Most people — except possibly the American political class — know that one of the prime causes of the current economic crisis was government policies that resulted in countless people taking out mortgages that they couldn’t possibly pay back. Then financial firms who had made the bad mortgages issued securities backed by these shaky loans. When the borrowers defaulted, the whole house of cards came tumbling down — or at least it would have come tumbling down if the federal government hadn’t bailed out so many firms, delaying the day of reckoning.
The continuing implosion of the U.S. economy in the aftermath of unprecedented federal bailouts and unemployment programs has now brought forth a stunning loss of 484,000 jobs in a single week. What remains uncertain is when this news will penetrate the consciousness of policy makers in the White House and on Capitol Hill.
When the Federal Open Market Committee announced yesterday that “the pace of economic recovery is likely to be more modest in the near term than had been anticipated,” stocks in Europe lost three percent of their value, interest rates on the U.S. 10-year Treasury note dropped startlingly as investors ran to safety, and the dollar hit the lowest level against the Japanese Yen since 1995.