Power And Dollar

Financial Crisis Now Carries A Political Premium

The financial crisis in America has over rode the presidential election to carry the most political risk in the global economy.  While the American presidential election is a cyclical event and its political risks are more within control than many other political events, such as change of leadership in China.  However, the risks associated to the financial crisis have not only spoiled into arena of political risk, but its impact is immeasurable yet.  This is because its impact is now beyond the financial impact.  


The first impact is the presidential election.  This financial crisis is now driving the voter emotion, which is of course in favor of Obama.  The scarcity of information coming out from the candidates implies the candidates are literally clueless – They do not even attempt to own the issue.  This scarcity of information by itself carries a risk premium to any organization that has a budget to be executed in, revenue or input driven from America.  


The second impact is American financial industry is now so dependent on the government that its operational independence is questionable.  How far are they from being a “for profit organization”?  Why would a company’s compensation be political for it not because its owner is now a government?  AIG is the perfect example.  How much time will it take for these organizations to get political appointments?  These are unlikely events within a foreseeable future.  However, they are at least academic questions at the table rather than unimaginable.


The third impact takes even a longer horizon.  Who is financing the bailout?  Do you think this $700B is coming out from cash?  This money is financed.  Who is lending the money?  Japan, China, Taiwan, Middle East oil producing countries are all big lenders to America.  All exporting countries will take a beating, however not because of their control weaknesses in their financial industry but because the demand in America is weakened.  A smaller pie in America will make the rest of world economy larger in proportion to the States.  Countries like China have a big domestic economy that can sustain a good hit.  Bush asked “Is UN relevant?”  A post 2008 financial crisis world may start to wonder “Is US relevant?”  How much influence from America will be reduced not only by the reduction in moral authority of Bush Administration but also by the scale of US economy in relation to the rest of the world.


A corollary of this impact is the influence of global institutions.  A lot of the existing global institutions are founded on the premise of asserting American influence.  A good example is G7.  Who were the G7 countries?  The non communist Security Council holders of WW2 and the losers of WW2 plus the most American loyal country Canada.  This set was to assure that the strongest industrialized nations can be voted to affirm America’s wishes.  World Bank continues to take the most money from the States, not that no other country is willing to offer more.  And money drives the votes in World Bank.  Head of UNICEF is appointed by America to an American citizen because of budget contribution.  All these institutions will see an erosion of America influence.  




October 10, 2008 - Posted by | banking, Barack Obama, Current Events, Democrats, economics, election, Election 2008, John McCain, politics, Republican, wordpress-political-blogs

1 Comment »

  1. Can you tell me who did your layout? I’ve been looking for one kind of like yours. Thank you.

    Comment by Stacey Derbinshire | October 10, 2008 | Reply

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