A tough year ahead

Even with shrewd countermeasures, the average American will likely pay a heavy price for the mistakes our institutions have made. Our government is prepared to invest $700 billion in securities of questionable value. As taxpayers, we're all on the hook for that. The bailout includes a provision to raise the public debt limit to $11.3 trillion, from $10.6 trillion. That works as long as there's a market for bonds issued by the U.S. Treasury. Keep your fingers crossed.

"We have dodged a bullet by virtue of the fact that the U.S. is still in a good position to borrow from central banks and other investors," explains Rediker, of the Global Strategic Finance Initiative. "The great threat would be, what if nobody wants to lend? You would have to print money, which is inflationary."

Much depends on the adoption and successful execution of a bailout. In the unlikely event the current proposal isn't adopted, expect a hair-raising scenario of bank and business failures, layoffs and tight credit. If the bailout is passed and executed reasonably well, get ready for a garden-variety recession (or an extended version of the one many people say we're already in).

"Even with a well-structured bailout, we'll have a tough year ahead with rising unemployment and a slowdown in wage growth," figures Josh Bivens, an economist at the Economic Policy Institute in Washington.

The bottom line is that we have had a close shave with disaster, but disaster hasn't happened. If we can manage to muddle through the crisis with some common sense and some calm, there might be an upside.

After years of a wild, anything-goes free-market ride, new regulatory and financial models will emerge from the wreckage. Americans may use the crisis as an opportunity to set up a better financial system. Some tough love would be a good thing, Guillen believes.

"It is necessary to supervise and perhaps to regulate," he says. "Markets need some discipline."

Published Sept. 26, 2008

Report out of Germany suggests a run on American banks is underway. During the S and L meltdown 1,000 institutions went down.

"Under the mattress" is gaining strength!

"Gold is money" will be "momentum driven" until this "monkey" (financial chaos) is calmed!

RUF