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As China's economic juggernaut resumes its course, after little more than a brief pause, the world's former economic juggernaut lurches from one mini-crisis to another, completely bereft of any long-term planning.

A cynic would argue that any long-term economic planning for the U.S. economy is simply a waste of time, given the pending and inevitable default on its massive debts – which rapidly approaches. Indeed, the U.S. government spends half its time lying about the magnitudes of its debts (see “Treasury Department Stalls Budget Report”), and the other half of its time pilfering the tiny nest eggs of U.S. government “trust funds” (see “U.S. Government Squanders Trust Funds”). The more than $4 trillion stolen from those trust funds would have been enough to postpone bankruptcy for a decade or so if that money was currently invested and appreciating in value rather than simply being spent.

The reckless spending of the U.S. government is bad enough, but the ridiculous manner in which the U.S. government is throwing away trillions of taxpayer dollars is truly nothing less than criminal. Two successive U.S. governments have promised to “fix” the U.S. housing collapse. The Bush regime did nothing, while the Obama regime has done much worse than nothing.

Unwilling to make his banker-benefactors take the “hit” for housing losses (given that they created this multi-trillion mortgage scam), Obama's “solution” to the bursting of the (first) U.S. housing bubble is to create a second bubble. With U.S. interest rates being (artificially) kept at extremely low levels (through the U.S. government “buying” most/all of its own bonds), no U.S. bank is willing to finance home purchases through offering long-term rates several percent lower than what they can sustain over the long term.

This has resulted in the Obama regime effectively nationalizing the entire U.S. mortgage market – originating/guaranteeing well over 90% of all new mortgages, with U.S. taxpayers now directly guaranteeing trillions of dollars worth of highly-stressed mortgages. If that isn't bad enough, when the home-buyers' credit is factored in, more than half of all U.S. homes purchased last year effectively had zero down-payments (see “The U.S. Government's Zero Down-payment Mortgages”).

The only differences between the first housing bubble and the second housing bubble is that a) 100% of the losses will be borne by U.S. taxpayers; and b) American families are much less able to absorb the pain of the second collapse in U.S. housing than they were with the first. Meanwhile, the flimsy “mortgage rescue” plan for those already trapped in hopelessly underwater mortgages has helped virtually no one.

As bad a job as the Obama regime has done in “fixing” the housing sector, it has done infinitely worse in “fixing” the financial sector. First, there were the mark-to-fantasy accounting rules brought in last March – which Wall Street demanded, and Obama supplied. This allowed the oligarchs to hide trillions in losses, and actually pretend to be “profitable”. This has meant that instead of the banksters having to put aside all their taxpayer hand-outs to actually cover the future losses they will absorb one day that, instead, they have been able to funnel $10's of billions of those hand-outs directly into their own pockets (“Dividends? What's a dividend?”).

Of course, that only allowed the banksters to hide their losses. The next step of the plan was supposed to be the removal of those trillions in losses from bank balance sheets – with someone else absorbing all those losses. Obviously, that “someone” was supposed to be the U.S. taxpayer. Thus the “PPIP” was born.

This was the scam where the bankers would “sell” all their worst (i.e. worthless) “assets” to each other – but with a large taxpayer subsidy inserted into each transaction (not to mention countless billions in “tax losses” which they would be able to book against their “trading profits”). The only thing stopping Obama and Geithner from perpetrating this scam was that these “assets” were sitting with such gigantic losses that Obama/Geithner couldn't get Bernanke to print-up enough $100's of billions in new “money” to put even a serious dent in Wall Street's mountains of losses. Thus, the PPIP has died on the drawing-board.

It was here that I failed to give Obama enough credit. I didn't see any way he could come up with a new idea that was worse than all his previous failures. I was wrong. This week the Obama regime introduced a new “cunning plan”.

Noting how Wall Street was able to package-up trillions of dollars (in nominal value) of their scam-bonds, and sell them all over the world (before people knew these bonds were worthless), the Obama regime announced a plan to package up all the worst assets of “failed banks” and sell them all over the world – after everyone already knows they are worthless. Clearly, Obama was never enrolled in Goldman Sachs' class: “Scamming 101”.

