This article by Diane Francis rather nicely outlines what went wrong and how financial leadership within the USA bought into and over extended their confidence game. That they are all dead now and governments are stuck with picking up the pieces is hardly a satisfactory outcome.
It really has yet to hit home. We are faced with a huge credit contraction that is going to continue to take ongoing intervention by unhappy governments to keep from forcing a financial contraction of the real economy,
China is doing its bit by funding a portfolio of long awaited infrastructure improvements that were long overdue, and we can be sure that this will stimulate a rise in China’s housing market. A decade of this and the country will be fully modernized.
It is a good bet that India will follow suit.
This financial shakeout is allowing China and India to build an internal consumer society. This surely is a good thing for the globe as it will reorder those societies and largely dispel chronic inequities.
The economies of the developed economies lack this obvious escape door. We have to do a lot more and we must use imagination. The obvious fix is to strongly stimulate the windmill industry now and the whole North American power grid in preparation for supporting electric auto carts.
This program is large enough and fast enough to make a real difference and we will then be positioned to use any energy system that enters the market.
And obviously submitting your financial system to a global system of standards is a must, or quite simply, no foreign lender will ever be prepared to provide the same capital to the US banking system. It has been shown that politicians and greedy mangers cannot keep their hands out of the cookie jar and that gaming the system is acceptable in the US. The US has damaged its credit standing in the eyes of the Global economy.
And the Chinese in particular but almost every country out there must also stop gaming their currencies for short term comparative advantage. Confronting this problem is a sticky problem because developing a proper solution without damaging trade is difficult. In fact, that is what always suggests itself.
Right now for the next several years, the global reorganization will likely make these concerns moot. Chinese surpluses will evaporate now.
America: Smarten up
By Diane Francis
America must smarten up. The global economy has crashed and the cause must be determined to prevent another. My concern is that the big problem facing the world’s leaders, who are trying to fix the global economy, will be America’s denial of its responsibility for this mess and its resistance to submitting to supranational institutions, solutions or oversight.
Such American policy isolationism could sink the planetary ship. It's obvious that the biggest misdeeds were perpetrated by American financial institutions worldwide. This makes arguments by Americans, that they don't want international regulatory oversight, is the financial equivalent of Iran’s isolationism.
Put another way, it would be as irrational to allow the Ayatollahs to build bombs as it would be to allow Wall Streeters, hedge funds and rogue insurance underwriters to run amok again building their weapons of financial mass destruction.
The fact is the catastrophe is mostly America’s fault and here's why:
Successive American regimes allowed the Federal Reserve Bank to print money without responsible controls.
This currency debasement was camouflaged because China, Saudi Arabia and Asian export nations bought massive amounts of T-bills. They did so to artificially reduce the value of their currencies in order to cheat trade-wise and sell more oil, cars and manufactured goods.
Washington’s Treasury Department turned a blind eye to this currency manipulation cheating even though it has the power to impose tariffs against countries who do this. Washington was co-opted and allowed its dollar to be higher than it deserved to be and others to be too low.
The U.S.-controlled International Monetary Fund also reneged on its responsibility to watch currency cheating and, instead, morphed into a slush fund for infrastructure projects in poor countries.
Washington made matters worse by encouraging the over-leveraging, or weakening, of the American economy. Policies promoted borrowing and credit, in large measure through gigantic, regressive entitlements for rich people or homeowners such as unlimited mortgage interest deductions against taxes.
These incentives, easy credit and soaring money supply policies fostered the tech and real estate bubbles.
America also failed to be prudent and ran huge fiscal and trade deficits financed by foreigners. It did not encourage savings rates, in order to meet its looming demographic time-bomb of pension and senior healthcare liabilities.
American mortgage and bankingn regulation was an oxymoron. Fraudsters, mafias, terrorists were easily able to defraud borrowers and lenders. These bad debts were packaged, fraudulently re-rated and exported around the world by Wall Street, bundled along with good debts.
American insurance andn securities regulation was also an oxymoron. There wasn’t enough regulation, nor was there sufficient money to support sophisticated or streetsmart regulatory bodies. The result was the credit default swap tsunami which capsized Wall Street, AIG and the globe. There is no excuse for this, given that these swaps were merely gigantic insurance policies issued by public companies which knew that insurance and financial products must have sufficient capital and assets to cover claims. Their managers and boards turned a blind eye.
America’s financial institution boards of directors, shareholder activists and other watchdogs did not do their jobs.
Of course, the U.S. isn’t the only culprit, but it's by far the biggest.
That’s why the world must push back vigorously against any American resistance to supranational regulations and reforms. Every economy in the world must sign a non-proliferation treaty and submit to policing to avoid the financial skullduggery that has brought the world to its knees