The U.S. economy: 'Rescued to death'

Donald Luskin is not a Pollyanna by nature, and he is staying true to that when looking at our economic future.

The co-founder of Silicon Valley-based Trend Macrolytics sees a lot of pain ahead for the world and U.S. economy, laying the blame for the current debacle squarely at the feet of the federal government.

“We were, in essence, rescued to death,” says, Luskin, who was in Sarasota last week at the invitation of Venice-based Caldwell Trust Co. Luskin is a regular on CNBC's Kudlow Report and Fox News and contributes to national publications such as the Wall Street Journal.

Luskin says the series of “catastrophic government interventions” in the financial sector that happened in September began a cascade of consequences that is continuing today — accelerating under the Obama Administration.

Some firms, such as Lehman Brothers, were allowed to fail while some, such as Bear Stearns and Merrill Lynch, were bought by competitors with government help. Some banks were allowed to fail, some were bailed out and some were a mix, where bondholders were made whole while stockholders were wiped out.

But the federal government orchestrated all of these decisions over several weekends — what Luskin describes as “arbitrary decisions made in a panic.” And all behind closed doors.

“All of these were inside deals,” Luskin says. “No normal market process and no rule of law.”

And that last point is his key to explaining the precipitous fall in the global economy in just a few months. The federal government threw out the rules and began making them up as they went along. Companies and countries around the world realized the rule of law was not in effect and battened down, generating a spiraling constriction in the world economy, he says.

Interestingly, Luskin says the Fed is doing exactly what it should be doing at this point — ginning up the money supply. However, back to his nature, he has no expectation that the Fed will have the courage to start withdrawing money in time to head off inflation — which he is guaranteeing will be a serious problem.