No More Superpower

The economic collapse on Wall Street may be the beginning of the end for the United States’ superpower status, coming about 15 years after the Soviet Union lost its superpower status, also mainly because of economic failures. The US will continue to be a powerful country, and will maintain parity with the EU and other large countries, but will eventually cede its leadership position to China. A sad day for America. Wall Street traders are short term winners, but America as a country is a long term loser. Some time soon it will be time to pay up, mostly to China, and it will be painful. I am particularly saddened because I don't feel that I participated in the excesses that led to this debacle. If I'm going to help pay for an extravagant gambling trip to Las Vegas, I should at least have been there.

America's real loss of prestige and power will probably not become apparent until inflation runs rampant, which is on the horizon, although exactly when is hard to say. Inflation will produce its own winners and losers. I saw this first hand in Brazil a few decades ago, but the country will be a loser. Perhaps we can take comfort from the fact that Brazil after its bouts with inflation is still out there striving to become a great power. The old saying still holds, however, that "Brazil is the country of the future, and always will be." Perhaps the US will become the country of the past that is always trying to regain its stature.

The only good news is that Republican laisse-faire economic theories have been totally discredited. The Republican icon Ronald Reagan turns out to have been wrong. We had a baby boomer generation of good times freeloading on the hard work of World War II's greatest generation.

A Bridge Loan Too Far

Paulson and company have decided to insure money market accounts up to $50 billion. That's too much for me. Granted, a couple of money market funds have "broken the buck" and have lost so much money that they can't return a dollar for every dollar invested. So, Paulson will make up the difference. And in the process he will destroy regular, hometown commercial banks. Why would anyone keep money in a low interest bank account when higher interest money market accounts are guaranteed by the government? Just debit your money market account once a month to some credit card and pay all your bills over the Internet using the credit card. Destroying local banks will, of course, move almost all banking activities to Wall Street, to the people who created this crisis through their poor management. Paulson will destroy conservative local bankers to help his risk-taking friends at Goldman, Sachs. He is truly turning the banking industry on its head, destroying the strong to help the weak.

The problem with bailing out the money market funds is that this is problem that they and their investors created themselves. There are many kinds of money market accounts: some which buy questionable corporate bonds (close to junk bond status) and pay high rates of return, and others which buy government bonds or only high quality corporate paper, and which pay lower interest. One of the funds in question is in trouble because it bought Lehman bonds. Why did it buy Lehman bonds? Because Lehman was in trouble and had to pay higher interest to get people to buy its bonds. So this fund knew it was buying risky bonds; the high interest was a dead giveaway, and the investors in the money market fund knew that they were taking a risk, because the fund was paying higher interest. Everybody involved could see there was a risk, and they decided to take it.

Now the government comes along and says, "You poor dears! Never mind your mistake, we'll give you the money you lost." These weren't people who were tricked; they were just a little too greedy. They should not be bailed out, especially when it means the end of local banking as we used to know it.

So, now Paulson and Bernanke have lost my support. They are just going nuts with the government credit card. They are saying that they don't care a whit about inflation. America is doomed to becoming a banana republic. Paulson saved his buddies at Goldman, Sachs, and he saved his own fortune which is no doubt closely tied to Goldman, Sachs fortunes. I'm guessing that Bernanke will quit the Fed soon and his Jewish friends on Wall Street will take care of him in grand style for bailing them out. America be damned!

But Nancy Pelosi can continue to wear her diamonds and South Sea pearls, and John McCain can continue to flit around in Cindy's private Cessna Citation jet, because Paulson and Bernanke will make sure they don't suffer any financial losses. Well, maybe Pelosi did take a $500,000 hit, but she probably won't have to sell her pearls.

Biden Is a Patriot, McCain Is Not

John McCain has attacked Biden for saying that is patriotic to pay your fair share of taxes. McCain lost me totally, because I agree with Biden. McCain is against supporting the troops in Iraq. It's tax money that buys their flack jackets, their armored humvees, etc. McCain would let them die so that he and Cindy can buy another mansion and a private jet. Poor America!

Letter to the President

I have just read that the government is going to bail out AIG. At this point there may be no alternative if our financial system is going to survive. But you have presided over a massive transfer of wealth from the middle class to the super-wealthy upper class. Under the Bush administration taxes were reduced on the upper classes to the lowest rates in generations, beginning the transfer of wealth. What thanks did we get? The rich virtually destroyed the financial system. But to (hopefully) avoid the total destruction of the financial system, the government has undertaken a further massive transfer of wealth to the rich to bail out their investments. As they say, you have privatized the gains and socialized the losses. You have negated “moral hazard.”

The United States is significantly weaker than it was before the financial crisis. By failing to control the greed on Wall Street, you have undermined our national security, while poor rednecks are fighting two wars far from our shores. The government has betrayed our soldiers. Because of low taxes, particularly on dividends, capital gains, and other investments, the rich didn’t even contribute their fair share to fighting the wars. This bailout is now being done with money borrowed from China, the Middle East, and Europe, most of which will have to be repaid by our children and grandchildren, although I suspect that at some point the government will let inflation run wild so that we can repay today’s huge debts with tomorrow’s worthless dollars.

The government’s further contribution has been to run an expansionary fiscal policy of low taxes and deficit spending during years when the economy was not so bad. The Bush administration inherited a budget in surplus. Now, with the economy in shambles, it will probably be difficult to raise taxes for years to come, making the obscenely wealthy even more obscenely wealthy and virtually destroying the middle class. The entire burden of dealing with the financial debacle has fallen on monetary policy managed by the Fed and Treasury, because corruption and incompetence have destroyed the usefulness of fiscal policy.

On 9/11/2001 Osama bin Laden tried to destroy the U.S. financial system by attacking the World Trade towers. He failed. In September 2008, you finished the job for him. I’m sure Osama is rejoicing and thanking you in his cave.

I am outraged. You have failed America! You should hang your head in shame!