Re: Krugman on good news

[Mike Ballard <swillsqueal@xxxxxxxxxxxx>]

--- Eubulides <paraconsistent@xxxxxxxxxxx> wrote:
> [Jeebus..........]

Quite intriquing that workers keep producing and
producing, yet *we* appear to be in debt to other
ruling classes of the world.  I guess there's nothing
left to do but to take over and run the means of
production for ourselves.  Wake up turkeys or we all
through.

And now for the bad and the ugly,
Mike B)
******************************************************
Pause in the Crisis or
Beginning of New Boom?

By Loren Goldner

On Oct. 30 the U.S. Department of Commerce announced
that the U.S. economy had grown at a 7.2% 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
?like Bush today--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 is currently taking 40% of world savings.
The minimum estimate of $2 trillion of foreign
indebtedness ($10 trillion held by foreigners offset
by $8 trillion of U.S. assets abroad) means that total
U.S. foreign debt is already 20% of GDP, a level
typical of a Third World country. Already 1% of U.S.
GDP is going to pay off the interest on foreign-held
debt.

The current wave of euphoria that the 2000-2003 bear
market is over is based on these (and other) paper
indicators of an expansion that has not yet altered
any of the fundamental crisis trends of earlier years,
but is rather based on all the expansion of liquidity
mentioned above. For all the late 1990?s hype about
the ?New Economy? and the high-tech ?revolution?, it
seems that the health of the U.S. economy still
depends on the willingness and ability of Americans to
buy houses and cars on credit, exactly like 40 years
ago. Third-quarter corporate profits  in the U.S.
generally ?look good?, but as ?Austrian school?
commentators such as Richebacher have pointed out,
they are generally based the success of layoffs and
downsizing by U.S. corporations, not to mention ?pro
forma? accounting methods whose efficacy was (once
again) revealed in the wake of the March 2000 crash.
The basic strategy of loosening credit has succeeded
in driving the debt of U.S. ?consumers? to all-time
highs, starting with the ingenious mechanism of
mortgage refinancing, putting hundreds of billions of
dollars of spending power into the hands of the middle
class, based on the ongoing (but currently topping
out) nationwide housing bubble. This bubble,  like the
dollar bubble, will follow the earlier high-tech
bubble into collapse, leaving millions of people with
bloated mortgages to pay off.   The hope of Greenspan
and Bush was that greater consumer spending would keep
the economy alive until corporate spending on capital
plant kicked in, the classic pattern of previous
emergence from recession since World War II.  However,
with U.S. firms operating at 75% of capacity, and
still working their way out of the indebtedness of the
boom years, this capital spending surge has not
emerged, and not to mention any significant upturn in
hiring of workers.  One of the best indicators of a
lack of capitalist confidence in the current upturn is
the rapid rise of some basic commodity prices (another
parallel to the 1971-73 reflation), led by gold, which
has increased by 20% in 2003.

It is now essential to turn to the international
dimensions of the U.S. ?recovery?, which are still on
the margins of mainstream perception in the U.S.
itself. Fifteen years ago, the main imbalance in the
international economy appeared to be between the U.S.
and Japan: Japanese goods were conquering the U.S.
domestic market, and U.S. dollars were accumulating in
the Bank of Japan. Today, the focus is increasingly on
the imbalance between the U.S. and China, as the
latter is remaking the international division of
labor. The basic ?engine of prosperity? for years has
been Asian exports to the U.S. in exchange for dollar
reserves. It is estimated that China, Japan, Taiwan
and South Korea alone hold over $1 trillion, and most
of that money is recycled into U.S. capital markets
(such as U.S. government debt) to make possible even
greater credit expansion and thus consumption in the
U.S. itself. Like Europe in the 1950?s and 1960?s, the
Asian industrial powers are allowing the U.S. to
finance its deficits with its own IOUs. Similar
trends, though not on the same scale, are still
visible today with European and OPEC holders of
dollars.

