Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: beginning of the end?

[Jim Devine <jdevine@xxxxxxxxxxxxxxx>]

At 05:15 PM 10/15/00 -0400, Doug wrote:
> Coordinated interest rate cuts as a reaction to a panic would leave
> cross-national differences unchanged, so the currency impact could be
> minimized. And in a panic, CBers and traders would forget about inflation
> and worry about keeping everything afloat.

That's true: coordinated interest cuts would work, as orthodox theory
suggests. (They're pretty good at supply & demand.)

Suppose, however, that the CBers forget about inflation and pump up the US
asset markets along with the value of the dollar. The problem is that this
action would encourage the bubble to continue. More US external debt, more
US consumer debt, more US corporate debt. The "Three Bears" (as I define
them, not as others do) get bigger in that case. Imbalances accumulate,
meaning that the eventual recession would be much more serious that that of
1990, which the Fed had quite a hard time dealing with (despite the
Krugmanite belief about its ability to fine-tune the economy), along with
international aggregate-demand repercussions.

US fiscal loosening and/or recovery of the economies outside the US seem
necessary.

(Of course, that recession was "functional" in some ways, since a steep
yield curve helped the banks revive their balance sheets and the so-called
"jobless recovery" promoted income inequality to soar from 1992 to 1993,
much faster than the trend since the early 1980s.)

(BTW, Doug, did you see my e-missive to pen-l on the census figures on
family income inequality? Do you have any explanation for the sudden
increase in inequality between 1992 and 1993?)

> What's your nightmare endpoint? 1929-32, or 1973-75, or 1979-82? We could
> have a nasty bear market with a deep global recession, but without total
> meltdown. I think total meltdown is highly unlikely, though never impossible.

I don't expect a total meltdown, since the CBers do want the capitalists to
survive. Since our survival is highly dependent on theirs, we likely won't
see 25% unemployment again. Alan G. probably will shift toward Keynesianism
if necessary, since despite his Ayn Randism, he's quite pragmatic. [I note
that he's named after the Alans, a "barbarian" group from Iran that moved
into Gaul and later "merged with" the Vandals, according to Encarta.]

If I had to guess (and that's all I can do), I would say that a recession
of the 1990 sort, multiplied by 2, is likely.

> The nature of the next U.S. recession is very important. If it's mild,
> then the profit upswing that began in 1982 did mark the beginning of some
> long boom, which could on the next upcycle be more widely generalized
> (which I think could be good news for the working class). if it's nasty,
> then we've been living through a bubble, and god knows what's coming.

Frankly, I think that the latter is more likely. All of the triumphalism of
the neoliberal revolution and most of the data seem to fit with what I know
about the late 1920s in the US and the world. (There are major differences,
but they don't seem to change the picture.) The citizens of the old East
Bloc wanted normalcy -- a word that an early neoliberal, President Warren
G. Harding, coined -- and I'm afraid they're going to get it, on top of the
disaster they've already got.

The world-wide race to the bottom (and competitive austerity, spurred on by
the IMF and the US Treasury) makes the possibility of generalized
prosperity very small.

"May you live in interesting times." -- old Chinese curse.
Jim Devine jdevine@xxxxxxx &  http://bellarmine.lmu.edu/~jdevine