Money, Money Everywhere . . .

Some Scary Thoughts for a Scary Time
I am in Paris, now watching the events unfold in Washington, D.C., realizing once again just how uncertain the world can be, even for we ever optimistic Americans. It is hard to keep my thoughts silent, especially when you listen to the media and realize just how extraordinary the situation is and how truly little most so-called experts know about dealing with it. Since I am not an economist, I will not offer even an opinion at this point, but I would like to ask some questions that occur to me.

The Deficit and the National Debt:
I am going to assume that you know what the deficit and the national debt are. At the moment, the Federal Government is forced to finance through borrowing between $400 and $500 Billion more per year (the deficit), and we have in the last eight years increased the total national debt from about $4.6 Trillion to nearly $10 Trillion. I suppose that we should feel relieved that our “leaders” did not reach the number of $15 or $20 Trillion in eight years because there is little evidence that anyone in Washington, D.C .cares about the deficit or the national debt.
Am I wrong, but does the Paulson Plan for shoring up bad mortgages amount to an additional loan on top of the already $500 Billion we are running in deficits, taking the single year record deficit potentially to $1.2 Trillion or more?

There is a truly delicious irony in the Paulson Plan; it does not require one tiny bit of sacrifice from any of us – not one cent. No new taxes; no new fiscal restraint; no program reductions; absolutely nothing. We have a massive “debt” problem, created by those in politics, and they propose to solve the problem with a massive infusion of more “debt.” Am I missing something here?

The Republicans will see to it that the shareholders are “bailed out;” and the Democrats will bail out the bankrupt mortgagees; but no one in this generation has to pay for it – just our children and grandchildren. Where is the sacrifice? What kind of people are we Americans that we so willingly take everything we can get and leave it to our children and grandchildren to pay for it?

I know that these are unknowable numbers to all of us. They are so large that it is very difficult to get any sense of reality about them, and I have yet to hear any expert explain just how much debt will eventually break the back of the Country. If one includes the “unfunded federal and state liabilities” for programs and pensions, the actual “national debt” is in the tens of trillions of dollars, all of which comes due in the future for our children and grandchildren to pay.

It is a truly “inspired” system that those in office have created. They offend no current voters, providing them with benefits without anyone paying for these benefits, and they pass the entire payment on to future generations, who cannot vote today and when they can eventually vote, this generation of office holders will be long gone to their pensions. This is the new “morality” of Washington decision makers, but we voters share it.

But a question does occur to me. What happens if the people who purchase those US Treasury Bills (the Chinese, Oil Countries, Russia, you know, our good friends, etc) simply find that they have less or no confidence in our willingness to back those debts with the full faith and credit for the United States Government? What happens then? And where is it written that these buyers of our national debt will stay buyers if we flood of the market with our securities? And why would they want to continue buying our Treasury Bonds when it has become the national policy of the United States of American to deliberately “devalue” our currency so that we “devalue” all of their holdings?

I know enough economics to know that the “interest rates” on those securities would have to rise, perhaps substantially, to produce buyers, or it might occur that the world markets simply will not tolerate our flood of Treasury bills any longer. I have listened to economists argue, even persuasively, that the deficit and national debt do not matter too much, but is there a point where they do start to matter? We have not heard much complaint about the devaluation of the dollar, which actually devalues our debt, but what happens when the 50 percent current devaluation over the past eight years reaches 80 or 90 percent. And please do not tell me that it simply cannot happen! It is happening, as we watch!

What if the small handful of creditor nations decide that they have had enough of American foreign policy, enough of American “go-it-alone” war policy; enough of our intervention in everyone else’s affairs; and maybe enough of our totally irresponsible form of cowboy capitalism. Could they simply shift much of their collective holdings into other currencies, say the Euro, or into commodities like oil and gold, or somewhere else where their funds are safer than in bellicose American dollars? This is all a bit hypothetical, of course, but the events of last week were all hypothetical just two weeks ago or so. However, the 50 percent decline of the dollar over the past eight years Is absolutely real, which has itself fueled the rising price of oil and is a reflection that this shift of “confidence” and “trust” is actually taking place.

But If You Think the Bush Administration is Frightening, Just Wait?
Anyone with any intelligence at all knows that the stakes of our future just went up sharply during the past week. “Confidence” and “trust” are ephemeral things, but without them, the entire international financial system could easily grind to a halt. It has happened many times before, when trust and confidence declined rapidly. Since every expert talking head on television over the past two weeks have stressed how critical it is to restore both “confidence” and “trust”, those ephemeral qualities have moved to the dead center of Presidential politics.
As my brother use to tell me, half of the American people have an IQ of less than 100, so do not expect too much from them! That is a very sobering thought in these difficult times. So, I am sure that a large portion of the American electorate is not going to figure out about “confidence” and “trust”, and just how much the stakes went up, until it is way too to do anything about the votes they will cast.

