The US Bailout — Nothing But a Farce

2008/10/5 17:01:24

China takes a seven-day holiday, while the US House and Senate toss things back and forth, making onlookers gasp and fret, finally passing a quench-your-thirst-with-poison bailout plan. But global financial markets didn't exactly show gratitude — most plunged that very day. Regardless of how effective this bailout turns out to be, the question that must be asked now is: did this $850 billion bailout fund drop from the sky?

The essential point that must be made clear about this global economic adjustment is that the ultimate task should be the complete dismantlement of the US dollar system that has dominated the world economy for decades. The American economy reached this point entirely through its own doing. In previous economic crises, the existence of the dollar system allowed the US to shift its crises onto the rest of the world, maintaining an abnormally excessive pattern of high consumption and high resource depletion. This model has exceeded the carrying capacity of the planet and the global economic system. The paradigm of America consuming while the world foots the bill has reached its breaking point. This time, the US is replaying its old tricks, merely attempting to perpetuate the existing model. Unless America's existing model and the US-dominated global economic framework of the past several decades are fundamentally changed, this global economic crisis will drag on endlessly, never reaching resolution.

Now the $850 billion bailout plan has passed, but this $850 billion absolutely did not fall from the sky. It ultimately derives from the continued inflation of the US dollar bubble. The root cause of this global economic crisis is that the US dollar has become thoroughly bubble-ized. The greatest risk and crisis is the dollar itself. This $850 billion not only amplifies the dollar's bubblification, but will also trigger a full-blown crisis for dollar-denominated assets and foreign exchange reserves held by other countries, including China. Furthermore, it will cause liquidity in global financial markets to surge through the multiplier effect, driving oil, food, gold, and other commodity prices toward further frenzied increases, ultimately accelerating the bursting of the dollar bubble, which in turn will trigger the bursting of the commodity bubble, pushing the world economy to the dangerous brink of rapid retreat.

Facing this crisis, China should adopt the correct stance of not following the herd and absolutely not tying itself to America's chariot. Moreover, the current bailout approach is extremely misguided. The government should not directly use funds to enter the market itself, but rather should actively cultivate and lead new economic hotspots so that liquid capital has more areas to participate in, thereby attracting the massive influx of foreign capital eager to depart the dollar system. As long as there is proper management of sufficiently long investment cycles and a favorable investment environment is provided, this capital can be settled into the tide of China's high-speed development — a prospect far more promising than America's. Only then can a big reservoir — a new, RMB-based, major global locomotive — be established. America's crisis should become an opportunity to accelerate our own development.

What particularly needs attention now is that the government's intervention in the stock market is already a fait accompli, so the exit timing must be managed well to avoid repeating the fiasco of the "777" rescue operation of the 1990s.

As long as we can stay self-centered, only watching America's farce without participating in it, focusing solely on defending against the damage that America's farcical economic crisis inflicts on the Chinese economy, we will have sufficient reason and confidence to preserve our strength during this global storm, adjusting our economic development model and structure. After the storm passes, we can swiftly assume a new posture and rapidly enter a new cycle of economic growth.