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Ruminations: The Imperfect Storm That Could Drown The
Economy |
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In "The Perfect
Storm That Could Drown The Economy," the NYT's Daniel Gross
asks,
"Could [the forces propelling and buffeting the economy] be
setting the conditions for a perfect storm? His answer:
perhaps it could, but cautions, "A lot of it has to do with
timing. While many economists are willing to imagine in
detail what a perfect storm would look like, virtually none
will forecast precisely when - or if - it will start. And so
it remains a vague and distant possibility."
One thing is certain. While Bush and his
ideological and corporate friends have sidetracked us with
the war in Iraq, saber rattling against Iran, and the
destruction of over a half-century of progressive reform in
this country, world terrorism is a growing threat, North
Korea has created its first nuclear devices and, along with
Pakistan, has exported that expertise to other nations, and
the ranks of the poor and shrinking of the middle class
continue to grow in this country.
As for the perfect financial storm, all that
it would take would be an imperfect financial storm, a
series of random events, not a series of interlocking
events, for Bush's economic Ponzi scheme to come crashing
down. A combination of massive deficit spending, a sinking
trade deficit, a falling dollar, a continued shifting of
jobs out of this country, personal borrowing to finance
expenditures, and a movement away from the use and banking
of the dollar as the world currency, particularly with
respect to the purchaseing of oil, could do us in. All of
these elements are in place today, and all of these elements
are growing as you read this.
In effect, Daniel Gross responds to these
economic threats by quoting Jeffrey A. Frankel, an economist
at Harvard's Kennedy School of Government: "Some of us have
been warning of this hard-landing scenario for more than 20
years," suggesting that what's happening today is nothing
new, thereby implying that those who fear the worst are
overreacting. But this is not so, What's happening today is
not economic business as usual, and it has to do with an
ideological president and his control over all three
branches of government, along with the trend in the
mainstream media of replacing news with White House
propaganda, political spin, and cultural spam. As for 20
years of economic warnings, Reagan used many of the same
wrongheaded economic ideas used today by Bush, but he lacked
the control that Bush enjoys today, control that could prove
fatal to what most of us think of as the American
Experience.
"There's a pattern that is familiar from so
many other countries that have gotten into debt problems,"
says Frankel, "A simultaneous rise in interest rates, fall
in securities prices and depreciation of the currency."
Daniel Gross admits, "Some imbalances are eerily reminiscent
of conditions that helped touch off recent economic crises:
Mexico in 1994, Asia in 1997, Russia in 1998 and Argentina
in 2002." Why, then, isn't Bush and his ideological and
corporate friends doing more to stave off this national
economic threat that could stimulate a worldwide economic
collapse? His ideological friends, who appear to have
control of the nation's economic books, like Ahab harpooned
to the whale of FDR's social legacy, are blinded by their
overwhelming desire to "Starve The Beast." (see note)
Meanwhile, his corporate friends, who put their corporations
before their nation, are hedging their bets by moving
offshore, outsourcing, and buying Euros to replace their
falling dollars. When the world starts raplacing its dollar
reserves for the same reason, we've had it. --Jerry Politex,
Bush Watch, 05,09.05
Note: This from
The Washington Post:
"I don't know of any country that has managed to consume and
invest 6 percent more than it produces for long. The United
States is absorbing about 80 percent of the net flow of
international capital. And at some point, both central banks
and private institutions will have their fill of dollars. I
don't know whether change will come with a bang or a
whimper, whether sooner or later. But as things stand, it is
more likely than not that it will be financial crises rather
than policy foresight that will force the change....But can
we, with any degree of confidence today, look forward to any
one of these policies being put in place any time soon, much
less a combination of all? The answer is no. So I think we
are skating on increasingly thin ice" --Paul Volker, April
10, '05
Ruminations: Wal-Mart: Maggie's Farm
Decades ago the Republican mantra was "What's right for
General Motors is what's right for the country !" Today,
General Motors is no longer the nation's largest
corporation, it's Wal-Mart. With its massive manufacturing
plants in China, it's able to import and sell cheaply-made
goods at solid markups and still undercut its competition,
filling the landscape with big boxes that have become malls
unto themselves. With most of its workers earning less than
$19,000 a year, an industry low, "Wal-Mart critics ran a
full-page advertisement on April 20 contending that the
company's low pay had forced tens of thousands of its
workers to resort to food stamps and Medicaid, costing
taxpayers billions of dollars," reports the
NYT.
