Russia Today is fast becoming the news source of choice for schadenfreude fans. Anyone predicting catastrophe for the U.S. will have a welcome berth on the RT airwaves. They've even given respectful attention to Alex Jones, fer chrissakes.
That said, I take Robert Fisk seriously. He's saying that the dollar will suffer a "slow collapse" as the leading currency over a ten year period. It can't happen faster, because competing nations own too many dollars.
The hardcase Austrian school ultra-pessimistic economists -- the kind beloved of Ron Paul fans everywhere -- think that the shit-hits-fan moment will occur much sooner, perhaps this Christmas. That's what Gerald Celente said on...er, uh...the Jeff Rense show. (Did I mention Jeff Rense just now? Excuse me while I cough loudly and shuffle my feet.) On September 1, catastrophist Marc Faber hinted that Apocalypse would hit within the month. It didn't.
The problem with many of these Dr. Doomers is that they insist that government debt is causing the problem -- and that the problem is inflation. What inflation?
The right-wingers in this country never understood the basics: You run up gummint deficits (big ones if necessary) during a crisis in order to kick-start a stalled economy. You pay the money back during good times. It's called Keynesianism, and in the post-war era it gave us thirty years of stability and prosperity. But the rightists have long insisted on the reverse strategy: They ran up crushing debts during the better years, and now they want to make it politically impossible for Obama to provide the jobs-creating stimulus we need. (That's presuming Obama wants to provide such; I'm not sure.) In fact, righties say that now is the time to square up the tab.
These Faber/Celente types will never fix for the U.S. economy. I'm not sure they want a fix. When these guys forecast decline and political dissolution, their predictions come tinged with advocacy. Look closely and you may spot droplets of anticipatory drool on their barely-suppressed grins. I really think that they secretly like the idea of the U.S. turning into a series of primitive city-states, much like the feudal/liberatarian "Everytown" ruled by Ralph Richardson in Things to Come before Raymond Massey shows up to proclaim socialist technocracy.
At least the Russia Today crew are open about their loyalties to a competing power.
I'm not arguing that every doom-sayer has a covert agenda of subversion. Dakinikat has a rather gloomy piece up today, derived from this article by contrarian Chinese economist Andy Xie, about whom I need to learn more. DK explains the illusory nature of the current "recovery":
Now, here’s my favorite point. It’s this bull market where the shadow banking system profits from churning and running up your own portfolio by selling it back and forth between the parent and subsidiaries to create a false sense of momentum.Then she quotes Xie:
…financial institutions are operating as before. Institutions led in reporting profit gains in the first half 2009 during a period of global economic contraction. When corporate earnings expand in a shrinking economy, redistribution plays a role. Most of these strong earnings came from trading income, which is really all about getting in and out of financial markets at the right time. With assets backed up by US$ 16.5 trillion in debt, a 1 percent asset appreciation would lead to US$ 16.5 billion in profits. Considering how much financial markets rose in the first half, strong profits were easy to imagine.Back to DK:
Trading gains are a form of income redistribution. In the best scenario, smart traders buy assets ahead of others because they see a stronger economy ahead. Such redistribution comes from giving a bigger share of the future growth to those who are willing to take risk ahead of others. Past experience, however, demonstrates that most trading profits involve redistributions from many to a few in zero-sum bubbles. The trick is to get the credulous masses to join the bubble game at high prices. When the bubble bursts, even though asset prices may be the same as they were at the beginning, most people lose money to the few. What’s occurring now is another bubble that is again redistributing income from the masses to the few.
Yup, there it is. The idea that many of the bigger players are just trying to run up the market enough to entice the suckers back near the top. Catch the one about redistribution? We’re basically using cheap money to finance the reverse Robin Hood scenario one more time.
Nothing changes if nothing changes. Most of what we see are trading tricks and creative accounting procedures that let them mark to whatever rather they wish rather than the current market price of the asset.
It’s not so much our banking system as it is our shadow banking system that’s the problem. That’s where the regulation is required and so far, we’ve seen no new regulationsMe, I'm warming up to the idea of nationalizing what Dakinikat calls the shadow banking system -- i.e., big financial institutions which do not take deposits the way normal banks do. (The insurance giants may be considered part of that same shadowy mess.) Of course, I am not under the illusion that many others will appreciate my nationalization proposal.
Let's end by quoting one of Andy Xie's readers:
Can you please address this question in your next article: Rising fiscal deficits to pay for the stimulus programs should theoretically ignite inflation via injecting liquidity. But, if consumer spending is weak, given rising household saving, spare capacity should be available to generate increased output without significant inflationary pressures building up. So why this media noise about hyperinflation etc ??Good question! And it brings us right back to my points above: What inflation? The Fed is talking about raising interest rates in order to fight this imaginary inflation, even though we remain well into zero-boundary territory. This isn't Weimar. We face many hellish problems right now, but being Weimar ain't one of them.
Our economy is like a man with four broken limbs whose doctor prescribes chemotherapy instead of splints.
8 comments:
I have been rather shocked at how very few economists or those with columns have pointed a finger at the 15-25 billion dollars a month in consumer credit card interest rate charges on EXISTING credit card debt as being a primal force in the economic slow down.
