Friday, March 7, 2014

“The End of ‘Chimerica’”: Excerpt from “A Secret History of The American Crash”

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Here’s another excerpt from “A Secret History of The American Crash”: From Chapter 5, “The End of ‘Chimerica’”, here’s the testimony of “Roland”, the head of a private equity firm, and “Tom”, a caretaker at the abandoned Port of Los Angeles.

The interviews were carried out in the summer of 2020, both men looking back at what happened in late 2014, early 2015:


Interview recorded June 28, 2020: Roland* is a 47 year-old former Wall Street bond trader who currently heads a major private equity firm. He is over six feet tall, slim, handsome in a Northern European sort of way, with short white-blonde hair and a crisp diction that speaks of education and privilege.
He is a wealthy, powerful man.
“I’m not powerful for who I am, much less for the money I have,” he tells the interviewer. “My power, my privilege and my security come from how I am connected to the One Percent--which is not the ruling class, but rather a ruling class; one of several.
“How necessary I am, how useful I am to the One Percent ensures that I remain a member of the One Percent, and thus remain protected. I’m . . . a useful cog in a vital machine. A key member of a street gang. I’ve worked at all the [Wall Street] firms, I even did a stint at the Fed [Federal Reserve], and everyone in finance likes me. Even the ones who think I’m an asshole think I’m one of the gang--and this is crucial: I belong to my gang. And since my gang is powerful, I am powerful.
“You see we’re all gangs, here in America.
Some gangs are powerless; like the zippits [i.e., mobile indigent], like the Whiskey Tangos [i.e., “white-trash”], like most of the rabble in the FC [Flyover Country]. Some gangs are powerful, like the One Percent, like the Cathedral [the informal name for the American intelligentsia], like the Beltway Bandits [large government contractors], like the military, like the government higher-ups. Some gangs vanished when America started to fade, like the feminists, like the Jews. Some gangs became much more powerful as America crashed, like the police, like the military, like the Mormons, like the One Percent.
“Each of these gangs takes care of its members, just as we members give it our allegiance to our gang. All of these gangs live in the debris of a once-great nation, competing and co√∂perating with one another for the scraps that remain,” he says. “We’re here in Manhattan--and Manhattan is the IZ of the One Percent, make no mistake about that! But it’s also the IZ of the Cathedral, with whom we work closely; we’re allies: We give the Cathedral money, the Cathedral gives us propaganda. Manhattan is no different than other places: Out in Utah you have the Mormons’ IZ, an IZ based on religion; in Southern California, you have Asian IZ’s of every hue and nationality; in Montana, the White Supremacist IZ. Here in Manhattan, our IZ is based on money and propaganda, while down in D.C., it’s based on political power, and over in San Francisco it’s based on tech power.”
The interviewer asks him about life among the One Percent.
“Here in Manhattan? In the bosom of the oligarchy? Life’s pretty good. You got your restaurants, you got your personal assistants, you got your expensive hookers, you got your bespoke tailoring, you got your Broadway shows. Life is good--excellent. My salary is being paid for in americans--the most useless piece-of-shit currency ever devised, second only to the old-dollar--but my bonus? Well, we know better now don’t we: It’s being paid in commodities options, deliverable commodities options, we One Percenters are slowly-but-surely bringing back the gold standard by way of our bonuses, not because we give a rat’s ass about currency stability, but because we want the money that we get to actually be worth something.”
The interviewer asks him about the Stealth Run on Treasury bonds, and Roland laughs openly.


