Is this the end of America? - Full Comment - Terence Corcoran

Terence Corcoran: Is this the end of America? Posted: March 19, 2009, 7:45 PM by NP Editor Terence Corcoran, Ben Bernanke, inflation U.S. law-making is riddled with slapdash, incompetence and gamesmanship By Terence Corcoran Helicopter Ben Bernanke's Federal Reserve is dropping trillions of fresh paper dollars on the world economy, the President of the United States is cracking jokes on late-night comedy shows, his energy minister is threatening a trade war over carbon emissions, his treasury secretary is dithering over a banking reform program amid rising concerns over his competence and a monumentally dysfunctional U.S. Congress is launching another public jihad against corporations and bankers. As an aghast world — from China to Chicago and Chihuahua — watches, the circus-like U.S. political system seems to be declining into near chaos. Through it all, stock and financial markets are paralyzed. The more the policy regime does, the worse the outlook gets. The multi-ringed spectacle raises a disturbing question in many minds: Is this the end of America? Probably not, if only because there are good reasons for optimism. The U.S. economy has pulled out of self-destructive political spirals in the past, spurred on by its business class and corporate leaders, the profit-making and market-creating people who rose above the political turmoil to once again lift the world out of financial crisis. It's happened many times before, except for once, when it took 20 years to rise out of the Great Depression. Past success, however, is no guarantee of future recovery, especially now when there are daily disasters and new indicators of political breakdown. All developments are not disasters in themselves. The AIG bonus firestorm is a diversion from real issues , but it puts the ghastly political classes who make U.S. law on display for what they are: ageing self-serving demagogues who have spent decades warping the U.S. political system for their own ends. We see the system up close, law-making that is riddled with slapdash, incompetence and gamesmanship. One test of whether we are witnessing the end of America is how many more times Americans put up with congressional show trials of individual business people and their employees, slandering and vilifying them for their actions and motives. And for how long will they tolerate a President who berates business and corporations as dens of crime and malfeasance? If the majority of Americans come to accept the caricatures of business as true, then America is closer to the end of its life as a global leader, as a champion of markets and individualism. But America is at risk in other ways, especially in the technical business of setting and executing policy. The presidency of Barack Obama has set out on a course that has no precedent in U.S. history. Franklin D. Roosevelt, whose New Deal transformed the U.S. economy during the Great Depression, pushed America off on a sharply different political and ideological course. The Obama administration is different in many ways, not least in its supreme self-confidence in its methods and objectives. Reform of health care, environmental policy, education, energy, banking, regulation — every nook and cranny of the U.S. economy has been put on alert for major change. Expansion of government spending, plunging the U.S. into unprecedented deficits, is without parallel. In economic policy, through regulation and control of energy output, financial services and monetary expansion, the U.S. government has embarked on a fundamental reshaping of America. It is designed, in short, to bring on the end of America. The spillover effect of all this on the rest of the world promises to be dramatically disruptive. The greatest global risk is in monetary and currency policy. Below is a chart that graphically demonstrates the sharp deviation in monetary policy from past norms. Under the chairmanship of Ben Bernanke, the Federal Reserve is in the midst of a giant economic experiment, flooding the world with U.S. dollars, hoping that flood will stimulate economic activity. The total monetary base, already at astronomical levels, is now expected to take another big hit with the new Fed policy of buying up U.S. longer-term treasury bills in a bid to drive down long-term interest rates. Mr. Bernanke is sometimes known as "Helicopter Ben" because he once in an academic paper referred to the use of "helicopters" full of money to rescue an economy from deflation. In comments Wednesday to explain the Fed's new policy of buying $300-billion in U.S. treasury bills, Mr. Bernanke noted that the Fed is now more worried about inflation being too low than about it getting too high in the future. For the rest of the world, however, the worry is that America is at risk of becoming the fountainhead of a new inflationary outburst. The U.S. dollar is now in decline, gold is moving sharply higher, and new global currency turmoil is on the horizon. It may not happen. A paper just published by the Federal Reserve Bank of St. Louis, source of the chart above, says that the Fed will have to be prepared to absorb all the excess money it has poured into the U.S. economy. It will be a technical and political challenge unlike any central bank has ever undertaken. The future of America is at stake.   