Why The U.S. Economy Will Decline

Writes Robert Higgs:

It is clear that the government’s frantic actions of the past several months have created a situation in which investors have little confidence about the character of future property rights in the United States. The takeovers of Fannie, Freddie, and AIG, the massive interventions into finanancial markets, the huge bailouts of banks and other financial institutions, mixed with letting Lehman Brothers go down and resisting a bailout for the Big Three auto manufacturers (so far, at least) — all these actions, and others, imply that a rational investor would do well to attach a huge risk premium to any money he puts into investments even for the intermediate term, not to mention the long term.

One of the clearest expressions of this outlook that I have seen so far was made recently by Lou Jiwei, the chairman and chief executive of the China Investment Corporation, who expressed a lack of confidence in Western financial institutions and said that his giant fund would make no new investments in them in the foreseeable future. As the New York Times reported:
“Right now we do not have the courage to invest in financial institutions because we do not know what problems they may have,” Mr. Lou said as part of a panel discussion on the second and final day of the Clinton Global Initiative conference [in Hong Kong].... Mr. Lou said that the sheer pace of new initiatives and new rules issued by Western regulatory agencies was disconcerting and made it even harder for him to choose worthwhile investments. “If it is changing every week, how can you expect me to have confidence?” he asked.