Russia appears to be at it with the psychological warfare again.

This time, Russian “professor” Igor Panarin is spreading FUD about the future of the United States by predicting its dissolution by 2010.

He based the forecast on classified data supplied to him by FAPSI analysts, he says. He predicts that economic, financial and demographic trends will provoke a political and social crisis in the U.S. When the going gets tough, he says, wealthier states will withhold funds from the federal government and effectively secede from the union. Social unrest up to and including a civil war will follow. The U.S. will then split along ethnic lines, and foreign powers will move in.

Gary Schilling saw it coming in 2007. What does he see coming now?

Keep an eye on Russia.

It’s been high times for the past several years with the coincident humbling of its former superpower rival and the rise of oil prices. The New Russia has been flexing its international muscle — economic, diplomatic, and military — and feeling pride about reasserting itself in a bid to regain lost glory.

Now, the fall of oil, combined with Russia’s historical instincts to stir trouble abroad when there’s trouble at home indicates a need for caution.

The precipitous decline of oil and linked weakness of the Ruble creates slippery path for Putin and Medvedev. As the WSJ points out today in “Oil’s Crash Stirs Unrest In Russia As Slump Hits Home”:

The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government’s options may narrow as its financial reserves shrink.

New Russian drinking buddy Venezuela is facing similar pressures. Will they collude to cause trouble for a shaken and weakened US and a new, “untested” commander-in-chief in the coming months?

Beware. History is filled with examples of totalitarians demonizing rivals and launching foreign adventures when there’s trouble at home. It’s nice to change the subject when the path is slippery at home.

Sharon Astyk’s called 2008 pretty well and, with a couple of quibbles, I agree with her 2009 predictions. Sadly.

I think that she might be underestimating a few things:

• The ability of the US government to pull rabbits out of the hat. When you control the money presses and regulate the financial markets, you can do quite a bit. For a while longer.
• The interest of foreign governments in keeping us afloat until they can untangle themselves from dollar investments.
• The ability of banks and industry to manipulate government policy to their liking in the name of “crisis”.
• The “new coach” mentality changing consumer sentiment. How long Obama has before people lose hope is the big question here.

The WSJ hits the Bush/Obama bailout mentality hard in their editorial “Barack Obama-san.” Politics aside, it’s a sobering review of what has happened to the Japansese economy after real estate and stock market bubbles burst and the government responded with multiple bailouts.

Here’s the chart that compares Japansese and US government debt as percentages of their respective GDPs:

This is a troubling reminder. Not a road to go down, right?

But we’ve already gone down that road. And I’m not talking about AIG or TARP.

You see, this editorial focuses on government debt. But the total national debt that includes individuals and businesses has already bloated!

A recent Morgan Stanley presentation highlights the spike of total debt in the US (on slide 6). Since the turn of the century alone, it has spiked from roughly 250% to 300% of GDP!

The lesson to be learned is more than the ineffectivity of public stimulus, which the WSJ rightly highlights. It is that, regardless of the source or destination of largess, its tantilizing short term benefits are dwarfed by its subtle, long term poison.

Just like binge eating, the pounds remain after the pleasure, and make it that much harder to cut back in the future.

Janszen at iTulip.com is always on target. His latest post, focusing on the latest rate cut insanity and the Fed’s likely next steps is no exception and a a powerful must-read.

Early in the article, he focuses on the potential short-term benefit to consumers being huge discounts. But he also lays out some prophetic advice:

Advice to readers: take advantage of the early 2009 Great American Fire Sale and go out and buy all the generators, chain saws, washing machines, fine linens, and other durable goods you’re going to need for the next few years because by the end of 2009 most of the inventory may be sold through, many retailers will be shut down, and replenishment of stocks of the survivors will likely be meager; our models say that the goods import supply will decline more precipitously than the supply of money available to pay for them. That spells severe stagflation. 

But elsewhere he suggests that consumers would better save their limited funds to prepare for the coming disaster than to spend them. But isn’t that contrary? Besides the obvious need for cash on hand to pay the increasing bills, isn’t the cash going to be worth less once the temporary, bankruptcy-driven deflation passes and the monetary policy-driven inflation kicks in?

Stunningly easy money continues to be shoveled into the markets. The negative effects are apparent to those who are paying attention, as highlighted in this Bloomberg article:

“The dollar will go to new lows as the U.S. attacks its currency (out emphasis),” said John Taylor, chairman of New York-based FX Concepts Inc., which manages about $14.5 billion of currencies.

As we discussed earlier, the dollar appears to be in decline again. Whether it will turn into a full-fledged “run” on the dollar at this time remains to be seen. But the surge of the last few months brought on by year-end settlements appears to have run its course and is evaporating as we watch. The Fed’s actions and Bush / Obama pronouncements are pouring fuel on the fire.

The immediate outcomes? Commodity prices, which are declining significantly in “real” or even “Euro” or “Yen” terms, are likely to be flat to increasing for Dollar-based consumers. The tailwinds that bring an economy out of recession will be weak or non-existant. Stagflation is likely.

Disruptive events notwithstanding, this is going to be a terrible time to be in the dollar. Occasional 4% surges in the Dow are meaningless when countered by coincident 4% increases in EURUSD (better than $1.40 as of now)!

Investing in currencies looks like a good course of action, but understanding the details of how to do that wisely is important. (Any experienced suggestions are appreciated!)

Two things I ask of you;
  deny them not to me before I die:
Remove far from me falsehood and lying;
  give me neither poverty nor riches;
  feed me with the food that is needful for me,
lest I be full and deny you
  and say, “Who is the LORD?”
or lest I be poor and steal
  and profane the name of my God.

– Proverbs 30:7-9

The government may have announced that they’re insuring money market investments, but what happens when the yield turns negative?

Record-low yields on government debt have already led money-market funds to waive fees to keep returns positive. If the Federal Open Markets Committee, as expected, cuts its target rate, some Treasury funds may allow returns to turn negative, said Peter Crane, president of Crane Data LLC, a money-fund research firm in Westborough, Massachusetts.