The Silver Lining

Let's stipulate that people outside the U.S. were getting nervous that the Tyrant was about to pull the trigger on Iran. Consider Pakistan first. Musharraf must've been asking himself whether he could survive a new wave of pro-Islamist anti-Americanism. And he was in a dicey political situation already vis-à-vis democratic reformers. Waiting risked being replaced from one or another or both of two directions, if not more. The only big cost he had to calculate was the chance of the U.S. cutting off huge, unaccountable cash transfers. He figured Washington wouldn't, and he was right. And give the guy a little bit of credit: he may have thought that if he were replaced by more overt pro-Islamist forces that then Pakistan might fall under U.S. gunsights, either directly or by having India sicced on them, with fairly dire consequences. Moreover, Musharraf must also be aware of the effect of his actions on Washington's gaming Iran — a key point. He can drag out his crisis until he feels he's in the clear (if ever) and then try to get back to where he was. Sounds like a plan, to me.

Next consider those who are propping the U.S. up financially by buying dollars. They also read the tea leaves regarding a war with Iran and they emphatically don't want to go there. Nor are they about to be bullied into paying for it. So what do they do? They start overtly, slowly, deliberately moving out of dollars. Quite apart from the general scare this throws into Washington, if you think about it, it's really a very good thing from an economic point of view because it preempts a future, otherwise inevitable, and panicky, dumping of dollars, a stampede for the exits, when nobody outside the U.S. wants to be left holding worthless pieces of green paper. Unwind the U.S. trade deficit slowly: painful but good. Unwind it later in a crash: catastrophic for the U.S., dangerous for everybody else.

Rooting out bad debt, it seems to me, is a subset of this problem. A way for the markets to say "hey, wait a minute, you can't just go ahead and do what we think you're thinking about doing" but without even having to explain. Just tie Gulliver down a little bit. Not that the bad debt write-downs could have been avoided, but that the way they're being handled is on the harsh side.

Oil prices are more of an independent variable but even there there's a difference between the Saudis making soothing noises about ramping up (non-existent) supply or beginning to acknowledge that, yes, we may need to begin considering a bumpy transition out of oil based economies. They haven't quite got to the latter but they're leaning away from the former about as frantically as they can.

So the international message to the White House is cool it! The question, I guess, is how crazy are the war-mongers, how far are they willing to go, and are they willing to bring on an international crash? If they do, my working assumption will be that that was their purpose all along, in furtherance of some vision of totalitarian rule.