U.S-China: Deal with Devil

Yes, many factors led to the global financial crisis, but a major element was the U.S. and China striking "a deal with the devil." In the 1990s and the current century, the two countries cane up with this agreement: The U.S. would buy massive amounts of goods from China . . . in exchange for China buying massive amounts of U.S. debt. In a sense, China, a large net exporter, would provide much of the money for the U.S., a large net importer, to buy the Asian products. Great deal, right? Nope.

Unlike Bernie Madoff's activities, the U.S.-China deal was not a pure "Ponzi Scheme," one where old investors are paid off by new investors' cash. However, there is a major similarity: in both cases, the assumption was that market values -- of stocks, bonds, and other properties -- would continue rising. In a rosy economy, Madoff could "cover" his obligations -- and so could the U.S. and China.

But what if the global economy went into a downturn? In the case of the U.S., we would no longer be able to purchase goods at anything like former levels. (In the case of Japan, another important buyer of U.S. debt, their exports have gone down by half.) In the case of China, it would be increasingly less likely to want to buy large quantities of U.S. debt.

"Those were the days, my friend, we thought they'd never end." Well, they did end. The assumption that good times would remain forever was exposed as a fantasy.

As you'll see on my other blog, the Obama Administration's answer to financial problems caused by over-borrowing, over-spending, and over-lending is to encourage . . . (much) more borrowing, (a great deal) more spending, and (massively) more lending. In other words, if you swallow some arsenic, the solution is to swallow a jug-full of the same poison.

On the other blog, I note that Gov. Palin understands exactly the folly of Obama's economic policies. Obama is behaving a great deal like Bernie Madoff. If he can hold off the calamity long enough to get re-elected, then he has succeeded.

But his success will the nation's -- and the world's -- failure. He's taking us out of recession and leading us into a full-fledged Depression.