Re: Re: RE: reform and rev

[Doug Henwood <dhenwood@xxxxxxxxx>]

Rakesh Bhandari wrote:

> (2) what happens if in running deficits, the US sucks up global
> capital, raises interest rates, and visits catastrophe on poorer
> nations? is this possible?

You're assuming that deficits drive up interest rates. There's no
simple relation between deficits and interest rates. If deficits rise
because of a weak economy - either passively, because of lower
revenues, or actively, as a policy choice - then government credit
demand could be offset by weaker private credit demand.

And you're also assuming that the U.S. doesn't use the borrowed money
to buy imports from poorer countries. Considering that every item of
clothing I'm wearing was made in a poorer country, and that the
computer I'm typing on was assembled in Mexico - not to mention what
we know from the trade stats - that seems wrong. Demand from the U.S.
has stimulated the economies of Latin America and East and South Asia
more than any interest effect.

Doug