President Bush and Economic Advisers Panic

Get ready for hard times folks. When the President of the United States, George Bush, and his economic advisers panic and call for immediate tax cuts and rebate checks of $800 per taxpayer as a means to stimulate the economy you can bet that the economy is about to tumble right off the cliff into a deep recession.

With the financial crisis which started with the subprime mortgage and housing market spreading into all sectors of the economy the time for quick effective fixes is long gone. The American consumer is tapped out. Credit card delinquencies are at record highs as are home foreclosures. The credit bubble party is over and no one in government has the guts to say so just yet. A rebate check will provide temporary relief for a very short time at best. The problems faced by the economy are structural. A quick fix gimmick will not get the job done.

In my opinion, Bush and his team of economic advisers looked terribly worried in their TV appearance today. And well Bush should be worried. After running the most incompetent administration in the history of the United States it looks like he will still be in office when his arrogance and incompetence catch up to him and to the American public and the economy dives into a financial abyss.

Only the subprime mortgage disaster would be bad enough for the economy to have trouble coping with. But conditions are worse, much worse, than that. The Wall Street wizard investment bankers were so successful in converting lousy credit risk loans into AAA rated securities that they didn’t stop with home mortgage loans. No they packaged and sold to “investors” billions and billions of securities collateralized by lousy credit card loans.

Wait, there is more. The banks of the world are sitting on hundreds of billions, into the trillions, of exotic and plain weird derivative investment packages that have been marked to make believe evaluations for many years. Now that liquidity has contracted to such a degree that some of these securities have to be liquidated , guess what? There is no ready market for these securities. If they can be liquidated at all it will be at drastic writedowns.

An example of the severity of the writedowns can be found at Merrill Lynch. The brokerage giant reported a nearly $10 billion loss for the fourth quarter of 2007 and wrote off more than $11 billion in bad mortgage debts. Merrill is just one of many banks and investment brokerage firms reporting massive losses.

The American economy has been supported by a sea of debt and easy credit for many years. Now that the credit bubble is collapsing the aftermath is going to be very unpleasant indeed.

President Bush should look worried. He has a good chance of having the worse collapse of the American economy in history start on his watch.

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