The real failure lies not in the global "credit system," though that is where it is being felt for now. (Stay tuned for much, much scarier sequels.) What has failed, for good reason, is the world's willingness to rely on the "full faith and credit" of the U.S. government as the foundation of the global monetary and credit system.

The term "full faith and credit" actually appears in Article IV, Section 1, of the Constitution, where it refers to the obligation of each state to accept and give effect to "the public Acts, Records and judicial Proceedings" of every other state. (It is the Full Faith and Credit Clause that terrifies Alabamans and Mississippians when the subject of same-sex marriage comes up.) Even though its original usage had nothing to do with the issuance of money, the phrase has for decades been used to express the idea that obligations of the United States Government are completely trustworthy because they are backed by all of the resources at its disposal.

Since, for sixty years, the world has agreed to believe, or to pretend to believe, that those resources are limitless, and that the United States would, for political reasons if not moral ones, never fail to honor its financial obligations, this simple concept has undergirded the global financial system. Just as the United States has, by virtue of its unrivaled military power, played the role of "world cop," in the sense that its mere presence has discouraged a certain amount of adventurism, so the United States has been assumed to be not just the guarantor of a certain level of affluent consumption that would sustain the world's developing economies, but also the last safe economic refuge for the accumulating wealth of those economies.

But American competence at self-government at the national level has been eroding visibly for years. The American political system is now essentially a kind of "reality" TV in which ever more artificial people engage in ever absurder charades to convey crude messages about trivialities. As a result, we have a national legislature that long ago lost its collective ability to do anything but engage in partisan warfare. And we have an executive that has essentially given up on trying to lead the congressional dumbshow and now defines itself primarily in terms of foreign policy adventurism. No one has been minding the store for quite a while now.

It is that perception--that Americans have lost their political competence, if not their political minds--that most fundamentally underlies what you are reading about today. And it is why this financial crisis will very likely rival, if not exceed, the Great Depression in its severity. Paulson and Bernanke are decent and capable men whose inability to contain the crisis by the one tool at their disposal--injecting more liquidity--becomes more apparent every day. The "rescue" of AIG, far from alleviating the crisis, exacerbated it, because the conclusion any intelligent observer immediately drew was: These people are scared shitless. They don't know what to do. They have run out of options except to manufacture money.

Why have they run out of options? Well, I'm no economist, but that has to do with long-term policies that the federal government would have to have been working on long before now to ensure that the American economy remained globally competitive. Things like savings rate, health care, education, narrowing income disparities, etc. Things that Republicans have urinated on since the days of Reagan, and Democrats have been too cowardly to tell the truth about since the days of Clinton. Those were the policies we wouldn't tackle, and that is why we have no real options today but pouring increasingly worthless sand down a rathole.

The rest of the world has been watching us with growing apprehension for a long time now. In part they wanted to keep believing in our illusions, and in part they knew the charade couldn't go on forever. Well, forever ends tonight, sweetheart. That is the meaning of this crisis. It means the "the full faith and credit" of the United States Government is now up on the auction block, like everything else, and the bids are dismayingly low.

Foreign governments have been facing a dilemma for a long time now: to pull the plug on us would hurt them, badly. But the wiser among their leaders must have thought before now: The question is not if, but when, and how. The longer we wait, the more painful it will be for us. I would guess that such things are right now being said in high councils in Beijing, Tokyo, Taipei, New Delhi, and, yes, among our dear, dear friends in Riyadh. And when they collectively pull the plug . . . well, my advice is, live near a dump and invest in .22 ammo. You can survive on rat, if you have to.

Take a bow, Republicans. It's your big day!

The darkest hour is just before the dawn.

We can rise like a Phoenix from the ashes -- but first we have to wake up.

Beijing... The Games Are Over ~ Let the Game Begin!

And I'm raising my own chickens, dammit.

As long as the north american continent doesn't break up through some form or the other of a catastrophic happening, there is always HOPE and CHANGE.

Every asswhole politician uses the word "change" somewhere along in their lives.

Why not join up with Canada and sell these two great landmasses to China for a wuick solution?

You can bet your white-assed dollar that China wouldn't tolerate millions of illegal immigrants coming in here to do the work that no one else wants to do.

China would make the US a good and economically sound place to live and work it.

After all...pride goeth before a fall?

hahahaaha! let' em spin BBDS! It's all they got...

made me think of this tune....

Fish gotta swim, birds gotta fly, bots just gotta spin 'til they die...caaaan't help lovin that Obie o' mine....

lololol

;-)

John McCain said "The fundamentals of our economy are strong."

He read Greenspan's book.

Why would I doubt him?

(McCain I mean, not Greenspan.)

McCain also thinks that the fundamentals of his campaign are strong. Poor John... he's in for a rude awakening.