In the interplay between the Bush economic
policy, corporate greed, the nation's growing deficit/dollar
collapse, and indications of the rise of China as an
economic super-power, the United States of America is
becoming the United States of Wal-Mart: "What's right for
Wal-Mart is what's right for the country !" Here's how it
works, as described by the WP's
Robert Samuelson:
"Asians get jobs; Americans get cheap
consumer goods. But the dangers increasingly overshadow the
gains. When Americans buy more abroad than they sell, they
go deeper into debt. In practice, American consumers have
borrowed more and more. China and other Asian countries
foster this by investing the surplus dollars earned from
exports in U.S. Treasury bonds and other dollar securities.
This recycles the money into the United States. It helps
hold down U.S. interest rates, encourages American consumers
to borrow and (simultaneously) keeps Asian currencies from
rising. If dollars were sold for Asian currencies, the
dollar would drop and Asian currencies would increase.
"This can't continue indefinitely. Here are
two ways it might unravel. First, Americans may recoil from
rising debt burdens. People may grow uneasy with their
monthly payments. Lenders may decline to make riskier loans.
At year-end 2004, household debt (including mortgages) was
121 percent of annual disposable income, reports the Federal
Reserve. Four years earlier, it was 103 percent of
disposable income. Second, the continuing loss of factories
to China may reduce employment growth and fan job
insecurity. These developments could threaten the recovery
or incite protectionism -- if not today, then someday."
As the dollar continues to drop, loans
become more expensive, and unenployment grows, more and more
U.S. workers will turn toward its governments for help, but
Bush has already weakened the social services net through
tax gifts to the rich and cuts in social services for the
poor (see above). Some Republicans call this "Starving the
Beast." His federal government is providing less funding to
the states, for the same reasons. Seeing the writing on the
wall, Bush and his wealthy backers have tightened up the
bankruptcy laws, now they're trying to dismantle social
security protections, and they're looking the other way as
medicare/medicaid health services crumble, anything to
squeeze out every last drop of money from the poor and
middle class to pass on to wealthy individuals and
corporations. Meanwhile, Wal-Mart pocketed $10 billion last
year, more of its big boxes litter the landscape, its
workers remain in
actual poverty,
and the population of the poor continues to grow under Bush
and his wrongheaded policies. --Politex, Bush Watch,
05.05.05
Quotes:
The United
States is the world's best customer. It buys far more from
foreign countries than it sells to them, resulting in a
sizable trade deficit. It also spends more on public
programs than it collects in tax revenues. And to pay for
all these outlays, the U.S. must attract mountains of
foreign capital each year, which essentially amounts to
borrowing from foreign governments and investors. Those
foreign countries don't lend out of the goodness of their
hearts; for the most part they lend because the U.S. uses
that money to buy goods from them and other nations. But
foreign investors cannot go on forever supporting U.S.
spending. The issue is even more pressing given the fact
that the U.S. dollar has been falling for more than a year,
decimating returns for those foreigners who invest in U.S.
bonds.
Steve Maich
Ruminations:
This week AlterNet's John Feffer reports, "A new poll
conducted by GlobeScan and the Program on International
Policy Attitudes (PIPA) reveals that citizens in twenty out
of twenty-three countries would like to see Europe become
more influential than the United States in world affairs.
