August 29, 2007

America's Global Creditors Fire First Shot Across Its Bow

This was bound to happen sooner or later. Creditors of the debt-addict have begun to flex their muscles. They certainly have twin leverages of trillions in US securities and similar-sized government-run private equity funds. In the meanwhile, the patient is about to go in a recession and the dollar shows no signs of stabilizing anytime soon.

Calls Grow for Foreigners to Have a Say on U.S. Market Rules - New York Times
Their argument is simple: The United States is exporting financial products, but losses to investors in other countries suggest that American regulators are not properly monitoring the products or alerting investors to the risks.

“We need an international approach, and the United States needs to be part of it,” said Peter Bofinger, a member of the German government’s economics advisory board and a professor at the University of W├╝rzburg. While regulators in the United States have not been receptive to the idea in the past, analysts said that Europe and Asia had more leverage now. Washington might have to yield if it wants to succeed in imposing bilateral regulations on government-owned investment funds from emerging economies. “America depends on the rest of the world to finance its debt,” Mr. Bofinger said. “If our institutions stopped buying their financial products, it would hurt.”
Their timing is impeccable!

In the run up to the 2008 US President election, politicians aren't
expected to espouse tough measures to restore fiscal order. If anything, Republicans will continue socialism for the rich and hide economic inadequacy with a shriller war machine running on borrowed money. Not to be left behind, Democrats will prepare to dole out health and supplemental income to baby boomers retiring in droves.

Come Inauguration 2009, the winner, regardless of political hue, may just be too late in administering the bitter medicine of higher taxes, higher interest rates and swallow its pride by giving up on the strong dollar policy.

Long live US Capitalism!

1 comment:

Anonymous said...

Guess, something is going to give. This is where it starts:

Ben Burns the Buck