The Big Picture.

What has transpired however, since yesterday morning, in avoiding the abyss can be compared to a vehicle's driver suddenly recognizing an imminent head on collision with a tractor trailer, and swerving the vehicle off the road and away from head on collision. What lies ahead of the careening vehicle running off the road is now what leaders are trying to determine. Is the vehicle now going to smash into an Oak tree, a lake, a group of celebrating innocent bystanders, or come to an uneventful stop in a level, dry cow pasture, harming no one and nothing?

The answer to the last question can be partially answered, now. What lies ahead of the careening vehicle is not a level, dry cow pasture. This careening vehicle has not left the pavement in a rural area of Kansas. It left the pavement in the heart of Manhattan, New York, and there is no distance to slow down before colliding with something else.

That's the big picture of what is happening for those who would be lost by a detailed explanation of the financial mechanics of what is happening. But, for those capable and willing to follow, the major details are worth grasping.

The Beginning.

Lisa Lerer explains in March of 2008 one of the crucial causal factors of the current near-miss meltdown:

The general co-chairman of John McCain's presidential campaign, former Sen. Phil Gramm (R-Texas), led the charge in 1999 to repeal a Depression-era banking regulation law that Democrat Barack Obama claimed on Thursday contributed significantly to today's economic turmoil.

"A regulatory structure set up for banks in the 1930s needed to change because the nature of business had changed," the Illinois senator running for president said in a New York economic speech. "But by the time [it] was repealed in 1999, the $300 million lobbying effort that drove deregulation was more about facilitating mergers than creating an efficient regulatory framework."

Gramm's role in the swift and dramatic recent restructuring of the nation's investment houses and practices didn't stop there.

A year after the Gramm-Leach-Bliley Act repealed the old regulations, Swiss Bank UBS gobbled up brokerage house Paine Weber. Two years later, Gramm settled in as a vice chairman of UBS's new investment banking arm.

Later, he became a major player in its government affairs operation. According to federal lobbying disclosure records, Gramm lobbied Congress, the Federal Reserve and the Treasury Department about banking and mortgage issues in 2005 and 2006.

Make no mistake, for Sen. Phil Gramm to be successful in this effort required a Congress and President with the ideological belief that government oversight and regulation were an impediment to wealth creation and long term economic health. Gramm found such favorable views in a Republican controlled Congress and Pres. George W. Bush.

By January of 2007 when Democrats took back control of the Congress, the damage to our future financial systems had already taken place, as the markets around the world had engaged in years of trading asset backed paper in an environment of real estate transactions in which buyers were not financially qualified to carry the mortgage burdens they signed for, and an environment in which property valuations had reached bubble proportions. All that was needed to bring the crisis to the fore was a major financial institution failing to demonstrate adequate financial resources to cover its falling values in mortgage backed paper assets.

By Fall of 2007, one year ago, it became clear to many that this trigger of a failing financial institution and the cascade effect it would have on other financial institutions was inevitable. The Democratic controlled Congress had been in power for only 6 or 7 months when this awareness began to spread throughout Wall Street and Government circles.

The Political Dilemma.

Once Congressional politicians, The Federal Reserve Board, and the Bush Administration acknowledged what was happening last Fall, they were caught in what at the time, appeared to be an untenable political situation. If they acted to avert the pending disaster through government intervention, they would bring to the public's attention the dire circumstances which their intervention would address, and an election campaign was already underway. I use the words, appeared to be, regarding an untenable situation, because had they intervened a year ago, the cost of intervention would have been vastly lower than the cost to be born by taxpayers today and in the future.

But, the following cannot be ignored. The political will and public support for a federal intervention last year that entailed putting taxpayers on the hook for up to 1/4 of a trillion dollars of new foreign loaned debt, would not have been tolerated by Pres. Bush, Congressional Republicans, many Democrats, Wall Street financial executives, nor the public. Hence, the inevitable, current politicians will rationalize, simply had to play itself out to the point that the crisis became palpable and real for Wall Street, the public, and the Politicians, all at the same time. Only then would a massive intervention by the federal government with an enormous bailout at tax payer expense, be viewed as a rescue from far worse calamities.

But, this rescue is a calamity, in and of itself. This rescue salvages global financial markets in the short run, but, creates an as yet undetermined, massive burden and disruption of economic balance in international debt and the relationship between American tax payers and the deficit, debt, and interest costs of this rescue going forward. And it marks a sea change in the American political landscape such that the old Republican ideology of government keeping its hands off the private sector, is now abandoned, even by Republicans in the Congress and White House, and Sen. John McCain as well.

Sen. McCain and Sen. Obama have both promised tax cuts and to reduce the deficit from this fiscal year's level of $430 billion dollars. That is now all fantasy. Tax cuts can not, and will not, happen. The next president of the United States is going to inherit a minimum of more than 1/2 trillion dollar deficit for fiscal year 2009. And as much as another $1 trillion dollars in deficits will be added to following year's budgets. The latter will be a result of tax payers owning mortgage debt on properties whose real market sale value will fall far short of what is owed on those mortgages.

