Turmoil Rocks Global Marketplace

Treasury Secretary Henry Paulson was able to convince Congress that his exorbitantly large $700 billion bailout was necessary to save the financial industry. It now seems to pale in comparison to the expected losses from renewed global tumult. The Wall Street bailout will take weeks to organize, leaving the financial markets to flounder in the meantime. Even if you believe that this bailout is the proper course of action, it cannot address such a rapidly deteriorating situation.

The artificial economic bubble which developed in the United States over the last few years was seen in many other countries as well. These bubbles seem to have burst in economies around the globe. A few months ago many hoped that the United States was the only country in such disarray, it now seems that the U.S. is instead leading the way for others to follow.

Stock indexes in Russia and Brazil were shut down Monday, all trading was halted for several hours amid fears of further declines. Chinese indexes, despite careful government manipulation, fell nearly 5 percent in one session. The demon of “sub prime” lending also seems to have caught up with the rest of the world. The collapse of Hypo Real Estate (Germany) and Bradford & Bingley (England) under the weight of billions in losses on bad loans forced the governments of those two nations to put together huge sums in aide and nationalization packages.

The banking crisis which has rocked U.S. banks this year now seems to be a problem in Europe as well. Glitnir, one of Iceland's largest banks, had to be rescued and nationalized. The collapse of Fortis, one of the largest banks in Europe, forced several governments to invest billions in hopes of staving off insolvency. The move ultimately failed and Fortis was nationalized as well.

The Federal Reserve, in concordance with several central banks around the world, acted Wednesday to stem the tide by lowering key interest rates and making money more available to a world economy suddenly strapped for cash. Theoretically this plan would infuse capital into the system and act to correct the jammed lending system. Unfortunately, none of the Fed's previous rate cuts have had any effect other than further deepening the crisis and we can only hope that this instance breaks the mold.

The grand scheme of the Treasury, the Federal Reserve, and all of their followers both domestically has always been simple: more money. Whenever a problem arises in government, education or finance the answer is always the same: more money. Perhaps what the world needs is less money. After the $700 billion bailout passed into law the markets continued to crumble. Corporations expecting a handout will simply demand more claiming that the trillion dollars added to our national debt at their expense fell short of correcting the problem.

By making money easier to come by the world's central banks have lower accountability in an effort to delay the inevitable. Every fiscally irresponsible decision made by our government and others does nothing but make the end result more dire. Robert Zoellick, president of the World Bank, believes that the financial system has reached a “tipping point,” the aftermath of which will be extremely difficult to contain. Our government is not honestly attempting to contain the problem, it is simply trying to avoid it. We must learn to face the facts and sleep in the bed we have made – or rather, that was made for us. The constitution of our economic system is terminally ill, the longer we prop it up with artifices the worse our conclusion becomes.

Source Washington Post:

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