A Global Bailout?

Posted by: Michael Mandel on March 17

We now have to think the unthinkable: What if the combined resources of the Federal Reserve and the U.S.. government are not enough to prop up the financial markets? What if the size of the financial crisis is so big that all the interest rate cuts, all the new ‘facilities’ get swallowed up? What if global investors lose so much faith in the dollar that money starts flowing out of the country as fast as it flowed in?

It could happen. The U.S. could be sliding into the major dollar crisis that pessimistic economists have been predicting since the 1980s. If the dollar drops too fast and too far, global investors will see the value of their investments in the U.S. plummet. That will make even safe Treasury securities look a lot less appealing, which will push global investors to pull their money out of the U.S. In turn, that makes the dollar drop even more.

This is precisely the sort of self-reinforcing feedback loop that the Federal Reserve was originally created to deal with. But here’s the problem: The Fed cannot protect the dollar. The Fed’s best—and only—weapon for fighting financial collapse is printing money. But the more dollars it prints, the faster the dollar will fall.

We know what the answer should have been: A global economy needs a global central bank, with the ultimate authority to print money and regulate the financial system around the world. I’ve written about this before, in my 2006 cover story “Can Anyone Steer This Economy?”. Back then I wrote:

Finally, a Big Big Idea—probably too big to even consider right now—would be the creation of global institutions for governing the world economy. History tells us that market economies are prone to financial crises, to which the only solution is a strong central bank. During the Asian financial crisis of the 1990s, for example, the Fed played that role.

But with the explosive growth of China and India, that sort of role for the Fed is no longer feasible, and no new institution has arisen to take its place. As former Treasury Secretary Robert E. Rubin, now a top official at Citigroup, recently said: “There’s no policy mechanism for bringing together the countries that really matter in the global economy.” The best solution would be some sort of global central bank with real powers—but that’s not going to happen until there’s a big enough financial crisis to truly scare people.

Other people have written about the need for a global central bank as well. But we don’t have a global central bank, and it’s not possible to put one in place right now. Instead, what may be necessary is a global bailout of the U.S. financial system. Wall Street firms need funding, but it should be in euros,yen and yuan rather than dollars.

Moreover, when it comes time to pump money into the housing sector, much of the funding may need to come from overseas, in the form of non-dollar-denominated investments. These won’t come cheap, because of the declining dollar. But money from outside the system is essential.

This is going to be an enormous write-down of the U.S. financial system. It won’t be easy, and it won’t be pleasant. But global cooperation may be the only way to go.

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Reader Comments

Paul Davis

March 17, 2008 10:26 AM

The Federal Reserve was created near the beginning of the 20th century by a misguided Congress that believed it could overthrow the laws of economics by goveernment fiat. The result was the Great Depression, which then led to politicians' even deeper interference into the normal marketplace.

Politics can meddle, politics can bring about short-term changes, but politics can't change the fundamental laws of nature or the fundamental ways people interact with each other. When politicians create their mischief, everyone eventually has to pay for it -- even though "eventually" may sometimes (as in the present case) be decades in the future.

Now we seem to be reaching the end game of the political mischief wrought on us about a century ago and amplified through the years. There will be a terrible price to pay because many terrible things have been done, but after the price has been paid the world will revert to normality.

That is, unless the politicians again interfere, create an even bigger distortion in the markets, and lead us to an even bigger catastrophe in the future. That seems to be the recommendation of the author.

Instead of a horrible meltdown of the world's largest economy now, he would prefer to buy a little more time and transform the problem into a global catastrophe beyond the capacity of all the combined resources of all the world to fix.

Probably this would lead to global nuclear war, maybe the extinction of human life. Oh well, maybe it would happen after the author is dead, so where's the problem, right?

Brandon W

March 17, 2008 10:33 AM

And all those years we thumbed our noses at those "stupid Europeans"...

The tortoise may have looked boring before, but the rambunctious rabbit just took a wrong turn and fell off a cliff.

John Carter

March 17, 2008 11:23 AM

Never mind the unthinkable, what about the unsaid: there isn't a single major Western bank that can hold its hand up and say "we never bought any of those sub-prime contracts". All the bankers went into the same instruments like a bunch of lemmings. They've all been revealed as no smarter than the average guy in the street. So by what logic would we want to give any of them more power? What, it's not enough that they've gone and screwed up the US, the world's economic powerhouse? You want to let them loose on the whole world....

