It seems surreal to think that this economic crisis could have a far reaching domino effect that could send the United States into a tailspin. I had my 'uh-oh epiphany' yesterday, while many saw this coming months ago. But here we are. If this bailout passes, which is only a band aid intended to get congressional incumbents re-elected, then I think we are done as a country. The possible doomsday scenarios are varied, some probably sensationalistic, but the bottom line is the same: our current way of life will end. In some ways I see this as a good thing. The garbage in our culture, which has been so mainstream will cease. Whether it be on TV, in our music, movies, in our schools...things will change. A major depression will surely change our country's view on abortion, at least for those that were pro-choice. A unborn child that the mother could not be bothered with in this current 'Sex in the City" mindset, will likely view the unborn as a gift from God. Things like pornography will not have a place in a depression, at least not on the scale it has enjoyed for the last 30 years.
But there are other concerns to be sure, which Victor Davis Hanson mentions in his article below.
"...if Washington really intended to stabilise the Dollar or, more ambitiously, to push it up against the other currencies, there would only be one way (5), in two parts: raising significantly the Fed’s interest rates, and lowering drastically the pace of money printing. But if the government decided to implement this type of policy, the US economy (both real and financial) stops dead a few weeks after : the real estate market falls to zero by lack of affordable credit and as a result of soaring interests on Adjustable Rate Mortgage loans, consumption becomes negative (i.e. shrinks back each month), corporate failures multiply exponentially, Wall Street collapses under the burden of innumerable debts and succumbs to the instantaneous implosion of the CDS market due to counterparties default...
Such a series of events, sure to happen if Washington implements a voluntary policy of dollar-rescue, is probably unacceptable by the US authorities. Therefore, apart from talking – and further self-discrediting – they cannot do anything. The method used in the past decades is no longer available: no one will accept to buy large amounts of Dollars in order to rescue the US currency if some voluntary policy (like the one described previously) is not implemented by Washington. As they will not do it, the rest of the world will draw its own conclusions: everyman for himself, knowing that from mid-August onward, as Beijing is relieved from the constraint of the Olympic Games, a large number of “tough” options (6), put on the back burner until the Games, will resurface (7)."
By Victor Davis Hanson
Ancient thinkers from Thucydides to Cicero insisted that money was the real source of military power and national influence. We’ve been reminded of that classical wisdom these last three weeks.
In a manner not seen since the Great Depression, Wall Street went into panic mode from too many bad debts. The symbolic pillars of American monetary strength for years — AIG, Goldman Sachs, Merrill Lynch, Shearson-Lehman, and Washington Mutual — in a matter of hours either went broke, were absorbed, or were reconstituted. Fannie Mae and Freddie Mac collapsed like the house of cards that they were.
Even though the U.S. government rushed to restore trust, hundreds of billions of dollars in paper assets simply vanished. Friends and enemies abroad were unsure whether the irregular American heartbeat was a major coronary or a mere cardiac murmur. How strong — really — was the world’s greatest economy? Was this panic the tab for years of borrowing abroad for out-of-control consumer spending? Had America finally gone too far enriching dictators by buying energy that it either could not or would not produce itself? Had the chickens of lavishing rewards on Wall Street and Washington speculators rather than Main Street producers finally come home to roost?
Allies trust that the United States is the ultimate guarantor of free communication and commerce — and they want immediate reassurance that their old America will still be there. In contrast, opportunistic predators — such as rogue oil-rich regimes — suddenly sniff new openings.
We’ve seen the connection between American economic crisis and world upheaval before. In the 1930s, the United States and its democratic allies — in the midst of financial collapse — disarmed and largely withdrew from foreign affairs. That isolation allowed totalitarian regimes in Germany, Italy, Japan, and Russia to swallow their smaller neighbors and replace the rule of law with that of the jungle. World War II followed.
During the stagflation and economic malaise of the Jimmy Carter years, the Russians invaded Afghanistan, the Iranians stormed our embassy in Tehran, the communists sought to spread influence in Central America, and a holocaust raged unchecked in Cambodia.
It was no surprise that an emboldened Iranian President Mahmoud Ahmadinejad once again last week called for the elimination of Israel. He’s done that several times before. But rarely has he felt brazen enough to blame world financial problems on the Jews in general rather than on just Israelis. And he spouted his Hitlerian hatred in front of the United Nations General Assembly — in New York, just a few blocks away from the ground zero of the Wall Street meltdown.
Flush with petrodollar cash, a cocky Iran thinks our government will be so sidetracked borrowing money for Wall Street that disheartened taxpayers won’t care to stop Teheran from going nuclear.
At about the same time, a Russian flotilla was off Venezuela to announce new cooperation with the loud anti-American Hugo Chavez and his fellow Latin American communists. The move was a poke in the eye at the Monroe Doctrine — and a warning that from now on, the oil-rich Russians will boldly support dictatorships in our hemisphere as much as we encourage democratic Georgia and Ukraine in theirs. Chavez himself called for a revolution in the United States to replace our “capitalist” Constitution.
The lunatics running North Korea predictably smelled blood, as well. So it announced that it was reversing course and reprocessing fuel rods to restart its supposedly dismantled nuclear weapons program.
Meanwhile, some shell-shocked American bankers looked to our “friend” China, which holds billions in American government securities, for emergency loans. But the Chinese — basking in their successful hosting of the Olympics, their first foray into outer space, and a massive rearmament — showed no interest in sending cash to reeling Wall Street firms.
During this Wall Street arrhythmia, Islamic suicide bombers attacked the American embassy in Yemen and the Marriott Hotel in Islamabad, Pakistan. Suspected Islamic terrorists were caught boarding a Dutch airliner in Germany. And suicide bombers were busy again in Afghanistan and Iraq.
The natural order of the world is chaos, not calm. Like it or not, for over a half-century the United States alone restrained nuclear bullies, kept the sea lanes free from outlaws, and corralled rogue nations. America alone could provide that deterrence because we produced a fourth of the world’s goods and services, and became the richest country in the history of civilization.
But the bill for years of massive borrowing for oil, for imported consumer goods, and for speculation has now has finally come due on Wall Street — and for the rest of us as well.
Should that heart of American financial power in New York falter — or even appear to falter — then eventually the sinews of the American military will likewise slacken. And then things could get ugly — real fast.
— Victor Davis Hanson is a senior fellow at the Hoover Institution and a recipient of the 2007 National Humanities Medal and the 2008 Bradley Prize.