I personally think that Senator Barack Obama will just sneak by in the close election, made close only by “the color of his skin,” and we will at least (America and the rest of the world) have the knowledge that we have a leader of demonstrated great intelligence and calm to take us through these turbulent times. However, I can tell you with absolute certainty that the alternatives to Obama and Biden just got quite horrifying – for America and for everyone else around the world.

If Senator John McCain were to sneak by, the consequences and the possible future events become a real nightmare, more than any of us could possibly have contemplated just two weeks ago. Before two weeks ago, this election was about a whole lot of things that seem absolutely trivial today. I won’t recount them all. You can do it better than me.

If Senator John McCain is the President of the United States, we will face a year of economic crisis, real crisis and not the imagined kind dreamed up to sell books or television shows, with a Democrat controlled House and Senate, and a Republican President.

If that is not a sure recipe for Deadlock, I do not know what is. How much “confidence” and “trust” do you think there will be – internationally, in financial markets, among our creditor nations, etc., in an American Government that is deadlocked? I know some of you think divided government is a good thing on the theory that the less the government can function, the better off we are. But in a real crisis, when the government itself has to lead the way out of the crisis, is that what we really want? I cannot believe that it is, but it easily could happen.

I want to give you even worse nightmares. I know that a great many voters think that Sarah Palin is the cat’s meow. Senator John McCain is an old man, older than me at 72, and he has many of an old man’s failings. He is a stubborn, intemperate man of demonstrably meager intellectual talent (5th from the bottom of his class at Annapolis) who does not have the physical fitness to go through night after night of a real crisis, which will not go away. Neither did Franklin Roosevelt, with much greater talent, of course, and he was very sick and died before the end of the War, leaving the nuclear decision to Harry Truman, a man he had not even briefed on the existence of the bomb.

The Presidency during a crisis is likely to sicken or even to kill John McCain, leaving us with a totally unqualified human being to occupy that position. Sarah Palin has virtually no qualification by education, training and experience to serve in that office and her presence will terrify all of the people around the world who need to be reassured about America to get us through this mess. Those who defend her credentials are people who are want to win at any cost to the rest of us, but they are helpless to dissuade the people whose “trust and confidence” we require.

I listened last evening to a Republican strategist on CNN compare Palin’s lack of experience with Bill Clinton and Ronald Reagan. He did this with a straight face and the interviewer did not laugh out loud. Bill Clinton was a Rhodes Scholar and a governor for many years of a state with people in it. Ronald Reagan ran the Screen Actors Guild, a union with ten time more people than Palin’s little village, and he was the Governor of California for eight years.

If, however, a majority of the American people unwisely are persuaded that Sarah Palin is a qualified understudy to an aging President, she will be elected and that will be their collective stupidity. I can tell you this with absolute certainty – none of the people that matter in this crisis, the important international media, the heads of state of our adversaries, the heads of state of our allies, the people who control the purchase of US Treasury notes (our deficit), the financial markets and money managers, the holders of Trillions of our debt, etc., will have any confidence or trust in her at all. They are simply not that stupid and ignorant, and very few of them are American or Republican!

Sarah Palin is not remotely a serious player for hard and serious times, and anyone who argues otherwise is just smoking hot air or something worse. Her presence will embolden our adversaries and frighten our friends. That is the truth of it, and all the voters supporting her are just plain wrong. The opinion leaders outside of the United States are saying this every day, in every way they can, in the vague hope that many some voters inside America will listen.

Whatever either candidates says, the next President of the United States is going to have to first clean up the mess that has been created by a lot of arrogant, naïve and foolish people for the past eight years. That means very simply this – higher taxes on most of us, reduced spending for many of us, and a very difficult time for all of us if this game we are all in falls apart. Forget about health care reform for a while. Forget about all of the wonderful, but costly programs that erupt in elections.

There is simply NO MORE MONEY for much of anything other than getting our financial house in order. The truth is we cannot afford Iraq, and we might not even be able to afford Afghanistan. We cannot be in a position to resolve anyone else’s problems until we take care of our own disorderly house. The simple reality is that the Bush Administration has basically wasted all of the money that might have been spent on health care reform, energy independence, infrastructure rebuilding and all of the rest.

Of course, if John McCain is President, that will make the right wing and Rush Limbaugh very happy, but it will horrify all of the financial decision makers in the world outside who are involved in deciding our collective fate. The decision makers know what all of us really know: Sarah Palin is simply not equipped to deal with a financial crisis in our world, much less have her finger on the nuclear trigger. Her nomination by McCain and the Republican strategists is one of the most amusing insults to their estimate of the intelligence of the American voter of all time. If the American electorate wants to completely destroy all “confidence” and “trust” from the rest of the world, just elect these two in November. That will do it!

We have a very short time to get our fiscal house in order. If we can act decisively to curb our deficit, we might make it through – but just barely. By doubling the deficit in one bold stroke, we did not make the process any easier. Electing McCain and Palin will make it that much worse, but whatever will be, will be, as the song says.

Just my opinion,

Gordon Black