[Marxism] Re: US Risks A Downhill Dollar Disaster

["Jurriaan Bendien" <andromeda246@xxxxxxxxx>]

Marvin wrote: "But another point some of the anti-deflationists are making
(in reply to Stephen Roach, among others) is that the Fed will inflate its
way out of the debt crisis rather than let the economy tank. It will keep
supplying the banks with cheap credit to pass on to their corporate and
individual customers, saving them from bankruptcy and allowing them to work
down their loans more easily with depreciating dollars. In this scenario,
working people will be punished more by falling real wages (inflation) than
by mass unemployment (deflation)."

That "slow slide downwards" seems to be the more likely scenario, although
the extension of new credit would be increasingly more controlled (i..e.
more policing of the capacity to repay). But it would increasingly tend to
choke off the housing boom, as real disposable buying power declines, and
cause ordinary housing prices to stabilize or fall. It's important in all
this to remember though, that the bulk of credit is extended on the basis of
some underlying real asset or collateral.

Just looking at the US Consumer Expenditure Survey,
ftp://ftp.bls.gov/pub/special.requests/ce/standard/2002/income.txt
in 2002, the "average American" household ("consumer unit", i.e. 2.5
persons) was said to have an after-tax disposable income of $46,934 (in
which gross wage income is  $39,864; if you assume 16% tax that is about
$33,500 net wage income) and owned a home or apartment (with or without
mortgage) worth $104,331 at market value, and they would spend on average
about 11% of their net income paying that off (mortgage, tax, insurance).
About 70% of Americans own their own home. The CES does not state total
household assets, but you can estimate from Census data that the net worth
of the average household would be about $42,000.

Of course this "average" does not reflect the skewed income distribution in
society as a whole and the strong effect of age on net worth. But anyway
there is still a considerable amount of financial "flab" in the American
system. The Fed calls it "elasticity" (the marginal propensity to consume,
i.e. the rubber band theory of economics), see:
http://www.federalreserve.gov/pubs/feds/2004/200463/200463pap.pdf

Interestingly, of all the food the "average" American household consumes,
42.7% or so by value is said in the CES to bought away from home, and the
average household spends about 17% of its disposable annual income on
car(s), i.e. the "average" American household spends more on his/her cars
per year from current income, than on their housing. Undoubtedly, car
ownership is indispensable for most Americans, but 17% is nearly one-sixth
of disposable income!

Personally I don't really believe in these leftist doomsayer theories, but
there's no denying that socio-economic inequality will increase, and that
this affects the younger generation the most. As long as I've been alive,
people have been prophesying economic catastrophe, but meantime people are
making their lives pretty much as they did before.

Jurriaan




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