It was not supposed to happen in Iceland. There was hardly a surprise about Greece, but now Ireland totters.
Has the Fed panicked? What do they know? What do they see?
It seems as the US political class has collapsed and capitulated to the interests of someone from somewhere, but who? Just how bad is this?
In the middle of this, George Bush reappears with a book. There are still believers. His books are selling. People are listening. George Bush is still a nice guy, but that is not the point. The mess we are in was not all the doing of George Bush or Barack Obama. I wish it were so. it would be easy to fix.
Today the papers are talking about Ireland, about China, about the dollar, emerging markets and falling markets. Gold is back on the rise. There is nonsense, palpable nonsense being argued about the entire problem being resolved by extending Bush tax cuts or the entire collapse if they aren't.
Neither side is correct. They are both wrong. Decreasing the taxes on the wealthy will do nothing. They are hedged against a collapse. They are hunkered down for survival and diabolically most will make money whichever way the economy goes. Their wealth is secured. They are not going to go on an investment spree. Job creating investment is starting new, building new, hiring new. The wealthy are out to buy assets at ten cents on the dollar, inventory them and wait till good times return and then exploit their holdings. They can wait and will wait. Only the delusional believe it is different.
There is an immutable law of business; "your first loss is your best loss." We have frittered away so much time in this crisis that it gets more difficult to resolve. There is a tipping point where inaction becomes action and events resolve themselves. We did not take the least expensive first loss. We missed the opportunity. The next loss will be far more expensive and if we miss that opportunity, it will get worse.
What can be done at this stage? Quite a lot, but there is no point in going through the list again, because the politics will not permit much to happen, yet.
How can George W. Bush be 'comfortable' with his appalling economic legacy?
By Jeremy Warner Economics Last updated: November 9th, 2010
President George W Bush says he’s “comfortable” about his legacy in the various interviews he’s given to launch his memoirs, yet I fear he may have to wait several millennia for history to reach a similar verdict. The contrarian thing to say about Bush’s remarks is that he’s right, and I certainly toyed with the idea of trying to string together some sort of defence of his presidency. But in the end, you cannot ignore the evidence in front of your eyes.
Both the foreign affairs and economic policy record speak for themselves – they were in almost every respect utterly disastrous. Nothing good came out of the Bush presidency in economic terms. Only President Bush himself seems blind to this textbook study in economic failure. Not since Herbert Hoover, the man who presided over the Great Crash and its immediate aftermath, has a US president fallen victim to such delusion.
President Hoover, it will be recalled, opened his presidency in 1928 with these immortal words: “We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us.” In short order there followed the Great Depression.
But the charge against President Bush is much worse than that of delusional thinking. Unfortunately for him – and this is why history will never be comfortable with his legacy – it wasn’t just that he didn’t see the worst banking crisis since the Great Depression coming, he actually created the conditions that made it happen.
But for the fact that the policy response was essentially taken out of his hands, it would almost certainly have led to an economic catastrophe of equal proportions to that of the 1930s. As it is the fallout is quite bad enough, and may mark the end of dollar and wider American economic hegemony in the world.
True enough, the seeds of this crisis were sowed way back when, and were then intensely irrigated and fertilised under President Clinton’s eight year rule. Social policy under Clinton actively encouraged home ownership among those who essentially couldn’t afford it by incentivising the banking system to provide the finance. The Clinton administration also dimantled the last remnants of the banking regulation so painstakingly erected in the 1930s to prevent a similar calamity happening again. No, George Bush did not invent greed-fuelled, turbo charged finance.
Yet his response to 9/11 made eventual disaster inevitable. To revive the economy after this devastating blow to confidence, he allowed a completely reckless degree of monetary and fiscal stimulus. There was more of the same in the lead up to and the immediate aftermath of the invasion of Iraq. Unsustainable government spending was matched by a credit fuelled spending binge of unprecedented proportions. Bush disobeyed one of the cardinal principles of economic management – that you can have guns or butter, but not both.
In Bush’s defence, it might be said that once the seriousness of the crisis had been recognised, he did at least respond in the right way by allowing Government intervention in the financial system in a way which was plainly at odds with his free market principles. The truth is that policy makers at that stage were like rabbits frozen in the headlights of an oncoming car.
It wasn’t until the devastating consequences of allowing Lehman Brothers to go the wall became apparent, that the Administration was forced to change tack, and effectively underwrite the whole financial system with American tax dollars. A more self assured intervention at an earlier stage might have forstalled much subsequent grief.
Can the president really feel “comfortable” with this catalogue of policy failures? It beggars belief.