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

US: economic recovery? « Previous | |Next »
December 19, 2010

Currently, in the US unemployment is rising, stores are closing and the economy is succumbing to debt deflation. The upshot of the Federal Reserve trying save the banks from negative equity through liquidity (ie., quantitative easing to help U.S. banks earn their way out of negative equity) is flooding the global economy with a glut of U.S. dollar credit, destabilizing the global financial system in the process.

In How Can the Economy Recover? in the New York Times Jeff Madrick says that optimism about the recovery of the US is not warranted:

What makes this recovery different is clear. Consumers have record levels of debt compared to income and some $12 trillion in losses on their houses and financial investments. They are not going to spend money as they usually do—perhaps not for a long time. A damaged financial system is also not lending significantly, partly because business clients aren’t seeking loans unless they directly generate more sales, and consumer demand is low. Business investment, propelled by piles of cash on the balance sheets, is nevertheless slowing after rising strongly from low levels for the past year.

He goes on to add that what is rarely recognized is that even if the US can emerge from a weak economy within a few years, the economic foundation that existed before the cataclysm of 2007 and 2008 may not be adequate to restore the widely shared prosperity the US needs.

Those on the right rely on the ingenuity of capitalism as an adaptive mechanism which rely on the arguments about the self-organizing dynamics of the capitalist economy.The politics of their laissez-faire economics holds that cutting social programs and limiting aid to workers are exactly what will revitalize the nation’s economy by demanding that people be responsible for themselves. In sum, markets should be as free of government interference as possible, and must become the efficient distributors of social goods.

The fiction is that bailing Wall Street banks out of their losses is a precondition for reviving employment and consumer spending – as if the giveaway to the financial sector will get the economy moving again.

Cutting taxes is the key to future jobs for those who seek to reduce government intervention and have faith in free markets are the Republican answers to rebuilding the nation. They assume that assume that the policy objective is to return to the stable economic growth that preceded the crisis of 2007 and 2008, even the austerity economics could well leave the nation with a lost decade of slow growth and high unemployment.

The policy of the Obama administration has been to bail out the banks by re-inflating U.S. real estate, stock and bond markets at least to their former Bubble Economy levels. The aim is to restore the flow of credit--a euphemism for keeping the historically high debt levels in place, and indeed adding yet more debt (“credit”) to enable home buyers, stock market investors and others to bid asset prices back up to rescue the banking system from the negative equity into which it has fallen.

The “recovery” that is envisioned is one of new debt creation. This would rescue the biggest and most risk-taking banks from their negative equity, by pulling homeowners out of theirs. Housing prices could begin to soar again.Unfortunately, instead of the banks lending more to U.S. homeowners, consumers and businesses, they have been tightening their loan standards; and are engaged in interest-rate arbitrage (the carry trade), currency speculation (forcing up targeted currencies) commodity speculation and buying into companies in Asia and raw materials exporters.

| Posted by Gary Sauer-Thompson at 10:54 AM | | Comments (8)
Comments

Comments

For the vast majority of us, our lifestyle of Conspicuous Consumption was built on a myth. We felt comfortable enough in our "perceived" weath to splash the cash and give the illusion of a affluent society. In fact the REAL wealth was being amassed a fairly small group. Now, those people aren't too keen about sharing THAT particular pile of goodies.

That's not because they're greedy, mind you. It's just that they're being "responsible for themselves". Right?

And the bulk of American consumers are cutting back so they can be "responsible for themselves" as well. Cool.

Let's see how long we can play this game...

But wait! What about that "business investment, propelled by piles of cash on the balance sheets". Well, a whole heap of that was came from sacking people and buckets of government stimulus. And that well is just about dry.

Seriously I'm all for the "ingenuity of capitalism as an adaptive mechanism". It's just that nobody is willing to sit back and watch the bugger adapt on it's own. That would be a grand sight, wouldn't it?

Oh... and I take issue with the mention of "those on the right rely" and their ideals.

Have you recently had a good look at what passes as the "Left" of politics in the anglophone nations? What about their policies. Crikey... most to that bunch make the Right of 30 years ago look like bleeding-heart hippies!

That's (one) of the crazy things about today's politics. The rants and screeches from the Right against the socialist, "sinister" Left, is usually just a tirade against where THEY were a only few decades ago. It's not the so-called Left who are the wild-eyed radicals!

Onward!

I'd say the response of capitalism has been typical. The host is itself consumed by the parasite once all else has gone, a marvellous piece of adaptation.
Rowson has a glorious new cartoon out at the Guardian, involving the usual suspects; Cameron, City of London, etc.
All at sea in a leaky boat, but the cartoon says an powerfullot about the "adaptiveness" of modern capitalism, if you see things anything like the way I see them.

"Words mean whatever I want them to mean, no more, no less"

That's the marvellous thing about being part of the wealthy, influential ruling class... isn't it? You get to spin things any way you want.

Well of course capitalism is a adaptive mechanism! That's because the elite can change the RULES of the game as it suits them. Oh.... and democracy gets a good seeing to as well. Hurrah!

The Republican's story is a simple and it is the same one they've been flogging for 30 years. The bad economy is big government's fault, and the solution is to shrink government.

If the problem is big government, cutting the deficit is part of the solution -- although a higher priority is cutting taxes, including taxes on the rich. That leaves the only way to cut the deficit as axing spending -- even on safety nets like unemployment insurance and health care and on public services like education and infrastructure.

mars08,
the Right ignore that the problem is power and privilege amassing at the top not big government. A self-reinforcing power and privilege at the top in neo-liberal capitalism means a shrinking share of the benefits of economic growth for everyone else.

The bursting of the giant housing bubble in 2008, meant that the biggest asset of most middle-class people--- upon which they borrowed and that they assumed would be their nest eggs for retirement--- collapsed. Housing prices continue to fall in most parts of the country.

Middle and working class Americans continue to experience stagnant incomes/wages. The vast middle class no longer has the purchasing power to keep the economy going.

This recession in the US increasingly looks like an economic crisis in which the economy is remade in ways that allow it to recover and grow again--eg., like that of the 1890s and the 1930s. What will the 'remaking' look like over the next decade? How will the economic landscape be transformed?

Thom Hartmann wrote a very interesting essay re the relation between taxes (on the rich)and the general prosperity altogether which was recently featured on Truth Out.

http://www.truth-out.org/roll-back-reagan-tax-cuts65332