@ VICVANMETER

Another option to consider, How about making the BIG OIL (OPEC) Companies contribute some of their huge profits, since they are the ones who stand to loose the most if the auto industry goes bankrupt.

@ VICVANMETER
A nation must be evaluated just like an enterprise or a club or a social grouping. This means what is the aggregate production and income (GDP and GNP, respectively) and what is the total debt (private and public combined). The most crucial assessment is about the rate of growth in GDP vs. all debt. If growth of debt is faster than growth in production and income, then it is a sure way, slow or fast, to bankruptcy.

It does not matter what assets you have (property, oil reserves in the ground, gold and uranium in mines, warehouses full of software, etc.) and the value of them. Because that cannot be consumed immediately. What matters is the cash-flow inwards and outwards.

Right now, USA has an overall debt load (short, long-term including the present value of future unfunded obligations to the Social Security fund, Medicare and Medicaid) as follows:

1. Overall Federal debt: about 100% of GDP
2. State and other public debt including Fannie, 3. Freddie, Sallie Mae, FarmerMac, etc.): about 100%-180% of GDP depending on method of calculation
4. Private sector debt (corporate and personal, mortgages, car loans, credit cards, leverage buy-outs, etc.) about 250-280% of GDP
5. Present value of unfunded/shortfall of Social Security Fund, Medicare and Medicaid between now and 1035: 350% of GDP
6. Various bailout deals and crash prevention programs, etc. 12% of GDP so far plus at least another 25% in the works for the next 2-3 years.

Add it all together, put it all in a pool and then slice it into a debt rescheduling program over the next 30 years and you will soon figure out that the debt load is just too large to be managed by current methods and economic programs.

So, the author above is right about the fact that this the biggest economic readjustment since the implosion of the USSR.

Also, the total dollar sum is too large to be manageable by some sort of a worldwide rescue program. So, what are the options here:

a) Repackaging and rescheduling of U.S. debt--something that many others have tried and done, some successfully like Russia as successor to all of USSR debt, some failures like Argentina that repeats the usual default show, some others like Europeans from 1950s to 1980s that finally reduced their debt enough to turn around and breath comfortably.

b) Default and renege. I give it 50-50 chance that it will happen and creditors will be forced to take less than 100 cents on the dollar, over a 30-50 year rescheduling.

c) A very tight financial discipline and reformuation of finance to present a business plan for either (a) or (b) above feasible.

TOMMILLER1:

“It's amusing to me to hear apologists for the Iranian financing of terrorism in external countries as "natural" because of this ancient empire. :)”

I am very interested to learn exactly who the beneficiaries of Iranian financings are and in explicit term please reason why you characterize them as terrorists.

I shall then respond.

Faramarz Fathi

This essay misses what may be the larger point though, that America has a business cycle (I know, all our international friends are shocked) and that we are NOT suffering the worst of any nation involved in this dilemma. America's banking system, at the very least, is being bailed out. Whether this helps everyone else in the long run or not, it looks like the current administration is at least seeing to it that Citi can make loans. Go figure.

However, though our government is in debt, it is doubtful that our nation will soon go bankrupt. Other countries are much closer to that bandsaw. Some already have defaulted. America is just the most high profile glimpse into this little economic slide. Things certainly aren't going well, but certainly things could be much worse. The worst inevitability at this point is a below-average Christmas season. Working retail, I count my blessings there. But if that is the worst that happens, it probably won't be the worst economic disaster that will happen in my lifetime.

Ali, like many other commentators even within the United States, are so busy staring down the US economy that they've missed some very important developments elsewhere (the foreclosure protection effort in Britain, for example). In all honesty, America is suffering no worse than anyone else. Ettefagh's whole point is that, just because third world countries are used to the violent turns of the business cycle that America can't handle this one. Basically, the whole world is suffering, and Ettefagh seems excited that this time it actually seems like the United States is coming along for the ride.

Crack open a US history book and take an Econ 101 class, ladies and gentlemen. Every free economy has a business cycle with too many controlling factors to count. That includes the US. This time, its the American economy taking a shrink. Business will be back to usual sometime next year, when all the debt has condensed in the credit market.

