With the American presidential election just over ten days off the US economy is headed towards rough seas indicating the $700 billion bailout of Wall Street has done little more than prevent an all out financial collapse.
Europe is in recession and stock indices across the Asian Pacific region as well as the Eurozone were off significantly during heavy trading on this United Nations Day, Friday, October 24, 2008.
Poor third quarter earnings and corporate forecasts signal weakness in the economy with unclear political leadership as the United States is in the midst of a hotly contested federal election for control of the White House, the Senate, and the House of Representatives.
The outcome of the US election may prove a watershed moment in American history, or a last-ditch, tepid endorsement of what former Federal Reserve Chairman Alan Greenspan yesterday told legislators was a flawed economic philosophy.
Whatever the outcome, American presidential leadership will be diluted and diminished on a world scale because of the over-extension of voluntary US commitments in Afghanistan and Iraq. The balance of global power is almost cetain to shift as the United States deals with deteriorating conditions in Afghanistan and Pakistan, the quagmire in Iraq, and preoccupation with domestic economic crisis.
A Republican victory, based on a flawed economic model, would worsen the ability of America to even position herself for future world leadership strategies. The GOP political program of divisiveness and division would impair US ability to mount a meaningful, spirited response to domestic and foreign crises.
Greenspan, the prophet of American-style laissez-faire, free market ideology, yesterday told the House Committee on Oversight and Government Reform that "I have found a flaw....I've been very distressed by that fact."
The introduction of financial instruments called credit derivatives caused tiny tremors of volatility and manipulation in financial markets which have since butterflied and led to chaos in global credit markets.
Citing credit default swaps, or instruments used to place wagers on investments to insure against loss and risk, Greenspan said; “This modern risk-management paradigm held sway for decades; [t]he whole intellectual edifice...collapsed in the summer of last year.”
Acknowledging that credit derivatives introduced instability into the financial system by substituting real for imaginary value, Greenspan linked that creative financing to the mixing of credit default swaps, intended to insure imaginary value from loss, leading to dense concentrations of nonexistent (paper) wealth, perhaps best described as false capital, that has since orbited throughout financial systems around the globe wreaking havoc and destruction in its wake.
Because of the sensitivity of the initial economic conditions under which such contrived value was introduced into the credit markets, and its spiralling density as it amassed layers of imaginary worth, the initial, seemingly arbitrary perturbation has taken on a future trajectory of global proportion.
The result thus far is a worldwide collection of valueless paper whose gathering, cyclonic destruction has busted the housing market, global credit markets, the oil market, and now appears to be threatening corporate well-being and job security. Such economic destruction can not be contained in just one sector of the world economy: its spillover effects are now threatening national and individual economies across the earth.
The unreality of the ideology, however, can not be confused with the desperate reality of the ensuing economic chaos. The effects are real no matter the dubiousness of the premises upon which the ideology was based. Governments are ill-prepared to front a human response.
Nations have acted quickly to contain all out credit collapse, however, nothing has been done to support, or even acknowledge the economic pain and financial security of individual human beings: presumably, the people goverrnments, financial institutions, and corporations are constructed to serve.