ninme

The Times - Pakistan, the heart of a global crisis
From oil to gold, the outlook is darkening, by William Rees-Mogg

General Musharraf has declared martial law in Pakistan. Chuck Prince is being pressed to resign as chief executive of Citigroup, the world’s largest bank, apparently because of losses on sub-prime mortgages. The oil price has risen to $96 a barrel; the gold price has risen above $800 an ounce. That is the world in a nutshell, an international crisis, a credit crisis, an energy crisis and a dollar crisis.

Oh yay.

If the political situation in the Middle East were to get worse, the oil price would go higher and the global shortage of funds would become more serious. The same pressures that have threatened Musharraf’s position have undermined Chuck Prince’s position in Citigroup. We are not in a local Pakistan crisis, but in a global crisis that happens to include Pakistan.

At the same time, the dollar has been devalued against most currencies, and against gold [and against Giselle]. The Bush Administration has been responsible for the large US deficits on external account. The dollar price of gold has approximately trebled since President Bush came to office.

That is partly a reflection of the rise in the oil price, but it is also a vote of no confidence in the dollar, in the policies of the Administration, and in the policies of Alan Greenspan as Chairman of the Federal Reserve Board. One can never trust a central banker who would not rather face a recession than fund an inflation. Compared with his predecessor, Paul Volcker, Greenspan is an inflationist, and the devaluation of the dollar is his legacy.

In analysing a crisis of this kind, one should always bear in mind that nothing difficult happens unless there is a real pressure for it to happen. General Musharraf would not have instituted the state of emergency if there had been no Islamic militants.

Chuck Prince would not contemplate resignation unless the bank had lost a great deal of money. The oil price would not be more than $90 a barrel if there were no shortage and no threat of war. Gold would not be above $800 an ounce if people trusted the dollar. Real events force painful decisions to be made.

Well, brilliant.