Fun week... learn about economics, Part IV! by gimleteye

Changing economic conditions around the world are pushing the US to rethink its role. Other countries are insisting that we consume less, pollute less, save more and coordinate national security actions. Oh why can't we just go back to the way it was, when the stock market was headed to 20,000, when houses were bankable lines of credit, and terrorists hadn't blown up the World Trade Towers?

The problem is, the good old days were funded by low cost labor in other nations. We spent and consumed while others saved and built. In the new flat world, productivity and technology hops from Cleveland to Singapore in a nano-second. Yesterday, I uploaded a new version of software on my computer and my anxious phone call to customer service ended up in New Delhi. In the past, I dreaded customer service in New Delhi. This time, the woman helping me was trained exceedingly well, knowledgeable, and more efficient than any I had talked to in Omaha. Clearly, the software company had improved its productivity. But you have to dig a little deeper to understand why the costs to the US economy of such competitive advantage to India are so severe.

Not only has the US depended on the kindness of strangers to fund our national debt, we have sold our investors stuff that turned out to be worth not nearly as much as we claimed. It would be one thing is this were a couple of billion dollars. But in fact, the risk to our investors is in the trillions.

From the worm's eye view, Americans are deeply worried about foreclosures and what government can do to help. From the bird's eye view-- of investors burned by buying hundreds of billions in mortgage backed securities-- the entire growth model of the US has been called into question by the very investors we need to fund our national debt.

While Americans worry about the price of gasoline and whether we can buy sacks of rice at Costco, the bigger problem is that investors have lost confidence in what we are selling. Unless, of course, we are selling assets at deeply discounted values. I don't know about you: for my part, I don't like living in a nation that feels like the remainder bin at Walmart.

So, now that we are approaching the end of the week-- our fun week on economics!--it is time for a little feedback. Imagine for a moment that you are President of the United States: what would you do to prevent the US economy from sliding into an even deeper economic crisis?