bubble is getting ready to burst
BY Kevin Phillips: sometime in 1998
It’s hard to avoid the eerie feeling that the biggest political and economic
news of the year ahead will be the failure and toppling economic dominoes of
some attempted giant financial bailout.
Possibly the International Monetary Fund, the global financial bailout mechanism itself, could go belly up if enough Asian nations fail and Congress shuts the U.S. checkbook
But the pivot may be whether the ultimate problem comes in the biggest bailed out economy of all: the United States of Lockheed and Chrysler, overnight loans from the friendly Federal Reserve, portable peso oxygen tents, commercial bank trans-fusion kits, a capital city with more influence peddlers than Seoul and shady Asian political donors filling the Lincoln bedroom.
Pejorative as that may sound, if there's a giant global economic bubble out there, the
The big bubble pipe came out in the 1980s. Part of the action came from tax cuts, deregulation and electronic program trading that helped turn the global financial markets into a 24-hour roulette wheel and "spectronic"
Small wonder that after nearly two decades of this economic bungee-jumping, many overseas banks, stock markets and Asian cartels started to feel invincible.
And their colleagues in the
Too often they were $5 million and $30 million Moms and Pops, though, with fancy addresses in
One of the most encouraging
But most of all, forget the old definitions. Meaningful socialism no longer involves collective ownership of factories. That's smokestack era stuff. The new financial socialism now collectivizes the perils of insolvency, not the means of production.
If factory socialism 60 years ago worked to redistribute money downward, financial collectivism reduces speculative investment risk and therefore redistributes wealth and income upward.
Which brings us to the potential politics. The first question, for which there is no clear precedent in financial history, is: How long can market forces be kept at bay as bailout is piled on bailout? It's certainly possible that 1998 will turn out to be the year the bubble pops. If so, it's a good bet that popping party system and income distribution bubbles won't be far behind.
The ordinary citizenry, in both the
Up on Capitol Hill, a senator complained that, for Wall Street, bailouts have been "a heads I win, tails the taxpayer loses" scenario. Sen. Edward M. Kennedy? No, Republican Sen. Lauch Faircloth of
Three years ago, the American public was lopsidedly opposed to the peso bailout, and the newest data suggest they're no happier to have the
The lobster salad part is beyond debate. One recent story in weekly newsmagazine noted that Wall Street is making so much money that young employees are getting fired for discussing their salaries or boasting about their 50 inch TVs and $3,500 Rolex watches. The Center on Budget and Policy Priorities just released data showing that because of Wall Street and financial sector profits,
This suggests an obvious reform. Instead of taxpayers being saddled with sustaining the IMF and the collectivized costs of insolvency, it would make more sense to privatize these responsibilities to the banking and investment sectors. Part of their riches of the last decade flowed from the taxpayer subsidized bank and S&L bailout. Now, it ought to be payback time.
Congress can arrange that by ending the current taxpayer based IMF funding in favor of a changeover to what economists call an FTT a small tax on financial transactions (stock, bond, currency or otherwise). By one computation, a tax of one fifth of 1 percent of the value of each transaction in the
Of course, there’s a chance that the bubble machine can go on and on. And there's a greater possibility that the bailout brigade can puff and patch their way through 1998. But it's still tempting to conclude that one of the next major issues of
Kevin Phillips is publisher of American Political Report.