The Perfect Storm

I read on a friend's blog recently that they believe the current economic crisis is causing undue panic in our country.

I wholeheartedly disagree with that conclusion. In fact, I am dismayed by the seemingly large percentage of Americans that are not concerned enough about what is taking place in our world today.

Last night President Bush addressed the nation on the dire economic straits we now find ourselves in. Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke have both stated in the clearest language possible that we are headed for a total financial meltdown barring government action of monolithic proportions.

A $700 billion bailout of our financial system has been proposed to try and prevent the disaster hastily approaching. However, in an open letter sent to Congress, only a few days ago, over 100 university economists expressed great concern for the plan proposed by Treasury Secretary Paulson. The letter is being described as the emerging consensus from academic economists. It highlights three fatal pitfalls they perceive in the plan as it was initially proposed:

1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. [...] The government can ensure a well-functioning financial industry [...] without bailing out particular investors and institutions whose choices proved unwise.

2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards.

3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

Robert Kuttner, one of five co-founders of the Economic Policy Institute, and co-founder and current editor-in-chief of The American Prospect recently said, "The deal proposed by Paulson is nothing short of outrageous. It includes no oversight of his own closed-door operations. It merely gives congressional blessing and funding to what he has already been doing, ad hoc."

(I like that quote because it echoes my own feelings regarding the "Paulson Proposal".)

A storm is approaching and the above tells me that no one is sure how or if we can stop it. Call me "Chicken Little" but I believe that the sky could come falling down quicker than most would imagine. Not only are we dealing with this home-grown crisis, several other situations are balancing on knife point.

On June 29, 2008, the commander of Iran's Revolutionary Guard, Ali Mohammed Jafari, stated that if Iran were attacked by Israel or the United States, it would seal off the Strait of Hormuz, thereby wreaking havoc in oil markets. This statement followed other more ambiguous threats from Iran's oil minister and other government officials that a Western attack on Iran would result in oil supply turmoil.

In response, Vice Admiral Kevin Cosgriff, commander of the U.S. 5th Fleet stationed in Bahrain across the Persian Gulf from Iran, warned that such an action by Iran would be considered an act of war, and that the U.S. would not allow Iran to effectively hold hostage nearly a third of the world's oil supply.

On July 8, 2008, Ali Shirazi, a mid-level clerical aide to Iran's Supreme Leader Ayatollah Ali Khamenei, was quoted by the student news agency ISNA as saying to Revolutionary Guards, "The Zionist regime is pressuring White House officials to attack Iran. If they commit such a stupidity, Tel Aviv and U.S. shipping in the Persian Gulf will be Iran's first targets and they will be burned."

One analyst concluded that Iran could seal off or impede traffic in the Strait for a month, and a U.S. attempt to reopen it would likely escalate the conflict. Nevermind, that Iran is a country that could potentially acquire a nuclear weapon within the next year.

Do Americans understand how devastating it could be for us if 30% of the world's oil supply disappeared from the market overnight? Life as we know it would cease to exist.

I won't take the time to talk about the threats that countries like North Korea, China, and Russia pose, along with Islamic extremists across the globe, but let me assure you that they are real.

While I don't believe it is time to head for the bunkers, I do think it is time for the average citizen to WAKE UP and take a hard look around. Do you even know who your representatives in Congress are? Do you know how to contact those individuals? If we do not educate ourselves about the issues we are facing as a nation and then make sure our representatives are handling these issues to our satisfaction, we will have no one to blame but ourselves for everything going to hell in a handbasket. The perfect storm is gathering and if you haven't taken the time to prepare then a panic of epic proportions does not seem unrealistic to me.

Thank goodness a prophet of God has been warning us for years to get out of debt and get our food storage in order.

I feel a major "I told you so" moment coming.

*I got all of the quotes and information for this post off Wikipedia.org.