In the Vietnam War, the U.S. desperately needed some metric to measure what was essentially measureless, i.e. the political inauthenticity of the South Vietnamese regime and the ruthlessness and ambition of the North Vietnamese.

So the U.S. established "body count" as the metric of "success" in the war. Once this metric was established, then pressure for "signs of success" led to every civilian killed in bombings and raids (these deaths numbered in the hundreds of thousands) being listed as an enemy combatant to boost the all-important body count.

The American people were still in the thrall of the government's stupendous success in winning World War II and in managing large programs like NASA, and so they naively trusted these nonsensical metrics of "we're winning the war"--until the ferocious Tet Offensive in 1968 blew away all notions that victory was at hand or perhaps even possible in the typical meaning of the word.

Elisabeth Kubler-Ross pioneered an understanding of human grief via this progression of emotional and intellectual processing:

- Shock or Disbelief
- Denial
- Anger
- Bargaining
- Guilt
- Depression
- Acceptance and Hope

Kubler-Ross's stages were: denial, anger, bargaining, depression and acceptance; shock and guilt are certainly applicable to the American public's processing of the Vietnam War: shock that America could "lose" a war; anger at its mismanagement and the leadership that mired the nation in the war; bargaining for "peace with honor" (gag); guilt over the senseless deaths of thousands of Americans and hundreds of thousands of Vietnamese, Cambodians and Laotians; depression over the loss of trust in the U.S. government and the suffering of the wounded/imprisoned, and at least for some, acceptance, and now, hope for better relations between Vietnam and the U.S.

We should be skeptical of all supposedly telling metrics. In the dot-com mania one number could whipsaw the Nasdaq: the "book-to-bill" issued by the semiconductor industry. Does anyone even track this once-mighty stat? I doubt anyone outside the industry even knows what it is now.

We all know how the unemployment numbers are massaged and juiced to reflect a built-in bias towards "growth" and good times": the phony birth-death model, the disappearance of unemployed after they fall off the unemployment office ledgers, etc.

In a similar fashion, we all know official inflation numbers have been manipulated for decades to build in the same bias for "growth" and good times": food and energy were pulled out lest they boost the statistic to uncomfortable levels, etc.

As noted yesterday, official gerrymandering of statistics to create the illusion of growth and prosperity is not a uniquely U.S. phenomenon. From the Wall Street Journal:

China Slows, World Feels the Pain

Chinese consumer spending has held up well in official figures: Official data on retail sales show them growing 17.9% in September in real terms, up from a 13% to 14% pace earlier this year. But that apparent acceleration is hard to square with outright declines in car sales, down two months in a row after years of double-digit growth, and airline travel, which has decreased every month since May. Sales of major home-furnishing and appliance retailers also are off. Economists suspect actual spending is weaker than the headline figures indicate.

The slowdown highlights how, for all of its show-stopping growth in recent years, China has yet to achieve the kind of scale needed to single-handedly drive the global economy. China ranks 100th in the world in terms of per-capita income, and accounts for 6% of the global economy at market-exchange rates. After adjusting for purchasing-power parity, as many economists favor, China still accounts for only about 10% of the world economy.

China's domestic demand simply isn't big enough to replace the enormous role played by the U.S. While China's 1.3 billion people collectively consumed about $1.2 trillion last year, America's 300 million people consumed $9.7 trillion.

There is plenty of denial in official claims that the "slowdown" (heh) will last a quarter or two, but regular folks have burned through denial and are now worried: Turmoil May Make Americans Savers, Worsening `Nasty' Recession (Bloomberg).

Correspondent Bill R. submitted this article by Peter Schiff Just stop paying your mortgage, a bitter reflection of the growing anger that the banking oligarchy is getting bailed out but homeowners with any equity or assets are left twisting slowly in the winds of foreclosure while their irresponsible brethren with no equity or assets are shoveled onto the Federal government via Freddie Mac and Fannie Mae.

We can also detect the outrage in pieces such as this, submitted by correspondent Bill M.: The Idiots Who Rule America (truthdig).

We can also see the bargaining stage at work, as the government desperately tries to stop the deleveraging conflagration sweeping the globe. ("Please, Dark Lords of the Fed and Treasury, grant me this one little favor of $850 billion, and I will mend my ways....") Frequent contributor U. Doran sent in this concise account of the unstoppable blaze by derivatives expert Satyajit Das: De-leveraging – Fairy Tale Endings:

The "cure" is the reduction of the level of debt (the great "de-leveraging").

The initial phase of the cure is the reduction in debt within the financial system. The overall losses to the financial institutions (net of re-capitalisation via new equity issues) are $400 to $600 billion and may well go higher. This requires reduction in financial sector balance sheets (assuming bank system leverage of around 10 times) of around $4 to $6 trillion through reduction in lending and asset sales.

The second phase of the cure is the higher cost and lower availability of debt to the real economy. This forces corporations to reduce leverage by selling assets, reducing investment and raising equity (for example, as GE has done). This also forces consumers to reduce debt by selling assets (where available) and reducing consumption.