TG Thas

March 17, 2008 11:54 AM

The better way to strengthen the Economy and country is encourage people to save money. People are not saving money. They lend money which at some point unaffordable to pay back. Strenthening the society and encouraging people to save money would benefit a lot in a broader perspective. But how capitalism will take it?

GLL

March 17, 2008 12:58 PM

The FED caused this disaster with green lighting there buddies on Wall Street to gamble like drunken sailors on shore leave. Greenspan should be exposed for being the architect of this mess. The FED and our government have now painted us into a corner, we are a debtor nation that is desparately trying to stave off a deleveraging of trillions of dollars. This is the equivalent of a financial heart attack if it goes down. To think that a global FED would somehow make this better seems somewhat strange thinking given our current circumstances.

tr

March 17, 2008 01:40 PM

the sub prime market believed there was an endless supply of stupid people,with limitless resources, willing to pay loanshark rates forever. maybe they were right,as long as the fed was willing to print more and more money forever.the oil companies want us to use more oil forever,as long as we keep uping the "reserve estimates".maybe they are right too! all these smart people only know for sure ,that they are not going to live forever.so lets get it while we can!boys will be boys.after all nobody is making us give anything back ,are they?

Howard

March 17, 2008 02:35 PM

All of these years the WSJ said that deficits don't matter. Exports don't matter. Savings is antiquated. Spend and borrow. Well the sh** has hit the fan.

Killen

March 17, 2008 02:49 PM

Totally disagree w/ the premise of this article. We are facing stagflation in the US, a phenomenon that we have only really seen twice in US history. A global bank will not help this situation.

Problem is, there is a glut of dollars on the global market. That's a primary driver of the dollar's declining value. Stop printing dollars for a while, and that will help. Raise interest rates, and that will help too. Sure, we'll have to deal with a stalled economy for a while, but we're facing that anyway. Get the dollar stable and strong again, and then we can worry about pumping up the economy. They just won't happen simultaneously right now.

ha

March 17, 2008 02:57 PM

A global central bank?

Wow that's the dumbest idea i have ever heard.

Mike Mandel

March 17, 2008 03:29 PM

Why is it a stupid idea?

Brandon W

March 17, 2008 04:28 PM

I'm basically fed (small F) up with the entire financial system. If something can't be broken down into simple, logical terms, it's ultimately crap. These elaborate financial instruments are crap, and we're finally seeing the proof of it.

Let's be completely straight here and skip glossing things over and playing the "ever-optimist" card. Our economic growth has been based on a giant Ponzi scheme for the past 85 years. The last 25 years has been a Ponzi scheme squared. And the accounting used to make it seem "rational" is more faulty than Enron's. As Howard said, "the sh** has hit the fan." Reality-check, everyone.

Chris Mason

March 17, 2008 05:17 PM

Because the USA dollar is not backed by gold it is really a worthless peice of paper that is currently propped up by the rest of the world.

When the rest of the world needs oil we have to purchase dollars, but as these dollars become worthless we may well have no choice but to trade oil in euros.

Your government knows what that would mean to you, hence the war in Irac, and threats of attack against other countries that have wanted to undermine the dollar by trading in Euros.

If and when the world starts trading oil in euros you will in effect become a third world country over night.

What is unfortunate for us in europe is that our economies are strongly linked to yours, and we own much of your debt that will become worthless as the dollar become worthless.

We may well be seeing the end of the american empire and the rise of the Chinese.

intelligent_1

March 17, 2008 06:33 PM

The only reason the US$ has any value today is because of the oil trade. Saddam Hussain tried to break it and he was invaded. It is a well know fact all over the world, except in the ignorant USA.

In 1971, the US broke the gold standard and arm twisted the OPEC to price oil in US$. The US thought that it can expand the economy just by inflating it. It made sense then becuase no other economy was even close to it. Not anymore. China and India can more than balance the US. OPEC will eventually price in other currencies, Euro, Yen, Inidan Re, Chinese Yuan, the major economies of the world today. That will be the end of US$. Question is not if, but when.

