Too Big to Fail? The inevitable collapse of the US economy

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The US economy is swaying, teetering heavily under the increased debt burden imposed by the Iraq War and now the looming banking crisis. President Obama’s proposal to remediate the crisis situation by introducing more debt into the system is now law. The only problem is that, under the present circumstances, President Obama’s therapeutic regimen represents, with a very high probability, the very medicine that will strike a mortal blow to the patient–in this case the US economy.

A steep rise in US housing foreclosures is a crucial element of the present credit crisis. Unfortunately, many of these ‘toxic’ assets are still held by the banks, which are unable to liquidate them from their balance sheets without first going insolvent. No one on the market is willing to buy or sell them, in part as these troubled assets are extremely difficult to price. Even once they are marked down to a selling price, a significant proportion of US banks will still have to enter into bankruptcy proceedings. This represents a painful but necessary step that must occur should the US economy have any hope for recovery. To prevent the death of the patient and to facilitate recovery, it is absolutely necessary, in medical parlance, to first amputate the diseased limbs of the US economic engine.

Unfortunately, the Obama Administration’s plan makes impossible the very outcome that is needed for recovery, and therefore unwittingly enables the disease to spread throughout the entire body. Keeping insolvent banks alive with capital infusions from the government merely postpones the inevitable failure of a large segment of the US banking industry, while damaging the rest of the economy. The Stimulus Package, furthermore, rapidly increase debt spending to overcome a problem whose origin lies in excessive debt spending. If water were previously flooding one-third of the ship, the Stimulus Package makes it inevitable that the rest of the ship will eventually succumb to flooding as well.

The most likely outcome is relatively simple, yet it is one that would be harrowing to most Americans: the US economy–that which has fueled growth throughout the world for over a century–is presently on the verge of collapse. It is merely a matter of time–not if, but when–that the US will default on its own debt, causing the US currency to become worthless on world markets. When this happens, the US, like any large corporation that fails, will be forced to restructure, to reorganize under the terms of a new economic system, one that meets the long-term interests of those willing to finance it.

Sadly, prior to the swearing in of America’s 44th President, this outcome was largely preventable–however painful any economic recovery might have been However, it would be nearly impossible to prevent the historic collapse of the once-great American economy at this juncture in world history. So great is the damage that has already been done that “America the Great” will likely fall prior to the end of President Obama’s first term in office. This prediction does not factor in the impact, one that is likely, of another major terrorist attack on US soil, which would, for all practical purposes, represent the final nail in the coffin.

Elections have consequences. Americans–52.7% of them that is–made their preference known in the voting booth. Unfortunately, the most likeable doctor is not always the one that is most capable of effectively addressing the illness. Americans should not lay the blame for this economic demise on their 44th President, but rather on their own inability to put the needs of their nation ahead of their desire to reap personal benefits. Any careful analysis of the Presidential campaign will reveal that President Obama is merely fulfilling a campaign pledge–to provide Americans with the unattainable, no matter what the cost might be to the nation.

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