Oh yes, if you take into account that approximately forty percent of global cash reserves fall in the hands of China and Japan, and the fact that China is one of the largest lenders to the United States by investing in Freddie Mac and Fannie Mae bonds, then the story becomes a lot more clear. Americans spend too much and Asians spend to little, so the flow of money goes from east to west.

And don’t get me wrong here, but that flow comes with a price. As with any loan of money. Debt never comes cheap, as they say and this one doesn’t either as it drives the national debt higher and value of the US dollar lower into the ground.

Unfortunately, even the investment into America has had a drastic effect. With the latest downturn with toxic sub-prime mortgages, Asian markets are grounded in investments that were made through these bad loans. Which is also the reason why global markets have been falling when US markets fall.

Culturally, and interesting enough, Asians have a tendency to save, save, save…. while Americans actually created the consumer culture. Overall, the US economy can make a turn for the better by spending less and increasing more exports than imports. At the same time, it also wouldn’t be bad to get Asians to buy into more American goods. Believe me. They love “stuff” just as much as the next person. But somehow or another, I doubt that most people in China own credit cards and probably cash buy most things. Meanwhile, here in the West, we’re taught by television and other mediums, to buy now and pay later.

One day, the tables will turn. But until then, we need to quit borrowing so much money from Asia. And that needs to start at the bottom of the totem pole.

Photo Credit: (webchicken)

And the NPR story spoke about Japan’s economic crisis approximately twenty years ago and how the government there had hunkered down and invested in what the people were looking to get into, which was savings mode. And within years of just paying attention and putting it away, the Japanese now have a lot more to work with than before. It was a totally worthwhile listen. On top of that, you can see that with the recent declaration of bankruption by Lehman Brothers (LBC: 0.00 N/A), the liquidation of their assets allowed Nomura Holdings (NMR: 8.30 0.00%) to snap up the Asian arm of Lehman for cheap. Which seems definitely like a return of the 90s again doesn’t it. Remember when the Japanese were buying up buildings everywhere in Manhattan? It seems that they’re cash rich again.

And this time around? I don’t believe that they’re going to make the same mistake twice. Should give those politicians in Congress something to think about when someone’s already paved the way of bad economic plays. Learn from other countries’ mistakes and don’t reinvent the wheel. Because in the end, you just end up with irate taxpayers and corporations that never learn that you have to pay for bad mistakes regardless of whom you know.

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Obviously from a personal perspective, I find it an atrocity. The bailout is basically shifting the consequences onto the American taxpayers, while allowing the banks that committed the bad decision making to exist and continue to make bad decisions. On top of that, there are clauses in the current bill that are along the same lines as the Patriot Act as far as allowing the Treasury Secretary to not need oversight. Thanks, but no thanks.

Of course, it didn’t help that CNBC World last night was showing what was going on with Australian banks either. Apparently they’re also looking to offload the “toxic sub-prime mortgages” into the $700 billion bailout. I didn’t know that American taxpayers were going to be paying for world-wide relief either? If the Aussies are looking to do that, then what other countries are looking to offload their debt into the American middle class? And why exactly should we put up with this?

Here’s the deal. Every single country that has encountered economic fiasco has made it through, without a hurried and “cowboy” attitude about how to fix things. Sweden has done it, as has Japan. It’s a long road ahead, but it can be done. But throwing $700 billion USD at the problem in hopes to make it go away is just ludicrous. This is no different than when the Federal Reserve cut rates multiple times in hopes of jump starting Wall Street. After the first few times, it really should start sinking in that it’s not working and maybe we should just ride it out.

If worst comes to worst though? The American taxpayers will get stuck with a huge bill that will take decades to pay off while the rest of the world just gawks in amazement at why we dig ourselves deeper into a hole.

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Yes, you heard it. Treasury Secretary Hank Paulson is rushing out a plan to insure money market funds.

“Huh? Wait a second,” you say. “You can’t…. ”

That’s right. Why the government is bailing out mutual funds is beyond all logic. Here’s why. Money market funds are where you place your money in a bank if you allow the bank to use it in investment in market play. They usually provide these funds with a better percentage return than your comparable savings account but the big risk that you take is that it’s not FDIC insured. This is due to the fact that FDIC has certain rules and regulations on what the money can be used for in savings accounts and how much the bank has to hold onto whereas non-insured money can go “kaput”.

So why are they insuring it the next year? Because of all this Armageddon talk and how it’s the Great Depression again. A lot of negative buzz words if you ask me. I’m not an economics professor or expert by any means, but comparing now with 1929 is extremely coarse logic at best in my opinion. These days, financials are very much dependent on the global economy and the borrowing and lending on the global scale. If anything, globalism prevents these types of catastrophes from happening unless the entire global economy falls prey to itself. That’s actually a possibility also, but with as many variables in play as it is, it would be one of those statistical anomalies. Also in play is the general evolutionary timeline for any corporate environment. Corporations live and die by how they adapt to the current environment. My favorite example is DEC. Anyone remember it from the 1990s? They were one of the biggest technology firms around. Yet, not one mention of them these days due to non-adaptive management.