The chinese may give a helping hand since they are neck deep in this mess with the US. But, this will be the last life line. No more. The only chance for the US is to cut the crap and start working hard and reduce the living standards. As I said, US$ will buy very little very soon.

Kartik

March 17, 2008 07:14 PM

"We may well be seeing the end of the american empire and the rise of the Chinese."

Yeah, right. Somehow, the fact that EUnuchs are welcoming communism once agains says it att.

"you will in effect become a third world country over night. "

That is perhaps the most ignorant statement on this board. What is 'third-world', anyway? Third world, like China, which you extol and admire in the same post?

Perhaps the US should stop wasting money defending Europe, and get those pansies to pay for their own militaries.


David Lisowski

March 17, 2008 08:13 PM

A global FED is truly a stupid idea. Some people think the FED itself is a stupid idea; leaving a government bureaucracy in charge of the countries finance. I have mixed views on that one.
Certainly the FED did not help Hoover in 1930 when this concentration of power did want to use its powers to stop the liquidation of whole US financial system. Instead they remained committed to the holy gold standard, since gold was leaving the country they pursued deflationary action, even if the economy was prostrate and near death. The close examination of how the gold standard spread the contagion around the world should give anyone pause before anyone would want to resuscitate it. Once on gold your a countries money stock is a dependent variable effected by all the countries of the earth, it was France in 1930, it would be China today.
What was wrong with the FED itself was that it concentrated power in the hands of a few men that made very bad decisions the FED led the country into the depression - even though the FED was erected to prevent just such a disaster. Concentration of power into a more diverse pool of men, men whose selection we will probably not be 100% comfortable with will not be in our interests. Before all the countries in the world put some external group in charge of their finances they will insist that they have representation. The body that results will likely be a large unwieldy body, incapable of making the fast decisions required in a liquidity situation. It was in fact the infighting between the other Federal reserve branches (Chicago - McDougal, Boston - Young) against the NY FED - Harrison that resulted in the paralyzing inaction of 1930-33. Creating a new huge bureaucracy does not seem like a very good idea. Even our own FED, although much improved has caused much of this mess. You there Maestro ?

Dinesh

March 17, 2008 09:45 PM

Mike, a few moons ago you wrote a great cover story in which you wrote that the US economy's strength lay in its institutions, its accounting system and the investment in great universities. The US has the best research institutes, the greatest universities, an unmatched accounting system, and when Americans pay for college that should be considered a form of saving.

If we consider these to be true then America is still positioned to be the greatest economy in the world since no other country on earth has a comparable institutional infrastructure. China, as suggested by someone, lacks even a semblance of what America has and the same is true for India and most other countries. The only countries that can even come close are a handful in Western Europe.

Thus the present predicament is a disastrous but temporary phenomenon. America's fundamentals are strong and the institutes, that have taken decades to build, will ultimately prevail.

On the other hand, if all the above is not true and America does not prevail, there is not much hope and the world's economy might be set back by decades.


Joe Cushing

March 17, 2008 11:24 PM

You're scaring me over here Micheal. That's it. As soon as I finish grad school, I'm moving to Dubai for two years. Then I'm getting out of their before that giant bubble pops.

On a more serious note: I don't really like the central bank idea. I wish the Fed were run more like the German central bank. Stop printing money to make it cheap. The real problem lies in that we are over leveraged. The solution is obvious but nobody wants to hear it.

We need to reduce the amount of leverage in all of American society. We need to get people to stop thinking of their homes as investments. We need to get the government to get smaller too. We are in danger of being downgraded by Moody's as a nation. What would the impact of a downgrade of the largest debtor in the history of the world be? Normally at the end of an upside of a cycle, the government is in much better shape financially than it is now. Where is it going now that we are in decline?

What we needed was to elect a president that will teach us to STOP SPENDING MONEY WE DON'T HAVE ON STUFF WE DON'T NEED as a nation. Unfortunately, I don't see that in our 3 candidates.

Maybe we just need higher interest rates. High rates lead to smarter spending and a strong dollar. This is another argument against the Fed.

Deuce

March 17, 2008 11:27 PM

Let the fed dictate policy. Treasury secretary Paulson spoke this phrase last Friday
Regulations must catch up with "FINANCIAL INNOVATION" ................enough said!

