Are imbalances correcting?
European policy makers think so particularly those imbalances that in their view originate on this side of the pond. The current account deficit - setting aside the bulge from $90 rather than $60 oil — is heading down. Households seem to be cutting back on other purchases rather than borrowing more as their petrol bill goes up, so perhaps the household savings rate isn’t veering into more negative territory. Painful, sure. But ultimately healthy.
I am not 100% convinced, though, that all imbalances are correcting. To me the biggest imbalance in the global economy is the gap between the current account deficit that private investors want to finance and the current account deficit the US now runs. That imbalance– at least in my view — seems to be getting bigger, not smaller. The deficit that private investors want to finance seems to be falling even faster far faster than the actual deficit.
Of course, when US investors take risk off the table and bring funds home, the dollar can rally. But the trend over the past two years has been pretty clear: as interest rate differentials move against the US, private willingness to finance the US deficit falls. And even back in 2005 private investors weren’t willing to cover the entire deficit.
George Soros says this cannot go on. At some point, Fed cuts in short-term rates won’t bring long-term rates down - as foreign investors will no longer be willing to hold dollars. The US will have to limp through a slowdown without any (additional) boost from monetary policy.
“If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.”
So far, though, there are no signs of trouble. Ten year rates are now around 3.5%. With oil around $90. Two-year rates are even lower: John Jansen of Across the Curve reports they dropped under 2% today.
The Fed seems to think the US is already in a recession (Dr. Hamilton: “I believe the FOMC cast its vote today with those who declare that a recession has already begun” ) And one of the questions that I have long pondered is who would finance the US during a slump, even one that helped to bring the US external deficit down gradually. The only real answer I could come up with was the same folks who financed the expansion of the US deficit at time when private demand for US assets remained subdued.
I spend a lot of time tracking central bank reserves. Even so, I cannot prove the following point. It is something I believe to be true, but cannot back with hard data - though the buildup of UK treasury holdings is perhaps indirect evidence.
I suspect that some central banks have gotten a little bit more conservative with their funds over the past three months even as some sovereign wealth funds have gotten more aggressive. And remember, the flow through central banks is a lot bigger - somewhere between 6 and 10 times bigger - than the flow through wealth funds.
Put it this way: Would any central bank reserve manager want to be the one who recommended dabbling in the US asset-backed securities market last spring? The one who recommended a 10% allocation for global equities in December? Central banks don’t like losing money, at least not in dollar terms. If they lend a dollar out, they want a dollar and (a very small amount of) change back.
Or consider another case - a rather important one. China’s State Administration of Foreign Exchange doesn’t seem to have much credit market exposure. Prepayment risk on Agency MBS - absolutely. But not outright credit risk. However, China does seem to have allowed the Bank of China and to a lesser degree the other large state commercial banks the freedom to experiment with higher-yielding dollar debt after they were recapitalized with fx reserves.
Does anyone think China’s bank regulators are currently telling the Bank of China that the meltdown in the subprime market represents an opportunity to double-down?
If central banks are less willing to take on risk at a time when their reserves are still growing, that would, in turn, help to finance a counter-cyclical US macroeconomic policy during a recession.
That at least is my current very tentative thinking.
I think you called it right months ago when you proposed that there might be no level for the dollar where the US could balance trade, Brad.
What’s needed is major surgery to alter the cost structure of the United States, i.e. political change. Big moves like a 2% of GDP cut from defense spending and a 5% of GDP change from single payer. Very painful medicine, especially for those sectors of the economy, but only changes of that magnitude are large enough to substantially reduce the need for borrowing from abroad.
IMHO, of course.
Brad,
Foreign central bankers are in a multi-player prisoners’ dilemma. It is in their collective self-interest to avoid a disorderly unwinding (resolution?); yet it is most definitely in their individual self-interest to defect from the cooperative outcome. For the most part, they are conservative folks, who can be relied upon to do what is “sound”. Sadly, as Keynes said:
“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”
Sounds rather like dancing as long as the music is playing (even though you know it is going to stop sooner rather than later).
