MS Outlook's non-intuitive commands (and their non-correspondence to similar commands in MS Office) meant once again that I sent this off before it was finished.
comments: this is a pretty good article. the question about the "political business cycle" theory at this point does not concern the Bushwackers' intentions. Rather, it's about their ability to spark an election-year boom (delaying the hitting of the fan by the shit until 2005). Their friend Alan at the Fed doesn't have much ability to stimulate the economy any more, since it's hard to cut the Fed Funds rate below 1%. The government's fiscal policy is very weak, since it targets the rich (whose spending plans don't change much with income or even wealth). The main thing is engineering a fall in the dollar, which as Goldner points out encourages inflation. But the dollar's fall also means a fall in the Chinese yuan, so that a lot of the usual benefits of promoting US exports and limiting US imports won't happen. There's also the J-curve effect, which will delay any positive effect on the US balance of trade and economy. So it's quite possible that we'll have the second dip of the Dubya recession during 2004, due to excessive consumer debt, the popping of the housing bubble, etc. (factors that Goldner points to). BTW, the Fed Funds rate is NOT "the rate at which the Fed lends to banks." That's the discount rate, though that rate generally moves in step with the FF rate. The FF rate is a market-determined rate on short-term loans between banks that the Fed finds easy to manipulate and so uses as its operating target in doing monetary policy. Goldner writes that >Already 1% of U.S. GDP is going to pay off the interest on foreign-held debt.< Yes, but these payments are made in dollars, unlike similar payments by third-world countries. A key fact, however, is that it means that a significant fraction of any GDP produced by the US is going to debt service instead of to those who live in the US. I agree with the idea of >the increasingly fictitious character of the U.S. economy as a whole< but I don't think that the Bushies care about the US economy. All they care about is the power and income of their fraction of the capitalist class. ------------------------ Jim Devine [EMAIL PROTECTED] & http://bellarmine.lmu.edu/~jdevine > Pause In The Crisis or Beginning of a New Boom? > > By Loren Goldner > > On Oct. 30 the U.S. Department of Commerce announced > that the U.S. economy had grown at a 7.1% annual rate > in the third quarter of 2003. Since these statistics > are constantly being revised, one wonders what they > really mean (the "productivity miracle" of the second > half of the 1990's almost disappeared in retrospective > downward revisions after the March 2000 dot.com > crash). > Whatever the case, is clear that the Bush > administration is pulling all stops in its re-election > strategy for 2004. One does not have to believe in a > "political business cycle" to recognize that the U.S. > government has sufficient tools to pump up the economy > going into an election year. Most notorious in the > history of this strategem was Nixon's 1971-1972 > reflation based on wage-price controls, the "reform" > of the Bretton Woods system (amounting to a 32% > surcharge on foreign imports and massive (for the > period) deficit spending) to assure his 1972 > re-election, after which inflation took off, the > Bretton Woods system collapsed, and the U.S. and the > world plunged into the deepest economic downturn to > date (1973-1975) since the 1930's. Of course Nixon was > dealing with long-term trends that pointed far beyond > his election strategy, but the aim of the "political > business cycle" is to have the shit hit the fan > immediately after the election, allowing maximum > political flexibility to "Do Something" after > consolidating political power. > What is indisputable is that there was a three-year > (2000-2003) "bear market" in the U.S. and world stock > markets in which trillions of dollars of paper value > disappeared, and a "mild recession" which, again, > appears mild based on dubious statistics that are > constantly being manipulated for political ends. The > official unemployment rate of 6% during the 2001-2003 > period does not include the 1% of the U.S. population > in prison, nor the people who have entirely dropped > out of the labor market, nor people who are working > part-time (as little as a few hours per week) who > would like to work full-time. With these parts of the > population included, the real rate of unemployment has > been estimated at roughly 11%. In reality, 2.7 million > jobs have disappeared in the U.S. economy since 2000, > and there has been little upturn so far in employment > figures. > It is equally clear that from January 2001 onward, > Greenspan