Nick L

March 18, 2008 02:09 AM

The meltdown was predictable by everyone with common-sense: When the government allows its banks to go to college campuses to throw credit cards after teenagers, sell houses to anyone no matter how poor...it creates this mentality that everything can be bought ON CREDIT.

What about LAWS preventing that?

Mike Mandel

March 18, 2008 07:04 AM

Joe,

I think we're moving into an era of less spending and more savings...almost by force, because the banks are going to stop lending.

Mike Mandel

March 18, 2008 07:05 AM

Dinesh,

I agree with you...I'm hoping what follows is an era of innovation. But that requires that the financial system not break.

Jesse Weiher

March 18, 2008 09:34 AM

John Carter has a very good point and Deuce is just plain missing the point.

We're in this mess because the people who brought us the CDO and the MBS (FINANCIAL INNOVATION Par excelance) convinced everyone that they were so smart that this had to work. All it is is a ponzi scheme. Blow a whole bunch of smoke put up a lot of mirrors and POOF! A bunch of poorly underwritten mortgages are transformed into homogenous, efficiently traded securities. Except for the fact that they are still a bunch of poorly underwritten mortgages.

The LAST thing we need right now is more financial innovation. Financial innovation is just a fancy term for "making-crap-up-so-that-less-intelligent-people-will-give-you-money."

I say we bail out these companies ONLY under the provision that the CEO's and CFO's resign and sign agreements never to work in the financial industry again.

sunetra

March 18, 2008 10:05 AM

Bottom line, Stop buying things you cannot afford. Live within your means.

sunetra

March 18, 2008 10:06 AM

Bottom line, Stop buying things you cannot afford. Live within your means.

Brandon W

March 18, 2008 10:52 AM

Joe,
I strongly agree with you. Here's a chart of the personal savings rate since 195:
http://tinyurl.com/ysqju7

The economic boom of the past 25 years has been driven by unsustainable consumption which has left the country bankrupt. What would economic growth have looked like if Americans had continued to save at 11.2%? Or even at the "low" 8.4% from 1952? Probably a lot slower, but a lot healthier.

Well, now we're bankrupt, have no savings, and the inflated real estate asset bubble is exploding. It was all "assets" on paper, but not in reality. Americans don't even own a majority of the equity in their homes (for the first itme in history). The banks do.

We have no money. No savings. No assets. We're bankrupt. Oh yeah, and prices are inflating - especially fuel and food - while our currency is in a downward spiral of devaluation.

Now try and give me some optimistic crap about our "healthy" economy and how much growth we're going to see. We have no money and we can't just keep printing it. I'm so frustrated with the disconnect from reality I can barely keep from having an aneurysm.

Dominic

March 18, 2008 12:01 PM

Mike...

A world Fed? Don't you think "our" Fed is bad enough already?
What happened to the creed of "faith in the Market" and less regulation? Well let the market work its wonder...I'm realizing, the more I get into econommic studies, the more the system we have in place looks like a form of planned economy...and planned economies in the long run never work don't you know that?? ;-)

Dinesh...

With all due respect but on what kind of medication are you on??

The US it is a shadow of its former self..we do not produce anything anymore, Corporate America goes from scandal to scandal, the financial system is a house of cards, a Ponzi scheme...umatched accounting system?? Please.....
Our high school graduates are among the worst in the industrial world...
The university system?? I graduated in Europe and I attended some college classes here in the US (even at graduate level) and I'm appalled at the shallowness of the topics covered....we have few centre of excellence like MIT, Carnegie Mellon or Stanford but in general the "university system" in this country mutated into a giant diploma mill (complaints I heard from older American graduates, it's not coming from me)
We are letting our infrastructure system rotting away, the mindset is "I never use that road so why should I pay??!!" How we suppose to prosper anymore as a nation when we always put "ME" in front of "WE"??
Someone really believed that we could go on forever cutting each other hair, suing each other, "managing" each other money (ohh the wonders of our "service" economy...) and, more important, buy on credit indefinitely???
I heard all the time how "wealthy" we are then we start to really look at how phony our accounting system really is (house values anyone??)
Naive, mindless, unbridled optimism is not going to take us out of this mess, that is what got us in this predicament in the first place and gave to us from time to time our "great" economic booms...
You didn't mention the best health care in the world....how did you forget that??..Oopss...insurance companies starting to send people overseas for costly treatments and guess who, accordingly to the World Health Organization, has the best health care system in the world???..France, followed by Italy...
Wake up and smell the coffee, the sooner the better....

