Richard Whalen

This is what panic looks like: a frightened President waving a phony, temporary “economic stimulus” package to try to stop the global bear rampage in plunging stock markets around the world. Then at 6 PM Monday, January 21, the Fed decided it could not wait another nine days for their scheduled meeting – January 30 – and slashed its key lending rate by 75 basis points to 3.4 percent.

This global stock market panic -- the worst single day for equity markets and the first unscheduled Fed Rate cut since the terrorist attacks of September 11, 2001 -- is an overdue wake-up call. This is not a surprise, I have been warning for many months about such fallout from the U.S. housing slump and the crisis in the credit markets. Actually, it is a tribute to the resiliency of our economic system that this avalanche did not happen sooner.

It is only partly triggered by the U.S. recession – that, remarkably, still has not yet been declared “official”. More deeply, it is a reaction against multiple, compounded failures of our present administration.

In fiscal politics, President Bush and the spend-happy Congress alike have behaved like berserk teens using grown-ups’ credit cards. The U.S.’s long string of budget deficits is reflected in the weak and falling dollar. Is the Fed’s radical rate cut too little, too late? The Fed exists to rescue banks not consumers. The Fed can temporarily manipulate (reduce) short-term interest rates but the Federal Reserve alone cannot correct the fundamental imbalances in our economy and markets. Only Congress can curb and reverse reckless “earmarked’ pork-barrel spending that creates huge deficits and forces the U.S. to borrow heavily overseas and inflate and cheapen the dollar to lighten the resulting debt burden. The Fed has dramatically lowered the cost of money for the banks, making their profits virtually automatic. But badly-run banks, including some big names, still must unwind their high-risk speculative investments in coming months.

We need another Teddy Roosevelt now. Roosevelt, the champion of stand-up, vigorous capitalism and free enterprise, helped reform late 19th and early 20th century American capitalism of greed, corruption and blatant self-dealing at public expense. He restored, revitalized and modernized market capitalism.

The stark truth is that America’s failing global leadership is on the line. In 2006 and 2007, China, Russia and India together accounted for almost half the world’s total growth, while the U.S. shrank to roughly one-quarter.

The entire year of 2008, climaxed by the November elections, is going to be a stomach-churning test of America’s maturity and political will to restore our credibility and leadership, at home and abroad.