CNN iReport

There is an incredible disconnect between what Obama orates and what his cabinet does. The great call for living within means can't translate to an expansion of government that is way past of what Americans can afford. We can't keep on acting as if living on over-extended credit as a government, business, family, or an individual is no big deal. At the other hand, we can’t keep on trying to kick a dead horse to life. The financial casino of “securitization”, which in reality is nothing other than a grand Ponzi scheme, combined with loose credit is exactly what brought us into an economic crisis with no comparison back until the Great Depression.

In my article “Obama budget: cooking the books” at http://www.ireport.com/docs/DOC-220610 I argued that if the underlying assumptions of the budget were true, there was no crisis. Sure enough, the assumptions have already been revised, a little, adding trillions to a structural deficit. However, the budget is defended as if nothing happened. What’s worse is that there is no attempt, whatsoever to get rid of the deficit. The budget is now under attack by members of both parties, or rather in another irresponsible political display of drama that makes for good TV coverage. What worries me is what they target: The tax cuts to the middle class. This is one of the very few measures of hope that have a stimulating effect and help American families to reduce debt, although too little.

In his news conference this week, Obama stated that we’re broke as a nation if we continue on the current path and that we need to make tough choices. The budget is the worst in American history and it doesn’t only continue the current path but it puts the pedal down. I don’t even know what he means with “tough choices”, just as I never knew what he meant with “Change”. He also said that it is impossible to balance the budget if the growth rate can’t be boosted. So how exactly is he going to “boost” growth, maybe by reviving a dead financial Ponzi scheme? He most certainly can’t expect a growth boost from alternative energy investments that have only survived in other countries because they were heavily subsidized political pet projects that add to structural cost. Then he talks about a quarantine of systemic risk, which would be the proper avenue. But instead, he pumps trillions into the fraudulent financial schemes. Is he the only one left standing that doesn’t know that you don’t fix Ponzi schemes but you take them down and prosecute the profiteers?

The people need to start doing their homework. Seriously, instead of revolting for bonuses, they should get to the streets and convey one message to the government, loud and clear: sober up and start living within means. The lessons of history are telling us that Obama is preparing America’s soil for a next round of mob leaders in the style of the first half of the twentieth century, not deliberately, of course.

However, we need to be prepared that a change from living on excessive credit to living within means translates into an economic fallout of monumental proportions. This transition is what needs most leadership. It translates into facing reality and starting an “orderly” downsizing process rather than putting the cards into the hope of triggering yet another boom that might just not happen. The problem is that reality hits home whether we want it or not. The choice that we have is to manage it in order to protect as many American families as possible from falling into poverty.

When I hear Obama declare that his cabinet would make sure that the eternal boom and bust cycles would be prevented with an extension of power to the Treasury, I hear an incredible display of ignorance and I don’t understand why I don’t see every economist jumping at the folly. That very task was assigned to the Federal Reserve 100 years ago, and it has failed for just as long. That institution is as corrupt as it can be, by design and by actions, and anyone who believes in conspiracy theories, which I don’t, should start right there. So we call for more of the same, more government, more cost, more spending, more credit, more off our children’s bank accounts. Boom and bust cycles don't happen by design, they happen by accident because herds of greedy believers jump onto a rolling train to disaster in order to profit until the train falls off the cliff. History is full of booms and busts in a never ending cycle of myopia. In a most beautiful of its examples tulips at one time could be as valuable as a house.

The Geithner plan for the financial system is so irresponsible that I have already raised questions whether he is working for the American people. In the order of the systemic problem to be addressed, the Credit Default Swaps and mortgage related derivatives need to be packaged into a company in receivership without government involvement. Instead of his plan, the following regulations need to be implemented, amongst others:

1)       the amount of aggregate debt that individuals can amass from various sources, needs to be limited. In order to prevent future crisis, credit "inflation" needs to be checked.

2)       all risks belong into the books and underlying asset ratios need to be disclosed.

3)       asset ratios need to be limited.

4)       minimum asset backing standards need to be established for mortgage backed securities.

5)       no more trading on margin and short selling.

6)       a new law that holds those that cause financial damage accountable in criminal courts, if they have acted "irresponsible" (like A.I.G. did not know how to manage risks in Credit Default Swaps - that's their expertise) and have gained from their irresponsibility.

7)       a fixed rate regime (review "Shut down the Fed" at http://www.ireport.com/docs/DOC-94425).

8)       corporate tax heavens need to be outlawed in order to prevent the taxpayer to be scammed twice, first by not paying taxes at home and then by having the taxpayer foot the bill.

I am sure, none of this will happen and we will just be sedated into playing along with Washington, the motherlode of irresponsibililty.

Please comment. I will address questions, if I can.

H.R. Tschudi, economist and entrepreneur, Vancouver