While important, all this talk of imbalances and currencies may obscure a fundamental problem. The problem is an imbalance of living standards — including such things as safety regulations, pollution controls, labor laws — around the globe. Given the political-technological trend towards increased decoupling of production from location, the only cure for the US trade imbalance is a decline in US living standards, an increase in the living standards of the rest of the world, or a combination of both. How else will US labor compete?
The fact that foreign govenments are supporting the current imbalances should tell everyone something. Namely, they want to keep the current system that allows the shifting of production out of the US going for a while longer. Why? Could being able to do research, develop, and make things still matter to some nations? There may be more to global relations than considerations of financial return.
http://www.antiwar.com/engelhardt/?articleid=12248
Going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. This utter fiscal irresponsibility has been disguised through many manipulative financial schemes (such as causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.
There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on “defense” projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.
Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures - so-called “military Keynesianism,” which I discuss in detail in my book Nemesis: The Last Days of the American Republic. By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.
Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call “opportunity costs,” things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world’s number-one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs - an infinitely more efficient use of scarce resources than arms manufacturing. The fact that we did not modernize or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated.
USD oddly stable. Market is anticipating corresponding cuts from other central banks. Hard truth is that other central banks are forced to use real inflation rates. Also, ECB does not have a mandate for anything other than inflation. Watching the monkeys on CNBC screaming that the rest of the world needs to follow the fed was pathetic.
Unlike the Bernanke Fed that prostitutes US monetary policy to the Wall Street banksters at Goldman Sachs and Citicorp, Kudos to the ECB for a “sound money” policy. The US needs a real Central Bank serious about monetary stability and fighting rising inflation. - Dave C.
” European Central Bank President Jean-Claude Trichet appeared to slam the door on an interest rate cut. Trichet emphasized the need to fight inflation, saying “In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets.”
agree re: the dollar. oddly stable. expected negative carry v euro after next meeting hasn’t pushed $ down. could be euro is just too strong. insights always appreciated.
I’d like to put a couple of twists to extend Soros’s assertions, because I think the dollar devaluation has a lot more life than supposed at first glance.
First, it will always be possible to exchange USDs for goods as long as it is the legal tender in the USA. So, USDs should always have a value anywhere in the world.
Lenders receiving USDs ammortization and interest, should add a devaluation yield premium to their loans, to counter this effect.
What I find interesting, is the fact that this should provoke a huge inflation in the US, which is countered by the willingness of our lenders to foot this double bill, no devaluation yield in the loans, and low priced goods which counter the inflation.
And, it seems that this is all in their best interest, growing market share and military protection.
US can make china revalue its currency immediately if fed starts piling up yuan reserves. This make china to forcibly revalue its currency and govt can default on bonds thus making US govt debt free.
“If central banks are less willing to take on risk at a time when their reserves are still growing, that would, in turn, help to finance a counter-cyclical US macroeconomic policy during a recession.”
I am still trying to make sense of this paragraph. Are you implying things will go back to “normal” and that stimulus package being discussed in Washington will be from foreign central banks?
On dollar stability, I have a hypothesis, but no idea on how to test it.
My hypothesis is that the “panic selling” in Asia has actually been mostly American investors taking profits. By repatriating dollars, they temporarily strengthen the dollar. Parking it in “safe” investments, they force down US interest rates.
Now, as soon as those dollars come out of hiding, the dollar (in my hypothesis) will fall.
I’m sure that things are more complicated than this. The really weird observation that Asian markets falling on 1/22 translated into Europe, Mexico, and Brazil rising suggests to me a global redeployment of funds on an unprecedented scale and with unprecedented speed. But if I am right, the Euro/dollar, peso/dollar, and real/dollar will start rising.
Here’s the counterargument: In the last few days, real/dollar has fallen a bit and peso/dollar is mixed. But there should be a several day lag between tranfer and settlement. Also, the Bolsa and the Bovespa are down today, so any effect was not lasting.