Then, world economists can forget about this whole thing and start calling for the end of regulation again. Why is it that free-market Libertarian ideals seem to precede every major economic downturn in our history?

It is not encouraging to read some of the 'defensive' rants against a very informative essay on the sad state of affairs in the US. As Americans are fond of saying: What goes round, comes round!

This mess will not go away with jingoistic bravado or head in the sand fatalism. If the new administration and the American people (along with the Brits) don't face up to the realities and the errors of their over indulgent, mindless, debt fuelled consumption, they will not make the necessary mind shift to deal with the very real consequences of past mistakes.

Failure to really reassess the way we go from here will only lead to history repeating itself, only this time bailouts won't be enough to deal with what may well be disastrous social-economic and environmental results.

It is time for all of us to stop confusing a high level of consumption with a high standard of living and replace the false and deceitful folly of "growth" with a realist and responsible desire of sustainable co-existence.

@ZARGON

Your point is taken, which is essentially what the article above is trying to communicate: many other countries are used to down cycles and extreme movements. Europeans (including the British) are also used to government interventions and boom-bust. So, they will deal with it.

What is destabilizing is that a country that has not really seen shortages or real inflation (like South America or Eastern Europe) or deep unemployment or..... is not really set to deal with the problem with a cool head and a steady thought process. So, I agree with the article that it will be a decade-long process.

@HGCSATO,

It seem like tommiller is having a total meltdown. I think it's PTSD, why with Hugo giving free oil to the Alaskans ( don't tell him ), Housing meltdown, Banking meltdown, Market meltdown, 401K gone, Gm, Ford, Chrysler,jobs, two wars, and a Black Man in the WHITE House. That is more then enough to make someone skitzo. Poor guy he probably watches too much FOX news also. He's liable to overeat ( prefers BK ), as people stressed out normally do, and he doesn't REALIZE that fat people can't swim LOL.

@TOMMILLER1

Your rants and rambles are not helping you. The fact is USA (your country?) does support state-sponsored terrorism and racism: Israel. The president of the place was an original Black September terrorist.

As for military spending, America has spent as much on military in the last 12 months than the aggregate of the next 100 countries on the list. This only tells me that there is deep insecurity embedded in American mindset. If your lot are worried about Chavez destroying America, then you need psychological help, not military protection.

As for sanctions on USSR and the gas pipeline, look back in Carter Era 1977-1978 and the deep opposition of America and its subsequent sanctions to stop sale of grain (=food) to USSR as an instrument of foreign policy---sounds like the same mentality of Israel's stopping of food into Gaza.

Anyway, cannot blame you as the tough economic scene is putting you Americans under pressure. Your rants and raves and denouncing the rest of the world will not pay your debts.... LOL

As I said, I believe that those who think as does the author of the post will be very disappointed. That's all. He's seeing what he wants to see and saying most likely what his censors want him to say anyway.

I believe that economically we all depend on each other and in today's world if we don't start working together, we will all suffer. If you believe otherwise, that's fine with me. Keep the hysterical hyperbole flowing but don't count on being heard by anyone looking for a solution. They will be too busy working on the future. Clearly, the times are changing.

As for Castro yes he is a joke and did the Cuban people in. I agree on that one. :) If Chavez does for Venezuela what Castro has done for Cuba God help the Venezuelans. He seems to be on his way. Has anyone else noticed that countries financed mainly by oil can't seem to get it together as societies and do much for their people?

By-the-way give old McDonalds a break. It's Burger King that's still pushing the trans fatty oils. I don't personally eat at McDonalds but I don't look down on those families who eat there sometimes to be able to afford to take their families out to dinner. Fast food is "fast food" in all countries. You may be rich and not the target audience for McDonalds but don't begrudge those who enjoy the food or a cheap dining out experience. And I'm sure they'll swim just fine. :)

@Tommiller, Speaking of financing of terrorism, 1) How about that overthrow of a democratically elected country that Colin Powel apologised for, remember Somosa?
2)Also the MS 13 that are now in LA, where did they originate, forgot that one too, or just conveniently overlooked it?
3)Russia an Iran Nuclear deals, How did the Israelis acquire over 250 Nuclear bombs by themselves LOL. Where do you get your logic?

