Widening our viewpoint opens up a whole new world view which our aspiring leaders should take into consideration when telling us their plans. Unfortunately, we must start talking about the fact that the United States has lost its commanding world position economically (we have gone from being 50 percent of the world economy to 22 percent), that we no longer have total control of our own finances, that we are facing real competition and shortages in energy, raw materials, even food, that our credit system is in meltdown, that climate change may trump everything else---- and denying these truths out of misguided patriotism could well be fatal. While the Bush administration may manage to muddle through for one last canter around the track, there are serious storm signals flying, and chances are the storm cannot be postponed much beyond Inauguration. Aspiring leaders, take note:
REAL ESTATE: The subprime debacle
triggered a collapse in property values resulting in the evaporation of billions of dollars of wealth among middle class homeowners, who had used their residences as a credit line (like an ATM) for spending on consumption at the same time the property was regarded as the primary store of value to fund their retirement. The collapse now extends far beyond subprime loans. Over 50,000 properties a month went to foreclosure last year, and that number will double or even triple this year, no matter what feeble efforts the government invents to staunch the flood. We have 17.4 million vacant houses in this country right now. Beyond residential, there is the probable decline in commercial real estate values; banks have withdrawn funding for strip malls, big box stores, and office complexes. Morgan Stanley predicts a 15 percent drop in commercial real estate values, and others predict up to 20 percent further declines in residential values (varying from one locale to another). Our economy today is a consumption economy, not a production economy; what will this loss of billions in wealth do to the American middle class? To our consumption economy? Any plans to resolve the problem?
CREDIT COLLAPSE: Americans have been on a credit consumption binge, and the next big tsunami to hit will likely be American consumer debt, which now amounts to approximately $2.4 trillion, which exceeds what China earns in a year, more than the GDP (Gross Domestic Product) of the United Kingdom, or of Italy, France, or Canada. Credit card debt has a very high rate of interest compared to mortgages, and installment debt comes next. Consumer debt drives 70 percent of our economy, and over half of American households spend more than they earn each month (which means we have a "negative savings rate," unlike the Chinese, who save about a quarter of what they earn)... how much longer can that continue? Will we have a second wave of bankruptcies? Worse, all this consumer debt has been cleverly sliced, diced, and re-packaged by the financial geniuses of Wall Street, just as they did with mortgage debt, and sold to investors such as retirement funds. While Fox News and the White House carol "no problem," the truth is, as a nation, we may well be dancing on the edge of a financial cliff. Do our aspiring leaders have any idea what to do?
BONEHEAD BAILOUTS: Tax rebates to bail out consumers (i.e., voters), massive guarantees to bail out Bear Stearnes, and an open window on the Fed to allow financial institutions (more than just banks) to turn over their toxic financial paper to Uncle Sam in exhange for dollars---- these are all "too little, too late," in the greater scheme of things. Total credit in the United States has risen from 150 percent of our GDP to 340 percent, and we have financed this binge (to which Bush wants to add another $3 trillion) by selling our Treasuries to foreigners. Only problem is, foreigners are becoming wary of the dollar as the world's "reserve currency." China, one of our main bankers, has begun dumping the dollars it holds; they could put us across a barrel in short order for political reasons of their own. Though the dollar will take a long time dying, it is clearly in a long-term decline, which is one reason American families now face ever higher prices. During the savings and loan crisis in the 1980's we used $150 billion to smooth things over, and engendered a 3-year recession. Today we have dropped $207 billion (and counting) in bailouts, we already have stagnant wages and rising prices ("stagflation"), what other damage will we face? What will be the effects on the average taxpayer of the Federal Reserve's socializing risk while privatizing profits, protecting big banks but not individual homeowners? Any idea how to buffer us poor slobs?
LEVEL 3 BOMBSHELL: Accounting recognizes three levels of investments at financial institutions: Level 1 is the usual stocks and bonds, which are readily bought and sold, or traded; Level 2 is less-traded items like those mortgage-backed securities which blew up last year; and Level 3 is the hidden, non-tradable investments like other derivatives and private equity investments. Level 3 "investments" have no market price (and no one knows what they are really worth, if anything) so they are hidden because they cannot be valued on the balance sheet. This Enron-type bookkeeping will end once regulation FAS-157 takes effect, forcing banks to reveal Level 3. When this happens, banks may suddenly have to sell their Level 1 assets to raise cash (like a margin call), as have other institutions recently. This could flood the market, depressing prices---- too bad about the consequent implosion of the average investor's retirement fund. Also: the Level 3 bombshell extends to Europe, too, possibly creating a world-wide crisis; and, since the whole set-up depended on computer modeling in the first place, what if the computers made a mistake (or two)? Such mistakes did occur a few years ago, bringing down Long Term Capital Management hedge fund, creating a $4.6 billion loss... today we are looking at a derivatives "market" of over $480 trillion, which I believe exceeds the GDP of the entire world. Derivatives produce no goods or services, but do produce fancy bonuses for their creators far beyond any limited economic utility they provide. They are a direct result of the current philosophy of jungle capitalism (or, as Naomi Klein calls it, "Disaster Capitalism") ruthlessly promoted by Bush and the Republicans. The Wall Street financial system is a precarious house of cards. Do you have any idea how to prevent a collapse, how to tame the system, or, better, how to replace the distorted philosophy on which it runs?
PEAK FOOD: Food riots have sprung up all over the world, supposedly because of unexpectedly high prices, which are, of course, an indicator of scarcity. Rice exporting nations in Southeast Asia have organized a rice cartel similar to OPEC's oil cartel; other countries are also limiting exports of food and of raw materials, saving them for domestic consumption and as bargaining chips. The Philippines recently failed to fill its international order for rice. Even Americans have noticed rising grocery prices as well as gasoline prices. While the perverse use of food stocks to produce ethanol can be blamed for some of the shortages and price increases, it goes deeper than that, and includes the replacement of family farms with agribusiness, and the control of seed stock by gene-modified food developers like Monsanto and Archer Daniel Midlands. It is worth noting, too, that cold, wet weather has interfered with spring planting in the U.S., and storms or droughts are reducing production in other regions---- possibly another indication of climate change. In other words, the ever-expanding world population may finally be bumping up against the limits of the earth's resources (Malthus revisited). The same goes for water and industrial metals like copper. Are we prepared for starving refugees, for food scarcity, for the development of a sincere alternative energy policy, for wars over food, water, and resources?
THE FUTILE GWOT: The Global War on Terror is in fact the wrong war, more of a disastrous ego trip for Bush, who was anxious to be a "war-time President." While it is true that millions of people (not all of whom are Muslim) hate America for what it has done to them, and for what they regard as American cultural imperialism, global war was not the answer, and we never should have allowed ourselves to be bogged down in Iraq, and never should have spent ourselves into near penury. Fixating on so-called "Islamofascism" and the "clash of civilizations" left us unable to recognize, much less be able to respond to, the challenges of a restored and rising Russia, or the unacknowledged threat of a booming China that has grabbed the world's resources out from under our nose in Africa, Asia, Latin America, and even Australia. Mr. Bush, it is not America's mission to spread Christianity or democracy everywhere, whether or not the locals approve, and your clumsy efforts to do so have just about bankrupted us financially and morally. Do our aspiring leaders propose not just more diplomacy, but an over-all world view that recognizes our new situation in the world, and how to deal with it to our advantage?