Closing on a "funny" note...A Bear Stearns analyst yesterday was spitting out ratings for some European companies
What a sick JOKE......

Mike Mandel

March 18, 2008 01:34 PM

Dominic,

A central bank is an essential part of a market economy, because financial systems are prone to negative feedback.

andy

March 18, 2008 02:24 PM

a global central bank has been the goal of many bankers for years. this just moves them one step foward

Dominic

March 18, 2008 03:05 PM

Mike

So we need regulations after all don't we??? ;-)

Actually we do not necessarely need a central bank...the government can create and manage its own currency without the need of an intermediary with the privilege of seignorage...

Central Banks, in theory, guarantee political independence from the government to avoid government manipulating the currency...but this is, as we experienced, only in theory and, however, it is necessary better that a third party manipulate the currency anyway??

There are 2 interesting readings: one is a paper by Prof Bernd Hayo from the University of Marburg in Germany called "Do We Really Need Central Bank Independence? A Critical Re-examination", the other is a comment from Harmon Haymes in the Journal of Finance called "Is the Federal Reserve System Really Necessary?"


I'm not an economist but when a currency is actually backed by an Agreed Medium of Value IMPOSSIBLE to manipulate and, by nature, of limited supply in nature (let be Gold, Platinum, Titanium, Diamonds, Oil, Truffles, a combination of them or whatever) doesnt't "automatically" regulate itself and self-adjust??

For example, in international trade, a country experiencing a trade surplus would experience large AMV inflows, the economy would boom, credit would be extended and inflation would set in, rising prices would reduce the trade competitiveness of the country experiencing the surplus, import would rise and the AMV would leave the country again....same process in reverse in the country experiencing the trade deficit..AMV leave the country, recession, price contracts, trade competitiveness increase and the AMV flows back again....

We are talking about real economy here not "financial innovation", Wall Street wizardy and so on...

If history has something to teach is that fiat money experiments always ended up in failure...the eventual value of paper currency is zero....

natan

March 18, 2008 03:08 PM

Dinesh, you missed one little detail: the best brains in US Institutions come from Asia (India, China, Paquistan)... and if US brokes well... where do you think they will go..

Dominic

March 18, 2008 04:12 PM

Mike

2 simple questions for you.

1) Do you think we are witnessing the death of Monetarism as we know it??

2) Do you think we are experiencing a somewhat permanent reduction of American influence in the world economy??

Thank you in advance for answering!!

Dinesh

March 18, 2008 09:29 PM

Dominic and Natan

You make some great points. I do recognize that we have problems here in the US. However, it would be wrong to blow up the present situation with the mortgage crisis and deduce that they stem from a weak institutional infrastructure. The fact is that this is the nature of finance and economics and it requires course correction every few years. The important thing is that we have the institutions in place to do that.

The US has been a great economic power since the second world war and this is testimony to these institutions. The foundation of a good economy and a great country are rule of law, property rights, and equality and justice for all. More than any other country on earth, the US epitomizes these values.

As far as Natan's comment about the best brains are concerned, I would recommend you read Vivek Wadhwa's articles in business week on the state of higher education in the US. I assure you they will be enlightening.

As far as concerns about manufacturing jobs going abroad, I recommend you read Martin Wolf's "Why Globalization Works". Your fears of job losses will be put to rest. As Tom Peters said on CNN to Lou Dobbs: "Anybody who thinks outsourcing is bad, is an idiot". Please do not assume here that I am trying to call anybody on this blog an idiot, I am just quoting verbatim.

Yes we have problems, just like every other country on earth becasue economics is not a mathematical science but a social science. It's akin to driving forward by looking in the rear view mirror and the faster you go the greater the risk. The US is going fast and therefore it is hitting some really big potholes. That is all.