Feedback loops mean reduction in investment and consumption lowers economic activity placing stresses on corporations and individuals setting off defaults that trigger losses for the financial system that further reduces lending capacity. De-leveraging continues through these iterations until overall levels of debt reach a sustainable level determined by lower asset prices and cash flows available to service the debt. The process of destruction echoes W.B. Yeats’ words: "All changed, changed utterly: A terrible beauty is born."

Within the financial sector, de-leveraging is well advanced. In the real economy it is in the early stages.

Fairy tales in financial markets focus on the "superhuman" abilities of regulators and governments to avoid the de-leveraging under way. Central banks and governments have taken progressively more aggressive actions to try to influence events.

At the height of the boom, banks used a variety of techniques to increase the velocity of money. As the system de-leverages, the velocity of money has sharply decreased.

David Roche of Independent Strategy, a consulting firm, estimates that $4 to $5 of debt is now required to generate $1 of economic growth. As credit creation slows and debt levels fall, the sustainable level of global economic growth may fall as well.

Like a giant forest fire the de-leveraging process cannot be extinguished.

We have yet to see real depression, either. I see statistical estimates that unemployment might rise in some "doomsday" scenario from 6% to 9%, and I think, who are they kidding? I have gone on record repeatedly here with an estimate that 30 million of the 135 million jobs in the U.S. will be lost as the velocity of money slows to near-zero and the mass of money rocketing through the system shrinks to a small percentage of its debt-bubble glory.

The emotion of depression is essentially hopelessness, and we are far from experiencing true hopelessness. There will come a time when millions will feel that getting a steady job is hopeless and the notion that their home will rise in value is equally hopeless.

Perhaps around 2012 and the next election cycle, we will collectively be ready to accept the reality of our financial situation and make the changes which would set the groundwork for realistic hope.

One structural flaw shared by any metric is the inability to describe or capture critical cultural differences. If we make a statistical comparison of the U.S. and China, for instance, we are creating a compelling illusion that these two economies can be compared on an apples-to-apples basis.

But the economies of each nation are inextricably bound to their respective cultures. If you know China on the ground, then you may be embarrassed or ashamed by the horrific melamine-in-the-milk scandals, but you are not surprised; counterfeiting, pirating, dilution and adulteration are the norm. This is China's "dirty little secret" which is not discussed except to paper it all over.

The cultures of China, Japan and Korea are bound up with a history of scarcity. While parts of China, Japan and Korea are fertile and rich, many other areas are cold and poor. When people basking in prosperity crowd onto each airplane or train as if it's the last one, that speaks to a profound sense of want and scarcity. When a population follows governmental orders en masse, that speaks to a sense that authority is all that stands between stability and chaos and deprivation.

It can be argued rather effectively, I think, that the cold hard soil of the northeast U.S. nurtured both "Yankee thrift" and "Yankee ingenuity." The desire to escape grinding want is a powerful incentive for both hard work and thrift, and thus it is not a surprise that thrift and hard work are salient features of Chinese, Korean and Japanese cultures.

The Depression generation of Americans were also prodigious savers. When my maternal grandmother passed away in the late 1980s, my sister, my Mom and I went through her belongings and emptied her home. It was a small house, purchased late in life, and the furnishings were similarly modest. As we went through her paperwork, we were suprised to find one savings passbook after another--some six savings accounts, totalling the impressive sum of $100,000. Clearly, my grandparents did not feel secure having all their savings in one institution, nor did they feel secure without approximately four years' living expenses in cold hard cash.

Now that is thrift; in a similar fashion most Japanese, Korean and Chinese families of any means whatsoever maintain large cash savings accounts.

In contrast, Americans now feel that thrift-free prosperity is a birthright. In a subconscious way, Americans knew the dot-com prosperity was not sustainable, and deep down they sensed the housing bubble was likewise unsustainable. But they allowed themselves to believe, just as we sometimes allow ourselves the illusion that we're in love, that housing would enable a work-free, thrift-free, innovation-free, sacrifice-free prosperity.

The conflagration of deleveraging is burning up all the bogus "prosperity" created by a credit bubble without historic precedent. Now we are left with questions: how will each culture/society express their collective anger at this tremendous reversal of fortune? How will the collective guilt for the firestorm be experienced or deflected? How will each culture process acceptance? How will renewed hope be reflected politically?

The answers will unfold only slowly; we have many stages yet to pass through before we can arrive, cleansed of illusion and anger, at acceptance.


Bonus "it's a small world" story:

I haven't mentioned that Obama and I graduated from the same private prep school in Honolulu. I don't think this alumni connection taints my analytic skepticism too greatly, but I do have a soft spot for Obama's Hawaii connections, which I believe are more profound than most Mainlanders can understand.

I recently discovered some of my old Lanai High School teammates scrimmaged with Obama after-hours on the Punahou basketball courts; here is my report, graciously posted on Ian Lind's widely read and highly respected Ka'a'awa-based blog ilind.net--The Obama-Lanai Connection. Put this in the "Dis stay one small-kine world" file....


And for your listening pleasure/amusement: Patriot Express (in disguise) sings Sarah Palin, Queen of the Red party. The lyrics helpfully pop up for your reading pleasure.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--An anonymous comment about CHS posted on another blog.

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