It's not simply an issue of the Obama regime being hopelessly corrupt, and racking up enormous debts which can never be repaid. For U.S. companies trying to operate inside the U.S., getting “helped” by the Obama regime is like going on a hunting-trip with Dick Cheney: if you're lucky, you'll merely end up getting shot in the foot.

I recently received a letter from a gentleman who is the CEO of a U.S. investment banking company, which is not like the “investment banking” companies of Wall Street – which we have all gotten to know only too well.

There are many differences between this bank and the Wall Street oligarchies. First of all, it is not some bloated behemoth, which has monopolized such a large portion of the U.S. financial sector that it has been proclaimed “too big to fail”. This investment bank did not leverage the assets of its business by 30:1. Indeed, in the particular niche in which the business operates (the municipal lending sector), there have not been endless numbers of over-leveraged debts exploding like a field of land-mines – and thus this branch of the U.S. financial sector was both solvent and functional. Lastly, the CEO of this bank does not hand out annual “bonuses” to himself and his bankers which are more than many people earn in a lifetime.

This company was well-positioned to survive the collapse of the U.S. economy, and (unlike its Wall Street cousins) this bank continued to be ready/willing/able to continue to lend. Enter the U.S. government.

The Obama regime created a bail-out vehicle called the American Recovery and Reinvestment Act of 2009 (“ARRA”), which was a follow-up of two, failed initiatives of the Bush regime. The mandate is very broad – which is always a bad sign with a government program whose sole purpose is to throw around taxpayer dollars. Along with topping-up state unemployment and welfare funds, billions of dollars have also been directed at “education”, “health-care”, “infrastructure”, and “energy”.

Money is not handed out based purely upon need, but simply upon eligibility. While some of the municipal clients of this investment bank are in dire financial trouble (generally due to the “interest rate swaps” which they were duped into by Wall Street), many of these municipal governments still retain the fiscal health to finance their own capital programs without government hand-outs.

However, as the bank was in the process of closing deals with some of these clients – money this bank was prepared to lend without one penny of taxpayer subsidies – many of these deals began to fall through. The reason? One-by-one, potential clients were getting back to this company with the same story. “How can we borrow money from your bank (and pay interest), when the federal government is offering us the same amount of money for free?”

While I routinely trash “bankers” with my commentaries, it's clearly time to make a distinction here. While many of the smaller, regional U.S. banks were also infected with Wall Street Greed, many of those banks did not erase their lending standards, dupe countless clients into unwise/unaffordable loans, nor leverage their balance sheets to insane levels – to provide artificially inflated “earnings” in order to supposedly justify awarding themselves obscene “bonuses”.

In short, with respect to many smaller U.S. banks (and “niche” banks like this one), these companies actually facilitated the economic growth and development of the United States, rather than severely distorting the flows of capital, producing one asset “bubble” after another, and exploiting every man/woman/child who ventured too close to the greedy maws of Wall Street.

However, while these banks did not profit from the original asset bubbles, did not line-up for trillions in taxpayer funded hand-outs, and did not recklessly endanger the entire U.S. economy; these are the only banks being punished. While the Wall Street oligarchs merely have to hit their “speed-dial” to get their loyal servants Bernanke or Geithner to hand them more billions whenever needed, this other bank is being slowly strangled by that same, U.S. government.

If people want to understand why China has been able to quickly regain its momentum, and resume its growth as the new manufacturing juggernaut, while all the U.S. government “manufactures” are larger and larger economic fabrications, we need only look at how China stimulated its own economy – while all the U.S. government has done is to spray around countless billions like a fire-hose. If there was a “Nobel Prize” for “making a bad situation worse”, then Barack Obama would have actually earned that one.

This is not a story simply about bad people. This is about a broken political system. Two hundred years of continuously wallowing in the public trough has made the two “book-ends” of the U.S.'s two-party dictatorship the most thoroughly corrupt political parties on the planet. Endless gerrymandering has resulted in the creation of political “fiefs”, where getting “elected” is essentially an appointment for life. This, in turn, has led to total, political gridlock – where these political aristocrats have absolutely no desire or incentive to work for the people who elected, since there is no profit in doing so.