His best hope is that he won't roll over to find LaurieAnn in his bed the morning after the election.

;-)

they know it's all the fault of a pregnant black woman with fourteen children in Philadelphia who's collecting two welfare checks?

since the nixon administration.

He insisted mortgages be given the people least able to pay anything back.

that the disastrously haphazard course of the U.S.S. Fantasia in the last few decades was a bipartisan fuckup. But there is no denying that the driving political force in American politics during that time was the Reagan Revolution. The principal authors and performers of today's farce should not be denied their pride of place in curtain calls just because Democrats provided a few geek interludes.

Well, fine, the inability of US politicians to do anything about the deficits is a huge issue. I don't see that this is a bipartisan problem though. The Reagan and Bush administrations submit budgets that grew the size of the government, and the deficit, while Clinton managed to get things under control - almost (he got a tad lucky with the stock bubble).

But the failures we see now are not just political. After all, it is the private sector that completely ignored basic risk assessment in the pursuit of bigger profits. American management and financial engineering has proven to be suspect - either fraudulent or incompetent. That's a stain that will stick for decades.

Don’t Bail Out Wall Street without Bailing Out Main Street

The United States government will try to bail out Wall Street (aka Financial Markets) this week when Congress votes on a bill that will cost the taxpayers at least $700 billion. It is a bold plan to save global financial markets. I don’t like it. These are the same global markets that provide funding so that an American business can cut costs by moving Main Street jobs to Asia. News of this bail out sent oil prices and heating oil prices up significantly. Who benefits from the bailout? Not Main Street.

What is the alternative… losing most of my retirement? Like me, most American households stand to lose tens of thousands of dollars. But Wall Street scions stand to lose hundreds of millions of dollars. Frankly, the collapse of Wall Street would have led to street protests, something the government and Wall Street fear. This would have resulted in regulation and policies that would prevent Wall Street from innovating. Credit default swaps are an unregulated Wall Street innovation that is at the center of this financial meltdown. When I listen to the industry experts and leaders, they call for better risk management and transparency, but avoid even discussing regulation.

What got us here in the first place is a lack of regulation, and an administration that believes government and regulation is bad because it prevents the markets from being free. Instead, the American citizen must be indebted to the financial markets to pay for “unfettered capitalism”. The economic elite of America stand to lose almost everything, so the US government makes sure they lose very little by having the middle class pick up the tab for their greed and malfeasance. Make no mistake about it, one way or another taxes have to be raised to pay for this bailout. Or we will sell government securities to China and Saudi Arabia and other foreign nations, resulting in greater financial power of America.

But if we are going to make this devil’s bargain, then we need to give something back to Main Street. As part of this bailout package, all financial institutions must cap credit card interest rates at 10%! This is the economic stimulus package America needs. Reducing household debt of the middle class is the most important strategy we can take to right our nation’s economy over the next decade. And we must do this while losing middle class paying jobs to the Asian labor market.

Financial Institutions can find other ways to make money. We cannot ask the middle class to bear the taxation burden of the bailout without providing debt relief in the form of lower credit card interest. Part of our credit card problem is that banks don’t care about the principle amount of the debt. It’s only the interest and fees they care about, because the regulators don’t make them care about the principle. The focus of this interest rate cap policy is to pay down household debt, making the middle class household and banking system more stable and migrating the economy away from the Wall Street syndrome.

I am willing to support this Faustian bargain if you bailout Main Street too! But if limiting interest rates to 10% on all existing credit card debt is unacceptable to the financial system, then I say NO BAILOUT! Save democracy, not capitalism! Save the Middle Class, not Wall Street!

[What has failed, for good reason, is the world's willingness to rely on the "full faith and credit" of the U.S. government as the foundation of the global monetary and credit system.]

Well, maybe. Except US Treasury Bond rates are at 40 year lows right now.

One tragedy is how MSM has failed to the American public in the loop as this mess has unfolded. The unwinding has barely been toughed upon. There was almost no discussion when in 1999 Phil Gramm used Senate procedures to repeal Glass-Seagall on banking regulation.

As if that were not enough, the Bush administration specifically prohibited the States from stepping into the void in unprecedented ways. You can read more here. <link>

These moves go to the heart of the current crisis. I don't see where Paulson, in his plan, calls for putting back in place Glass-Seagall regulations so how will the Paulson plan prevent a recurrance of a similar meltdown in the future. It won't. Neither will it hold those accountable that brought us this mess. Therein lies the problem. No real accountability for the S&L crisis -- in fact one of those deeply involved is running for President today and polls show him only a couple of percentage point away from being elected. No accountability for the 1987 stock market crash. No accountability for the tech bubble. And no accountablility for the current housing related crisis. Is there any wonder that we simply careen from crisis to crisis?