When Black September hit--remember in late 2014? When everybody was getting out of the stock market and into Treasuries? Remember how the yield curve inverted--but the whole curve began to rise?
That should have been a fucking clue as to what was going on.
That the T-bond yield curve inverted made sense: Longer paper [i.e., Treasury bonds with longer maturities] became more attractive as a safe-haven play [to investors], so its price went up, sending its yield down--long-term yields going lower than short-term yields.
Right there, you knew a recession or depression was on its way. I mean it’s a classic sign: Six of the seven times the Treasury bond yield curve inverted over the forty years between 1970 and 2010, the bond market was anticipating a major recession by a few months.
When the yield curve inverted during Black September, everybody sat up and took notice--everyone understood what was coming.
But the weird thing was, the yield curve inverted--short term yields were substantially higher than longer term yields--but the whole curve started to rise.
That freaked--the fuck--out of everybody.
Exactly, that’s exactly right: An inverted yield curve goes down--it flattens, is the term of art--because people are buying those bonds. And they were--I saw them buy them, I myself was one of those buyers, looking for a safe haven for the money I was managing.
But with all this buying, the whole curve began to rise, not fall like it should have. The 30-year [Treasury bond yield] should’ve been in the 1.5% to 2% range in the middle of Black September--not scraping 5.5%! And by Christmas [of 2014], it was as at 8% [yields]!
Which at the time made absolutely no fucking sense--at all.
Everybody started panicking--the Federal Reserve most of all. They had spent the last six years [2008–2014] making sure Treasury bond prices stayed up, yields stayed down--that was the whole point of Quantitative Easing.
But 30-years? Scraping 8%? Fuuuuuck!! The Federal Reserve was going ape-shit, they were [makes air-quotes with his fingers] “expanding their balance sheet” by fucking two-hundred-fifty billion dollars--a month!! Yeah! That’s right! Putting it all on the line--but Treasuries still kept falling in price and rising in yields!
What we didn’t know then, what we know now, was that when the yield curve inverted [during Black September], the Chinese took it as a sign: Get out of Treasuries--now.
I mean to them it made sense: They were sitting on $1.3 trillion worth of Treasuries--okay, that means nothing now, let me rephrase--they were sitting on Treasuries worth the equivalent of almost 10% of American GDP [Gross Domestic Product], almost a quarter of the total foreign holdings of Treasuries.
So they started selling [American Treasury bonds], and using the dollars they got to buy commodities. That’s why the yield curve was rising, even as it remained inverted--and then it steeped out and went parabolic: The [yield of the] 30-year [Treasury bond] hit 15% in March of ‘15.
The Chinese weren’t stupid, they saw the oil shock that resulted from the attack on Iran--and then the war with Iran, America going on to invade Iraq again--they [the Chinese] saw the price of oil quadruple. And they saw how the oil spike drove every other commodity up, and made dollar inflation shoot like a Roman candle.
What were the Chinese thinking, I’ll tell you what they were thinking: Get out of dollars and get into hard commodities. Notice:Not “Get into a different currency, rotate out of dollars into some other pissy little kind of paper money”--no. The Chinese were all like, “Fuck the euro, fuck the yen, fuck currencies--rotate out of the dollar and get into something tangible.”
What did that mean, practically, to the average American? It meant that they were being priced out of every commodity!
Oil, natural gas, industrials, cotton, even food! They all went parabolic. When the Chinese decided--all at the same time--to get out of American government bonds of every stripe--Treasury bonds, notes, bills, Agency bonds, notes, bills, not to mention U.S. corporate bonds--oh yeah, they dropped American corporate bonds like they were radioactive dog-turds--the Chinese took all that cash and bought commodities.
Oh we did the same: When I saw how much money the Fed was printing [in order to shore up the prices of Treasury bonds], I ordered my traders to dump every single mother-fucking Treasury and Agency bond--all of it--and go into commodities too.
When you get into a situation like that--the whole market going one way--you don’t fight it, shit, that’d be like fighting the wave of a tsunami: Stupid. Stupid and pointless. And suicidal. Chinese are selling Treasuries? Which is making Europeans sell Treasuries? My competitors selling Treasuries? Hell yes, count me in: I’m selling Treasuries, Goddammit! And maybe I’ll buy back into U.S. Government debt at some point in the future--but for now, right now? Fuck American debt, I’m going commodities--all in.
