comments:
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.
BTW, the Fed Funds rate is NOT the rate at which the Fed lends to banks. That's the
discount rate, which
moves in step.
Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
-Original Message-
From: michael [mailto:[EMAIL PROTECTED]
Sent: Wednesday, November 05, 2003 6:34 PM
To: [EMAIL PROTECTED]
Subject: [PEN-L] Loren Goldner on the economy
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