Brad said agree re: the dollar. oddly stable. expected negative carry v euro after next meeting hasn’t pushed $ down. could be euro is just too strong. insights always appreciated.
I reckon it is caused by on-going de-leveraging,. which is as I write this, is thrashing virtually all leveraged spec and specu-u-trage trades throughout markets.
bsetser: “To me the biggest imbalance in the global economy is the gap between the current account deficit that private investors want to finance and the current account deficit the US now runs.”
Is it possible that the SWFs are crowding out private investors rather than the latter being unwilling? Is this possibility even empirically testable?
bsetser: “And remember, the flow through central banks is a lot bigger - somewhere between 6 and 10 times bigger - than the flow through wealth funds.”
Does this matter? The SWFs have at least $200B - for all practical purposes infinite. The CBs may have even more but that is just a “larger infinity”.
Dr. Setser / Guest / Anonymous - the dollar is benefiting from carry trade unwinding, so you may see some dollar “strengthening” against the likes of AUD, NZD, and GBP. However, the crosses tell the true story–look at, say, GBP/JPY or AUD/CHF and the story becomes clearer. Yes, risk unwinding may benefit the dollar, but it’s not because anyone’s moving to the dollar as a “safe haven.”
Entrusting your money with Bernanke’s finest is like leaving your kids with Britney Spears for day care.
i have no idea, brad, if you are, politically, inclined towards unilateralism, or multilateralism - but even those inclined towards a vision of a multilateral, globalised world, still tend to hang on to outdated mental concepts from a less ‘globalised’ era.
‘is the united states in a recession ?’ ask a hundred headlines, with other variations on that theme. ‘the united states’ is no longer a discrete entity. to imagine so is to join the separatists of vermont in a fantasy world.
the connections in the current global economy are multiple and you can’t pull on one loose strand without unravelling the whole sweater.
the chinese seem to understand this. the dollar bears do not. you come to a point in financial destabilisation where the dollar can fall no further without unravelling other parts of the knitting, not necessarily the nearest bits.
i believe bernanke’s helicopter theory - if he really believes it - is flawed. at the moment currencies in general are appreciating against oil and gold, yet people in denial say that this can only be temporary. are they sure of that ?
the sheer quantity of dollars gives that currency an inertia. to take the rules as they apply to e g argentina’s last crisis and to use them to predict what will happen to ‘the united states’ and ‘the dollar’ is deeply flawed thinking.
is it not likely to be unwinding trades that are boosting both the dollar and the yen ?
the bush / bernanke stimulus is purely cosmetic. liquidity doesn’t reflate burst bubbles, and their credibility is one of those bubbles. far greater forces are at loose in the world. this year could be highly educational to anyone with an open mind.
i also tend to think it is deleveraging (re $/ euro) but am less convinced of this than in early august, when it seemed like some specific european institutions had $ exposure they were covering by borrowing in euros and selling eur for $.
Satish — the yuan isn’t convertible, so the US cannot build up yuan reserves. another asymmetry.
I agree with your analysis. The Chinese financial authorities will want to at the least mitigate the quickness of the US slump to support Chinese exports to the US.
For this analysis to hold up, inflation worldwide will have to subside. Are you onto something that we are not aware of?
For the Flintstones and the Rubbles, credit cards will remain maxed, and mortgage payments difficult. After all, their salaries won’t be increasing.
The cost of US foreign policy, “defense spending” will remain at crazy level.
So, with only 3.5% interest cuts left on offer, is there realistic hope that the US economy catch its breath and come back strong?
About as likely as getting drunk on plain coffee, if you ask me….
The panicked efforts to save the US financial system, typified by the reckless three-quarter-point interest rate cut by the Federal Reserve and the Bush/Paulson stimulus plan not only will not work, but will backfire spectacularly. The US financial system is on life support, and any attempt to save the fictitious values of the trillions of dollars of worthless financial paper will not only fail, but will destroy the nation with runaway hyperinflation. The Federal Reserve is foolish to even consider printing more US Dollars.