The survey tested attitudes toward the five permanent
members of Security Council and Europe as a whole. The
majority of citizens in only six countries (including my
friend's South Korea) view the U.S. role in the world as
mainly positive -- a dismal popularity rating comparable
only to that of Russia. Here's how bad it is: even China
rated higher than the United States in popular assessments
of its global conduct. The United States also took the top
prize as the country most widely viewed as having a negative
influence on the world (in 15 countries), with Russia coming
a close second (14 countries). And this in a poll that did
not include countries in the Middle East, who would have
likely put us way ahead of Russia."
"The most astonishing fact revealed by the
new poll is that 34 percent of Americans agree that Europe
should be running the show. Let me repeat this: one-third of
Americans want Brussels, not Washington, to be calling the
shots on the global arena. This trend is a good bit more
significant than the six-fold increase in traffic to the
Canadian immigration website immediately after the November
elections. It buttresses the findings of previous polls that
have shown clear majorities of Americans dissatisfied with
U.S. unilateralism (and a much higher rate of disapproval of
U.S. foreign policy in other countries)."
In his new book, "The European Dream,"
Jeremy Rifkin, Wharton Fellow (U. of Pa.) and President of
The Foundation on Economic Trends (D.C.) might be suggesting
that Bush and his ilk highlight the defenciencies of the
American dream and point up the strengths of the European
dream, and, under Bush, the world is losing respect for its
values and trust in its credibility:
"The American Dream is in decline. Americans
are increasingly overworked, underpaid, and squeezed for
time. But there is an alternative: the European Dream-a more
leisurely, healthy, prosperous, and sustainable way of life.
Europe's lifestyle is not only desirable... but may be
crucial to sustaining prosperity in the new era.
...Europe has achieved newfound dominance
not by single-mindedly driving up stock prices, expanding
working hours, and pressing every household into a double-
wage-earner conundrum. Instead, the New Europe relies on
market networks that place cooperation above competition;
promotes a new sense of citizenship that extols the
well-being of the whole person and the community rather than
the dominant individual; and recognizes the necessity of
deep play and leisure to create a better, more productive,
and healthier workforce.... Europe's flexible, communitarian
model of society, business, and citizenship is better suited
to the challenges of the twenty-first century. Indeed, the
European Dream may come to define the new century as the
American Dream defined the century now past."
While Bush defines freedom, justice, and the
American dream as the right to practice the law of the
jungle --taking advantage of your fellow citizens in any way
that is within the law and using your increased power to
push the legal envelope and, better yet, tear down the laws
that exist-- Riofkin sees the Europeans as creating a more
cooperative and healthier way of living. Clearly, with Bush
as an example of the American way, the rest of the world is
rejecting and isolating us.
Reading the NYT's Thomas Friedman over the
years, I don't have the feeling that the would agree with
Rifkin about the failures of the American Dream. In his new
book, "The World Is Flat: A Brief History of the
Twenty-first Century," he applies a global economic law of
the jungle to America and finds it wanting. In today's NYT
he writes, "we have an industrial-age presidency, catering
to a pre-industrial ideological base, in a post-industrial
era.... At a time when the global economic playing field is
being flattened - enabling young Indians and Chinese to
collaborate and compete with Americans more than ever before
- this administration is off on an ideological jag. It is
trying to take apart the New Deal by privatizing Social
Security, when what we really need most today is a New New
Deal to make more Americans employable in 21st-century
jobs."
The falling dollar, the growing trade
deficit, the growing domestic deficit, our shrinking
production capabilities, and a government that is shrinking
the middle-class, cutting back on science and technology,
eroding the environment, allowing our highways and bridges
to crumble, and weakening laws and regulations that protect
our weaker citizens is in no condition do well in Friedman's
global Darwinian market place, and the root reasons are to
be found in Rifkin's book. Yet, on a visit to my local
Borders the other night, the front table was filled with
Friedman's book, while Rifkin's was nowhere to be found. --Politex,
04.16.05
Bush Collapse: What,
My Problem?