and the Federal Reserve bank were looking at > the possibility of a full-blown deflationary crash, > following the end of the high-tech boom (in which it > was discovered, for example, that 98% of the > fiber-optic cable laid in the preceding years would > never be used). The Federal funds rate (the rate at > which the Fed lends to banks) came down in lockstep > fashion from 6% to 1% by June 2003. To this must be > added the Bush tax cut for the rich (approximately > $200 billion per year) and the rapid increase in the > Federal deficit (estimated at $375 billion for 2003) > from the balanced budget achieved (with some creative > accounting) in the last years of Clinton (it is > somewhat hilarious to see the Democrats now attacking > the Republicans for large-scale deficit spending). > Finally, the post-2002 decline of the dollar (30% > against the euro, 10% against the yen) is aimed at > making U.S. goods cheaper overseas, which so far has > not begun to curb the $500 billion annual U.S. > balance-of-payments deficit, but which should in short > order result in inflation in the U.S. by increasing > the cost of imported goods. In the meantime, the U.S. > must borrow $1.5 billion per day to cover this > deficit, and is currently taking 40% of world savings. > The minimum estimate of $2 trillion of foreign > indebtedness ($10 trillion held by foreigners offset > by $8 trillion of U.S. assets abroad) means that total > U.S. foreign debt is already 20% of GDP, a level > typical of a Third World country. Already 1% of U.S. > GDP is going to pay off the interest on foreign-held > debt. > The current wave of euphoria that the 2000-2003 bear > market is over is based on these (and other) paper > indicators of an expansion that has not yet altered > any of the fundamental crisis trends of earlier years, > but is rather based on all the expansion of liquidity > mentioned above. For all the late 1990's hype about > the "New Economy" and the high-tech "revolution", it > seems that the health of the U.S. economy still > depends on the willingness and ability of Americans to > buy houses and cars on credit, exactly like 40 years > ago. Third-quarter corporate profits in the U.S. > generally "look good", but as "Austrian school" > commentators such as Richebacher have pointed out, > they are generally based the success of layoffs and > downsizing by U.S. corporations. The basic strategy of > loosening credit has succeeded in driving the debt of > U.S. "consumers" to all-time highs, starting with the > ingenious mechanism of mortgage refinancing, putting > hundreds of billions of dollars of spending power into > the hands of the middle class, based on the ongoing > (but currently topping out) nationwide housing bubble. > This bubble, like the dollar bubble, will follow the > earlier high-tech bubble into collapse, leaving > millions of people with bloated mortages to pay off. > The hope of Greenspan and Bush was that greater > consumer spending would keep the economy alive until > corporate spending on capital plant kicked in, the > classic pattern of previous emergence from recession > since World War II. However, with U.S. firms > operating at 75% of capacity, and still working their > way out of the indebtedness of the boom years, this > capital spending has not emerged, and neither has any > significant upturn in hiring of workers. One of the > best indicators of a lack of capitalist confidence in > the current upturn is the rapid rise of some basic > commodity prices (another parallel to the 1971-73 > reflation), led by gold, which has increased by 20% in > 2003. > It is now essential to turn to the international > dimensions of the U.S. "recovery", which are still on > the margins of mainstream perception in the U.S. > itself. Fifteen years ago, the main imbalance in the > international economy appeared to be between the U.S. > and Japan: Japanese goods were conquering the U.S. > domestic market, and U.S. dollars were accumulating in > the Bank of Japan. Today, the focus is increasingly on > the imbalance between the U.S. and China, as the > latter is remaking the international division of > labor. The basic "engine of prosperity" for years has > been Asian exports to the U.S. in exchange for dollar > reserves. It is estimated that China, Japan, Taiwan > and South Korea alone hold over $1 trillion, and most > of that money is recycled into U.S. capital markets > (such as U.S. government debt) to make possible even > greater credit expansion and thus consumption in the > U.S. itself. Like Europe in the 1950's and 1960's, the > Asian industrial powers are allowing the U.S. to > finance its deficits with its own IOUs. Similar > trends, though not on the same scale, are still > visible today with European and OPEC holders of > dollars. > ...
