> Yes, but the actions of the federal government of late--the scrambling to
> master events that continue to overtake them, the banana republic tenor
> of it all. Couldn't these undermine the confidence of our foreign
> sponsors?
That confidence is already gone. According to Brad Setser, who knows more about the data than anyone else alive, our creditors stopped buying Agencies in August and now insist on Treasuries. If they wanted to, they could stop buying Treasuries, and then all hell would break loose. The current bailout is about *regaining* their confidence.
The problem isn't the $1 trillion per se -- that's only 7% of GDP. The real problem is, buying up busted properties will not magically restart the Great American Bubble Machine. Given stagnant or falling real wages for the vast majority of Americans, this economy needs a housing-bubble-sized stimulus to keep its head above water, but no bank in their right mind is going to lend to overindebted, asset-short, energy-hogging, military-industrial-dependent US consumers right now -- and the new metropoles aren't going to finance those banks without a firm guarantee of repayment.
That's why the MacChurian Candidacy scares the hell out of me. It's not just that the choice of Mrs. Paleiselin, an ignorant and thuggish provincial lout, is just the first of a hellswarm of bad decision-making by the Tantrum-In-Chief. It's that those bad decisions will have lethal consequences for a deeply vulnerable economy. Obama will keep the bailout funds coming, and that's why Wall Street is investing heavily in his campaign. But if the jackasses take over, the new metropoles will conclude, as the Germans say, "lieber ein Ende mit Schrecken als Schrecken ohne Ende" (better a terrible end, than endless terror). They pull their money out, and we go into a Soviet-style meltdown. My stomach churns just thinking about it...
-- DRR