Funny—how things turn out

[B][I]Conclusion[/I][/B]

As mentioned in part 1 of this series, judging from recent economic events in the United States and elsewhere in the world, economics doesn’t seem to make much sense to anyone anymore. Currently in the United States, the government’s intervention in the markets may be termed a “bailout” now but it’s still abhorrent to many taxpayers and die-hard proponents of the free market system.

Greed, stupidity and a resistance to change brought the economic disaster about. After all, many of the nation’s most prominent business leaders and financiers were responsible for getting us into the current mess, with a great deal of blame also placed at the doorstep of Congress. But you already know that if you watch the nightly news.

Those of us interested in the Pacific region have watched in amazement at the phenomenal economic growth of the PRC over the past 20 years or so. While China was pursuing its growth, all the while the United States was seriously eroding its international financial standing as a result of its trade and account deficit with China and other countries. Pretty stupid if you ask me. One reaction has been that of the Chinese Premier who once stated: “We are concerned about preserving the purchasing power of the dollars we hold.”

The United States was able to sustain a high standard of living most of us have enjoyed in recent years only because foreign entities such as China purchased U.S. stocks, bonds and other assets. We Americans have been enjoying a higher standard of living—which on average, we could not afford as a nation. We simply consumed more than we produced domestically. By contrast, China’s population currently has a lower standard of living than they might otherwise have because the country consumes only around half of its total national production. But they have been catching up.

With the growing economic difficulties surfacing within the American economy manifested in the outsourcing of jobs; the subprime housing debacle; U.S. consumer debt at an all-time high; dependence on imported energy, etc., all could combine to eventually convince the Chinese government’s banking authorities to move away from U.S. securities and Treasury notes in particular and move their wealth out of declining dollar values into stronger currencies such as the euro or perhaps even a “bundle” of Middle Eastern currencies—such as an oil supported dinar if, and only if, OPEC can control the volatility of their resources. In the arid reaches of the Middle East there is only one thing you can do with oil and that’s sell it—you can’t drink it. They need consumers. Unlike tobacco, it’s not wise to adopt pricing policies to kill your customers—unless you hate them and their “decadent materialistic Western ways.” Sound familiar?

If you have been following the current high and low financial roller coaster in the U.S., Asian and European stock markets, when you cut through all the political hype being directed at us from the U.S. Congress it all boils down to Congress being “asleep at the switch” and the American voter electing incompetent politicians, many of whom, in my opinion, are guilty of “economic treason.” Let’s call it for what it is.

With all the advisers and resources available at their disposal, Congress should have seen the developing mess with the subprime debacle in the housing market coming—and the resulting “across the board” meltdown which is nothing more than a direct result of their failure to watch the back rooms and boardrooms of the banking sector early on as their policies became evident but largely ignored as manipulators of the economy. U.S. regulators should have more closely monitored predatory usury abuses in the credit card industry.

Congress should have been able to assess the impact of outsourcing America’s manufacturing base and the resulting unemployment it has caused. They should have seen the long-term result of their continued failure to make the United States energy independent, a need which was first made obvious almost 35 years ago in 1973. They should have realized the harmful effects of deficit spending and the resulting U.S. debt of trillions of dollars. And on and on—with an inexcusable litany of collective political and economic neglect, including neglect of the nation’s crumbling infrastructure, unfair free trade policies which, more often than not, were not free trade at all but in reality one-way trade. Using a modified cliché, “the devalued buck must stop somewhere.” It follows that it must stop with the U.S. Congress and by extension the Federal Reserve for failure to do their job in protecting the American economy. They failed to put out the fire at the first sign of smoke but they dilly-dallied and attempted to blow it out with hot air. Throw all of them out of office.

All this has had a disastrous impact on the financial condition of retirement funds around the country including the NMI.

An incredible degree of incompetence and naivete was revealed in all its dismal truth when Alan Greenspan, former chairman of Federal Reserve, stated before the U.S. House Committee on Oversight and Government Reform when he admitted, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.” He certainly had a lot of people in Congress fooled with his incomprehensible economic gobbledygook. You could have sold this guy the Brooklyn Bridge.

[I]Editor’s Note: In the 60’s the author served as an economic development project adviser when the State Department undertook programs to implement President Kennedy’s foreign policy of encouraging the then newly emerging independent countries in Africa and Asia to use the tools of capitalism and private enterprise as implementing agents for their national economic development aspirations as a competing economic alternative to Soviet style communism and socialism. Google – saipanstewart (open on “Home’).

William H. Stewart is an economist, historian, and military cartographer.[/I]