Sunday, March 29, 2009

What Caused the Financial Collapse

Friends, you may already have heard, but they just informed me that I won't be on BBC Radio today. It will be next week (time to be determined). Thanks for your interest. I sent out the following. [Note: Later today I'll write on this blog about Hillary Clinton supporters who have moved to support Sarah Palin in her efforts to become America's first female President. Yesterday's column on is about "Obama lied . . . and America Died."]

Oops, the BBC just called, and I will be on NEXT WEEK (and not today). I gave them the name of a British contact, Brad Setser, who is the man, along with American expert Nouriel Roubini, predicted exactly what would happen in the financial crisis. That prediction was made (in a beautifully written article) in 2005 in the magazine Foreign Affairs. I really urge everyone to read the piece, which you can find at:

If you don't have the time, here's the Wikipedia short form of the Setser-Roubini piece. They are brilliant, but not obnoxiously so, and their prediction outlines everything that came to pass:

"If the US does not take policy steps [in 2005] to reduce its need for external financing [i.e., from foreign central banks, particulary China's] before it exhausts the world's central banks willingness to keep adding to their dollar reserves - and if the rest of the world does not take steps to reduce its dependence on an unsustainable expansion in US domestic demand to support its own growth - the risk of a hard landing for the US and global economy will grow. The basic outlines of a hard landing are easy to envision: a sharp fall in the value of the US dollar, a rapid increase in US long-term interest rates and a sharp fall in the price of a range of risk assets including equities and housing. The asset price adjustment would lead to a severe slowdown in the US, and the fall in US imports associated with the US slowdown and the dollar's fall would lead to a global severe economic slowdown, if not an outright recession." [from Messrs. Setser and Roubini, Foreign Affairs, 2005]

The financial problem the world faces was caused by over-borrowing, over-lending, and over-spending. The Obama/Geithner solution is to borrow more, to have foreign central banks increase their lending, and for government to accelerate its own spending. If that sounds as if we're trying to solve the problem by doing more of what caused it, well, you've hit the nail on the head.

Additionally, we're bailing out failure and submerging success. Just call it "The Obama Depression." He's repeating all of Roosevelt's mistakes, while remaining blind to FDR's successes.

Right now, Obama is tripling the national debt, while pledging -- eventually -- to cut it in half. If that sounds like the math of a professional swindler, well, then you've been paying attention.

Remember, Obama is a Chicago Machine Politician, nothing more, nothing less. He, Geithner, and Bernanke are preparing to pay off (part of) the massive debt with inflation-cheapened dollars, but it's highly unlikely foreign bankers are going to want to play that game for long.

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