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"...public opinion deserves to be respected as well as despised" G.W.F. Hegel, 'Philosophy of Right'

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January 12, 2009

Well nearly. Howard has long gone. After the 20th January 2009, George W. Bush’s disastrous reign will be over. Everyone is waiting for Obama's inauguration. Washington is getting ready to party. It's a new era and all that. So these conservatives celebrate themselves for using words --torture--that means just what they choose it to mean, neither more nor less.


All eyes are on Barack Obama’s efforts to deliver a fast fiscal stimulus (an US $800bn two-year package, split roughly 60:40 in favour of spending increases not tax cuts), which is designed to kick start the US economy. This is going to take a lot of time and energy to get through Congress.

The recession in the US appears to be accelerating and the implications for unemployment look dire.That is the fallout from the current collapse of the Thatcher-Reagan model of self-regulating market capitalism with finance in the driver’s seat. The US has an external primary deficit (the external current account deficit plus US net foreign investment income) was running at around five or six percent of GDP. The US was also a net external debtor. Its net external investment position is somewhere between minus 20 percent and minus 30 percent of annual GDP.

Is Obama is faced with the decline of the US economy and its international economic hegemony --similar to that of Britain's decline of its international influence in the 1950s? William Buiter at the Financial Times observes:

The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally. Even the most hard-nosed, Guantanamo-bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed. Key wholesale markets are frozen; the internationally active part of its financial system has either been nationalised or underwritten and guaranteed by the Federal government in other ways. Most market-mediated financial intermediation has ground to a halt, and the Fed is desperately trying to replace private markets and financial institutions to intermediate between households and non-financial operations. The problem is not confined to commercial banks, investment banks and universal banks. It extends to insurance companies (AIG), Quangos (a British term meaning Quasi-Autonomous Government Organisations) like Fannie Mae and Freddie Mac, amorphous entities like GEC and GMac and many others.The legal framework for the regulation of financial markets and institutions is a complete shambles. Even given the dismal state of the legal framework, the actual performance of key regulators like the Fed and the SEC has been appalling, with astonishing examples of incompetence and regulatory capture.

Buiter says that in between two and five years from now there will be be a global dumping of US dollar assets, including US government assets. If old habits die hard, and the US dollar and US Treasury bills and bonds are still viewed as a safe haven by many, this will not always be so.

So who is going to rescue the US? As Martin Wolfe oberves in the Financial Times the US rescue efforts need to be big enough not only to raise demand for US output but also to raise demand for the surplus output of much of the rest of the world.

| Posted by Gary Sauer-Thompson at 6:28 AM | | Comments (7)


The Martin Wolfe article in the Financial Times is sobering. He says that 2009:

is a year in which the fate of the world economy will be determined, maybe for generations.... We are in the grip of the most significant global financial crisis for seven decades. As a result, the world has run out of creditworthy, large-scale, willing private borrowers. The alternative of relying on vast US fiscal deficits and expansion of central bank credit is a temporary – albeit necessary – expedient. But it will not deliver a durable return to growth. Fundamental changes are needed. Already it must be clear even to the most obtuse and complacent that this crisis matches the most serious to have affected advanced countries in the postwar era

He says that this is a global crisis and asks who, apart from its government, will rescue the US? And on what scale must it act? He adds that the US is not strong enough to rescue the world economy on its own. It needs helpers, particularly in the surplus countries.

James Wolfensohn, the former head of the World Bank, says in an interview in Spiegel Onine that we are:

at a level of uncertainty that we've not seen since the 30's. This is not another adjustment as we had in the 80's. This is a shift in the earth. This is an earthquake. It is not a tremor.

He goes on to add that:
It was thought when they had the $700 billion package that the banks would re-stimulate, they would increase their lending. Quite the contrary happened. What the banks have done is to try and strengthen their capital ratios. And so every bank that I know in this country is looking inwards to try and see how they can strengthen the capital of the institution because what they're worried about is the next wave of disasters and bad debts.

goodbye to the so called compassionate conservatives

Bush spent his last press conference trying to convince reporters that that he did not deserve to be labelled the worst president in recent US history. Meanwhile Krugman says that Obama need s to do more to kick start the US economy.:

And the way to do more is to stop talking about jump-starts and look more broadly at the possibilities for government investment.

So then,
If Howard is "The Man of Steel" then Rudd must be agh um errr "The Man of Cardboard"

looks like it from the conservative viewpoint. This is a crowd that that pins medals of freedom on each other for saying that they never actually lied their way into Iraq.

They stood for truth and freedom. What took place in Guantanamo did not constitute torture. Western democracies do not torture.

As Bush said in 2006: "The United States does not torture. It's against our laws, and it's against our values."

There you have it.

Both sides saying We are right and they are wrong is the basis of all wars isnt it.

Nothing new.