The World Economic Forum has ranked Canada number one in the world for the soundness of its banking system.
Canada ranked just ahead of Sweden, Luxembourg, Australia, and Denmark. The United States ranked 40th, and Britain, 44th.
I see today that the Federal Reserve has stepped in to start buying commercial paper, and this seems to be garnering some cautious praise in the financial community. By offering to step in to the role traditionally played by money market funds, the Fed is not only trying to prevent a seizing of the broader economy, but to inspire confidence in the traditional players to get back in the game again.
This direct entry of the Fed into the market got me to thinking. Wouldn’t this be a great time to start a Social Security investment fund? I’ve written before about how the Social Security “trust fund” isn’t a true trust fund. It holds only U.S. Treasuries, and is really just a theoretical promise–more accounting gimmickry than trust fund. I contrasted this to the Canada Pension Plan Investment Fund which is a true segregated trust fund, managed by an investment board with a mandate to invest and grow the premiums of plan contributors.
I’m just spitballin’ here, as they say, but with stocks trading at fire sale prices, wouldn’t this be an opportune time to turn the Social Security trust fund into a real, honest-to-goodness trust fund for the benefit all Americans now paying into it, and who face the very real possibility that they may never see a dime from it? The trust fund could start taking the billions of dollars that Americans pay in premiums and investing them in American businesses to prop up this flagging economy, instead of playing the current con game wherein the government borrows from the public pension to finance whatever money-burning gambit it happens to be on at the moment.
But then again, this is probably just crazy talk. Why invest in yourself when you can just mortgage the country to China?
Over the past couple of weeks, I’ve written several posts in which I asserted that Governor Sarah Palin was not sufficiently qualified to be the Vice President, nor, in the event of some calamity, President. I even went so far as to suggest that she step down, and I suggested that John McCain had demonstrated a serious lack of judgment through his selection of Palin. I stand by my assertions, but I want to elaborate on why I think this is so important.
The financial issues currently facing the United States, have global consequences. It remains to be seen if the current financial crisis will prove to be as catastrophic as we have been led to believe it may be. But at the very least, it should be taken as a wake-up call. What we have learned over the past six months or so, and most strongly in the last two weeks, is that all of the world’s economies are linked in a complex web of debt. The global monetary system relies on a constant flow and cycling of debt in order for economies to function, and no nation relies on debt more heavily than the United States.
We have all become familiar with a new phrase during this crisis–”too big to fail.” Fannie Mae, Freddie Mac, and AIG, were corporations which were deemed to be, too big to fail. In other words, if they collapsed, the whole system would collapse with them. I suggest to you that the United States is itself, too big to fail. This is why I am so concerned with the quality of the leadership of this nation. The risks of getting it wrong are enormous, not just for the United States, but for the world.
The fact is, at this point in time, neither Republicans, nor Democrats show any signs of getting it. The Republican ticket promises more war along with spiraling costs in the trillions of dollars, and the Democrats promise universal healthcare when ultimately the nation cannot afford the Medicare and Medicaid it already has, nevermind Social Security. Both parties just agreed to put another $700 billion on the national credit card. The only people who do seem to get this are unelectable fringe candidates. While they understand the fiscal crisis, they are politically unpalatable, and in some cases, out to lunch on other issues.
Politics have deadlocked the United States into following an unsustainable fiscal policy. The problem is now so bad, and so deeply entrenched, that any politician even suggesting a cure, commits political suicide. It is politically more expedient to carry on as usual, and hope that somehow the nation can spend its way to prosperity. The most dangerous thing about that strategy is that it actually works, for a while. In historical terms, it doesn’t work for very long, but in relation to human lifespans, and political lifespans, it can work for quite a while. So, we end up deluded into thinking that if we just throw more debt at the problem, the economy will outpace the debt.
But compound interest doesn’t work that way. As the debt grows, more and more of the country’s productive capacity goes to servicing the interest on that debt. I would compare it to a consumer who only makes the minimum payment on their credit card, but it’s worse than that. Credit cards have limits, the U.S. Government does not–at least it’s not a fixed limit. The limit is, whatever amount the rest of the world is willing to lend to Uncle Sam. The question is, at what point does the rest of the world say, “You’re credit’s no good anymore Sam. Time to pay your tab.”
I believe the world is starting to seriously ponder that question right now. Other nations have gotten the wake-up call, and have realized they need to take steps to insulate themselves from massive financial failures like the ones we’re seeing now. I don’t think it’s unreasonable to draw a parallel between the balance sheet of the United States, and those of corporations like Fannie, and Freddie, and AIG. I also don’t think it’s unreasonable to assume that America’s creditors are drawing the same parallel, and seeing another “too big to fail” situation. Only in this instance, no one will have the capacity to launch a bailout. Everybody gets hurt.
This is why I harp so much on poor Governor Palin, and John McCain for having chosen her for purely political reasons. Palin not only doesn’t get this kind of stuff, she doesn’t want to get it. She thinks that if she can get by on a wink and a smile, then America can too. It can’t. McCain doesn’t want to get this either. He is a man of singular vision, who has come to believe his own war hero mythology, and would like to extend it to another war, or maybe two, or three. He would sooner bankrupt his nation in pursuit of victories that just aren’t there to be had.