For more from this author, visit the FP Comment blog | Subscribe to feed Comments (14) Send to a friend Permalink 14 Comments You must be logged in to post a comment Click here to post a comment by seine Mar 19 2009 8:22 PM Over the past 35 some years the world has been building a financial system based on paper, without any foundation whatsoever. It is actually surprising it took this long for the house of cards to collapse. A return to an honest gold-based currency, while painful would leave us with an intact production system and stability would return. The current effort to resurrect the failed fiat currency will be more costly than fixing the system. To trust the people now in control to solve the financial problems smoothly is naive at best. As you say Terence, these "ageing self-serving demagogues " only know how to be dishonest. We can only hope someone wakes up in the next short while. by IainGFoulds Mar 19 2009 8:22 PM ... Though a fair consideration, America will recover despite the intervention and interference of the present Democratic administration. ... Though America has elected a president who is a sworn opponent of the economic foundations of their nation, he was only elected because he is a man of great charm, and a gift for public speaking. Also, he rode a media generated wave of hatred against the Republicans, and was competing against a very weak opponent in McCain. Still, he became president by only the slimmest margin. ... Though neglected, the roots of enterprise, initiative, and personal responsibility remain strong in America. This week's decision by Gov. Palin to refuse much of the offered "stimulus" money is a sign of this strength. ... Obama and the Democrats will be gone in a few years, leaving only a trail of destruction and debt, yet America will recover. by Nath_BC Mar 19 2009 8:31 PM Terence your ignorance of American strength and history is truly astonishing or you are just being like many contributors to the FP simply political crap. You were silent when all this mess was brewing under Bush administration and I suspect you would still be silent or cheerleading the bail outs if McCain had won the election and the Republicans were still in power. Yes things are messy and Obama is trying to fix it and his using the media to explain is part of the process. You should listen to him carefully and may learn something. Under Regan the US became a debtor nation from being a Creditor nation for a long time and none of you or your friends said a critical word. In fact you still consider him to be the great president. What bull? by darcymeyers.wordpress.com Mar 19 2009 8:49 PM Excellent analysis TC. I have been arguing the dangers of such experimental monetary policy for a couple weeks now. The long-term harm from such policy is not even being considered in the search for short term stability. Canada is in a position of strength, in terms of inflation, liquidity and employment.  Quantitative easing should be avoided here-no sense adding to the inflationary (and currency) bonfire.   by RayL Mar 19 2009 11:00 PM Seems like emperors and the Pope build things, populists tear them down.  Obama is a populist.   by Neilio74 Mar 20 2009 12:03 AM Good article Mr. Corcoran. Gold was up about $70/ounce today, I keep double checking that figure because it doesn't seem right.  The gold market is very telling and perhaps it is now the leading indicator (as the equity markets flail around). by ZeeBC Mar 20 2009 12:39 AM Hyper inflation has to follow Obamanomics. "In an effort to promote liquidity and boost the economy, the Federal Reserve yesterday announced plans to grow the money supply by another 50 percent to 60 percent. This ignores the profound observation of Gen. George Patton: "You can't push a string." When the Fed expands the money supply, it doesn't pass out $100 bills on Broadway. It gives lines of credit to banks and other financial intermediaries to generate some money and also buys up Treasury bills in circulation to pump out more cash. But the money supply has already expanded by 271 percent in the past five months. Why does the Fed expect what hasn't worked to suddenly start working? Right now, there is about $800 billion plus currency in circulation sitting in wallets, purses and cash registers around the country. Another $800 billion is sitting in a vault at the Federal Reserve Board, for a total monetary supply of about $1.6 trillion. In a vault? Yes. When Congress voted the TARP program to bail out banks, the banks actually took only a small part of the money. The rest they used to offset losses on their balance sheets while letting the Fed hold onto the money. Why didn't the banks want the money? Because they're not about to make loans in this economy. They're more than happy to let the cash sit at the Fed earning them interest. (The Fed