As I write this, talks in Washington about the proposed bailout of “Wall St” appear to have failed. Hard line free market republicans talk about preferring to deregulate and let the market sort itself out. Ordinary Americans are disgusted at the idea of the federal government lumping generations of tax payers with the bad debts accrued by the poor lending practices of “fat cats”.
It seems that this confluence of “left” and “right” gut reactions to the Paulson proposal could be enough to kill it. The US markets opened an hour ago, the uncertainly will probably cause something of a drop.
If the US government is unable to do something to sure up the US financial sector, everyone who depends on it will suffer. And in case you didn’t realise, to a lesser or greater extent, that’s everyone.
Oh the joys of market failure. Maybe it’s time I went and planted another row of corn in my garden.
Update: If you want nuts and bolts commentary, I’m not the person to ask. I don’t know who to ask, I wouldn’t even recommend Paulson. Krugman (via John Quiggin) put it well when he said that, like the rest of us, Paulson is “making it up as he goes along”.
Further Update: You could probably do a lot worse than Krugman’s article a few days ago.
There needs to be government action of some sort, but understandably, American’s are hesitating at the prospect of writing another blank cheque to the Bush administration (look at where the “War on Terror” resolution got them).
Afterthought:
When the facts change, I change my mind. What do you do, sir? - John Maynard Keynes
Where will the facts leave us in a week? This is something that heavily committed public institutions (*cough* Wodonga Council *cough*) need to be following closely.
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on Sep 27th, 2008 at 6:03 am
Thanks for the heads up on Krugman article, Kieran.
on Sep 27th, 2008 at 10:40 am
Way over there on the right, Lyndon LaRouche reckons Governments must meet to plan a new Bretton Woods now.
“A ‘New Bretton Woods’ agreement in the spirit of the initiative of President Franklin Roosevelt, is the only precedent of relevance for the currently ongoing, general breakdown-crisis of the world’s present monetary-financial system.”
He says the $700 billion bailout initiated by U.S. Treasury Secretary Henry Paulson on 19th September, puts the fox in charge of the chicken coop: Paulson represents the very investment banking community whose practises brought us to this point of crisis.
Maybe it is time to listen to this bloke.
on Sep 27th, 2008 at 12:34 pm
They’ll have to do it. This stand off is surely politically motivated and in the end both parties will have to agree to save the economy. Otherwise it’s suicide.
on Sep 27th, 2008 at 2:28 pm
I will predicate everything I say on this topic by noting that I am a novice, and the only thing I know for sure is that I don’t know that much.
Greg:
LaRouche has been spouting the same old crap for thirty years. It was rubbish during the stagflation of the 70s and it’s rubbish now. A new Bretton Woods, what does he mean by this exactly? Returning to a world gold standard? It was an idea that was past it’s used by date when it was pursued in the 19th century, let alone the 20th.
The idea is that by linking currency to precious metals you can achieve economic stability. But what it denies is that like money, precious metal is just a commodity which can in itself be unstable.
Fiat currency is still a scary concept. The notion that money does not actually have fixed worth, and that it’s value is determined by supply and demand like anything else seems to run against our intuitive ideas of what money should be.
As children we have the idea of money having fixed worth. A bag of lollies costs fifty cents, a dollar is a dollar. But eventually we are exposed to the idea that money does not actually have fixed worth.
Ideas like a gold standard, fixed currency exchange rates, a “New Bretton Woods” can seem appealing in this paradigm, and that is what the LaRouchites appeal too.
But it’s not true.
Gold is not magical. Gold is just a metal. Linking to a gold standard makes as much sense as linking currency to a wood standard.
Once the world had a silver standard. Spain went to America and “discovered” (ie. stole) a whole heap of silver, it caused a prolonged economic crisis (silver devalued, there was centuries of inflation) which eventually destroyed silver as a medium of exchange and totally underdeveloped the Spanish economy.
The lesson? A precious metal is just a metal, it’s only precious because people say it is.
The point of all this rambling? I don’t think it’s time to listen to Larouche, now or ever. His proposed “solution” is to return to an imagined golden age, when price stability was caused by the linking of currency to gold reserves.
But gold reserves don’t necessarily give you price stability, his proposal is based on a false premise.
But I’m no expert.
on Oct 1st, 2008 at 7:32 pm
Well Kieran, I have lived a lot longer than you and I can tell you that I haven’t got a clue either … either has Poulson or the worlds economists. Our money is not worth the paper it is printed on.
Give them the $700billion and where does America find the resources to fight the rest of the world’s problems such as climate change. At least it should put some limits on the US war chest.
The American economic Empire appears doomed to me. Who will come out of this mess with the most economic power … The EU … China … I think we might find out.