Hugo and the Russians need no arms, they have Dubya, and W has done what no adversary could have ever dreamed of to harm the US of A. Pick up a map sometime and you will not that Georgia border with Russia, Venezuela in South, not even Central America Duh.
Chavez do himself in, yeeeeah, just like Castro did himself in too eh, LOL.
Iran in Lebanon? How did that happen? What fool invaded Iraq against those seated Europeans, who were right mind you, and gave them the opportunity to do that, hint, what word comes after V,?

As for the 50's, Leave it to Beaver, Andy Griffith,and Howdy Doody, were all, I'm sorry to inform you, FICTIONAL CHARACTERS that do not exist. Something like the lifestyle that the majority of Americans have been living with their plastic cards, your 401K, the value ( soon to be devaluation, ouch ) of the US Dollar. Where is assuming of responsibility, accounting for the actions of, committing the biggest Robbery in the history of the world, and counting on the American people? Where, nowhere, they ( your leaders )are not finished yet. They have now taken 700 BILLION MORE, for robbing you in the first place. Oh and they will certainly come back for more. What are you going to do about it? NOTHING, that is besides passing the bill to your grand and great grandchildren that's what.
As for swimming, you better stay away from McDonald's, or your not going to make it.

Yes, Persia was indeed a regional power over 2,300 years ago before Alexander defeated the empire. It's amusing to me to hear apologists for the Iranian financing of terrorism in external countries as "natural" because of this ancient empire. :)

Inevitably the same apologists also excuse Russia because after all it's always been a bully in the area and shouldn't be questioned. Of course, none of this has to do with the nuclear deals between Russia and Iran. (lol) Sanctions on Russia to build an environmentally clean pipeline to Europe? Where do you get your "news"? :)

Foreign intervention is OK if its close to home? How about Hugo Chavez who is busy destroying Venezuela with Soviet, er I mean Russian complicity in supplying arms and ammunition. That's close to the U.S. but I don't want the U.S. to depose him as Russia would clearly do in Georgia if the U.S. had not stood with the seated and half-standing Europeans to say enough. I also wouldn't want my government to support terrorist groups to overthrow the government of Venezuela as Iran is doing in Lebanon. Honestly, Chavez will do himself in. He's just another dictator and after making life miserable for others they always exit from the scene leaving a nasty succession.

Again, I hope the U.S. won't return to the 50s or the 90s. There was a lot of anti-Americanism at the time and tons of Soviet propaganda (sounds a lot like today). Personally, it would be wonderful to see a world where the carpers and complainers actually had to assume some responsibilities for their actions and were held accountable. In other words, if Iran financed organizations like Hamas that promote training children to blow up innocent people regardless of race or ethnicity, the world would take note and forthrightly condemn the actions. When Russia tried to monopolize all energy sources to Europe, a forthright Europe would stand tall and defend itself. I wouldn't expect any of these actions anytime soon, however, and that's why I believe you'll be disappointed with the future and these "new" powers.

Something else. The Bush era is over. Times are changing so you better start swimming or you'll sink like a stone. :)

@ TOMMILLER1

Seems your record player needle is stuck on Iran, as you forget that it has always been a regional power before newly born "states" like Iraq, Syria, Jordan, Lebanon, Israel, Saudi Arabia and the Gulfies, Pakistan and Afghanistan existed. Additionally, you forget that Russia or China or even EU or Japan do not appoint themselves as the "leader" of the (Free?) World but USA does. What they all want, together with Iranians and many other countries (Brazil, India, Indonesia) is to be simply be left alone and let them make their own path to the future. Each to his own. When they see some one (especially one from far away) is blocking their way, then they react. USSR did so when there were sanctions against it, for example, to build a gas pipeline to Europe (....and imagine the environmental disaster if it was not built!)....or Iran where USA still thinks it is 1950s and there is a creampuff dumbnut in power...latest ranking of eoconomies, by Purchasing Power Parity (PPP) puts Iran as No. 17 in the world, ahead of Holland and Australia(which is a highly developed economy). Iran was importing barbed wire a mere 20 years ago, but it is now building missiles and satellites.