Emmanuel, the problem with crosses is that each one tells its own story. With GBP, for example, there’s a financial crisis in the UK that may rival or exceed that of the US. With AUD, there’s inflation. So, I don’t disagree that there may be more information in the crosses, just that interpreting it is pretty complicated. There’s simplicity in looking at many USD/other.
I do agree with Gillies point that one has to look at the size of markets. It takes a whole lot less movement of money to crash the Hang Seng than the NYSE.
LC — I am implying that increased central bank demand for treasuries will help to finance the stimulus as well as the natural rise in the deficit associated with an economic slump.
Deutsche Bank’s chief economist Dr. Norbert Walter on BPR radio.
He is very negative on the FED. The rate cut should have been announced on a regular meeting. Bernanke would now look like he only cared about the markets, not about the economy. He would add to the nervousness and the panic in the markets. Even more important, the FED might run out of steam: The rate cuts so far did not have the desired effect.
Walter also stressed that there were bubbles to pop in Spain, the UK, Ireland, Australia, China. He expects a severe recession in Japan.
The housing crisis in the US would take many years, “eine lange Durststrecke”.
He thinks the ECB will not cut rates as long as the measured inflation is above 2%, felt inflation is a huge problem, he thinks.
There is clearly no disconnect, Europe and Asia will be hit by a US recession.
Brad-”I am implying that increased central bank demand for treasuries will help to finance the stimulus as well as the natural rise in the deficit associated with an economic slump.”
Yes, but I question that assumption. With inflation rising around the world, central banks are now biased toward tightening (major exception is Fed). Tightening measures include interest rate hikes, currency appreciation, bank reserve requirements or all of the above. Given that, do you still see central banks demand more treasuries?
Soros says the present crisis will finish the US dollar as the world’s main currency.
http://www.iht.com/articles/2008/01/23/business/davos.php
Hillary is promising “affordable medical care for EVERYONE” and similar promises of “butter” are being made by competing candidates. The coming surge of baby boomers demanding social services in their retirement will make it completely impossible for the US to continue to spend uncounted billions on war to please Israel and colonize Iraq and spread our military control over the Middle East. The end of US Empire is fast approaching and a shrunken, inward-looking US will come with it. Israel made a vast error to tie its wagon to the US star. Soon I predict it will be scurrying about to make amends and patch up relations with its Arab neighbors, if it can.
Completing the role reversal, Nouriel Roubini, an American economist, said, “the United States looks like an emerging market,” with large budget deficits and a swooning currency. By contrast, he said, Brazil, an actual emerging market, had done a better job of overhauling its economy.
Roubini, whose frequent predictions of a downturn have made him something of a soothsayer in Davos, predicted the United States would suffer a recession lasting at least a year. He foresees a flood of defaults on car loans and corporate bonds, as well as a prolonged bear market.
“The debate is not whether we’re going to have a soft landing or a hard landing,” he said. “The question is only how hard the hard landing will be.”
Soros: “If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.”
Setser: “So far, though, there are no signs of trouble. Ten year rates are now around 3.5%.”
The Fed is simply offsetting some of the deflationary effect of the credit contraction. This is evident in bonds yields. The credit contraction will be deflationary until it isn’t. Then bond yields will rise relative to the funds rate. Bond yields won’t gap to infinity any more than the stock market will gap to 0. That’s not the way markets work. SWF expansion into risk assets means there is more liquidity for the adjustment process than otherwise.
anonymous — in that world, reflation is accompanied by the emergence of the us from its (now anticipated) slump, and reduced need for fiscal stimulus. the question is who finances the fiscal expansion during the deflationary period. right now, there is no sign than an expansion of treasury issuance would push up rates.
