Having bailed out Latin America, Mexico, Asia and their U.S. creditors, we now find our own country in trouble. And how are our allies reacting?
"Europeans on left and right ridicule U.S. money meltdown," ran the Los Angeles Times headline. Italy's finance minister compares us to corruption-ridden Albania, where "a nationwide pyramid scheme cost hundreds of thousands of people their savings and ignited anarchic civil conflict" in the 1990s.
How will the bailout work? Will every bank that brings in toxic paper be able to dump it on the Treasury? Will the Treasury buy securities based on subprime U.S. mortgages from foreign banks? Apparently so. What about mortgage-backed securities held by U.S. companies and individual investors? Is there to be a general amnesty for bad judgment, or just a bankers amnesty?
About one thing we may be sure. The U.S. deficit and national debt are going to soar. The credit rating of the United States, as this nation of non-savers has to borrow abroad to save its banks, and their banks, is going to fall. We are going to be a poorer nation and people.
As for the promises and plans of Barack Obama and John McCain -- be it for national health insurance or middle-class tax cuts -- they are going by the wayside. For the United States is as bankrupt as Lehman Brothers, with this difference: Uncle Sam can still borrow from abroad because foreigners see many juicy U.S. assets they would like to take off our hands with their hoards of ever-cheapening U.S. dollars.
Looking at the federal budget -- the five or six major items are Social Security, Medicare, Medicaid, defense and interest on the debt. All are going up, as tax revenues fall. Add the cost of two wars and a bailout of U.S. banks that some estimate will cost $1 trillion to $2 trillion, and we appear to be looking at budget deficits ad infinitum.
"There is a great deal of ruin in a nation," Adam Smith once consoled a friend who lamented that Britain would be ruined if the 13 Colonies were lost.
We are about to test Smith's proposition.