Monday, November 17, 2008

Good news

Boy, the world needs a lot of good news just about now.

But, first the bad news

We're facing a medium-term recession, whether or not a "surge" of borrowed taxpayer dollars will help ease the pain of Wall Street, General Motors, or foreclosing "home-borrowers" in the short-term. The reason? We have lived well by depleting our assets for years, Henry Bloget points out in a great chart on Clusterstock:

Alas, a cynic could say, the strength of U.S. consumer spending--the genius of American economy over the past decade--was simply a charade of "fudge"-priced assets, similar to those backing Enron's investments in the early 2000s or fueling MMM's meteoric rise in Russia in the early 1990s.

We are now taking on a new charade: propping up today's economy by using a mythically unlimited capacity of U.S. government to--someday--pay back debt.  Demand for treasury bonds is creating unprecedentedly low interest rates, despite the total surpassing $11 trillion.

(Data: Federal Reserve)

It's as though the U.S. government is a Latin American country in the 1980s. Or, a condo "fix and flipper" couple in 2004. Or, a Carlyle-Blackstone-KKR-Bain Capital in 2006.  It's ready to borrow, plop down money on "underpriced assets", turn them around, and flip them for a profit a few years later. Foreign investors, once again, are happy to try their luck.

Let's be very careful with this trust. I hope Bush, Obama, and Congress are both prudent and bold in their stimulus and crisis response.

So, what's the good news?

Thanks to American institutions, we have the most competitive, and the eighth freest economy in the world.

And, American democracy is literally on the march, with Tom Palmer's publication of DeTocqueville's "Democracy in America" in Russian.

If little else, do keep these two in mind.

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