Copy-pasting:
So many ways to avoid the truth
by Jerome a Paris
Martin Wolf, the senior economics commentator of the Financial Times (in London) has a column this morning where he proposes a number of explanations for today’s crisis, and indicates his preference. Guess what: it’s China, Russia and Saudi Arabia’s fault, with that old chestnut, the “savings glut” theory. His article is worth going through, because he does list a number of plausible reasons, dismisses some a bit too summarily, and ends up choosing the least inconvenient for the proponents of neoliberalism (in the traditional economics meaning of that word: pro freetrade and proderegulation - the hard version of which, currently being promoted by our global elites, has now also received the well-deserved monicker of “Shock Doctrine”). Let me explain in more detail what he means, and why I thinks he’s wrong.
He starts well enough
[One view is that this crisis is a product of a fundamentally defective financial system. An email I received this week laid out the charge: the crisis, it asserted, is the product of "greedy, immoral, solely self-interested and self-delusional decisions made throughout the 2000s, and earlier, by very real human beings at the very top of the financial food chain".
The argument would be that a liberalised financial system, which offers opportunities for extraordinary profits, has a parallel capacity for generating self-feeding mistakes. The story is familiar: financial innovation and an enthusiasm for risk-taking generate rapid increases in credit, which drive up asset prices, thereby justifying still more credit expansion and yet higher asset prices. Then comes a top to asset prices, panic selling, a credit freeze, mass insolvency and recession. An unregulated credit system, then, is inherently unstable and destabilising.]
But he dismisses it. (I note that he discusses the systemic risk, but does not touch the sentence about decisions “at the very top of the financial food chain…”)
[Yet there is a different perspective. The argument here is that US monetary policy was too loose for too long after the collapse of the Wall Street bubble in 2000 and the terrorist outrage of September 11 2001. This critique is widely shared among economists, including John Taylor of Stanford University.* The view is also popular in financial markets: "It isn't our fault; it's the fault of Alan Greenspan, the `serial bubble blower'."
The argument that the crisis is the product of a gross monetary disorder has three variants: the orthodox view is simply that a mistake was made; a slightly less orthodox view is that the mistake was intellectual - the Fed's determination to ignore asset prices in the formation of monetary policy; a still less orthodox view is that man-made (fiat) money is inherently unstable.]
This is the “bubbles” Greenspan theory, in different variants: a genuine mistake in the face of exceptional events (the dotcom/technological bubble, 9/11), a conscious decision to avoid assets prices, or a structual problem with the way money is created. He also does not address that last point, which I’m sure will provide fodded for ChrisCook…
But he moves on finally to the real culprit:
[A final perspective is that the crisis is the consequence neither of financial fragility nor of mistakes by important central banks. It is the result of global macroeconomic disorder, particularly the massive flows of surplus capital from Asian emerging economies (notably China), oil exporters and a few high-income countries and, in addition, the financial surpluses of the corporate sectors of many countries.
In this perspective, central banks and so financial markets were merely reacting to the global economic environment. Surplus savings meant not only low real interest rates, but a need to generate high levels of offsetting demand in capital-importing countries, of which the US was much the most important.
In this view (which I share) the Fed could have avoided pursuing what seem like excessively expansionary monetary policies only if it had been willing to accept a prolonged recession, possibly a slump.]
While he blames the problem on the surpluses of a few countries, he’s still lettign the cat out of the bag: normal economic policy would have caused a recession in such circumstances.
He concludes from that last point that it was therefore a correct reaction to thesez imbalances.
My counterreaction is that the reaction only made the problem worse, by pushing it further until it could no longer be hidden under a mountain of money, and that will cause a worse recession. We’re there right now, in fact.
And my position is that the monetary reaction to these imbalances was a coordinated effort with those that caused the surpluses on the other side in the first place, because these surpluses had the nice side effect of capturing and concentrating wealth in a few hands, a desired feature of economic policy by these policy makers.
Such capture policies were impossible in the past, precisely because of their recessionary effects: capture too much of the value added by shrinking wages, and demand collapses, recession hits, and profits suffer.
But if you can capture profits without causing demand to collapse, by supporting it through debt, you’re home and dry - and you even create a “virtous” circle whereby the financial sector becomes even bigger, more and bigger assets create apparent wealth that can be leveraged yet again, profits become bigger and even easier to capture, and the economic headlines look excellent.
