Two More Steps America Is Taking Down a Slippery Slope

by: Cam Hui, CFA

Several months ago I wrote a piece called Going south to Argentina, where I described the process where the United States and Argentina parted paths as promising emerging market economies about a century ago. However, much of the malaise that has plagued Argentina is now showing up in America today.

What happened to "inalienable rights"?
Recently I saw two more steps that America is taking down the road to Argentina. Yves Smith at Naked Capitalism writes:

Reader Walter passed along this distressing sighting from Chris Floyd’s blog. American civil liberties were gutted last week, and the media failed to take note of it.

The development? [The Supreme Court has ruled that i]f the president or one of his subordinates declares someone to be an “enemy combatant” (the 21st century version of “enemy of the state”) he is denied any protection of the law. So any trouble-maker (which means anyone) can be whisked away, incarcerated, tortured, “disappeared,” you name it.

Preconditions for a Dirty War?

This Supreme Court ruling sets up the preconditions for a Dirty War that Argentina saw in the late 1970s and early 1980s, where government forces made suspected left-wing guerrillas and their sympathizers “disappear”. Just as the repeal of the Glass-Steagall did not result in immediate consequences, I don’t believe that we will see the effects of this ruling overnight but the long term effects are potentially disastrous.

This ruling tramples on the Constitution and one of the most powerful symbols of America. Just understand this - that Constitution was paid for by blood, not only of the Founding Fathers, but by every American soldier. Every G.I. that ever enlisted swore an oath, not to the president of the day, but to the Constitution of the United States.

Remember the U.S. soldiers who fell at Omaha Beach?

…and at Pearl Harbor?

This Supreme Court ruling tramples on their graves. More importantly, it sets up the preconditions for an Argentina-style "Dirty War" that represses the population.

Addendum: An alert reader emailed me to note that the Supreme Court did not rule that the president can declare anyone an enemy combatant, but declined to hear an appeal from a lower court on that issue (which is judicially a very different matter). While the ruling (or non-ruling) nevertheless has far reaching implications, it isn't as bad as I initially thought.

Selling off the family silver to pay the bills
Equally disturbing was Robert Shiller’s trial balloon about selling GDP-linked bonds. His proposal represents the sale of the equity of the country which involves participation in economic growth, as opposed to the debt which involves no participation in growth.

Shiller’s proposal is an echo from a past era of what happens when empires get desperate. Consider what historian Niall Ferguson had to say about the financial difficulties of the Ottoman empire about a century ago [emphasis mine]:

The crisis had two distinct financial consequences: the sale of the khedive's shares in the Suez canal to the British government (for £4m, famously ad­vanced to Disraeli by the Rothschilds) and the hypothecation of certain Ottoman tax revenues for debt service under the auspices of an international Administration of the Ottoman Public Debt, on which European bondholders were represented. The critical point is that the debt crisis necessitated the sale or transfer of Middle Eastern revenue streams to Eur­opeans.


In Disraeli's day, the debt crisis turned out to have political as well as financial implications, presaging a reduction not just in income but also in sovereignty.

In the case of Egypt, what began with asset sales continued with the creation of a foreign commission to manage the public debt, the installation of an "international" government and finally, in 1882, to British military intervention and the country's transformation into a de facto colony. In the case of Turkey, the debt crisis was followed by the sultan's abdication and Russian military intervention, which dealt a lethal blow to the Ottoman position in the Balkans.

Given that backdrop, analysis showing that the US needs to roll over $3.4T in debt over the next four years must be a huge concern, not only for investors but for the political stability of America and the world.

[Sigh...] sometimes you can’t save the world, you can only save yourself.

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