I find the ongoing Congressional Hearings interesting both directionally and in the concepts that are being put forward.  Having said that, I see this as a time where careful thought and actions are required in place of rhetoric.

The members grilling Messrs. Paulson and Bernanke are clearly unsettled and (in my view justifiably) angry.  They can’t figure out why ‘this mess’ has come on them so suddenly.  That is a very good question.  For years commentators have been talking about the amount of debt both the U.S. and its citizens have been accumulating, the loss of U.S. manufacturing jobs, the use by U.S. Consumers of their houses as their personal ATM machines, and so on.  I see the matter at hand in concept as comparatively simple, the devil is – as usual – in the detail.

Having listened to President Bush’s ‘address to the nation’ last evening and reading the latest write-ups on the state of negotiations on the ‘bail-out bill’ before Congress my views first thing Thursday morning are:

1.    In part President Bush talked about the Plan before Congress making credit available to U.S. business and consumers so that ‘economic growth could continue’.  Absent serious controls over how participants in the U.S. ‘capitalistic system’ behave – which ‘controls’ obviously would be oxymoronic to a ‘free enterprise’ system – the current Bill before Congress as finally settled likely will simply result in is ‘more of the same’.

2.    President Bush stated last evening that the capitalist system embraced by the U.S. was the best possible economic system (or words to that effect).  If this is so, one must wonder why the U.S. economically finds itself in its current state, as this ought not to be the end-game of the ‘best possible economic system’.  In my view, the U.S. needs to face the harsh reality that with:

•    its cumulative National Debt and current fiscal budget deficit levels;

•    its loss in manufacturing jobs;

•    an over-extended consumer base; and,

•    its enormous and ‘each month growing’ trade deficits (which at the end of August stood at an approximate  cumulative U.S.$6.9 trillion, increasing at a rate of approximately U.S.$60 billion each month)

it is now, and will increasingly become, dependant on its trading partners.  The U.S. in September, 2008 is a far cry from the U.S. as it was in September, 1998.  A new world order is fast developing.  The U.S., while a critically important player in that ‘new world order’, in my view at this point is to a large degree ‘along for the ride’.  Now that the ‘cat is out of the bag’ as it were, I think things going forward will not be same for the U.S. in circumstances where I think U.S. legislators ought to have ‘seen this coming’ and done something about it, but where the fact that as a group  seem not to have (or at least seems not to have been prepared to act on what they may have known) simply doesn’t matter any more.  Annual and monthly updated charts covering these economic indicators and many more can be found by clicking on the Economic Research tab in the Main Navigation Line of www.StockResearchPortal.com.

3.    For now, the emotion surrounding today’s circumstances needs to be set aside for the time being.  That emotion freely can come out in post-mortem discussion and debate.  What is required is careful analysis of the important reasons the U.S. economy is in the place it is, where those reasons are then addressed in the Bill as best they can be.  Were it me, I would view this analysis from a ‘worst case’ position – much as I do each day with respect to my Family’s own economic position where I carefully weight the comparative value of our ‘safe equity’, our ‘risk equity’, and the amount of our related debt obligations.

4.    Adopting a ‘worse case’ position that the U.S., absent the ability to print fiat currency and inflate and possibly hyper-inflate, has far more debt that it can manage and may be technically bankrupt, in my view the reasons that ‘got the U.S. here’ need then to be divided thorough rational analysis between things the U.S. has control over and those it doesn’t.   I assume this is happening, although when I hear President Bush speak of re-charging the ability to borrow (my words), I wonder if the future holds nothing more than a continuation of the ‘short-term gain for long-term pain’ philosophy that seems to have been adopted to date by U.S. legislators in the past.

5.    It seems to me the Plan before Congress gives Congress (currently controlled by Democrats, as is the Senate) and both thinking Democrats and Republicans a real opportunity to implement serious change in a bi-partisan environment with any final Bill addressing in detail government spending and corporate excesses.  If they don’t do that now, once the Bill is passed (and I think it almost certainly will be in some form) the environment will again operate in the usual ‘politically’ inefficient manner until the next ‘economic crisis’ arises as the U.S. spends its way to oblivion.

6.    It seems to me that what I have spelled out in paragraph 5 with respect to government spending and corporate excesses is unlikely to happen.  I say this in circumstances where reference to the ‘bipartisan meeting’ planned for this morning at the White House already is being referred to as a meeting to ‘draft a compromise’.  This is not a time for ‘compromise’, where compromise to me means sacrificing a portion of a ‘best-case’ ‘end-position’ on the Bill.

One final comment.  That the current events are occurring only five weeks before the U.S. Presidential election I find little short of dumbfounding.  What does this fact alone mean in the context of prospective U.S. economic well-being – and at this stage of economic globalization where developing countries (read China in particular) do not as yet have self-sufficient consumer bases?  In my view nothing good.  Beginning early next week I will be posting a 10 Part Series of Post on this Blog titled ‘Gold as an Investment – How I Assess It and Why’.  I assure you I am not a ‘Gold Bug’, but my analysis concludes:

•    gold historically has been a ‘safe-haven’ store of wealth in times of uncertainty; and,

•    as a result, in these turbulent economic times, everyone ought to consider whether they should own some gold as a hedge against what I see as today’s and tomorrow’s ‘serious economic and other (read terrorist and conflict-related) uncertainties’.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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