But and anyway, Iran is not the subject of the article, even though the author is Iranian. The fact is that USA has overheated in many different ways--economically, militarily, socially and its supposedly great way of going forward is due for a complete rethink and overhaul.
The basic concept of spreading risks and markets has failed.
It will take time for USA to cool down and find a new way, if and when there is a realisation that it is not possible to return to 1950s. Using any historical standard, a weak economy is a watershed for change.

As the article correctly observes, The Great Depression triggered the New Deal, the next generation (about 30 years later) had to have Great Society followed by the devaluation of the USD during Nixon (and the abandonment of the Gold Standard). Now, the baby boomers are retired and its time again for another social adjustment, if not a big shift. Will take a decade to sort out.

Yes, the world is different today - it's global and many of the old rules don't apply. It was inevitable that the U.S. would not retain its enormous share of the world's wealth picked up by default after the destruction of World War II. Fortunately, an intelligent U.S. policy promoted the reconstruction of Europe and Japan to benefit the economics of those countries and the U.S. as well in the post-war period.

U.S. policies have not always been sound for sure and of course the Bush administration economic failures and the blunder into Iraq was the worst but there will be change - not histrionics and revolution but real change in the next administration I believe. I don't see that sort of change in other places of power.

I hope there really are new players in the future who understand the new dynamics but I don't see that happening yet in a resurgent Russia bent on pumping the people up with nationalism and a 1-man, 1-party state in the old Russian tradition with the usual power elites forming and controlling the wealth. I don't see this yet coming from China still struggling to hold it all together or in India and most certainly not in Pakistan or Iran where illogic seems to be the rule. Take Iran for example where the economy is perpetually in shambles but the dictatorship has the funds to pump weapons and money into terrorist organizations outside of Iran and to construct nuclear weapons to destroy other countries.

Let's hope that some of these countries actually grow up and take some responsibility for more than their own egos. As for being like the 90s. It hasn't been like the 90s since the 90s and God willing won't be again. :)

@ TOMMILLER1

you are saying that countries/people/companies/clubs that have borrowed way beyond their means in an irresponsible way compared with people that have some debt but within their means and/or people that have no debt are all alike and must suffer just because USA has borrowed and spent beyond its reasonable and logical means? That is one crazy idea.....

In all of history, the prudent and the conservative have managed to live thru good and bad times while the ones without discipline (financial or in logic or affairs) have gone bust or disappeared as a major power (The Roman Empire or Spain or Great Britain or USSR are just some examples). America is just the next one in line, more or less....yes, it will survive, but no it will not be the America of 1990s, but a lot weaker.

Its a totally different new world from the one after WWII. New global players like Brazil, India , Pakistan, and a resurgent Russia. They have the majority of the oil, youth, and industry that the old guard ( that is very fragmented, polarised, and dieing at a rate of 2K per day )no longer has.
Yes change will come, and it will be all new players making it happen.

It's a global world and that applies to all countries including the U.S.. Clearly there is a wish and hope from a segment of opinion that Americans will suffer more from the current situation and get their come-uppance but based on my experience in the U.S. there have always been ups and downs and recuperation is a hallmark of American society. The free U.S. press will milk the current situation for all its worth with reports of the burdens on Americans but when the correct direction is made I have every confidence that Americans will work together to solve the problems and move on. American history is not the history of pampered individuals so many of you see in Hollywood films or read about in your biased information media. We are very used to change.

Unlike in dictatorships, when the U.S. has incompentent leadership or bad policies we democratically remove them and have a peaceful transition of power and an infusion of fresh ideas.

Ten years or maybe more? To do what? Nobody has the answer to this but coping? I'm sure this will be a great disappointment to many of you but I bet the U.S. survives stronger than ever in the longer term.

I hope so because if this doesn't happen other parts of this world certainly won't pull themselves up by themselves. The world is global. The U.S. needs Europe who needs Russia who needs China who needs Africa etc. who needs the U.S..

That's what I believe.

