Ugly Americans Cause World Financial Crisis - Especially George Bush

The French government is investing $14 billion into its six biggest banks. The Netherlands is throwing a lifeline to ING to the tune of a cool $13.4 billion. South Korea, with memories of the 1997 Asian contagion still ingrained, announced a $130 billion plan to backstop its financial system and currency (the won has been pummeled in recent months and got smoked last week).

So is this all our fault? Did Lehman, Bear, Fan, Fred and AIG cause this entire mess? Or was it Joe the Plumber buying a McMansion with a sub prime loan instead of being content with a trailer and a six pack? Did all that hot hedge fund money enable the manufacture of "made to trade" debt securities instead of durable debt products such that poor un-sophisticated banks and insurance companies around the world just got caught up in it unknowingly? None of the above! We all know that the blame lays firmly at the feet of the most powerful man in the world.....George Bush.

Yes, it must have been his deregulating, profligate, war-fighting ways that caused the entire world to collide with the reality of bad debts. Sorry, but it's just too easy to blame your favorite disputant (or decider as the case may be) for the world's woes.

NEWS FLASH! The world financial crisis has been caused by greed, profligacy and an over-use of debt worldwide. If you have been reading Urban Digs lo these many months, you know that we have been talking about bubbles worldwide and critical imbalances that were being mirthfully ignored by those involved. The Chinese pretended that their economic miracle was being created by their own ingenuity and productivity (some of which was true) and not to a significant degree by their suppressed currency value. The U.S. pretended that the world funded our deficits because of our financial and political stability, not to mention good looks. We ignored the fact that our creditors had inexorably tied their own growth to our addiction to the consumption of goods and energy, an addiction which they merely needed to enable by lending us more money. Europe pretended that socialism worked great and that depending on exports to China could make up for their aging static workforces and lack of domestic vitality. India pretended that services outsourcing could carry the day when what they really needed was a national help desk to assist business people navigate the most bizantine regulatory system on earth. Russia and the Mideast imagined they had something going for them besides oil, which required miles and miles of new skyscrapers to be built as well as the odd indoor ski mountain. They also believed that those with the political connections to succeed in oil and real estate should make as much money as those good-for-nothing hedge fund managers in New York. Note that per Forbes, Moscow now has the world's largest number of billionaires. Everyone pretended that you were nobody if you didn't own a place in New York City, in addition to one in Paris, London or Moscow.

Alas the lie is being given to all of these misplaced beliefs. We in the United States are somewhat fortunate to have realized the mess we were in a little earlier, but it's an integrated world and stock market debacles from Shanghai to Mexico were telegraphing that the U.S. was not alone in the deleveraging cycle. In the final analysis we might even prove better off than others if we fully embrace the necessary mea culpas. This graph from the IMF shows that at the very least, we are only in the middle of the pack with regard to our housing price debacle.

Not only that, but as much as people are trying not to notice, three years into the housing bust, the huge decline in home prices in the most overbuilt markets in the U.S. is actually starting to result in increased turnover, portending an eventual bottom. The other countries on this list mostly entered the housing bust this year. I would wager that things will get worse for them before they get better. If statistics are ever supplied, they may eventually show that the Chinese housing downturn was right up there with many of the leading losers. Many of these countries also had commercial real estate bubbles which will prove much more damaging to bank capital ratios than the residential housing bubbles. These unwinds are just starting.

So, countries around the world are going to increase their government debt significantly by cranking up the printing presses. Just a few quick facts here: the U.S. actually ranked number 27 in debt to GDP ratio among all nations for 2007, with some pretty big dogs ahead of us on the debtors list, including Japan #2, Italy #7, Belgium #12, Norway #17, Canada #22, France #23 and Germany #25 (according to the CIA World Fact Book). Now our private debt means that as consumers we will be re-trenching for a long while, but this hurts many countries as much as it hurts us. Additionally, countries like the UK, which is much lower down the list of public debt, have even greater issues with private debt than the U.S. does.

With most of the largest nations on the planet set to crank up spending/money printing to keep the money supply from going to zero, what predictions can be made regarding inflation? It is a very complex picture. If inflation is a purely monetary phenomenon then you would think we are in for a generational increase; however, currency values are a relative business, if everyone is printing money, who does the de-valuation hurt? If we have severe malinvestment to digest, do we face any imminent shortages of labor or materials? If inflation is a labor and/or commodity shortage-driven phenomenon we probably have less to worry about.

Postscript: I hope readers appreciate the tongue-in-cheek aspects of this piece for what they are. I think i managed to poke fun at nearly everyone involved. The point is that this crisis is a worldwide affair, driven by a worldwide credit and investment boom. There's no single villian, and the faster everyone admits to their part in this credit crisis, the faster the recovery will happen. Same as it ever was.

Or it could just be the evil ugly Americans.

From the Blogosphere:

US "Tapeworm" Economics Causes World Financial Crisis

Sell America to Pay off its Debts

World's Greatest Ponzi Scheme

Crisis Sparked By World's Rich

U.S. Financial Crisis: Why China Has Much to Fear

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