NYT editorial: Watershed: Administration shows no awareness market turmoil layered on vulnerabilites

Watershed
Published: August 19, 2007

....the Fed’s moves also show that it believes the markets’ problems have become a threat to the broader economy. For that reason, calming the markets should be seen as only a necessary first step toward addressing much bigger issues — issues that President Bush and his aides continue to deny.

The real work — that of leaders, not managers — is to understand how the economy became so vulnerable to current global market instability, and to articulate an agenda for reducing those underlying weaknesses. There is no return to “normal” that would not be the same as sticking one’s head back in the sand.

The bare facts are that the nation — heavily indebted — needs to attract some $800 billion a year from abroad, either by borrowing the money or by selling American assets. No serious analyst believes that an imbalance of that magnitude is sustainable.

In fact, the erosive effects are already evident. Debt must be repaid by sending money abroad, leaving less to invest domestically. Selling off American assets means reduced investment returns to Americans. And that’s if things go smoothly. Ever present is the risk that the vital foreign inflows will wane, with severe repercussions on interest rates and the dollar.

So far, however, the Bush administration has shown no awareness that the current market turmoil is layered on top of deeper vulnerabilities that demand attention. It cannot even see that the current market upheaval calls for new policies. In an interview this week in The Wall Street Journal, the Treasury secretary, Henry Paulson, said that the credit crunch tied to risky mortgage-related investments was “inevitable.” But the credit squeeze is not the work of an invisible hand. It stems from a markets-above-all ideology espoused at the highest levels of government, and resulting regulatory failures in the face of excessive risk taking....

http://www.nytimes.com/2007/08/19/opinion/19sun1.html

Where was the editorial board of the NY Times when Bush first ran for president? when he rammed through his appointments by any means necessary?

Better late than never -- but not by much.

Thanks for the post, DMM.

Hekate

Why that figure is about what the cost of the Iraq War is going to end up being fairly soon.
hmmmmmm

"And to succeed in the future, the country must first stop digging the hole it is in. That will require federal budget discipline, especially health care reform and higher taxes.
It will also require higher private savings. And all of that will require leaders who will level with Americans about the depth of the country’s economic problems, including its vulnerability to global turbulence, and the sacrifices it will take to address them."

:(