I could go on about a lot other things which have gone wrong in America over the last eight years, like imprisonment without trials, torture, secret interrogation facilities, warrantless wiretapping, the abandonment of international law, etcetera, etcetera. But as reviling as these things may be, none of them has sparked the kind of outrage and concern as has the current financial crisis. “Guantanamo shmantanamo! What’s happening to my 401(k)!?!” If any issue can galvanize Americans to a cause, it may just be a threat to their collective wallet.
Barrack Obama is far from perfect, but in him I can at least see a man of intelligence with an open mind. It is that open mind which distinguishes him from his competition. It will take a willingness to accept new, and painful realities if America is to climb out of the hole it has dug. If this sounds alarmist to you, that’s because it is. But this crowded theater, really is on fire.
I’ve spent a lot of time during the past two weeks poring over the financial news, trying to wrap my head around all of the events that got us to where we are today. It isn’t easy to understand, and the financial media does a horrible job of explaining it. Fortunately, we have National Public Radio, and This American Life to save the day. This is the second time I’ve plugged this because it really is that good.
If you find yourself frustrated, as I did, trying to understand this whole mess, take some time to listen to these two episodes of This American Life. The first show, The Giant Pool of Money, first aired back in May. You can stream it, or download it for 95 cents. The second show, Another Frightening Show About the Economy, first aired on Friday. Check your local NPR station for air times, or just wait a week, and it will be available for streaming and download as well. I can’t praise these shows enough.
If you want more on the subject, the creators of the show have also started the Planet Money Podcast, and the Planet Money Blog.
I have to admit, I listened to last night’s debate intently, half wishing for another train wreck a-la Katie Couric interview. Alas, it failed to materialize. While I am still not convinced that Palin has the necessary qualifications to be Vice President, and God forbid, President, I’ll concede that she did a better job last night than I expected she would.
So, in the interest of fairness, I want to point out that I did find one issue where Sarah Palin and I are in complete agreement, and that is, the importance of education. I think she sums it up pretty well:
PALIN: Say it ain’t so, Joe, there you go again pointing backwards again. You preferenced [I think she meant 'prefaced' since, strictly speaking, 'preferenced' is not a word, but let's not pick nits.] your whole comment with the Bush administration. Now doggone it, let’s look ahead and tell Americans what we have to plan to do for them in the future. You mentioned education and I’m glad you did. I know education you are passionate about with your wife being a teacher for 30 years, and god bless her. Her reward is in heaven, right? I say, too, with education, America needs to be putting a lot more focus on that and our schools have got to be really ramped up in terms of the funding that they are deserving. Teachers needed to be paid more. I come from a house full of school teachers. My grandma was, my dad who is in the audience today, he’s a schoolteacher, had been for many years. My brother, who I think is the best schoolteacher in the year, and here’s a shout-out to all those third graders at Gladys Wood Elementary School, you get extra credit for watching the debate.
Education credit in American has been in some sense in some of our states just accepted to be a little bit lax and we have got to increase the standards. No Child Left Behind was implemented. It’s not doing the job though. We need flexibility in No Child Left Behind. We need to put more of an emphasis on the profession of teaching. We need to make sure that education in either one of our agendas, I think, absolute top of the line. My kids as public school participants right now, it’s near and dear to my heart. I’m very, very concerned about where we’re going with education and we have got to ramp it up and put more attention in that arena. [Link to full transcript]
You said it sister! Education good. Smart people important. More of them, we should have.
The party is back on! Everyone please resume your normal irresponsible spending behavior.
I can see why this bill was passed too. What was missing from the previous bill was tax relief for Oregonian arrow makers, and Puerto Rican rum. Key sticking points, I’m sure you’ll agree.
I continue to be amazed by the number of people clamoring to the defense of Sarah Palin, such as those who have been attacking a conservative columnist for suggesting Palin step down. But then, I’m continually flabbergasted by American politics in general. We Canadians are much more fickle in our political allegiances. We will cast our votes purely out of spite, to thumb our noses at the ruling party whenever we feel they’ve grown too big for their britches.
In the United States, politics seems to have more in common with sports. You pick a team (unfortunately, only two are allowed to play), and that is your team, come hell or high water. No matter how poor the current roster of your team may be, you put on the jersey and the funny hat, paint your face, and cheer until your lungs collapse.
Such is the case with the McCain/Palin team right now. Sarah Palin may be a very nice lady, but anyone who says she is qualified to be ‘VP’, let alone ‘P’, is choosing to live in an alternate reality. I saw a t-shirt once sporting the phrase, “I reject your reality, and substitute my own.” I fully expect John McCain to be wearing one at the next debate.
It is a sad state of affairs when a man who would be president can’t even tell a decent lie. Really John? You’ve turned to Sarah Palin for advice many times in the past? Sarah Palin knows more about energy than probably anyone else in the United States? Come on. Every politician should know, if you’re going to tell a good lie, it has to be complex enough that no one can discredit it right off the cuff. It’s called plausible deniability.
Unfortunately for John McCain, his choice of Sarah Palin crossed a line where coming up with plausible lies to justify his choice is next to impossible. Now he seems to be resorting to something akin to Jedi mind tricks.
“Sarah Palin IS qualified to be vice president.”
“You won’t ask Sarah any more difficult questions.”
Sadly, it seems to be working on vast numbers of people.