So not only oil but copper, steel, iron, coke all shot up in price, as did wheat, corn, sugar, soybeans, cotton, everything, even the rare-earths [elements] used in electronics and computers, not to mention gold, silver, platinum.
It all shot the moon!
And all these prices hit American consumers like a knee to the balls. That’s how American consumers were priced out of everything--even food.
And food prices, at the end of the day, were what broke the dollar.
Oh, you mean countries that sold commodities? They got these dollars--and they tried to get out of ‘em too! But how? How? How do you get out of dollars? Chinese are selling Treasuries to get dollars to buy commodities. Commodity sellers--the Middle East, Russia, Australia, Latin America--they get dollars from the Chinese for their wheat, copper, oil, whatever--do these commodity sellers buy Treasuries with all these dollars they’re piling up? Buy Treasuries and Agency debt as a place to park all those mountains of dollars?
No!!! No! No, what they do is, they buy other commodities! Commodities they don’t produce--so Russia is taking its dollar windfall from its oil and buying wheat futures, Chile is taking its copper-dollars and buying oil and natural gas, Argentina is selling its wheat futures and buying oil futures--or else they’re buying other currencies, any currencies, rubles, euros, yuans, yens, anything except the dollar.
It becomes a game of musical chairs: Who’s gonna be the fucking idiot dumb enough to be left standing with American dollars? See? So everyone’s spinning-spinning-spinning their dollars! Trying to get out-out-out of dollars and into anything but dollars.
Fact is, Australia of all people is the only one stuck with American dollars--the Aussies produce all the commodities they need, and they’re dumb enough to comply with the U.S. Government request not to get out of greenbacks; loyalty is so overrated, but they do it: The Australians hold on to all those U.S. dollars. So ironically they get hurt as they start piling up the greenbacks that are becoming more and more worthless each and every day.
Poor Aussies. They got fucked.
What Gold Rush? Oh you mean the Redemption Crisis--at the time it was happening we called it “the Redemption Crisis”, it was only after the fact that some academics started calling it the Gold Rush.
The Redemption Crisis, well what it was was confirmation of Warren Buffett’s famous saying: Only when the tide pulls out do you find out who’s been swimming naked.
All these commodity brokerage houses, especially the retail precious metals firms, they were all playing a Ponzi scheme--or more properly a game of musical chairs, another one: They did not have all the gold they had sold to their retail customers. So when all of a sudden the music stopped and all those small fry wanted their gold and silver coins, guess what? Sorry, no gold, you poor dumb bastards. I heard some of those brokers got shot by angry customers: Couldn’t have happened to nicer fellas.
When people talk about the Redemption Crisis, they talk about retail investors who lost their little gold nest egg or whatever--fuck those people, they matter not at all--what mattered about the Redemption Crisis was, same as with the bankruptcy of [Jon] Corzine’s outfit, MF Global [in 2011], what mattered was, agro producers went bust: Farmers, wheat, dairy, soy, they all had accounts that were frozen with [commodity brokerage] firms that went bust, and these farmers operated on a very-very thin margin. They could not afford to lose their hedge-money, they could not afford to lose their accounts, or have them tied up while the regulators sorted out the mess.
Those people--farmers: Those people going bust meant their land would be fallow. Fallow land means less food for sale. Less of something means? Exactly: Price rise. The Redemption Crisis in [January-February of] 2015 hit the U.S. Food markets six to twelve months later--which was why you had food riots later in 2015 and crazed zippits plundering the country during 2016: No food. And the little that there was? Sky-high prices.
Sky-high food prices? More and more inflation.
What? Yes exactly: This was a run on Treasury bonds, which mutated between Black September and March 2015--when the Chinese stopped accepting dollars for their goods--into a run on the dollar: The dollar, the reserve currency of international trade--the dollar, the currency now no one wants.
No, this was not a panic. A panic is when everybody gets nervous about something that’s fundamentally sound, that’s fundamentally solvent. The Crash of 1987--that was a panic. But this isn’t a panic, this is a run: This is the collective realization that the whole system is insolvent. This was a run on the currency, this was a run on the stock markets, this was a run on the bond markets, this was a run on the entire financial edifice of global trade.
This is what it looked like. This is what it felt like. This is what it was. ‘Cause America was overextended. So America went broke.

