The best scenario would be for the government to stay out of things, and to let the markets do what they need to do. That would return prices to where they are valued by the market, and would greatly discourage people from participating in a future bubble like the one we are witnessing pop. It might be unpleasant medicine, but it would be far better in the long run.
However, I can pretty much guarantee that won’t happen. Of course what will happen is a constant flow of government bailouts, either to investment banks as loans, or to joe6pack in the form of stimulus checks. Mix with that a healthy dose of inflation (does anyone seriously believe the government reported figures of only 2-3%?)
As to what’s the best we can hope for? Personally, I think it would be for those investing money in the US to get a clue as to how bad their investments are turning out and to do something about it.
Ironically, that might be starting to happen. A while back a Saudi oil minister was quoted as saying that for every percent the dollar fell, oil prices had to rise by $5. I’ve started to wonder if OPEC isn’t quietly telling Bush and Paulson behind doors that if they don’t stop the dollar’s decline, the oil countries are going to make them pay. This would explain a number of recent comments by fed officials and others about stopping lowering interest rates. Of course I could be all wet, and in desperate need of removing my tin foil hat.
