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When the bill came due during the 1970s for the guns and butter policies of the 1960s (Vietnam War and Great Society programs), the result was a roller coaster ride in the economy, accompanied by a steady ratcheting up of inflation. Will the bailout similarly lead to a decade-long period of painful adjustment?

What’s perhaps a bit different this time around is that emerging nations are more industrialized and keen to continue growing. So they may absorb a great chunk of the U.S. government debt in order to keep their currency cheap and exports flowing. In that case, the consequence would be further  deindustrialization of the U.S. and even greater dependency on them for its standard of living.

Further to this news, the bank announced in a statement put out today, March 30, that it would not be participating in HM Treasury’s Asset Protection Scheme. “In making our judgement about the Asset Protection Scheme, we have looked carefully at the economics of participation, and we have talked to many investors,” said John Varley, Group Chief Executive, Barclays. “This has led us to today’s decision.”

The bank confirmed that the sale of its iShares exchange-traded-funds division was progressing.

We knew this was coming, but the context behind why the Canadian government is doling out its dollars, and the timing surrounding today’s announcement, is somewhat irksome.

First of all, the Conservatives were hoping to receive a restructuring plan from the companies tomorrow so they could show Canadians how their money will be used. Well, that’s not coming.

Then Industry Minister Tony Clement said in a press conference today that if the funds weren’t sent to Chrysler asap, the company would have filed for bankruptcy immediately and “whole plants or parts of plants could have been ripped up from Canadian soil and transferred to another country. And jobs would have been with them.”

Now, the funds that are going to the automakers are from a loan that they could have tapped into back in December. They’ve decided to do it now, so the government is just following through with their late 2008 commitment. Still, the fact that they haven’t submitted their restructuring plans, and they’re sending the government into a panic by threatening bankruptcy, makes me wonder — and this is part of the argument against helping the car companies — is saving them really worth it if they don’t seem to respect what the government is doing?

President Obama is at least taking a tougher stand. He announced today that the American government would consider loaning  Chrysler $6 billion if they came up with a “sound agreement that protects American taxpayers.” He is giving them enough money right now to complete their merger with Fiat (GM is getting enough cash to help them operate for 60 days), but it sounds like he’s willing to shut off the cash tap if they don’t come up with a comprehensive plan.

So, while Obama’s taking a more cautious apporach with the automakers, Canada’s government is shelling out cash at literally the same time the car companies are basically giving the country’s taxpayers the finger by not coming up with a restructuring plan.

No one wants to lose jobs, and if the auto plants close a lot of people will be out of work, but so far there are no measures in place to make sure the money the companies receive will actually be put to good use. There’s no direction from them, so we have no idea what they’ll do with the money, besides meet payroll.

The Canadian government needs to take a stronger stance here. They have to be willing to let the auto companies fail and risk putting thousands out of jobs, or they won’t see a plan, they won’t get their money back and we’ll have to rescue GM and Chrysler for months, or years, to come.

From a CQ Politics story:  “(Sen. Benjamin L. Cardin , D-Md. ) introduced a bill Tuesday that would permit newspapers to operate as nonprofits, or 501(c)3 corporations, much as public broadcasting now does.

“Under this arrangement, advertising and subscription revenue would be tax-exempt, and contributions to support coverage or operations could be tax-deductible.”

It’s been reported that the government could loosen regulations — Canwest wants a carriage fee charged to cable operators, which could net them $150 million a year — or develop a less restricted tax regime in order to help the flailing media company.

If Ottawa wants to save the company they need to act fast; the media conglomerate has to pay its bank millions of dollars on April 7.

The rescue of Canwest is interesting for so many reasons. For one, traditional media — TV, radio, newspaper — is in a state of flux right now. Major changes are on the way thanks to the internet, so it’s likely more and more media giants will be facing financial troubles in the coming years. (Assuming they don’t figure out how to make boatloads of money in whatever new model takes shape.)

So, will the government be forced to rescue every cash strapped media company? (They have said they want to help out private broadcasters in general, but Canwest is the immediate priority.)

And, even if they have the money to give out, should they? It appears the Conservatives’ main motivation for helping private broadcasters is the threat that local, small-market news will be cut. The Asper’s already put five smaller stations up for sale, and two days ago CTV announced that they wouldn’t run local news spots during Canada AM anymore. If more local news is shuttered, constituents will get angry and votes will be at risk.