§

Interview recorded August 17, 2020: The Port of Los Angeles and its immediate neighbor, the Port of Long Beach, were the two largest ports in the United States.
Today, the two ports are derelict. Steel containers sit rusting on the enormous piers, randomly strewn about, their bright fading colors melding into one another. Abandoned ships at anchor, both lashed to the piers or anchored at sea, slowly move to and fro like hulking steel ghosts. Tears of rust run down every porthole of these dead ships, and a couple of them for no apparent reason have become the toilet for the seagulls, their decks and fo’c’s’les splattered with countless bird droppings, bleached white by the sun.
The hulking cranes that relentlessly used to move the steel containers around the port like so many children’s building blocks are quiet, immobile, weeds growing through the tracks of the cranes, rust dripping down their sides.
A random tree has sprouted up in the middle of what was once the container depot. Somehow, through a crack in the thick concrete--thick enough to withstand the weight of a half-dozen fully-loaded twenty-foot containers stacked one on top of the other--this tree has managed to break through and grow strong, cracking the concrete apart with its roots and trunk.
“Life will find a way,” says my guide through this desolation, Tom*. He’s a sturdy man, 5’7”, thick and powerful. He has a two-day growth of beard, his bristles a uniform iron-gray, his sun-browned face beneath his hard-hat a mass of craggy folds. He’s a smiling man, easy to talk to and get along with.
“Oh I started working here back in the mid-‘80’s,” he says casually. “Right out of high-school, I did. Graduated from San Pedro High, just a few miles from here. Born and raised right here, will probably die here.”
He surveys the empty, dead port, once one of the largest in the world. “Yep, yessir, it sure has changed,” he says.


When the trading stopped, you knew it. See these two ports here, LA and LB--Long Beach--these two ports accounted for a third of the imports coming into America. Cars and food, electronic gadgets of every sort, and toys, my goodness, toys of every shape and dimension came through here. I seen manifests three inches thick, and every single item on that manifest was a toy. And not just one toy--ten thousand of one toy, twenty thousand of another, and so on.
Of course you didn’t see any of them, except the cars. Nope, all those products coming in were locked up in their steel containers. All I seen were the manifests, and the appropriate containers. The cranes moved them around all day, nonstop: Pulling the containers out of the ships, stacking them here where the tree is and done yonder, then stacking them onto big eighteen wheelers [heavy trucks], then off they goes to wherever it is they’re supposed to go across the country.
See this port here, LA, and Long Beach too, they were bursting at the seams. We processed eight million containers in 2014. Over twenty-thousand per day, every day, day and night, Sundays too, nonstop.
Then one day in the late-winter of ‘15, it all sort of did stop, you see. Around March or so, there just weren’t any more ships coming in.
I’ve never been one to pay attention to the news, or to keep myself informed. The kind of life I lead, well I supposed I didn’t much care about people. All I cared about see was m’books and m’movies on the computer. Set myself up a nice job here, helping to move the containers about. Then go home to a nice TV dinner and read m’self something nice, a Louise L’Amour [author of paperback Westerns] say, or something chilling by Stephen King [author of paperback horror novels], or else watch a movie I’d downloaded onto the computer. I’d hooked up my Mac Mini [a type of computer] to a big ol’ 55” flat-screen [television set] that filled the whole wall. My house ain’t not two miles from here, in San Pedro. Rented it all m’life, since high-school. Just passing m’days and working here at the port.
Never expected what happened in ‘15. The ships were slowing down by the end of ‘14. Got to be that some days we were barely clearing ten thousand containers a day. Sometimes not even seven thousand. [Tom hawks and spits and wipes his mouth with a bandanna.] Come the new year, 2015, that trickle just slowed and slowed down some more until then it just finally stopped.
Was eerie, I’ll say so. The Port here’s seven thousand acres, usually a-bustling. But then come that March, and then April, and not a sound. That clanging bang of steel on steel, of a container unit getting stacked here or there. It all you see came to a stop, and all us dockworkers had nothing to do but sit in the sun and wonder what was going on.
Then there was the returns. Returns we called ‘em, not “returns”--“returns”. The returns were ships coming back from far away, China, Japan I suppose. They come back with goods from America, a lot of them food, all of them spoiled. They say they got to where they were s’pposed to go, but they wouldn’t pay ‘em in dollars at the exchange rate: They’d only pay ‘em the FOB [Freight On Board], in dollars. But the hyper-I was getting so bad back here in the States that a lot of the sellers tried to raise the prices of their goods when they got to the foreign port they were going to. They’d told the sellers, “Pay me the 1,000 yen or whatever you agreed when we signed the contract, not the dollars at the time of the contract.” But the foreigners, they got wise: They’d pay in dollars at the exchange rate on arrival. Ships had left the Port [of Los Angeles] with the dollar at ¥47, but when they got there, a buck was worth ¥18. The American exporters asked for yen, but the Japanese said no, we’ll pay in dollars as per the contract, at the FOB price. So the American exporters, they haggled and haggled, but in the end . . .
The returns of food had been spoiled while the exporters haggled. Yokohama, they told all the returns that they’d pay only in dollars--but at the new exchange rate. Just to stick it in.
The returns came back, and those ships you see out there, derelict in all but name? There they are, the returns. A lot of these exporters figured it was more expensive to deal with their ships and rotten cargo than to just leave ‘em there and ignore ‘em.
2016? Why that was the ghost year. Not a soul come by these haunts. I’m surprised that the zippits didn’t come ‘round here. They blasted through every other place around LA this side of The Wall. Then again there was nothing to steal, ‘cept containers.
The DHS [Department of Homeland Security] came looking for containers after DOPA-Norm [the Domestic Pacification and Normalization Act of January 2017]. They took them containers, all of ‘em, I do not know where.
In ‘17 we had a little bit o’ movement. Not here, over on LB [Port of Long Beach]. See every day that a port like this is inactive, every day lets the salt-air corrode all that’s here. A port’s like a living organism, it’s got to shed its cells and replenish ‘em. That’s what I used to do, what all the workers here used to do. It wasn’t just moving steel boxes around. It was maintaining this here port. Paintin’ where paint had to go, strippin’ away the rust, greasin’ the railings of the cranes and whatnot. Keepin’ this port alive, every day, little by little, bit by bit.
When we stopped . . . well: I don’t expect this here port will ever operate again. Too much rust, too much disuse.
Yeah that’s about right. Come 2018 or so, the Port o’ Long Beach started up again. Took ‘em a while to crank it up to go. They’re doing alright, moving I think something like two thousand containers a day. All of it outbound, though. Oh it’s almost all food; food and oil and coal, commodities you know. But precious little comes in. The foreigners, they don’t take americans. They don’t trust our money no more, no matter what it is we call it.


