The Americas

You half expected George Bush to get on TV tonight and announce that the liberation of Wall Street has begun. The landing of a Marine expeditionary force at Battery Park would make for excellent television. It’s just a short push of a few blocks up to the besieged investment bankers in lower Manhattan. The Devil Dogs versus the Masters of the Universe would pit two American legends (or mythologies) against one another…

Inflationary monetary and fiscal policy is a little like pornography. That is, U.S. Supreme Court Justice Potter Stewart, confronted with the challenge of distinguishing pornography from free speech or art, famously said, “I know it when I see it.” The same is true with investors and inflationary monetary and fiscal policy. One of the great criticisms of monetarists is that they have a tough time proving when an increase in the money supply is actually inflationary.

Now that aggregate government spending is approximately half of all spending in the United States, the major point of all the recent losses is the effect that Florida, like many states, is discovering to its horror that tax revenues are falling as the economy spirals down and down. The state governments are reacting as you would expect, initiating all kinds of tiny spending cuts, massive stealth tax hikes…

John Edwards, recently claimed the title of the “dumbest man in America,” when the press got wind that he was two-timing his wife and running for president at the same time…

It is not the end game yet. But we are getting closer to an important inflection point in the credit crunch. The investment banks are capitulating. And none too soon, considering the whole financial system is galloping off a cliff. The current investment banking model is, quite obviously, not built to withstand a credit crunch. Why? Investment banks borrow short term so they can buy long-term assets. So far so good.