After Bush was selected to be President by
the Supreme Court in 2000, as he made ready to leave Texas
for the White House, a reporter asked him how he felt about
leaving Texas holding the deficit bag after his six years as
Governor. Bush said that was the next guy's problem, not
his. By 2008 the U.S. will be left holding the largest
deficit bag in history, which promises to be over $3
trillion, $5 trillion if the Bush social security "reform"
is passed. According to the Dems, the Bush deficit, created
since 2000, places a "birth tax" of $30,000 on each newborn
baby.
What Bush did in Texas is nearly the same as
what he is doing on the national scale, today; he has added
the arms industry to the corporate trough: you begin by
providing tax cuts to the weaalthy and weakening consumer
and envirnomental protections for the benefit of
corporations, calling such actions "tort reform." Then you
declare a budget deficit and demand that governmental aid
for health care, education, welfare, and housing be cut to
make up for lost revenue.
Such policies place tremendous pressure on
the poor, so you imply that governmental social policies are
really handouts and you appeal to the poor to stand on their
own two feet, because that's the American way, because
that's "freedom." Then you give government funding to
religious organizations to take care of the poor in a
much-diminished fashion, and some of those organizations,
which you call "faith-based" to muddy the church-state
waters, use some of the money given to convert the poor to
their particular brand of religion or to create
bureaucracies that are not required to follow civil rights
governmental guidelines, further diminishing the already
diminished governmental money going to the poor, but
rewarding those religious orgainzations that helped get you
elected.
On the national level, Bush is able to go
one step further than he had gone in Texas. Since the U.S.
poor can demand its rights as contributing citizens to the
wealth and life style of the world's richest democracy, his
never-satisfied corporate backers must look elsewhere for
its greatest profit from the workers it employs. So, Bush
looks the other way as corporations outsource, and he
attempts to weaken the immigration laws to allow illegal
non-citizens to work for less without the customary workers'
protections, hence his State of The Union plan, which he
recently discussed over the phone with Mexico's Fox:
"America's immigration system is...outdated,
unsuited to the needs of our economy and to the values of
our country. We should not be content with laws that punish
hardworking people who want only to provide for their
families, and deny businesses willing workers, and invite
chaos at our border. It is time for an immigration policy
that permits temporary guest workers to fill jobs Americans
will not take."
Apart from screwing the nation's poor
citizens, Bush is contributing to the future failure of our
country, if Pulitzer Prize winner Jared Diamond is to be
believed in his new book, COLLAPSE. He uses Southern
California as a microcosm of the U.S.:
"Environmental and population problems have
been undermining the economy and the quality of life in
Southern California. They are in large measure ultimately
responsible for our water shortages, power shortages,
garbage accumulation, school crowding, housing shortages and
price rises, and traffic congestion. In most of these
respects except for our especially bad traffic jams and air
quality, we are no worse off than many other areas of the
United States." (Ch. 16)
Although Bush cannot be held responsible for
all that has gone wrong with our country, his
presidency is obviously the most blatant and the most
egregious example of selfish, wrong-headed, short-sighted
policies that are literally destroying our country. But when
he leaves the presidency in 2008, Bush likely will tell a
reporter, "That's the next guy's problem." --Politex,
02.04.05
Consequences of the
fall of the dollar
by Jim Goldsborough
It was not the main thing on his mind when
he launched the attacks three years ago, but Osama bin Laden
has played a large role in undermining the U.S. economy. The
dollar's decline to record lows is partly his work.
If you haven't noticed the dollar's fall to
record lows (and the rise of gold to a 16-year high), you
will. The dollar is a bigger worry for economists than the
rise in oil prices, though the two are related. With world
oil prices denominated in dollars (for now), oil producers
must raise prices to counter the dollar's slide.