There’s no doubt that the conventional, or over-the-air, TV model is in trouble, but is it the government’s place to prop up a company that’s made some very questionable business decisions over the last few years? (The New Republic anyone?)

It’s the same argument against rescuing GM — should a company be saved from itself? It would be terrible if the company went bankrupt, or if they sold off or folded assets such as the National Post, but where does the government draw the line?

Bank executives “really don’t live on the same planet as the rest of us,” said one person in the comments section to an online article. Another said: “If the banking meltdown had happened in China, people would have been shot. In Japan, they would have resigned in disgrace. But here the bankers whine about no bonuses and redecorate. It’s a disgrace.”

One has to also look, I believe, at the environment that allows banking and other executives to behave like Marie Antoinettes. Specifically, it should be asked: where are all the institutional shareholders — pension funds, endowment funds, mutual funds, and all the others who are investing billions in these companies? Shouldn’t they be doing a better job looking after the interests of the people whose pensions and savings they have invested? Where is their fiduciary duty? Why aren’t they more active in the boardrooms, watching over how invested monies are being used? Why not, for example, get out and campaign for bonuses to be clawed back (to bring up one of my pet peeves) — or at least just to have them stopped?
 

Maybe they’re not the greatest economic thinkers of their time, but at least the U.S. representatives who voted down the bill know that all politics is local, as Tip O’Neill famously said.

The same guys who pushed through a farm bill that continues to subsidize wealthy farmers—despite rising food costs and despite a veto (twice) from the President this spring—are now clearly more interested in saving their political hides than in ending the economic bloodbath on Wall Street, Main Street and a whole bunch of other streets in the States and around the world.

Say what you will, but you can’t charge them with inconsistency.

No wonder both Obama and McCain were soft-peddling the bailout package in the recent presidential debate—neither of them wanted to get too enthusiastic about what they must have known was a stinker.

It could be a warning not to expect a sustained rally in stocks if and when policymakers stabilize the financial crisis. There may be no need to rush back into equities, just yet.

The silver lining might be that a weaker world economy could considerably reduce the odds of the tumble in the U.S. dollar, upward spike in interest rates, and/or galloping inflation that many fear will be the consequence of the U.S. government taking on an estimated $1 trillion (U.S.) in debt to rescue the U.S. financial sector.

As the Chinese economy ratchets down, the authorities will likely want to keep the yuan from rising even more so than before — so they should remain willing buyers of U.S. dollars and treasuries. They won’t want to flee U.S. assets when it will cause the U.S. dollar to fall against the yuan and undermine their export-led, industrial development strategy. A preliminary signal of their willingness to continue supporting the U.S. dollar was the recent decision to cut interest rates.

Commodity-based economies like Canada and Australia will see weakness in their currencies against the U.S. dollar as the commodity boom fades further. And Europe’s regional differences are likely to be exacerbated, raising political conflicts that could undermine the euro – on top of the region’s more restrictive monetary policy that seems destined to produce a greater and/or longer lasting economic slump in the region.

And don’t forget, the U.S. dollar’s status is not just about economics. For many countries, political considerations are paramount. Countries like Japan, South Korea, Taiwan and Saudi Arabia would not want to dump the U.S dollar and assets because of their security relationships with the U.S.

During recessions, lower risk appetite and flight to safety favors government bonds. Although the supply of treasuries will be rising in the U.S., so will portfolio demand – especially considering how underweight many investors are. A Merrill Lynch study noted households currently have less than 0.7% of their financial assets in government bonds, about $1 trillion (U.S.) less than the peak of 4% in 1993. Public pension bond holdings are close to two-decade lows. Bond yields are low right now, even negative after adjusting for inflation, but as the economy winds down, inflation should be subsiding.

Admittedly, the debt obligations arising from the financial crisis — along with ongoing debt requirements for other government programs — are substantial and there should be upward pressures on interest rates. However, like in the 1980s, higher rates should be bullish for the U.S. dollar as foreign capital flows in, attracted by the higher yields. And slack in the U.S. economy may also allow the Federal Reserve to buy some of the debt without inflationary consequences, which offers some assurance the rise in bond rates should not be extensive.

History is an imperfect guide, but when the Resolution Trust Corporation began to buy bad assets during the savings and loan crisis in 1989, U.S. economic growth, house prices and equity markets did not bottom out for another 12 to 18 months. The dollar, however, traded sideways during the period