Change You Can Believe In!

Ah, the wonders of living in America. Change we can believe in! No, this post won't concentrate on Obama. But rather on other current events. The financial market collapse and Bernard Madoff.

To sum up the financial crisis as succinctly as possible; the average American spends/consumes more than he/she can afford, and showed little restraint towards going into debt to maintain this lifestyle. Established wealth (those with the capacity to lend) became fearful, and trimmed their lending.

As a result, the average American's ability to borrow and consume was marginalized and the fears of established wealth (the lenders) extended to incredibly exaggerated levels. The average American is/was/will be forced to consume less, leading to earning cuts and fears of a protracted period of slower growth/protracted recession. Meanwhile lenders and investors become eager to depart with their assets...i.e. receivables and investments (equities and bonds) at whatever the going rate is, thereby putting further downward pressure on their value and exasperating losses.

So the United States Government decides to step in with incentive plans to pull us out of a recession by...1) lowering interest rates for loans to banks (decreasing the cost of money to banks), 2) tax refund checks for the Average American, 3) Bank financing, 4) various lender and industry bailouts/financial support, and 5) infrastructure spending.

How is this all financed? By the average American taxpayer, you say? Well, effectively yes. But not the average current American...these loans won't be repaid in this generation (barring hyperinflation).

Then we come to learn that the financial crisis has led investors to request withdrawals from Bernard Madoff's investments causing the outing of the world's largest Ponzi scheme. Based upon the methodology of the aforementioned government solutions, and our tendency to defer our costs to the next generation, it seems as if a larger Ponzi scheme is brewing.

Who will be to blame when this one explodes? Who will be exposed as the fraud? The basic tenets of democracy, I garner. For in a democratic state, he who bears the most optimistic phrase will be elected, and problems and sacrifices will be deferred for as long as one can. That is until a greater crisis explodes that dooms free markets, democracy, and the United States.

To sum up the future financial crisis as succinctly as possible; the American Government spent more than it can afford, and showed little restraint towards going into debt to maintain it's populances lifestyle. Foreign investor became fearful, and trimmed their lending to the United States.

What then? Will it be worldwide financial collapse when these foreign lenders fear of the quality of our treasury bonds). Or will a worldwide incentive plan be offered to the American Government to keep us afloat.

The irony of this is that those foreigners who invest in the American Economy are, in fact, those who seek relative financial tranquility (a flight to quality) and practice fiscal restraint. Which allows us to maintain our irresponsible ways.

Thank you Chinese farmer (who saves approximately 40% of his salary) for investing in the US dollar (via buying treasury bonds). Your loans allow me to continually maintain my lifestyle (negative savings rate) of consumption. Time for me to pay the piper? Sure...no problem. Enjoy the heavily deflated repayments!

And the world spins round and round.