Federal Reserve Chairman Alan Greenspan
spooked markets last month when he admitted he had no idea
how far the dollar would fall. Speculators took his speech
as good reason to bid the dollar down still more, and it's
now at an all-time low against the euro, having lost a third
of its value since 2001 and nearly as much against the
British pound.
So what, you say? Christmas is here,
consumers and government are spending like mad, and
Washington's deficits will balloon still more when President
Bush privatizes Social Security. Not to worry. With more tax
cuts coming and the never-ending Iraq war, which Bush
wrongly connected to Sept. 11, we'll just charge everything.
The question economists -- even the prudent
Greenspan -- ask is this: How long can we get away with the
binge before something really bad happens?
The dollar falls because foreigners are
inundated with them and charging more to take them. Nobody
has a clue how much more they will charge. Predicting the
dollar's path, Greenspan told Frankfurt bankers, is like
"forecasting the outcome of a coin toss."
Making monetary policy by coin toss does not
exactly inspire market confidence.
Economists are in two camps over the
dollar's future, and neither camp is optimistic.
Camp 1 says the world will tolerate a
sliding dollar another few years because it has no choice.
America's $500 billion annual deficits will be financed by
China, Japan and other Asians because they need our markets,
and a collapsed dollar would wipe out U.S. purchases of
their goods.
But Asian central banks already have cut
back on support, which is why the dollar is falling. Still,
Camp 1 believes that though Americans will face rising
prices, interest rates and debt as the dollar falls, these
adjustments, though painful for Americans, will be
manageable.
Camp 2 sees a far more dramatic future for
us, both economically and politically. One strong voice in
this camp has been Paul Volcker, Greenspan's predecessor at
the Federal Reserve, who sees a 75 percent chance of a
dollar collapse within five years.
Under such a scenario, America under Bush
would be facing worse economic problems than under Richard
Nixon in the early 1970s, when exploding trade deficits,
plus the Vietnam War and rising oil prices led to import and
exchange controls and cut the dollar loose from gold.
The effects would be worse than under Nixon
for two reasons: Because our trade deficits are larger this
time, running at a record 6 percent of GDP; and because
America was a net creditor in Nixon's time, whereas today it
is the world's largest debtor.
Camp 2 puts our present problem in stark
terms: America absorbs 75 percent of the world's savings
today, that is, the savings of nations like Germany, China
and Japan that run trade surpluses. One reason those nations
send excess dollars back here (instead of investing in
developing nations) is because a dollar collapse would mean
a collapse of their currency reserves, which are held mostly
in dollars. A collapse also would raise bond yields, cutting
the value of their vast quantities of U.S. Treasury bonds.
With the euro, however, a new alternative to
the dollar exists, and surplus countries have lately been
diversifying into euros, another reason for the dollar's
decline. Camp 2 economists see the dollar falling by another
40 percent or more, which would leave no sector of the U.S.
economy untouched, including bond yields, inflation,
consumer spending, employment and the stock market.
Beyond economics, Camp 2 sees an
international political problem looming, mainly with China,
with which America will run a trade deficit of some $150
billion this year (look for the "made in China" label on the
bottom of your Christmas presents). That is about twice the
U.S. deficit with Japan, once our largest creditor.
Trade deficits normally lead to currency
adjustments, which is why the dollar is falling. China,
however, pegs its yuan to the dollar, meaning that even as
other Asian currencies rise (yen, won and Singapore and
Taiwan dollars), the yuan is falling along with the dollar.
A falling yuan is irrational because with
China's strong trade and reserve surpluses, the yuan should
rise.
Stephen Roach, chief economist for Morgan
Stanley, predicts that if China doesn't cut its currency
away from the dollar, it risks political retaliation. The
sooner China "prepares the world for a transition to a new
and more flexible currency regime," he writes, "the better
its chances of neutralizing geopolitical risks."
China will act in its own interests, as will
other nations. How far and fast the dollar falls is out of
America's hands.
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