You need us and we need you
The Economist magazine tells the Americans that You need us and we need you
America and foreign central banks are locked in a codependent relationship: America is addicted to spending, and the banks can’t stop throwing money at it in order to keep their currencies down. This is unhealthy for both parties, say the IMF and the World Bank. But is there any political will to change it?
The political will is constrained by the possible reaction of the middle classes (labour aristocracy and petite borgeois) to a diminuation in their assets. At present, the petite bourgeois are fighting mad. They are taking direct action as in the Terri Schiavo case and in the Minuteman Project. The Republician Party is desperately trying to gain leadership of these movements by making more and more outlandish concessions: attacks on the judiciary; a lower bar to using guns in self defense (via Tom Tomorrow).
Part of the reason this spending is so hard to get a grip on is that it is happening on multiple levels. With interest rates low, consumers have been tapping into their home equity and taking on credit-card debt—the latest figures from America’s Bureau of Economic Analysis show individuals’ savings were just 0.6% of their income in February. Meanwhile, even after massive tax cuts, the Bush administration has forged ahead with ambitious spending programmes. Thus, in 2004 the federal government’s budget deficit hit $412 billion, a worrying 3.6% of GDP. It is projected to fall only to $365 billion, or 3% of GDP, in 2005.
So much for tax cuts for the rich stimulating the economy. The credit bubble is made up of the housing bubble (fueled by low interest rates), and a consumer credit bubble (fueled by aggressive marketing by lenders and asset appreciation mainly in housing). This is where the middle classes are most vulnerable. No wonder they are nervously looking for a miracle to deliver them from the coming credit crunch.
Unfortunately, like much good advice, these recommendations seem to have little hope of being implemented any time soon. The political pressure in Asia to subsidise exports with low exchange rates is intense. Interest rates in Japan have been near zero for four years, giving the central bank little room for additional action; meanwhile, the European Central Bank seems to be preparing for a rise in interest rates this autumn, to keep inflation near its target of just below 2%, which will hardly do much for demand. And in America, the political will to reduce deficits seems to be all but extinct.
This mess is created by the needs of two different sets of capitalist classes: American to keep accumulating wealth; and the Asian ones to keep up economic growth. The Asian ones are more likely to be hurt more by the credit crunch as they have a weaker base than the Americans.
An idle speculation of mine would be that George W. Bush could use the credit crunch in order to gain emergency powers to solve the problem. If that were to be the case, he would want the crunch to hurt as many people as possible. This could a worst case scenario if the Republican Party cannot control those petite bourgeois movements. If they cannot control them, they would have to destroy them.
My previous rants on this subject are at:
No comments:
Post a Comment