-Saxon cultures (including Australia) have gone wrong. Once that model was applied to the laisser-faire public accounting systems of Southern Europe, it  proved disastrous. When the global lending organisation largely run by the US, the IMF, moved into Europe, it simply parrotted Friedmanite drivel about cutting infrastructure spending and selling State assets. Just as it did in Chile, this has now made things worse than ever in Greece, Spain and Portugal.

At the bottom line, the US Government is displaying anger not about EU dithering but about the threat to its own situation. China has remained more quiet because China could live on its gold and surpluses for decades if necessary. The US isn’t in that boat. The US is in the water, dying of cold, and heading for the seabed. The elite know this, but most Americans – including most commentators – really do not. Not only are they going to have to learn the hard way this time, the whole capitalist world will have to stop this ridiculous blind man’s bluff, and face up to the flaws in free-market globalism. My fear, I have to say, is that those in change are incapable of that dramatic change in mindset. Lloyd Blankfein, I’m sure, simply cannot conceive of a contented world in which there is no ‘growth’, no credit, and few if any Goldman Sachs-style banking firms. He’d probably think it was called Communism.

And this is the root of the problem: there are no open minds out there, only books closed forty years ago and used as Bibles from which to quote ever afterwards. Oddly, while I fear the medium term objectives behind Berlin’s rigid attitude, in some ways I applaud it. To take the French road would merely be to put off the day or reckoning yet again. And to take the US Treasury’s advice would land all of us, one day, in the same money pit as the United States of America.


‘Chinese solar companies may soon find themselves bereft of foreign markets as Western manufacturers intensify a trade war and seek stiff anti-dumping duties on low-cost Chinese products.’ (Reuters)