Posted inPolitics: National

Let’s look at the fundamentals of the American economy

Republican John Sidney McCain III is trying desperately to back away from his "fundamentals of the economy are strong" line, even going so far as to say he meant American workers. But not so fast. In fact, it is the fundamentals of the American economy that are in dangerous trouble. Let us count the ways. I’m going to have to give you some straight talk, my friends:

1. Debt. The nation is deeply in hock to creditors worldwide. We used this line of credit to finance the housing bubble, wars in Iraq and Afghanistan, tax cuts to the richest Americans, rebate checks that went into the ether and the privatization of hundreds of billions of dollars in government services. It’s paying for the bailout of Bear, Sterns and it stands to take a devastating shock from Freddie and Fannie. From government to business to consumers, Americans are debtors, and most of the debt has been pissed away on war, sprawl, speculation and corruption, as opposed to building something for the future.

As the economist Nouriel Roubini has pointed out, the current account deficit in the ’90s came back as investment in private innovation, but for the past eight years it has been used to finance deficit spending and debt. Moreover, now much of this debt is held by nations that do not necessarily wish us well, including China and the petro-states such as Saudi Arabia.

This situation dangerously limits our options in foreign policy. It makes it a near certainty that living standards will take a big hit as we have to pay it back. Remember, when the Soviet Union collapsed, the first people in the door were the bankers, wanting to be repaid for the debt the Bolsheviks defaulted on after the 1917 revolution.

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Posted inPolitics: National

Leggy blonde coed hooker foreign debt forces Frannie bailout

I’m late posting this morning on the takeover of Fannie and Freddie because I spent last night and part of today writing for the Seattle Times on the ouster of Washington Mutual’s chief executive. It’s not a far leap from one to the other, because both bags of trouble have their genesis in the collapse of the housing bubble. In the case of Fannie and Freddie, of course, the problem became so serious that it put the entire financial system at risk.

That’s right. Don’t be fooled by Hank Paulson’s "what this means to you" comments about how the federal takeover will make it easier for Americans to buy homes. The Bush Treasury was forced into using taxpayer money to back these two giant corporations to avoid a financial China Syndrome. And India, Japan, Britain, Saudi Arabia, the United Arab Emirates, et al. Here’s the chilling line buried in Gretchen Morgenson’s Sunday New York Times story:

The proposal to place both mortgage giants, which own or back $5.3
trillion in mortgages, into a government-run conservatorship also grew
out of deep concern among foreign investors that the companies’ debt
might not be repaid. Falling home prices, which are expected to lead to
more defaults among the mortgages held or guaranteed by Fannie and
Freddie, contributed to the urgency, regulators said.

Toes curled yet? This is what it means to be the world’s largest debtor nation. As the duhs and ignos rush to coronate McCain and Palin, there it little understanding of this predicament.

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