decided to start paying interest last November). So now the Fed will, in essence, be creating another trillion of money supply to sit in the vault alongside the $800 billion already there. The new money will remain idle for the same reason the old money has because banks won't make loans in this environment." www.dickmorris.com/blog by ZeeBC Mar 20 2009 1:24 AM "But the money supply has already expanded by 271 percent in the past five months." >> Someone checked the Reserve site where expansion was 27.1% for 3 months. Looks like a period was dropped. by alancoman Mar 20 2009 2:04 AM I really wonder how it is possible that Nath_BC can never get it right. Dear Nath, if life is so much better in communism/socialism, why aren't you in Zimbabwe or N Korea (or Cuba) now? Socialism fails because nobody has any incentive to contribute (since the contribution is taken away and shared with others). This deficit spending propagated by Obama will come and bite him in the ass. Obama will make Carter look like a good president. by seine Mar 20 2009 2:22 AM alancoman I'd be really surprised if the teeth marks will stop with Mr. Obama. And they will most likely draw blood. Yes Mr. Peanut looks somewhat less disastrous. Cheers, we may need it. by pneves Mar 20 2009 3:51 AM In the immortal words of Thomas Edison "I have seen several depressions in the past and each time America has come out stronger then when it went in". Don't count out the US. They have something in their society that Canadians have never had. A go get em attitude. And that attitude has served them well in the past.  We can learn a great deal from them in terms of our own society. Its too bad Canadians are so closed minded and keep thinking they are smarter then the Americans.  That arrogance is misplaced.   We forget that we were on the same path that they were. We were just five years behind them and thats why we escaped the worst of this particular recession so far. If our banking system had collapsed like theirs we would end up being in far worse shape. Our politicians wouldn't have the ability to fix it. As I look back at all the decisions made in our country over the last 20 years I question our politicians decisions. But the thing is if we were in the Americans shoes our politicians would be too stubborn not reverse the bone headed decisions that got us there.   by Matt W. Mar 20 2009 4:21 AM pneves: I agree we should never count the US out, but I worry that the go-get-em attitude is starting to turn into a hows-about-you-just-bring-it-to-me attitude. by pneves Mar 20 2009 4:52 AM Matt W. I attended a conference in the US last month called startup weekend. It  was a group of 150 people who attended that conference at the google offices in Seattle. I was amazed at how fast things happen down there. How fast these people move to get their product and service to market as truly remarkable site. Where else would you be able to start a company in just 2 days. I know of at least one group that had turned a profit by the end of the second day. Over the years in my profession I have talked to tens of thousands of Americans.  I've long since learned that the US is a place of extremes. That countries best people are better then the best Canadian. However the flip side of that is also true. Their worse are also worse then any Canadian. I will bet on Americas best. Its a good place to put my money. by Barneyrubble Mar 20 2009 7:11 AM To the American Republican sympathizers:  If Bush was such a great president then why wasn't another Republican elected to replace him? Recessions and depressions are sometimes hard to fix and can last a long time. This is a banking crisis caused by Reagan/Bush free market capitalism excesses. And, part of its characteristics is a lack of confidence; a lack of faith in the banks themselves and a lack of belief by the banks that they will be able to make money in a weak economy, hence the hoarding of cash. Obama is in the wrong place at the wrong time. If a Republican was president I do not think much would be different. There would still be a Federal Reserve Bank and there would still be Ben Bernanke. There would be bailouts and they would look much the same as we have now. What is the difference you might enquire?  Well, on top of the money for the banks and everybody else there would be even more money for war.  And, gold would be pushing towards 2 thousand dollars an ounce and not one thousand.  And, the war in Gaza might have gone on a little longer as well.     Welcome to Full Comment About the blog of the National Post Comment section. Editor: Kelly McParland (e-mail) A note on reader comments: Your comments are welcomed. We accept new comments for 72 hours after the initial posting of most entries.   Podcast 18/03/09: This week, Canada's Minister of State for Science and Technology, Gary Goodyear, refused to say whether he believed in evolution. Then he said he did - but without linking it to Darwin or Natural Selection. Is this whole thing a media witch hunt or a matter of legitimate concern? 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