Sun Setting on American Century - Part 4

Editor's Note: The following work is the fourth and final part in a series contributed by attorney, economist and author Perry L. Weed. Weed's article raises distinct observations about America's troubled economy.

Since the early 1990s, the growth of the financial services industries – securities, banking, insurance, mortgages, and related professional services – has been staggering. It is now a dominant economic sector accounting for nearly 20 percent of the U.S. economy. Its rise has been inseparably linked to record levels of excessive debt in the U.S., its ascendancy dependent on easy credit, leveraged borrowing and the ballooning of public and private debt. Washington has been an active enabling ally in this expansion with its deregulation and federal preemption policies. The debt of the financial sector is the largest in the economy, bigger than the debt each of the other three debt sectors – all governments, all households and all non-financial businesses.

By 2004, financial firms were earning nearly 40 percent of all U.S. business profits. By mid-2007, however, the sector had begun to suffer wrenching decline and huge profits had evaporated. But with the continuing flow of easy money globally and federal subsidies at home, these creative operators will undoubtedly return to dominance, instigating and leveraging new bubbles, be they energy, the environment, or the nation’s infrastructure.

The greatest failure is the unwillingness of Washington to put any meaningful constraints on the explosive growth of the financial services industries and their credit and debt excesses. In fact, the last three administrations and the Federal Reserve have seen their role as facilitators of the new financial services juggernaut – leaving the concentrated political power of the financial services industry largely unaccountable and unchallenged.

Such expanding national financial obsession occurs when mature, major economies enter early-stage debilitation. This stage is marked by excessive indebtedness, declining productive industries, widening disparities of income and wealth, and the tendency of the financial sector to pursue riskier assets and churn the money and assets of others in order to generate fees and profits. Financialization is stimulated by the new global markets where opportunities abound and capital crosses borders unrestrained. But, likewise, its volatility is ensured in that global investors move quickly and in herds, triggering convulsive dislocations.

Continued decline is not inevitable. Americans have historically been resilient, resourceful and willing to take on challenges. But it will require tough new leadership and hard choices. To date, our response as a nation has been fraught with general malaise, narrow entrenched interests, and intellectual inertia. Rather than serious public debate and corrective action, the country seems content with hollow claims of American superiority and patriotism, ideological free-market clichés and the news of the day as non-stop entertainment. Don’t worry – spend and be happy.

Will it take severe, unremitting economic pain and dislocation to restore the nation’s political will to act? It may. But it is within our capacity as a nation to change direction. However, unless we face these hard economic facts and grapple with solutions, we are left only with the grim scenarios of downward drift – our only choices, the best way to manage it. Are we capable of demanding a new direction – of our leaders and of ourselves?

To follow the whole article, select from the links below.

Sun Setting on American Century Part 1
Sun Setting on American Century Part 2
Sun Setting on American Century Part 3

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