Last Sunday, entrepreneur and author Dave Pollard (Finding the Sweet Spot: The Natural Entrepreneur’s Guide to Responsible, Sustainable, Joyful Work) contributed a sobering article on the state of the US economy and the plummeting value of the dollar to his blog on Salon.com, “How to Save the World”. Considering the current fragile state of the Wall Street bailout, it’s still timely and worthy of some serious consideration.
This has been the first week in seven years that the mainstream media have actually been reporting important news. The top news, of course, is that greed and incompetence in the private sector of the US financial ‘services’ industry has now proved to be so massive that the entire financial sector is unraveling.
The US government had two possible responses. It could allow these long-time advocates of deregulation to be hoist on their own petard, which most of them surely deserved, but which would have collapsed global stock markets, thrown millions out of work, and extinguished the life savings and retirement hopes of most of the population. Or it could bail them out, not one by one as they fell, but preemptively, by guaranteeing (with taxpayer’s money) every financial company’s junk securities and junk mortgages — those reckless zero-down, no interest for one year, no payments for one year offerings to hopelessly overextended borrowers — which is what it has opted to do.
The price tag for this operation will easily surpass one trillion dollars. The US treasury doesn’t have this money, or any money for that matter — it is mired in unrepayable debt already thanks to the Bush wars and Bush tax cuts for the rich. So it will print this money. It will flush more than a trillion dollars of new paper into the global markets and pray that the Chinese and the Arabs will accept it.
Because the Chinese are dependent on US trade, they probably will. Because the Arab princes are afraid of an end of US military largesse and the threat of further US military chaos in their region, they may accept it too. It’s a giant game of chicken now. Everyone knows that the US dollar is now essentially worthless, and once people start bailing out, it will collapse. Just a matter of when, now. Six months or twenty years, sudden or gradual.
What’s fascinating is that most US politicians, who are either ignorant of all this or in denial, are still running on a “less government” platform, when the only hope to avoid a global depression was and is massively more government. We’re talking about a takeover, essentially a nationalization of the private sector, on a scale that’s never been seen before. The US government will soon effectively be keeping entirely afloat an industry that now produces close to 30% of the GDP, second only to the war industry that it is the only customer of. In other words, adding to what it already produces, the government (your tax dollars at work) could soon be responsible for three quarters of the entire US GDP. As the WSJ reported earlier this week, “the US financial system resembles a patient in intensive care” (thanks to Craig De Ruisseau for this link). Two days later, the patient is comatose.
And there’s more. Yesterday, in an act of staggering irresponsibility, US regulators placed a ban on short-selling. What that means is that people who bought hedges to protect themselves from losses in a downturn are now forced to cover those hedges, and take massive losses. To cover those losses, they had to buy the very stocks they’re worried will fall, and the huge rush of buying pushed the stock market up and made millions for short-term speculators gleefully ready to sell these stocks at artificially inflated prices.