- A Few Ways President Palin Can Destroy America

Mike Potemra has a typically thoughtful post over in the corner, about Sarah Palin's 2012 candidacy chances. It lit up their comments section like a Christmas tree, and you should definitely read it. You'll find links to his prior bits as you go.

Like everyone else, it's gotten me thinking about it a little. If she did get elected, I'm not sure her presidency would be what we on the right would hope for. In short I agree with Mike's basic assertion that Sarah is an Obama of the right. And even as a fan of Sarah, that's more than a little disconcerting to me.

Don't get me wrong, like I said, I'm a fan. She kept her baby even with Down's Syndrome so we know she walks the walk on the right to life. Her daughter kept her baby even though she wasn't married, so we know that Trig wasn't just political calculation as some of her critics accuse. That also shows us that she not only really holds the values she seems to but that she taught them to her kids. Further, we know that she absolutely will stand by and see her blood put on the line while specialist Palin entertains himself in the sandbox, and I can't imagine a better test of character than seeing your child be put at risk. She's the real deal as far as we on the right are concerned - there is no doubt about it.

But setting aside the effect of the media misrepresenting him as a centrist, the same could be said about Obama and his fans on the left. As far as they were concerned he had also proven himself in the ways that they felt were important. First and foremost... his father was black, and nothing means more to the American left than the way that a candidates views race. He then attended 'the right' schools. He swore off a life spent generating any type of profit and instead became a community organizer... a much more noble vocation for lefties than some evil corporate job. Then he went on to devote his life to 'public service', the ultimate lefty calling.

As sure as any of her fans are about Sarah, the left justifiably feels the same way, at least about candidate Obama. So what's my beef?

Well I think it will be just as easy to destroy the western world from the political right over the next decade, as it would be from the political left. And as much as I admire Sarah, I believe she'll be way out of her depth in dealing with the economy and the modern banking system. In fact, to be honest about it I think she'll be so far over her head that I don't think she'll know enough to choose her advisers well.

That isn't really her fault. These are dangerous times for the western world. Half the people who actually work in the finance industry don't know how fragile things are right now, and it would surprise me not at all to discover that no one in Washington does. At best I'd put the odds of her financial team understanding the full impact of their actions at less than 20%, no matter who she picks. That's a far sight better than anything the left is offering. But it's fair question to ask how this former Alaska governor with a journalism degree can have any chance of getting this issue right.

It's a real quandary.

Let me offer just a few quick examples of how a principled conservative position can destroy the prosperity of the west for a generation or more:

The key to the economy of the western world right now is that assets are overvalued. Which assets? In some respects ... all of them... it depends on how you look at it. But at the very least it applies to housing, mortgages, mortgage bonds and their descendants, and US treasury bonds. (So too is all that European debt, but that's not really her problem to solve.) So for things to go back to 'normal' we need to allow those assets to revalue to a price that the market will bear. But to do that, someone will take a loss... a big one. So what do we do?

Well Washington can pick the winners and losers. It can command the big banks to take the losses for instance. Everybody hates the big banks these days so that would be politically palatable. But those losses have already been partly nationalized when the treasury issued bonds to pay for Tarp. So if the govenrment does simply command the least popular political player to take the hit (ala Obama in the Chrysler - UAW bailout) then the bonds that get revalued will negatively effect the value of other debt being held by insurance companies and pension funds. So the losses will flow through to private citizens who thought their retirement would be there but now it won't. That ends badly.

Instead we can say that we're going to simply liberalize the markets again and let the chips fall where they may. Deregulate, liberalize and let the market tell US which assets should be revalued and by how much. That has the virtue of forcing the people who most missaporpriated their risk to take the most loss. That sounds great on paper, but it won't look good in practice when all of that deleveraging takes place in a single afternoon - and that's very much what would happen.

The markets are so over sensitive to shock right now that they will badly overshoot 'fair value' targets. And by the time that day is over, the effect will be ruinous. Thousands of financial companies will be bankrupt whether they had done anything wrong or not. When they go and lending dries up, they'll take a fair portion of the broader economy with them. By the time the tally is taken, unemployment will be skyrocketing - even by today's standards. We might have been able to liberalize before Tarp, but with all the rules now changed to socialize the losses, the markets aren't robust enough to survive it again.

What's worse, in both of these examples when the bond losses flow through to the pensions and insurance companies, the short term result will probably be a money market crisis. That will create runs on the banks, and since the states and municipalities are all broke, President Palin will be declaring martial law before they get that under control. Then there will literally be blood in the streets, and not just wall street.

Suppose we went a different route and took a hard nationalist position. That way we would make US investors whole while forcing the defaults through to foreign investors. The Chinese are certainly unpopular - they don't even pay taxes. But if we did that then people who are in a position to know have told me that the Chinese government will probably collapse. And when it puts down the rioting(the Chinese have no problem firing live rounds at the crowd), they'll still have a huge military and nothing to feed them. That's a bad situation to even ponder because guy's with guns never starve.

Suppose instead she just kicked that particular can a little further down the road and instead took a hard line on the fed and QE2-3-4 etc. The Fed is really unpopular so the voters will love that. But when that happens, the US treasury bond price will collapse. The soaring interest costs that will come with it would decimate the treasury and leave half of the states, and all of the large cities bankrupt. And I don't mean this 'Oh my, how will we ever continue to guarantee those union promised 5% pay raises for all our teachers' sort of bankrupt, I mean real 'everybody go home now because we can't pay you anymore' bankrupt. Government layoffs will be massive and if we want to keep paying the Army (and we'll want to) then governments will have to enforce massive layoffs. 18 months later the unemployment rate will be 30%, but no one will probably know it. Why? Because when it reaches 25% there will be wide scale riots, followed quickly by martial law.

Anyway, the point of all this moribund speculation is to highlight how easy things can fall apart right now and how destructive a polemic position will be even if it's coming from the right. In order to get through this without someone getting hurt, we're going to have to take a lot of small steps in the correct direction. And the problems are so complex and severe right now that I'm not sure anyone whose being considered in 2012 for the Presidency is really up to the task, including the current president.

Of course I'd prefer Sarah Palin to Obama, or anyone else on the left. Frankly I think it goes without saying. But just because she's trying to do the right thing for America doesn't necessarily mean she can. I apologize for leaning on yet another movie quote, but the right the correct path really is 'as narrow and hard to walk as a razors edge'. And I don't think the fact that she'd be going in the more or less right direction will be enough to get us through this.



%%%%%%%UPDATE%%%%%%%%%


Here is one more way that Sarah can utterly destroy the western world. In fact, she clearly doesn't understand how serious this will be because she's already signed on to it via Facebook.

Right now the Bond Markets are treating the State and Municipal debt as if it's automatically going to get a bailout from Washington. If it doesn't, then the losses will flow through to the broader markets as pensions are forced to sell their holdings. The result will be utter disaster.

From my position, betting on a state bailout is a lot like betting against an asteroid hitting the earth. If it misses the earth, even by just a little, then I get paid. But if it hits the earth, there is no one around to come collect from me.