Terminal velocity

[FarCenter]

By Chan Akya - http://www.atimes.com/atimes/Global_Economy/JI23Dj07.html

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Just 10 years ago it was the very same luminaries from the US government, investment banks and the rest who pilloried the stock market intervention of the Hong Kong and Malaysian governments in 1998, arguing in favor of allowing the free market to establish itself. In editorial after editorial, these amazingly intelligent folks castigated the actions of Malaysia's then prime minister Mahathir Mohamad for banning short sales on the Kuala Lumpur Stock Exchange. The level of hypocrisy displayed by the US government - free-market professing Republican led, no less - in recent days brings to mind George Bernard Shaw's famous dictum that the "ordinary Britisher believes that God is an Englishman".

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Even away from the mumbo-jumbo of qualitative intervention, actual dollars being thrown around stack up nicely. There is firstly the $8.6 trillion in contingent liabilities that the US government has accepted within two weeks and without any apparent authority to do so - $5.2 trillion of liabilities guaranteed by Fannie Mae and Freddie Mac and $3.4 trillion outstanding at the country's money market funds that now enjoy a Federal guarantee.

For anyone keeping score, all that adds up to 160% of US government debt at the beginning of September. Add to these monstrosities the $700 billion that "Hank" Paulson now demands as new government funding to purchase every manner of decrepit mortgage-backed asset that US (and presumably European and Asian) banks wish to sell, and the total debt has increased by around 175%.

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This is the return of socialism with a vengeance. The very people who tut-tut the record of the Bank of Japan and the lost decade have implemented its rule book in double quick time. Japan continues to face a recessionary environment. Europe has gone back to its shell with poor economic data, mounting job losses, significant financial sector declines, widening pension deficits all helping to destroy its economic innards. The only part of G8 that was doing well - Russia - has also entered crisis mode due to its government's mishandling of corporate governance issues as well as the silly geopolitical maneuver in Georgia that helped to evaporate investor confidence in the country.

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Leaving the best for last, I am deeply entertained by polls showing that the Republican candidates are likely to win the US presidency once again. John McCain exhorted the strength of US fundamentals last week, clearly showing quite how in touch he was. When challenged, he praised the "fundamentals of US workers", presumably referring to the same folks who produce cars / machine tools / capital goods and the like at double the labor cost and triple the product faults of their Japanese and European counterparts.

As for his running-mate, Sarah Palin, her statement on the AIG rescue said it all:

"Certainly AIG though, with the construction bonds that they're holding and with the insurance that they are holding (is) very, very impactful for Americans, so you know the shot that has been called by the Feds - it's understandable but very, very disappointing that taxpayers are called upon for another one."

Don't worry if that statement flummoxed you with its arcane references to construction bonds and insurance holdings; I couldn't understand it either. To think that Americans are willing to repose their confidence in these two characters after the level of economic destruction carried by the Bush-Cheney team points to their deeply forgiving and almost saintly nature.

For Asian countries looking to supplant the US as the pre-eminent economic engine of the world as well as muster up the occasional dance on the grave of the sole superpower, the return of the Republicans would truly be a godsend.