@ TOMMILLER1

One more point: Hitler rose to power AFTER the failures of the Weimar Republic's 11 year stint. He was a no body in 1919 after WWI and The Weimar Republic was about a big clash of ideas between the socialists and the hard right.... Hence the warm-up act of Sarah Palin in '08 !!?

@ TOMMILLER1

You are very biased towards USA and think the rest of the world must share and pay for its mistakes. There are mortgage markets in France, Germany, Spain and Italy, for example. But none have any kind of CDO and mortgage trading problems that USA and UK have. Whatever loss suffered by Europeans was due to their "investments" in America. Also, EU's Eurozone (which excludes UK) does not have a need for massive stimulus packages in 70-10% sizes of GDP and 97% of EU's trade is within its own borders.

What the article above communicates is that the rest of the world are used to, and prepared for, boom-and-bust cycles and will manage. But Americans are not prepared to accept the reality that they created. To start with, the rest of the world will step away from the USD as a reserve and trade currecy. The British Pound was also a reserve and trade currency until 1970s and after the devaluation it was dropped like a hot potato.

So, during the next 6 months, the rest of the world will readjust a lot faster while America will just start to deal with the problems, because of change of its presidency and administrtion and the start of realisation that this thing is a lot bigger and wider than a problem on Wall Street.

I for one agree with the writer that this is the biggest problem of readjusting since the implosion of the USSR and for them it took more than 10 years. The Russians had Yeltsin, Americans have Bush! Different personalities, but the same incompetency and the result that comes with it, when measured in terms of GDP!

No problem for the EU including Eastern Europe or the Middle East? What planet are we on? This analysis reminds me of Hitler's glee watching the Grapes of Wrath movie to reassure himself that nothing successful could come from America. :)

In my opinion this is a global economy and unfortunately all will suffer. It doesn't take an economist to understand the simple fact that without demand there won't be much trade in anything. No country is an economic sanctuary today, least of all the countries reported to be in this post. It will take international understanding and agreements from nations interested in the economic welfare of their citizens as opposed to nuclear and regional ambitions for power a la Iran to improve the situation.

I love coming onto this blog every few months to tell everyone to take a deep breath and stop treating every little thing in the US as righteous vindication or punishment. Being an American, it's getting a little ridiculous to hear that the ups and downs of our financial system somehow indicate that we didn't know this would someday come (it always does).

Bubbles burst all the time in America and trigger OMG GLOBAL CALAMITY! A few months later, everything goes back to normal. This situation is simply worse because the bubble happens to be the credit market, which is how America basically calculates its generated currency. When the credit market suddenly plunges, it hurts everything that relies on the flow of credit (housing, automobiles, you get the idea). The stimulus packages, if they even work, will help stop the cycle before it hits the bottom. But we'll know when it's all over when the credit market reaches it's "actual" point where it will again begin to rise at whatever rate it decides to rise. Everything else will right itself at its new level, and we will remember this as the situation which helped Obama into the White House. This isn't a Great Depression in the making. Just the normal American business cycle.

Suddenly, because America's economy takes a dip, it hurts economists who somehow believe that they've escaped the business cycle (the minority). It also seems to shock the world, including Ali it seems, that America may actually be subject to the cycle of free markets. Should it shock anyone or teach anyone any lessons? Sure, maybe a little regulation to keep banks from hop-and-drop growing (they're supposed to be relatively stable if they plan to be reliable enough to keep deposits). I doubt anyone will buy the risk from someone else's loan anymore. But will America learn some dire lesson about the free market?

This isn't even the hardest lesson America would even have to have learned yet.

So everyone take a step back, breathe, and let's put it all in perspective. America is a big economy, and it sounds impressive to hear how much money our market is shedding. Our booms and busts are bigger. Go figure. Credit will take some time to loosen up again. You don't have to go that far back in our history to find the credit market freezing up.

I don't think it will take ten years to begin to recover. Maybe a year at max if something new doesn't come along to start the boom cycle all over again and all the stimulus packages fail. But if we've shocked Ali that even America's mighty economy might be subject to the same rules that smaller economies may be subject to, well, maybe he should reevaluate how invincible we must appear. As for me, I'll wait it out.