Even if the U.S. government intended to do “the right thing” for its people (and there is no evidence that this is the case), this hopelessly broken machine is incapable of fixing anything. Meanwhile, people like this CEO struggle against the actions of the U.S. government – while over on Wall Street, all they are worried about is how to divide-up $10's of billions of their ill-gotten “bonus money”.

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written by PHOENIX139, February 02, 2010

It absolutely AMAZES me how most people don't 'get' what's happening right before their eyes.

What we are witnessing, but NOT getting a solid grip on, is the TRANSFORMATION of Society as a whole.

The lesson that will be learned over the next 10 years – indeed, it will be FIRMLY ESTABLISHED – is that WEALTH is the 'Prime Mover' of ALL individual, community, and social progress and benefits.

I am completely sick & tired of these pompous politicians who parade around the world, funded ENTIRELY by their taxpaying duped citizens, shaking their fist at this or that political threat.

This myopic, primitive turf-protectionism seems to play well with the taxpaying dupes and this is why politicians in EVERY nation are permitted to parade.

The problem is that it hasn't dawned on the politicians, OR their taxpaying dupes, that ADMINISTRATION the LEAST of the Social Forces.

But eventually, the taxpaying dupes and their elected representatives will BOW, KNEEL, AND GENUFLECT before the PRIME MOVER of ALL societies.

Who is that?

WEALTH !

Point. Period. End of story.

It's this myopic, primitive turf-protectionism that is blinding and confusing the general public from seeing Wealth establishing Itself right before their eyes.

This current chaos of the financial-social environment is nothing more than a shakeout of all the inefficient processes that no longer 'work' to serve the MODERN world.

ALL governments are soon going to 'readjust' themselves from their old business models to a more modern, efficient business model.

And China is driving this home BIGTIME – make NO mistake about it.

China is THE vehicle that is going to establish the TRUE principles of a properly functioning society. And it's preparing itself for this role.

A properly functioning society is, in order,: WEALTH – PEOPLE – ADMINISTRATION.

The current political and social environment seems to have this order bass ackwards, which doesn't surprise me. There are MANY who cling to the past, out of mental and creative laziness.

These people have been living with their heads where the SUN doesn't shine – and have been totally content with this situation for DECADES !

They are soon in RUDE awakening.

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written by Jeff Nielson, January 31, 2010

Hi Realist.

The TRILLIONS of dollars of U.S. mal-investment in real estate (and fraudulent financial products) dwarfs what is taking place in China - both in magnitude and stupidity. Not only was there a VAST build-up of surplus residential housing (and then VAST amounts of excess retail outlets to over-supply the housing), but there was NO real wealth-creation to support this construction. This is the REAL problem.

Sure, I totally agree that the rapid industrialization of a SINGLE country holding 1/5th of our population is NOT going to be one steady, smooth progression.

However, what the China-bashers (not meaning you) can't get through their heads is with 10% GDP growth and 20% annual growth in the domestic economy (and 1.2 BILLION people) that China can GROW INTO this surplus capacity.

Indeed, since the China-bashers ALWAYS contradict themselves, you can still find plenty who argue that they aren't building infrastructure quickly enough.

Half the China-bashers see "bubbles" everywhere, and half claim that China's claims of growth are totally exaggerated.

My own assessment is that as long as this large group of idiots continues to SIMULTANEOUSLY accuse China of completely OPPOSITE economic 'sins' that this is a very good indicator that China's government is skillfully forging a good balance between growth and over-capacity.

Remember, with 10% GDP growth, 20% domestic growth, 1.2 BILLION people, and vast savings, China can absorb (literally) 4 times as much excess capacity as any other economy in history (or do it 4 times as fast).

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written by realist, January 31, 2010

Jeff:

I agree with most of this commentary. However one has to be careful about the health of China's economy in the medium term. Much of their current growth was due to Chinese stimulus of building new factories, malls, housing complexes and even new cities. But there is evidence that much of the recent Chinese investment will not provide the expected yield or even payout. To give just one example, there is a new city in China that is essentially unoccupied. This malinvestment by the Chinese may come back to negatively affect the global economy several months or years in the future.

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