In God We Trust: It's a Pity Money Can't Buy Renewed Trust in the Financial System

It is said that money can buy anything.

But given the current situation at hand, it would be more accurate to say that that holds true, if one would exclude money's buying power when it comes to purchasing renewed confidence in a weakened financial system.

To make it worse, it seems investing more money alone cannot induce more trust in the credit system.

Just as it is foolish to argue that the mind can be harnessed to solve a psychological illness given that the source of the problem is coming from the brain itself, I find it quite similar when it comes to literally pumping money being the main factor in solving a global financial meltdown.

It has been projected that the public debt of the United States will reach to new unchartered heights - pass beyond 10 trillion dollars - which is at least 72 % of the U.S. GDP (PPP 2007).

If the United States was a developing country, the IMF would already be breeding around our necks demanding structural adjustments which meant: reducing fiscal spending, striving for a balanced budget, increased privatization of government-owned and controlled equities, and liberalization of trade policies.

But it is not. The credit of the United states is the first guarantor of global financial transactions, using its supposed financial and political stability as its main assets; indeed, managers within the international banking system sleep well knowing that Uncle Sam would come to the rescue when the time comes, just as Don Quixote would rescue his Dulcinea; and last but not the least, sovereign states with growing economic potential invest in U.S. securities like salt water in the ocean.

So, how can the U.S. think that it is not invincible? Outside advice, past experience, dependence to external volatility, and common sense might have dissuade a typical country from pursuing the path of relatively extreme laissez-faire capitalism in terms of allowing the growth of fairly unchartered markets such as high-earning speculative hedge fund investments and the derivatives market, unsullied by federal regulation.

Now, one of the few promises we here from U.S. presidential candidates, democrat or republican, in terms of "fixing" the U.S. economy are regulation, regulation, and regulation. To them, the invisible hand is too slow to react and to reach equilibrium meant a turtle like return towards previous economic levels.

The American public is on a rampage because the U.S. Congress has bailed out public and private financial institutions, of which some corporate leaders may have contributed to the financial meltdown but none the less received hefty bonuses while the common folk still have to brace the impact of the financial calamity to trickle down upon themselves. The thought of a complete breakdown in the U.S. credit system, which tremendously affect how business is done in the U.S., have forced lawmakers to find a political solution to the economic problem, even in the midst of protests, for indeed the worst may come had such solution not been approved.

The question is, if such is the case, is there really an invisible hand and if there is, should one believed that it is self-repairing? Like the human immune system, are there limits to its capacity and if there is, what are they?

Well, whatever they are, many economists believe that time and more regulations are needed to solve this crisis in the financial system, in addition to the considerable amount of money already being infused. But the fact remains that the more regulation in the financial system, the more the existence of this invisible hand is less convincing.

In any case, the status quo in the global financial system is about to change. Full faith in the credit of the United States, although wavering but never the less steady, would remain the biggest insurer and holder of wealth for the forseeable future.

However, the ability of the United States to convince other countries to pursue unhindered liberal market reforms, through the IMF and other international financial institutions, would be seriously questioned especially by those from the East Asian Region.

The call for a creation of an Asian Monetary Fund as well as IMF's current advisory tendency during these troubled times, as opposed to a global institution with formidable lending capacity, in addition to the combined and coordinated monetary efforts by sovereign central banks to ease current interest rates, are signs of a paradigm shift in the balance of economic power which is moving towards a multi-polar world economic order.

Indeed, the time for state capitalism is nigh.