DANGER..DANGER..DANGER

Fair warning for those 2-3 intrepid souls in search of financial wisdom (now there's an oxymoron these days) who just might find their way to these pages, it looks to this aging hippie, as Bobbie Zimmerman used to sing, the times, they are a changin'.

This week our Fed Chairman was reported to have told the French Finance Minister that the US had "lost control" of its budget. While this was reasonably apparent to anyone who noted how many items, like the current wars, were excluded from the budget and how little debate over the increasing debt was emanating from Congress, that this has become a public discussion seems notable. Just as the leaks of dissent from the sinking ship of war are becoming ever more prevalent so too are the leaks of dissent from the sinking ship of finance. How ironic that the Fed Chairman just clapped himself on the back for a job sell done in guiding the US to this pass. Yeah, Alan, you were right, it would have been much worse to have a little recession in 1994 than a huge one now. As an aside, just about every time Europe and the US seriously argue about US budget deficits, financial disruption follows (end of Bretton Woods, 1987 stock market crash).

Bringing the budget process back under control will require some heavy lifting. Thus when I read today's news of House Majority Leader, Tom Delay's indictment, and the recent exposure of Senate Majority leader Bill Frist's curious foresight in stock trading, I don't get the sense that these are the guys who can do the job. Meanwhile the Executive branch labors under the Sword of Damocles, or is that Fitzgerald. In the best of times it is difficult to sell a program of sacrifice, such as any massive budget cutting exercise, just ask any of the former leaders of the nations caught in the Asian Crisis. When the leaders are working under clouds of scandal, however accurate the accusations, the difficult becomes nearly impossible.

Under normal conditions these events would be worrisome, at least to me, in the context of the need to rebuild after Hurricanes Rita and Katrina, they are dire. Even the US has a credit limit, when it is hit, the $ will fall, just as any public stock's value falls when credit lines are maxed out and cash flow is insufficient to maintain operations.

Which comes first, Greenspan's departure or a severe financial shock? I favor the latter.