So why should we bail out the same investors? In every money market fund I’ve ever invested in, it’s in black and white that it’s not insured. You take the same risk just as you do with stocks, except you’re hoping that the bank portfolio managers know how to invest better than yourself. That’s the difference, just as it is with mutual funds. You never get a better percentage in investments for nothing. There’s always collateral. Always something. What are those famous words your daddy told you when you were little? Oh yes. “There’s no free lunch.”

So why is it that there’s a “free lunch” going around here? So why are these financial institutions and investment firms getting “get out of jail free” cards for making bad decisions is all but a political move to save people from themselves instead of actually forcing people to learn from their mistakes? Think of the parent that keeps interfering with the learning of a child because it’s not “safe”. Will the child ever learn to quit making errors? Of course not. Why would you when you have a safety net?

And all the while, those that understand just a little bit about how money works gawk at the fact that again they’ll be forced to pay for other people’s mistakes through taxation. It’s no wonder that other countries hesitate at loaning money back which drives us further into a hole. We dug ourselves in. It’s time that we quit digging ourselves deeper.

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There are a lot of things that are contributing to this, but speaking that we’ll be out in a year or two as the fed has said, is severely optimistic. With the ARM fiasco that has taken its hit on the financial markets, that just helped make the numbers more apparent. In fact, there are still indicators that this is here to stay for a while.

The war in Iraq and Afghanistan has been eating away at our national funds. Being that it’s not directly effecting our pocketbooks as a place we can actually feel and touch, many consumers don’t really think of it as a direct correlation. But that’s not all. The food shortages world-wide due to increased transportation cost, which in-turn is being driven by oil prices? With barrels reaching $120USD a barrel as of writing, it’s a wonder there aren’t more theories that oil corporations aren’t puppeteering this entire economic downturn while they just keep raking in the green.

Even Warren Buffett believes that we’re in it for the long haul. And the charts don’t lie. Two quarters with a falling GDP indicates that it might be time for everyone to bunker down. We’ve all gotten through this before, but I wouldn’t doubt that it would last at least twice the time that the feds think it’ll take.

It’s really as simple as common sense. Look at it from this example. If you are currently paying $600USD a month for rent, then equates to $7200USD annually. In three years, you basically have sunk $21,600USD into someone else’s property. If you calculate out putting a down payment of 20% on a house, then this means that you could afford a $108,000USD home.

Worst case scenario, your home decreases in value. Yet, you are still putting that money towards something so you actually own a percentage of your home instead of the green disappearing into oblivion.

It might sound obvious, but buying will always be more worthwhile based purely on the fact that ownership of something is greater than ownership of nothing.

However, there are others that believe that the homeowners (whom are the victims in the whole subprime meltdown) are the ones that should be bailed out. On some level, I agree. There was no reason for mortgage brokers to push ARMs (adjustable rate mortgages) onto those homeowners.

But on another level, I can’t in good conscious actually think that homeowners should be bailed out. Let’s face it. This is no different than if you racked up a large credit card bill and then wanted out because you didn’t know that the percentage was so high that you couldn’t pay. Several questions come to mind when this happens:

• Did you have to buy such a large house?
  
• Did you not understand what adjustable rate meant?
  
• Why didn’t you do the homework on how mortgages worked?
  
• What makes you think you can refinance, when in essence, you’re asking for more credit when you already have a load of debt?

There really isn’t any good reason to even go with an ARM at all unless you’re looking to pay it off, and pay it off quick. And that’s assuming you found a mortgage that had no penalties attached to it.

I hate to say it, but I personally just don’t believe that we should bailout homeowners whom didn’t shop around and/or ask their realtors if they themselves had fixed mortgages or not. In my experience, the most common mortgage seems to be the fixed thirty year. There’s a good reason why it’s the most common.

Yes, homeowners were the victims of predatory mortgage brokers. But we’re also all adults. It’s time people started acting like it.

But I’m here to tell you that plain ole’ logic dictates that banks, especially the larger ones such as Bank of America (BAC: 13.98 0.00%) and others will weather this storm just as they will others in the future. Why? Let’s just take a look at what happened right after the financial tornado touched down. Countrywide Financial Corporation (CFC: 0.00 N/A) sells itself off to Bank of America for $4 billion in an all-stock buyout.

Now what bank would be able to buy another company for $4 billion in stocks without even flinching after getting its wind knocked out? It would be a bank. Why? Because as long as society exists, there will be people out there that need to secure their finances and more often than not there will be people that need to borrow money. In that sense, there will always be someone there to lend them the money at an inflated percentage. Unless the apocalypse comes and the four horsemen are riding, I sincerely believe that financial institutions will exist and prosper. Thus, while many of their stocks might be lower than what you’re used to, they will rise again.