From this point forward, any utterances by Sen.'s Obama or McCain on cutting deficits and lowering taxes will be bold face lies or an expression of incredible ignorance of what is happening and of basic economics and government finance. It has not yet sunk in for the American public that what is now transpiring as I write, in the halls of Congress and the White House will surge America's national debt from 9.64 Trillion dollars to 11 trillion dollars in the next 12 months.

The impact this will have on foreign nation's willingness to lend the U.S. government the money to afford its interest payments on that debt is very much an unanswered question. But there is no doubt whatsoever, that American tax payers will be borrowing from foreign governments and corporate lenders the money which the Government will hand right back to those foreign governments and lenders as interest on debt to them.

So everyone understands, this is exactly the same situation millions of Americans are now in; where their credit card debt is making them a higher risk borrower, causing their interest rates to rise, causing their monthly credit card payments to rise, causing these Americans to open new credit card accounts so they can continue to borrow to stay up on their payments with the other credit card lenders. It is a hole we are in, and the more we work to dig our self out, the deeper the hole becomes.

The Middle. Fundamentals Don't Change.

This rescue by the tax payers (Constitutional issues aside), does not change the economic fundamentals which Pres. Bush and Sen. McCain insist are still strong.

• America will continue to face increased competition for jobs from emerging nations capable of providing lower labor costs for production and manufacturing.
• America will continue to face shortages in professionally educated labor force areas like nursing, teachers, engineers, and scientists.
• America will continue to see wages rise slower than inflation, making middle class working Americans poorer year after year.
• Growing numbers of millions of Americans will face either reduced Social Security benefits or increased taxes, or both, to keep retirees out of poverty.
• Americans will continue to face a bankrupting health care system that turns 10's of millions of Americans into bankruptcy filers in coming decades, or see their taxes rise dramatically in order to insure Americans do not die or suffer for lack of health care access.
• And wealth created in America will increasingly be pressured to move overseas where social upheaval and demands upon that wealth by taxation become comparatively less than here in the U.S.
• And finally, the cost of improvements and maintenance of America's infrastructure, including new energy sources, transportation pathways, schools, and water resources in the West, have only one direction going forward, up.

In other words, the economic fundamentals of the world's largest debtor nation only get worse going forward. This is a direct result of American debt. In 1945 America carried an enormous debt burden, greater than today as a percentage of gross domestic product. But, in 1945, America had a tremendous untapped labor force to draw upon, and dramatically increased education levels of that labor force to look forward to, and half of the world's nations as potential export customers to grow American business, jobs, and middle class wealth upon. None of these 1945 potentials for managing and growing our way out of debt, exist in our future going forward.

In fact, it is China, Malaysia, United Arab Emirates, and India which are positioned as we were in 1945, with tremendous economic growth in its future with their rapid education levels of their population, great untapped labor force potential, and each other's growing middle classes to export goods and services to, creating rising wage jobs and wealth for their growing middle class. And America, already the largest debtor nation, has inescapably more and more debt and interest costs on that debt in its future closing door after door of opportunity in the years ahead for lack of the funds to invest in those potential opportunities.

Again, to bring this home in understanding, our national situation is the same as a wage earner with two kids graduating from high school. This family's net wages are $300 less than the bills each month for paying the rent, buying groceries, making the car payment, and paying the utility, doctor, and dentist bills. The children in this family have no choice but to watch the college opportunity doors close as the cost of borrowing to put the children in college would bankrupt the family entirely. With the college opportunity closed, the children will enter the labor market at wages that will continue to fail to keep pace with the rising costs of living, and their standard of living will erode over time as the years pass in the jobs they could acquire with a high school education, as they struggle to take on a family and all the costs associated with it.

The End. One ray of hope!

America faces tough times. How tough, and whether America defaults on its debt obligations as the Soviet Union had to, or Brazil nearly had to between 1998 and 2002, depends entirely on 2 things. First, whether we elect leaders who have, or will, abandon ideological theory and commit to pragmatic solutions going forward. And second, whether we the voters and tax payers are prepared to make some sacrifices from the wealthiest down through the middle class in order to rebuild our nation's and children's future opportunities.

Electing leaders with the mindset that brought us to the edge of this abyss like Phil Gramm and those he now advises, is clearly not the way to a future of hope. Our current lot of leaders, while taking nearly heroic, and horrific steps to save us from walking into the abyss, are the same leaders who brought us here in the first place.

It is clearly time for a change in America. But, that change must take place at the grass roots of our nation that elects a different kind of leadership. America needs a leadership that doesn't cling to preconceived ideas about how things should be according to some political party ideology. America needs leadership with the genuine ability to grasp the reality of what is. America needs a leadership with the commitment to chart a path forward that recognizes the necessity for us all to work together, sacrifice together, and contribute together toward paying our debts, living up to our difficult choices, and investing, all of us according to our means, in the future of both our children and our nation.

If the voters do not elect such a different kind of leadership, then the leadership we will get will fail us, our children, and our nation. We remain for the moment still, a great nation with less, but still great potential and opportunity. The door of opportunity is closing, however, and if voters do not throw a foot in the door to prevent it from closing entirely, that future of opportunity will close on all of us, except the very, very wealthy.

Writer:   David R. Remer on September 20, 2008 8:27 AM