Monday, September 22, 2008

The consequences of this financial crisis

As the treasury trying to pay cash for trash (by Paul Krugman), the troubling deleveraging process of the financial institutions make me wonder how the USA will deleverage. Even though the central banks around the world and other financial authorities are helping the US to stablize the global markets in the recent several days, how they view the role of US in the long-run is problematic. The safe heaven status of the US market, the risk-free status of US treasury bonds and bills will become questionable and the dollar will prune to have depreciation crsis in the future. Again, without much to offer to the world but still liable for the large resources borrowed, how low the US economy will sink to?

Things US can offer to the world have been movies, English, education, food and IT product. It is hard to sell cultural product once US lose her status of an admirable country. It is very hard to believe American heroes can actually save the world after 9/11, and Hollywood has been repeating its stories for several years by now with the mentality getting lower from Napoleon Dynamite to Superbad. The high-tech movie making skills can be transferred easily. In the development of the their own economy, the rest of the world would want to maintain food security and their own technological independence and advantage. It seems that education is still valuable at college and graduate level in the US but the dim job prospectus make the foreign students more reluctant to come and with the huge amount of US PhD produced, the education level in the rest of the world will also catch-up. The financial sector used to the be largest in the US economy and now its in peril, what's next?

The game has been the financial sector of the US channeling the wealth from the world to the US so that Americans can consume what are provided from the rest of the world without pay it back for a while, evidence from the huge trade deficits. Deleveraging this debt is a taunting task!

1 comment:

Mark Barath said...

The Right On!

Americans fail to realize the faults of their own policies. The weak money policy of the early 2000’s and poor regulatory oversight was at the root cause of many of our current problems. I fail to understand why policy maker s could not realize the unaligned interests of mortgage brokers and mortgage investors.

Ultimately this is a problem that needs to be fixed, but somehow we are supposed to believe it is short sellers who cause this financial panic. In the end this will be another regulatory blunder and only adds insult to injury after SOX. How can the U.S. expect to remain competitive in financial services if it closes off and makes its capital markets illiquid?