To be fair, that whole scam was made possible with the cooperation of the Chinese and others, who protected their “take” in that cycle by keeping their currencies low, thus ensuring that global wages would remain as low as possible, that their demand would not grow to absorb the surpluses (because that would likely come in the shape of inflation, and cause the whole circus to collapse a lot earlier), and that they had plenty of liquidity to recycle in the financial system. Their “take” was a huge inflow of investment, rapid development and, in the smarter cases, infrastructure building that could prove durable.
But still, the core of the whole cycle was fiscal policy that favored the rich, macroeconomic policies and discourse that lauded profits as the ultimate goal and pushed for endless “reform” (meaning, lower wages and less stable jobs, thus a more compliant and cheaper workforce), and monetary policies that helped ride the inevitable empoverishment of the middle classes.
Thus this does not necessarily means that the financial system is inherently unstable, but it means that it can be, and that a few decisionmakers at the top can easily abuse policy for the profit of a few and at the expense of almost everybody else.
And it means that regulatory supervision of the system can only work if the narrative of profit and growth changes.
Which is our job.
Right now we see USD well supported against the majors n crosses. Just taking EURUSD n USDJPY. Thing about EURUSD is, many market participants are thinking about a rate cut by ECB sooner rather than later. So far people I spoke to are thinking likewise and a rate hike, as implied by Trichet, is a little far fetched.
USDJPY, well it seems that the Japanese are well aware of their problems. Being export based economy, the strong JPY is hurting them, at least from an expectations point of view. We have seen numerous speeches and actions well suggesting that there might be some intervention should the JPY “overly” strengthens.
euro — thanks for highlighting jerome’s comments, and adiemuso, thanks for your comments. v. helpful to me. do you have any links to such statements out of japan?
Dear Brad,
There is a very easy way of rebalancing the US economy (politically incorrect). And, by the way, to avoid a roubiniesque hard landing:
— First, take the military forces out of Iraq. That would rebalance oil going from 60 to 90 and it would be left a bit else to expend discretionary.
— Second, this vast military force (with a $623 billion budget for 2008), would do a very much appreciated job building rotten bridges and new railroads and repairing general infrastructure (out of their own budget, of course). So, we could avoid increasing unemployment and, as USA is plenty of empty houses, the government could give them a comfortable rest-place everyday in the spot they are working.
— Third, all the money going to Blackwater and so, could be used in giving food and rest-places to military workforces rebuilding the infrastructure, which would bring down unemployment recession time.
— Fourth, all the stimulus money from the fed should be used in food-coupons for poor, unemployment and healthcare help.
— Fifth, a dollar for gallon tax on petrol to everybody, to reduce oil consume.
— Sixth, spend the petrol tax in building green energy sources and employing unemployed people.
— Reorder the progressive taxes with +5% and remove GWB tax-cuts.
It’s not so difficult. In 3 or 4 years US would be in a good shape.
And the rest of the world would be much more friendly with USA and a sheriff less.
-:)
Best whishes
PS: I’m probably a Martian!
http://www.bloomberg.com/apps/news?pid=20601101&sid=a23EgfsOY1To
“We’ve seen very heavy selling in the past few days and right now the market’s taking a moment to pause,” said Yuuki Sakurai, who helps manage the equivalent of $54 billion in assets at Fukoku Mutual Life Insurance Co. “The break-even point for most exporters is around 105 yen to the dollar and investors will be more comfortable if we see the yen pull back closer to 110.”
Hi Brad,
I can’t find the exact quote off the articles i received…but managed to get something off bloomberg…think there is a jpy breakeven survey of major japanese exporters think the level is around 105-106…
Officially, the Japanese MOF has denied “any large fx intervention” but has yet to flatly rule out any fx intervention.
In the end, both China and the Saudis would prefer to have the US maintain a police presence in East Asia and the Middle East, and would be willing to shell out large amounts of money to maintain said presence…… In fact, that’s pretty much what they’ve been doing since 2003…..