The Game, Three card Monty.

The players, Wall Street, and The Government.
Wall Street says " deregulate "
Government says " O K, wink wink.
The Zaps, Main Street." Really I can afford that"?

The Play, The biggest Robbery in the history of the World. These thieves are soooooo good that they even without asking, take another 700 Billion ( and counting) more from you for having robed you in the first place!

I wonder how long before the Zaps wake up and smell REALITY!?

"Perhaps the most destabilizing, unpredictable elements...remain in the minds of North Americans and their leaders. But the...emotional reactions...illustrate that Americans are still in a state of disbelief that, somehow, they are not the exception."

A lot of hand wringing will be done before the US population lucky enough to have held on so long to their unearned privileges learn the facts of life.

Now now folks. We must realize that BobMoses and Dr. Ettefagh may both have valid points.

Dr. Ettefagh can certainly be cited for taking a negative and often misunderstood understanding of America, its institutions, and its people. Whether this is simply a harsh dose of realism that we refuse to face, or misinformed spin is open to debate. The problem is Dr. Ettefagh has his own credibility gap based on his previous recommendation of demanding Bush's resignation or touting of the Iranian planned economic model as a world financial solution will do for you!

Despite this, no one can argue with Dr. Ettefagh's statements on the over-leveraging of the American economy and the differences between the amounts the IMF gives to bail out emerging markets compared to the amounts the Fed and Treasury (read me and my fellow 300 million) are throwing at financial institutions (and eventually the auto makers.)

My questions for Dr. Ettefagh is: Where will the IMF get their money now? And, more importantly, does he not recognize the importance of Western consumerism to propping up the growth of the rest of the world?

For he is right, Americans over the next decade will be forced to spend less and save more to pay the piper. Obama's stimulus package will stop the bleeding, but the long hard rehab still needs to be done. And with China or the EU not ready to fill that consumption voice, production-based countries will suffer.

Americans, meanwhile, will probably see economic growth return by this time next year. The good thing about falling hard is that you bounce back high. Let's just hope that Obama's administration can keep that momentum rather than changing the depth of the floor.

Installment 1 of reality:
http://news.bbc.co.uk/1/hi/business/7746642.stm

Yes, it is the beginning of a long process, at least 10 years. Agreed.

Right now farmers with good credit and decent production cannot get short-term loans to buy fertilizer. Not that there are that many farmers out there that are not hurting financially. So, where will food come from if farmers go bust? Few people have heard of FarmerMac, but it is a farmland equivalent to Fannie and Freddie and it too is in trouble.

BOBMOSES: What is your proposal and solution to fix the biggest economic meltdown ever, anywhere? If you love America, let us hear your plan.

Unfortunately the USA will experience the not so nice aspectss of nationalizing excessive credit losses in the same vein as S Korea, and the other Asian Countries did during and after the Asian Credit Crises.

We are not even finished with the wealth implosion, yet the TAXPAYERS OF THE USA are exposed to approx $7.4 trillion risk without Congressional Approval. The just announced "BAILOUT OF CITI" is but the first step concerning that bank, for it has another $1.3 trillion "TOXIC ASSETS" carried by off-book financial entities. Presuming 90% exposure to the taxpayer, the risk is another $1.1 trillion. Where will it end? GM. Ford, Chryler [actually Cerebus], then comes the other failed businesses due to the contraction of consumer expenditure...
At this rate in a year or so the only thing left for the USA Treasury and the Federal Reserve Bank will be devaluation with subsequent hyperinflation. Not even China and the Sovereign Wealth Funds have the wherewithal to balance the books of these newest Bailouts.

The Middle Class will carry most costs, for the poor are without funds and jobs, the rich [those who did not lose their shirts] will not have the capital to save the country, even at 100% income tax rate.
Hopefully the situation will not be as dire for the USA Citizen in 2009-15 as was the case for Russia

BOBMOSES, your reply is makes his point perfectly. Rather than address any of his points, you retreat into jingoism. If someone points out the obvious, your answer is they must hate America. We Americans will find out soon enough that we are not exceptions to every economic rule.

Ettefagh hates America. Stop the presses.