The Era of Peak Scam

It seems that not a day goes by we don't read about some juicy new financial scandal. The latest is the embezzlement of billions from funds earmarked to help 'rebuild' Iraq. The total cost to the American Citizenry may never be known, but as the article from The Independent notes, it's probably bigger than Bernard Madoff's $50 billion Ponzi scheme.

As we've remarked before, the 2007 Depression is an out-of-control freight train, hellbent on crushing anything and everything that doesn't get out of its way. At the same time, the still-present squeeze of Peak Oil (indeed, Peak Just-About-Everything) is working its own magic on the world economy. Together, these trends are forcing the world economy to continually shrink; one can see the effects of this shrinking in the entire world, from China to Canada.

With this world-wide crush ongoing, it will be very difficult for viable, legitimate businesses to survive. However, the crush will be even harder on the many, many scams of the world. Bernard Madoff was a smooth operator... but he was only the weakest hand in a whole world filled with smarter, bigger operators. The Galbraith Financial Principle comes into play at this point: the biggest and smartest fall last.

Scams, by their very nature, are unproductive and wasteful, and exist by leaching off of productive, honest endeavours. Time will tell if we are correct, but we suspect that the world has seen Peak Scam. Never again will the world enjoy such a perfect collaboration of cheap, widely available energy, and the impossibly loose financial environment of the past eighty years or so. There's a tonne of fat in the world economy, but that fat is being worked out... viciously.

Racing to the Next National Blow-Out

As the financial hydrogen bomb cloud over Iceland begins to fade, her citizens are beginning to adjust to life in a long, cold nuclear winter. Surrounded by a glow-in-the-dark landscape, and a currency that burns to the touch, they've begun to pick over the ruins of their previous life. With a new coalition government in the works, and the age-old practice of whaling to provide jobs, Iceland will probably pull through... though she will be vastly changed. We hope they can find some whales.

Frankly, though -- and not to seem callous -- Iceland was a weak hand. One can call upon the Galbraith Financial Principle: the best and biggest will fail last. Iceland was neither biggest, nor the best; she was merely the first country squashed flat by the 2007 Depression. The question one should be asking is not how will Iceland pull through, but rather, who's next. This piece has a very good list: Great Britain, Latvia, Greece, Ukraine, Nicaragua. We would add Mexico to this list; however, these are probably the next countries to go.

Personally, we would put our money on Great Britain: she's in rough shape, and with the annihilation of the pound sterling in the works, the Brown Government could very well go to pieces a la Iceland. When governments say they aren't concerned about the value of its issued currency, bad things can happen. The Brown Government may feel it's on top of the situation, but it's no more in control than Zimbabwe's.

Then there is the terrible crime of hubris: Mr. Paul Marshall recently told a Treasury committee that a Madoff scandal in the U.K. is "very unlikely." Funny, but we remember Mr. Madoff himself saything that very same thing... Big investors are assuring the Brown Government that there is no "U.K. Madoff," but if the government believes that load of lies... they're unworthy of governing.