Time to listen to Chicken Little

The financial crisis in the US is only getting worse and there’s no sign of things improving. After the US House voted down the Bush / Paulson bailout bill Wall Street tanked, and, unsurprisingly, the ASX followed suit. Adding to woes in the US, the Chinese government has instructed banks to cease lending to US banks, further reducing the ability of the US markets to obtain credit. Meanwhile in the UK, another bank has been nationalised and the banking sector is taking a pounding on the FTSE.

New York Times columnist Paul Krugman has declared that the US has become a banana republic with nukes, and it’s getting harder to dismiss that type of thinking.

I think that we are moving beyond a point where any government can reverse this financial crisis. The Bush / Paulson bailout bill was really just a hail mary pass, the $700 Billion figure was plucked out of thin air without any reference to data of any kind and it’s no surprise that it failed. The problem that the US now faces is what to do next? I genuinely do not believe that anyone knows how they can unwind this mess, everyone’s just hoping that the landing won’t be too severe whenever we do hit bottom.

I agree that Australia is better insulated from the US than we were in the past, but we are not immune from the fallout. Today’s fall on the ASX has led to a drop in the value of the Australian dollar, which is great for exporters, but will push the price of petrol higher once again, along with everything else that we import.

I think that we are seeing the end of the USA’s role as the dominant political force in the world, but I have no idea what is going to replace it.