The Cost Of The Upcoming Second Bailout: Democracy Itself

Or so claims none other than bailout abuser extraordinaire, the International Monetary Fund. As the TimesOnline reports: "Dominique Strauss-Kahn told the CBI annual conference of business leaders that another huge call on public finances by the financial services sector would not be tolerated by the “man in the street” and could even threaten democracy." Yet the man on the street is oddly mesmerized by recurring appearance of solemn-looking political leaders on their daily TV jaunt, so perhaps Mr. Strauss-Khan is unfortunately overestimating the ordinary citizen's attention span or interest in anything more than being able to procure the latest 50 inch plasma TV at sub $500. Or the fact that instead of a formal "Second" bailout (which will still undoubtedly occur "when needed" courtesy of trillions and trillions of new pieces of still unprinted paper, the Obama's latest plan is to have rolling bailouts/stimuli/Cash for Cxxx/dollar plunge enforcement sorties from now until Wall Street bonuses are paid for the 2009 and potentially 2010 calendar year. After all, someone from 85 Broad has to confirm daily that the economic policies are certainly working, contrary to what every Tom, Dick and Harry is seeing after a 5 minute walk on any given street.

More observations from the IMF head:

"Most advanced economies will not accept any more [bailouts]...The political reaction will be very strong, putting some democracies at risk," he told delegates.

"I do believe that the financial sector needs to contribute both to the costs of the financial crisis and to reduce recourse to public funds in the future," he said.

Mr Strauss-Kahn said that imposing high capital ratio requirements on banks was one price the financial services sector must pay to prevent the threat of further multi-billion dollar bailouts.

He pointed to the debate in the US over the Troubled Asset Relief Programme and said that in many countries, including France and Germany, he doubted that politicians would secure the mandate needed to secure any further bail-outs if banks got in to trouble again, in several years' time.

Europe is in dispute over the spiralling cost of the global economic bailout, with Germany and France calling for a reduction in state support as their economies have shown signs of an upturn.

Little does anyone care that the only reason these economies are "upticking" is courtesy of a sympathetic movement in stock markets that mimic what the flailing dollar is doing to US stocks. That, and roughly 5% of world GDP being redirected to promote various one-time stimuli.

In tried and true chatterbox fashion Dominique warns about the dangers of an incipient bubble even as he advocates "exiting later rather than earlier." Mega bubble 2.0 - here we come.

Mr Strauss-Kahn said that while the global economy had made "remarkable" progress in exiting recession, and was on the cusp of recovery, it remained "highly vulnerable" to shocks.

He said state support for the world's battered economies must remain in place if a smooth recovery is to be achieved.

"We recommend erring on the side of caution as exiting too early is costlier than exiting too late."

Mr Strauss-Kahn is one of a series of high-profile speakers at the CBI conference, in Central London. Gordon Brown, David Cameron and Nick Clegg will all speak at the event as they seek to sway influential business leaders before a general election next year.

In his speech, Mr Strauss-Kahn also warned that the huge amounts of capital being pumped into China could fuel a pan-Asian bubble.

And US consumers - relax, you don't have to do what CNBC is telling you and max out all your credit cards (just to make JPM a nickel and dime here and there): you have now been demoted to a second grade economic factor:

Mr Strauss-Khan said that the old paradigm of growth generation based on households in the US was dead. The future sources of growth and the recovery will "depend on a new balance between the US and deficit countries on one hand and emerging markets and surplus countries on the other".

Good luck with that if China indeed, as Albert Edward contends, truly ends up devaluing its currency.