The great comic strip philosopher Walt Kelly and his famous creation Pogo knew long ago the danger. We have met the enemy Pogo told us. And it is us.

First, some of the more obvious bad economic news is relevant. Last week's Financial Times reminded its readers that Europe was still in serious economic decline with little hope of short-term recovery. Given the intimate and shared economic relationships that extend far beyond the notion of globalization, American economic recovery cannot and will not occur in isolation.

Second, batten down the hatches as the trillions of additional dollars poured into the marketplace will have at least three very predictable consequences regarding interest rates, inflation and redistribution of wealth.

Third, unexpected events, whether in the collapse of yet another speculative bubble such as commercial real estate or the even greater compression of the auto industry that once accounted for about one-fifth of domestic purchases, are in the offing.

How much money has been poured into the economy is difficult to determine in relatively exact amounts. The Trouble Asset Relief Program and the stimulus package roughly total $1.5 trillion, although both accounts have not been fully spent yet. The commitment of the Federal Reserve and the Federal Deposit Insurance Corp., whether through expansion of the money supply or committed obligations, measures in the trillions. And of course the long-term budget deficits matched by a total national debt that soon will exceed 100 percent of GDP have powerful and negative economic effects on growth and prosperity.

We are dealing here with the laws of physics, not economics. Interest rates, absurdly close to zero, must and will climb. As the government seeks more foreign debt to cover deficits, upward pressure on interest rates is inevitable. And as inflation returns as it must -- only the issue of when is impossible to predict -- interest rates will also rise as an antidote.

The effects will be economically chilling. Consider home ownership. With mortgage rates under 5 percent, refinancing has been booming. But what happens when interest rates reach 8, 9, 10 percent or higher? The housing market will hit a brick wall. Given that the subprime mortgage market was the fuse for the current meltdown, will we see a repeat driven by the hike in interest rates?

But the really chilling political consequences of the current economic mess could prove to be the most significant. Conservatives have criticized and right wingers attacked President Obama's stimulus and tax packages as aimed at redistributing wealth downward to the lower income groups of American society. The criticism is correct in that there will be a profound redistribution of wealth in this country. However, the critics have it going in the wrong direction. It will not be the rich who get poorer. Many of the nation's wealthiest are headed for a taxpayer-backed bonanza.

As banks and other institutions begin to offload troubled assets, a significant number will be bought at pennies on the dollar. Those assets will be turned around over time, and the owners will make multiple times the initial investment, especially if the borrowed money was financed at today's rates. And it will not be the middle or lower classes who will so benefit. The nation's wealthiest, manifested in how the big boys such as J.P. Morgan, Goldman Sachs and many others exploit this opportunity, have everything to gain. And gain they will, along with risk-taking entrepreneurs who also see the chance to make huge amounts of money in buying up these assets.

Three years ago few people saw the crash coming. Some of us began writing then about the need for oversight, transparency and, yes, even regulation of hedge funds and the excesses of leverage in credit default swaps, derivatives that had been largely banned 100 years ago and brought back to life in the last days of the Clinton administration.

King Canute could not turn back the ocean. And we may not be able to prevent further economic decline that is almost certain to come. However, the nation's leadership should have the vision and common sense to see how clever businessmen will exploit the troubled asset program at taxpayer expense and at least begin the discussion on how to deal with it. Otherwise, Pogo will again be proven right. We are the enemy.

(Harlan Ullman is a senior adviser at the Atlantic Council. His last book was "America's Promise Restored: Preventing Culture, Crusade and Partisanship from Wrecking Our Nation.")

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

Share This Article With Planet Earth

del.icio.us	Digg	Reddit
YahooMyWeb	Google	Facebook

Related Links
The Economy

Memory Foam Mattress Review

SPACE MEDIA NETWORK PROMOTIONS Solar Energy Solutions Tempur-Pedic Mattress Comparison ... Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News