Financial meltdown: The unspoken root cause, and unintended consequences

No matter what the Fed, WB and others do, the only thing that is going to calm the world markets down is a clear US presidential election. Without a predictable winner there is a lot of uncertainty in what direction the US monetary policy will head. Where you put your money if McCain is elected is very different than where you put your money if Obama is elected. So the safest course is to cash out, and wait till the dust settles to reinvest, which is what we are seeing. So the best way to begin easing the panic is a quick and painless election, with a clear winner. Until Nov 5th (minimum) the world markets are going to act like lemmings that can’t decide which cliff to jump off, with the twin politically driven media herding dogs whipping them into a bigger frenzy.

If you look, every presidential election year where the winner was not clear well in advance has seen roller coaster market dynamics. What about the $700 billion and other bailouts? They just bought the world enough time to get to early November. The really work begins in ’09, when a new government is sworn in and starts working towards a solution that will get them reelected.

It does make me feel good about the power that the US wields in the world. Sure our influence is waning, but as long as we can drag the world into turmoil we are still important.

I would like to close with a warning to all those who for political gain would send the world into financial chaos. While the big economies might stagger a bit and a few politicians will lose their jobs and have to go work at think tanks. The governments in the developing world are more likely go down for the count, and the suffering of the people will serve as fodder for “problematic” extremist governments to rise. We are already at the brink of losing most of South America to communism, Russia is definitely missing being the USSR, and China will “help” anyone who it thinks can help them. Now that the USSR and China have had a nice infusion of the 20th and 21st centuries, hard currency and developed natural resources, neo-communism will be much harder contain and stamp out.