Obama administration needs to broaden its perception of the predicament to which financial deregulation and offshoring have brought the US economy

OpEdNews � Is the Bailout Plan Breeding a Greater Crisis? | by Paul Craig Roberts
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Obama’s advisers believe that the US can monetize debt and issue new debt endlessly, because America’s capital markets are the deepest and most liquid. The dollar is strong, Obama said at his press conference.

But already cracks and strains are appearing. The day after Obama’s press conference, an auction of UK bonds, known as gilts, failed when bids fell short of the supply offered and interest rates rose. This is a bad sign for Prime Minister Gordon Brown’s plan to market an unprecedented amount of new debt during the current fiscal year.
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The Fed cannot monetize new Treasury issues without the word getting out. If and when this happens, the US dollar’s exchange value is likely to drop while interest rates and inflation rise.

To avoid a crisis of this magnitude, the US needs to focus on saving the dollar as reserve currency. As I previously emphasized, this requires reducing US budget and trade deficits.
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Rome eventually understood that its imperial frontiers exceeded its resources and pulled back. This realization has yet to dawn on Washington.

More budget savings could come from a different approach to the financial crisis. The entire question of bailing out private financial institutions needs rethinking. The probability is that the bailouts are not over. The commercial real estate defaults are yet to present themselves.
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Could this massive debt issue be avoided if the government took over the banks and netted out the losses between the constituent parts? A staid socialized financial sector run by civil servants is preferable to the gambling casino of greed-driven, innovative, unregulated capitalism operated by banksters who have caused crisis throughout the world.

Perhaps the Federal Reserve should be socialized as well. The notion of an independent, privately-owned Federal Reserve system was never more than a ruse to get a national bank into place. Once the central bank is part of the state-owned banking system, the government can create money without having to accumulate a massive public debt that saddles taxpayers’ and future budgets with hundreds of billions of dollars in annual interest payments.
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If the Obama administration can think about socializing health care as a single-payer system, it should be able to think about socializing the banking system. Currently, Medicare is paid for by taxpayers, Medicare beneficiaries, healthy retirees, and doctors. Beneficiaries have to pay substantial premiums for supplemental coverage whether ill or healthy, and doctors are paid a pittance from the schedule of fixed prices. The insurers are the ones who make money, not the medical service providers. The single-payer system would shrink costs by the amount of the health insurance industry’s profits and the enormous paperwork and enforcement compliance costs.
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The US finances its trade deficit by turning over to foreigners ownership of existing US assets and their future income streams, which, of course, increases the flow of income away from Americans.

The claim that low prices in Wal-Mart compensate for all these costs is ridiculous. Nevertheless, the Obama administration, corporation executives, and the economics profession remain committed to offshoring.
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The Bush/Obama approach to the crisis in the financial sector is to monetize existing debt and to accumulate massive new debt that will likely also require monetization. The monetization threatens inflation, high interest rates, and depreciation of the US dollar and loss of its reserve currency role. The accumulation of new public debt implies larger annual interest payments that could make future deficit reduction problematic. Clearly, the Obama administration needs to broaden its perception of the predicament to which financial deregulation and offshoring have brought the US economy.