Tennessee Williams Was Smarter than US

The United States is now dependent on the rest of the world to finance its government deficits. As the sovereign version of Tennessee Williams’ Blanche du Bois in Streetcar Named Desire, we are truly “dependent on the kindness of strangers.” The government has no way to finance itself other than to borrow from strangers (or to print money and risk hyperinflation).

Unlike Blanche, who never harmed her benefactors, the US financial industry played our now-needed creditors as marks in their gigantic Ponzi scheme. All of this occurred with the implied if not explicit seal of approval of the US government. As a result, much of the world was victimized in the same manner as US investors and taxpayers. As a result, their economies are in the same financial and economic hole as the US. As expressed in Insecure Securities:

For years, hundreds of billions of new mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) generated from them were sold to the world to compensate for the lack of savings in the United States and to finance American housing investment. Now virtually the entire market for new issues of such securities – all but 3% of the original market volume – has vanished.

While the polite and quaint customs of international diplomacy has muted the criticism deserved by the US, it is clear there is a great deal of animosity. Slowly and deservedly some of this is starting to surface. China, India, Russia and other countries have admonished the US for its profligate ways.

The US, in spite of warnings and growing complaints, has increased its deficit spending and effectively nationalized the mortgage and other parts of its lending industry:

To compensate for the disappearance of that market, and for the simultaneous disappearance of non-securitized bank lending to American homeowners, 95% of US mortgages today are channeled through the state institutions Fannie Mae, Freddie Mac, and Ginnie Mae. Just as there was a time when collateralized securities were safe, there was also a time when economies with so much state intervention were called socialist.

US dependence on the kindness of strangers has only increased at a time when the strangers are overtly criticizing our policies and adjusting their actions as well:

Two years ago, Ben Bernanke, chairman of the US Federal Reserve, argued that foreigners were buying US securities because they trusted America’s financial supervisory system and wanted to participate in the dynamism of its economy. Now we know that this was propaganda intended to keep the foreign money flowing, so that US households could continue to finance their lifestyles. The propaganda was successful. Even in 2008, the US was able to attract net capital inflows of $808 billion. Preliminary statistics suggest that this figure has now fallen by half.

At this point, the US has greater needs than ever before. Benefactors have been scammed. Their advice and warnings have been consistently ignored.

Foreigners have cut their funding support in half. Even if the strangers continue to tolerate our behavior at their current reduced levels of support, we cannot fund government deficits. Nor can we obtain the capital necessary for the private sector to expand.

Had Tennessee Williams developed his Blanche du Bois in the fashion of the US, there would have been no play. The character would not have been credible. My bet is that the sovereign version of Blanche is no longer credible and will be booted out into the cold before long.

All quotes were from Insecure Securities.

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