Deuce

March 18, 2008 09:58 PM

Jesse,

I was being sarcastic! Paulson is on the air way to much lately and I was wondering if anyone else had
picked up on what should be Time magazine's phrase of the year.
He followed it up with another zinger yesterday.."this is not a bailout, look at the Bear Stearns shareholders who lost it all"
Spin,spin,spin...This was nothing more than a classic bailout. The fed managed to temporarily bailout capitol/equity markets....nothing
more nothing less.
Now, let's follow this up by paying off everyone's bloody mortgage............incompetence rules the day.

Dominic

March 19, 2008 11:10 AM


Dinesh

Can we look as some simple facts?

Since the tech bust the rising home prices were essentially the economy.
Real income stagnated, many many people (the media rarely mention this) even with college degrees were forced to take 2 and 3 jobs that collectively paid less than previous held occupations (et voila, low unemployment rates...but WHAT KIND of new jobs???) and in order to sustain their standard of living increasingly turned to their "home sweet home" playing the refi game thanks to very low interest rates...good paying jobs are harder and harder to find in US and no "ivory tower" spin is going to change that...
It is pretty much like someone that start burning the furniture to keep himself warm..eventually you will run out of furniture....
A country cannot go on very long running huge trade deficits (the present status of our currency is a proof) ...you cannot consume your way to prosperity....2/3 of US economy is consumer spending.
I do not even mention the environmental consequences of unbridled consumption.

The fact that you have a complex institutional infrastructure in place, doesn't necessarely means that it works, many of the problems we are experiencing stems from institutional failure...
For example we supposedly have the most sophisticated financial market in the world, right?? With our proud rating agencies....oops they were drunk sleeping at the wheel during this predicament....the idea of analysis of many Wall Street analysts is gulping spin from the management of the companies they cover...

I love one term used in a recent BW article.."musical chair" mentality...cash your check before the house crumble down...and that is not limited to the financial industry...

We have examples in history of once strong societies that morphed into a parody of themselves...Roman Empire anyone??

Deuce

March 19, 2008 12:55 PM

Dominic,

Could not of said it better myself.....
The longer we keep propping up irresponsibility, the worst the indigestion(and yes, indigestion can kill you).
If they don't figure out these dept instruments soon, are highly sophisticated envy of the world
financial system will become the laughing stock of the world we constantly make fun of as
being unregulated and untrustable !!!!!!!! HYPOCRISY AT IT'S BEST.

Dominic

March 19, 2008 04:07 PM

Deuce

We are well on our way to become the laughing stock of the financial world....fiat currencies base their value mostly on "faith" and reputation of the issuing country..we are doing our best to destroy completely that faith and reputation...

Jeremy

March 20, 2008 08:35 PM

The harsh reality is that the US consumer has been living beyond the means of the US economy for over a decade. If the 1930's financial crisis and consequential depression was the result of the US only reluctanlty taking responsibility for the World's financial stability from the "aging" old world, then this new crisis is the result of China not being prepared to take on the same role from the US. There will not be a global central bank in our life times, but leadership needs to be taken by the world's largest economic engine and that means the "Yuan Zone" not the "$ Zone". The current gloabl economic shift away from the USA primarily to China needs to be validated in terms of finanacial leadership. For this there needs to be a massive restructuring of the Chinese economy as it moves to become more transparent, accountable and open. Ultimately the risks in this shift are potentially far more damaging to the World economy than the down turn in the US housing market.

Ken

March 26, 2008 10:00 PM

Mr. Mandel,

I was just getting caught up with my podcasts and heard you saying on August 9, 2007.

"I think this brouhaha about the credit crunch is overblown. And we'll sort of wake up six months from now and realize that it was a lot of hot air."

Mike Mandel

March 28, 2008 02:02 PM

Ken,

You are absolutely right. I will be the first to admit that I didn't see this coming. In particular, I berate myself for not seeing how fast consumer debt had grown. Part of that was because of revisions in the numbers, but I've gone back and looked, and I should have picked it up before.

Mea culpa. My offshoring cover came out in June 2007, and roughly about that time I began to shift from optimistic to pessimistic, but I still hadn't gotten there yet in August.

Red Baron

March 30, 2008 09:49 PM

It won't work. Bigger is not better when it comes to uncertainty/

You know all that 'Black Swan Stuff' roaming around the nets?