If you like this excerpt, then check out “A Secret History of The American Crash” here.

8 comments:

  1. Hello Gonzalo,

    Well done - I saw your post about Sir John Hackett's Untold History of WWIII - I remember when that came out - haven't read it in a looooong time but recall it was something about a Warsaw invasion of western Europe in response to Western forces intervening in the then Soviet Union's quashing of Yugoslavia's bid for independence. Funny how history rhymes? First as tragedy then as farce? Let's hope so.

    I only saw three possible spell-check errors - all in Tom's section which is purposefully written in dialect:

    "done" yonder should be "down"
    is "Louise" L'Amour Louis' lesser known sister?
    and,
    "hawks" and spits should, I think, be "hocks" as in "hock a loogie" but maybe that's a regionalism - when I looked it up I found support for both with one site opining that "hawk" was correct or at least the original with "hock" a plebeian corruption - but then again perhaps "hock" fits better with the voice of Tom's character than "hawk" does.

    I see your book is out and will buy a copy.

    Finally - I like the cover you selected because it was the one for which I voted!

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  2. One more thing - I like this section's title Chimerica - it works both as a "mash-up" of China and America, which I think is what you intended, but even more resonant to me was the idea of America being a Chimera - a thing that is hoped or wished for but is in fact illusory or impossible to achieve a.k.a. "The United States of Pretend" - we pretend we're solvent, we pretend we're decent and honest, we pretend (at our own peril) that the rest of the world are scoundrels and knaves if not worse.

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  3. okay, you got me. After reading the sample and this latest sneak peek, I'm going to buy this for my Kindle. My question is: if you update the book or fix typos, does Kindle allow me to update my version without additional charge? You may not know, but I thought i'd ask since the book is so new. Congratulations!

    ReplyDelete
    Replies
    1. Thank you! I hope you enjoy it!

      If and when there are updates, I'll be e-mailing updated versions directly to the readers (or rather, where to download an updated version).

      Tell your friends! Tell you neighbors! Get the word out on “A Secret History of The American Crash”!

      Cheers,

      GL

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    2. Very interesting writing. When will there be a kindle version available on Amazon? (many people have gift card balances there)

      Delete
  4. Hi Gonzalo
    I'd pay for a copy of "The Trooper" if you can get that available somewhere. You've left me hanging half way through that story for years now ....

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  5. "fo’c’s’les". You're weird.

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  6. Can someone clarify what IZ means in this text?

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Whether you agree with me or not, thank you for your comment.

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If you have a question or a private comment, do feel free to e-mail me at my address expat229@gmail.com.

GL