The idea that we can have an overall stable economy without allowing the consumer to get "caught up" on their debt is another form of the elitist society protecting their residual income stream even as the masses lose their homes and way of life because of it.
I'm not advocating waiving credit card interest rate charges on new debt, or for those who will just use it as an excuse to run up more debt. However, there is a significant core group of consumers who could actually pay down existing debt if they did not have these usurious credit card interest rate charges taking away the american dream.
Why is the government and the banking system so eager to default and foreclose on americans who actually just need a small break?
We're in the midist of a White House Coup. I've known about it since the 90's when the family I was in discussed in detail what to expect. Their role has been since the later 70's to launder criminal money into property. They are linked to many but what's important to understand is that they are linked to the big Banks who are at the top of the Coup.
The family often talked about the huge failed attempt that happened in 1933. Read about it as it is called "The Business Plot" 1933.
Take note of who was involved and who among this group helped Hitler rise to power. You'll be surprised!
Marty Didier
Northbrook, IL
Because: http://www.iamthewitness.com/books/Andrew.Carrington.Hitchcock/The.History.of.the.Money.Changers.htm
For what little its worth, Andy Xie is a very nice man. Very smiley. And very smart. Just a little indiscrete. Hence his departure from Morgan Stanley.
As for these issues, its not as straightforward as it could be so Faber is not merely talking rubbish. I know there are unemployed resources in america, but the Keynesian solution would suggest that they can be gainfully employed in some manner. What if they can only be employed by reducing the average productivity of the economy in a way which reduces the net wages of the employed in a way which americans wont accept?
Harry
Incidentally - I think the solution for what ails america was first worked out by Solon in Athens. I think you need a Jubilee or at the very least, a less extreme income distribution. Without it I dont think any of the tricks they are trying will work in the end. Keynesian tricks or even neoclassical tricks.
But thats just my personal opinion.
Regards
Harry
The identical question, "where is the inflation?", was raised during the Reagan years of, for-the-time, huge deficit spending.
All the other bad predictions for Reaganomics came true (tripling the nominal national debt, e.g.), but not the huge inflation that was warned about.
The answer then was that the Fed laid on punishingly high real interest rates that some called sado-monetarism, and they were kept in place despite cries of pain up until the Mexican currency crisis hit and threatened to bankrupt various key Wall Street firms who held peso-denominated bonds. The high real interest rates attracted foreign capital to the dollar, creating a very strong dollar, which meant every import item became cheaper. Since the recession then was world-wide among the economic powerhouses, oil demand and prices were extremely low as well. So inflation was held in check, to the surprise of most macroeconomists, for reasons most did not foresee.
The case for high inflation now is as strong as the case then, under neo-classical economic theory analysis. It didn't happen then, but will it happen now?
The key fact now that is trimming inflationary pressures is the disappearance into thin air (or into the hands of a very few) of probably some $20 trillion in losses of value of real estate and stock portfolio values for the American people. Although much of the loss, like the gains reached before the losses, were on paper, there is the wealth effect in reverse to consider. Besides the psychological effect on people when their assets lose a lot of value, making them more frugal, the job losses, and fears of job losses, have also caused consumers to cut spending, and start saving, in significant measures.
This works against inflation.
However, we have just seen in the past half year or so a decline in the US dollar of 40% weighed against a basket of international currencies. The country is much more dependent now on imports than it was in the '80s, so the decline in the dollar has the potential to cause large price increases in the entire import sector. And the very low interest rate regime here does not make the US dollar attractive to hold for bond type returns.
Now the curb on import price increases is the supply/demand curve. Demand for everything, including imports, is down, limiting the pricing power for those who import into this country. Yet, should the flight from the dollar continue, or worse, increase, eventually that factor will be priced more fully into imports.
XI
To Alessandro Machi:
Those economist would NEVER say such a thing because debt is EXACTLY what they want. It's how capitalist systems with central banks are built. It's just a simple fact and they would never go against the very premise of the system lest they be called communists.
Banks call money in circulation as money loaned out. 100% of everything that is in circulation is a loan. All of it. So that there is more debt per person is irrelevant to banks since all of it is loaned out anyways.
Where is the concern to banks? Well, things work in cycles. Since banks loan out money at interest, it's impossible for the population to pay it all back since you can't pay back more than what was given out. So what banks do is hand out ever increasing loans over time. The later loans pay for the earlier ones. As long as this cycle continues, the economy grows.
But you're right. If people stop taking out loans and can't pay it, then the cycle breaks and the economy goes down the tubes because then even banks start handing out fewer loans. Once this happens, everyone starts being unable to pay their loans because there is less of it in circulation. It's why Obama and his cronies tried to give banks all that money, so that they would continue giving loans. Only thing is that they covered their own "losses" and didn't issue more loans.
Krugman today asserts that most of the fall in the US dollar amount is a return to the status quo ante. During the peak of the international crisis starting Sept. 11th, 2008 (!!), scared capital from around the world sought out the pre-eminent safety of US treasuries, causing a world-wide demand for dollars that boosted the dollar value against other currencies. Krugman says the decline was both welcome as a sign of a return to a less panicked situation, and inevitable, and discounts it as any threatening of inflationary pressures.
XI
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