Well the fundamental mathematics behind uncertainty is known as Chauchy mathematics-- it is the stuff that gives us Chaos theory, fractals, etc...

Anyway, an absolutely fundamental feature of fractals and uncertainty is scalability.

Translated, risk is infinitaly scalable. No matter how much 'bigger' or smaller you make a system (in order to try and eliminate things like risk), the more you just upscale the uncertainty and the risk remains the same.

Risk is infinitaly scalable, you just can't make what you call 'uncertaintiy' in financial circles EVER go away by making things bigger.

It can't work. Period.

When will you journalists ever read the details in the product insert you are selling before you propose ideas that don't work?

This is a mathematical fundamental

Deuce

April 1, 2008 10:49 PM

Laymen terms.
We supposedly have the most complex/sophisticated financial market in the world but
for some reason , it consistently requires CPR.....America as lacked the fortitude necessary to address miss-management
of their financial system which as been mushrooming out of control from years and years of abuse and corruption.
In due time the average American investor will come to realize that they've been sold
a bill of goods in the form of "the stock market".
The last 10 years of zero gains in the S&P 500 are just the beginning of what the average 401k holder
as coming. When it comes time to cash out on the old golden nest egg called stocks, the promises of
shared fortunes to be had by all may be a somewhat lacking and disappointing to many. They can always line up
behind our banks, sub-prime mortgage holders and whoever else needs to be bailed-out by what's left in the tax pot.
No worries, we always have good old social security as a backstop!

john lazarin

April 7, 2008 12:19 AM

I'm sick and tired
of this country sticking it to the middle class! Lou Dobbs is right, this is "War on the middle class!"
Were doomed when this country continues its ways and people are getting more and more
numbed by crisis after crisis. We're turning into animals at the slaughterhouse of the market. Literally! The government plays a shell game with the market and hides everything under the rug! We're turning into a nanny state(Utopia) whereby nobody loses!
Is'nt that called lala land. I'm going to get my last $20 and bet it on the stock market. It's heads they win and tails I win. Uncle Sam will pick up the tab for us and everyone else in the WORLD!

Viking

April 14, 2008 11:32 PM

We need to think of borrowing as future purchases brought forward to the present,thus stimulating the economy.The problem is that when we cannot borrow anymore,as in the present and instead will be forced to start paying off all that debt,that is purchases being postponed,thus throwing the economy into recession or worse.Everyone seems to agree that it is excessive borrowing that got us in trouble,yet the powers to be want to try to solve the current problem with additional spending,it will not work!!
We americans just need to recognise that we can no longer afford to be the worlds policeman,tighten our belts for a while and we will get thru this.We can get back to living the way we did 10-20 years ago,that was not so bad and going back to taking care of our own needs instead of the world's.Heck I'm looking forward to that day when the Europeans and others will have to pay for their own defense and other things.I have a lot of faith in this country long term,no other place I would rather be!!

David Donar

April 15, 2008 07:25 PM

We are living in a free for all. The US government's hands off attitude is like a pack of feral dogs spreading recession throughout the neighborhood.

http://politicalgrafitti.blogspot.com/2008/04/feral-reserve.html

Mike Reardon

April 18, 2008 04:25 AM

I’ve felt for a long time that capitalist markets and now socialist markets simply adjust by the mutual agreement of all concerned in the markets. No Central Bank needed.

The National Central Banks tweak there rules and International Markets quickly gain the next drift of what once was half legal but is now simply not illegal in a new form.

Its just new capital formation by the new mutual agreement of all concerned. Deregulation of the natural gas industry and then the manipulation of electricity were past legal activities but gained full open market dynamic until it pushed past a certain point of financial dislocation. It was simply back to earth with the corporate bankruptcies absorbed as tax write offs by the government.

Even if it was not openly admitted to by the government or the investors. We got to see the employees pain while the reformation was done with mutual agreement of all concerned.

Monetary adjustments don’t happen. that goes for the US and China even with the hardest public pressure against the malcontent nation, simply because that poor misbalance holds another agreed to reward between the parties.

So, if we now have a new still growing imbalance in monetary shifts to the Euro/Yen not directly towards the Chinese/India currency, ask what that will do for future long term reinvestments over the next few years. No Central Bank needed.

Thank you for your interest. This blog is no longer active.

 

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Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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