Recently the Federal Reserve's action to lower the interest rate on dollar denominated swaps shows that the primary goal in Washington is to continue to buy time for the Western banking system. "Kicking the can down the road" has become the strategy in Washington. On which politician's watch will the system be cleansed of the bad investments, the deficit eliminated and the debt paid down? Few politicians in Washington seem willing to endure the scrutiny that would come with the reset of the US economy. The plan is to print away the problems, inflationary risks be damned.
Print until the next bubble comes along to get through one more election cycle. That is as far as Washington politicians think about monetary and economic policy. Buying time is the goal in Washington while maintaining some type of order while they extend the process and attempt to figure out a resolution or a softening of the landing. An orderly solution to the debt crisis is the hope but may not be the result and that is why war or the ultimate distraction will become inevitable because it will be seen as more palatable than a full out nose dive financial crash. It is not easy to talk about the need for a liquidation of the bad assets that are still on bank's and other corporations balance sheets, but they need to be liquidated in order to move forward.
During the Meet the Press that aired on October 23rd of this year David Gregory when interviewing Ron Paul stated in shock, "You are saying the market would be cleansed, so the market would crash again and you think that is acceptable." What David Gregory is implying is that the US public is too stupid to understand that a year or two of a financial reset is necessary to move forward in the US without carrying a sharp yearly deficit.
The reality is that the next president, whether it is a continuation of the Obama administration or a new Republican president will likely deal with the most intense portion of the worldwide deleveraging that is currently underway. The first huge domino is about to fall in Greece and the next president will have to be prepared for the consequences to reach US shores and destabilize the risk of our own debt instruments.
The Federal Reserve is not blind to what is going on and that is why the recent dollar liquidity facility was to cushion the solvency problem through sheer liquidity. The bottom line of what Greece is suffering is capital flight, when there are no lenders it becomes very expensive to borrow. US politicians seem to think that because US treasuries are low today, they will be low forever.
If Washington is not given a wake up call in the 2012 elections and the same political gridlock (along with an administration compliant with the Fed's aggressive inflationary policies) is present when US treasuries take center stage in the final act of the global debt crisis, a deep global depression is not only a possibility it is a likely event.
That is what is at stake in the coming Presidential election cycle. Ron Paul has stated the bitter medicine that the country must take in order to heal itself, the others will likely continue to kick the can down the shortening road.
About the Author: Shaun Booth is editor of MilwaukeeStory.com.