If the US were to go home tomorrow, there would be utter chaos in East Asia, and I suspect the same would be true for the Middle East. China would have to deal with North Korea, a nuclear Japan, and an unleashed Taiwan, and that would be a set of headaches that Beijing just does not want.
Being a superpower is a pain in the rear end. People get mad at you. You end up spending huge amounts of money on weapons. You get yourself in all sorts of wars. That’s why the Saudis and the Chinese would much rather have the US do the dirty work.
Whether the US voter really wants this is the type of thing that people should be debating, but my suspicion is that most American voters would rather have the US stay a superpower even if it messes up the economy. There’s something about being “number one” that causes people to pay these sorts of costs.
Chomsky has this idea that somehow the American public is brainwashed by multi-national corporations. In reality, most MNC’s are sufficiently multi-national that they really don’t care if the US remains a superpower or not, since they will be perfectly happy to make deals with the post-US power. I think that there is something about the idea of “US is number one” that will keep the American voter to keep spending blood and treasure so that they can keep feeling good about waving the flag.
We’ll see how well Ron Paul does……..
euro: because these surpluses had the nice side effect of capturing and concentrating wealth in a few hands, a desired feature of economic policy by these policy makers.
I don’t think so. There is so much wealth out there that there isn’t that much need or desire to concentrate it. Once you make $1 million/year, you pretty much can have every material need a human being can want. At that point the usefulness of the next $1 million/year goes way down for anything except score keeping.
Quite honestly, I’ve never gone to any “let’s impoverish the middle class meetings” nor have I met anyone on Wall Street that thinks that way, but I think that what does get discussed at meetings would make a lot of people feel uneasy.
One thing that *is* true is that people in the financial centers do look at things globally, so there isn’t any particular sense of loyalty to the *American* middle class as opposed to say the *Belgian* middle class. So if jobs move from the United States to India the social cost to the United States is going to be balanced against the social gain to India, and if you don’t argue that Americans are somehow privileged, it’s really, really hard to argue against this on ethical grounds.
I think the degree to which multi-national companies don’t pay particular notice to the interests of Americans is something that a lot of people in the US would find shocking. The trouble here is that complaining about “national disloyalty” won’t work since a lot of the people who make these decisions aren’t Americans. There’s no particular reason that someone who is Belgian or Saudi would pay special attention to the needs of the American middle class.
People miss the reason why corporations are so profit centered. If you have a bunch of people from different backgrounds in a room, making money is often the only thing they can agree on.
koteli — i would happily embrace many elements of your program. it might help to give americans a sense that they control their own destiny as well.
Twofish: “There is so much wealth out there that there isn’t that much need or desire to concentrate it. Once you make $1 million/year, you pretty much can have every material need a human being can want. At that point the usefulness of the next $1 million/year goes way down for anything except score keeping.”
There are a lot of Mozillos over there acting otherwise.
T: “People miss the reason why corporations are so profit centered. If you have a bunch of people from different backgrounds in a room, making money is often the only thing they can agree on. ”
Yeah, money is not patriotic, ask to swiss banks or offshore banks. Greed is king in corporations, but they need someone to exploit not for social gains elsewhere, but to exploit harder for exponencial earnings.
The middle class is in between eating the losses.
@twofish:
“A free market in software, recoded music and video material, and most importantly prescription drugs, would likely make capitalism considerably kinder and reduce inequality. Perhaps no one is allowed at the World Economic Forum, at Davos, who would have made this point when Bill Gates made his plea, but presumably nothing prevents the Wall Street Journal, or other news outlets from pointing out this obvious fact.”
Dean Baker (dixit)
The problem Twofish is what free market we are talking about.
Mr. Setser,
“Households seem to be cutting back on other purchases rather than borrowing more as their petrol bill goes up, so perhaps the household savings rate isn’t veering into more negative territory. Painful, sure. But ultimately healthy.”
Didn’t you argue the contrary case recently?