This centrality of the dollar in the world economy is
the main enigma to be unraveled to clear the way for
understanding future possibilities for accumulation.
The dollar has been in ?crisis? since ca. 1958, as the
Bretton Woods system began to come unstuck, and it has
survived the collapse of that system (1971-73) and
three decades of an outright ?dollar standard? (in
contrast to the former ?gold-exchange? standard of
1944-1971).  During this period, U.S. industry has
been down-sized, outsourced and hollowed out. With the
emergence of China, even maquiladora plants on the
U.S,.-Mexican border are relocating to Shenzhen.
Foreigners have been subsidizing U.S. deficits for 45
years as the price for access to the huge U.S.
domestic market. Counter-trends to an abrupt decline
of the dollar to date include foreign direct
investment in the U.S. (in part to circumvent the
possible protectionist backlash advocated by some
sectors of U.S. industry as well as some sectors of
organized labor), and the repatriation of profits from
the still-considerable U.S. assets abroad. But no
amount of qualifying the extent of U.S. economic
decline since the 1950?s can conceal the increasingly
fictitious character of the U.S. economy as a whole,
propped up by foreigners as ?too big to fail?. One
indicator shows this trend better than any other: that
of ?Tobin?s Q?, the bourgeois concept expressed in the
ratio of current value of total capital assets to
their cost of replacement today. One study shows this
ratio fluctuating around 1 for the entire 20th century
up to 1995, with obvious deviations below 1 (the
depressed, deflationary 1930?s) and above 1 (the
inflationary boom years of the 1960?s and 1970?s).
>From 1995 to 2002, Tobin?s Q for U.S. capital assets
increased to the staggering level fo 2.11. The credit
making this possible was largely extended by
foreigners.

Such an increase is contemporary with the similar rise
of the dollar in the same years, following the cheap
dollar of 1985-1995.  Foreign investment in dollar
assets after 1995 was a ?virtuous circle? in which
considerable profits (e.g. the stock market mania)
were supplemented by a steady rise in the dollar
itself. Beginning in 2000, the virtuous circle turned
into a vicious circle, with collapsing stock values
interacting with a declining dollar, so that a foreign
investor was losing at both ends. By 2002, foreign
direct investment in the U.S. had turned negative, and
the head of the European Central Bank Wim Duisenberg
wondered out loud if the ?inevitable? decline of the
dollar would be a gradual retreat or a global panic.

But this is as far as ?economics? alone will take us,
and it is essential to look at the ?politics? in the
critique of political economy to understand to what
extent the U.S. will succeed in making the rest of the
world pay for its decline and crisis. Success or
failure here will in part determine the length of the
current U.S. ?job-loss? recovery.

The fundamental problem for U.S. capitalism is to
globally circulate the mass of fictitious capital
(most immediately embodied in that $2 trillion
external debt) that has built up over 45 years of
subsidized dollar hegemony, making possible that
capital?s valorization by extracting an adequate
amount of surplus value. (We are not even considering
here the unknown trillions tied up in the global
derivative markets and hedge funds.) This is the key
to U.S. foreign policy, which is aimed at breaking
down all remaining barriers to  such extraction. It
has accomplished this through the neo-liberal policies
of the International Monetary Fund and World Bank,
bleeding dry four billion people in 80 Third World
countries. It has accomplished this by the opening of
the former Soviet bloc and its vast natural resources
to unprecedented looting, provoking (in the Russian
case alone) the biggest peacetime demographic
contraction in modern history.  It has accomplished
this by the opening of China, whose economy, after 20
years of 8-10% annual growth,  is now in danger of
?overheating? from its absorption of so many surplus
dollars. It has accomplished this through NAFTA, the
free trade zone with Canada and Mexico, and now
intends to extend this zone to all of Latin America.
U.S. policy is now knocking at the doors of the
remaining trade blocs, Europe and the Asian industrial
powers, which present some obstacle to the kind of
neo-liberal looting of assets through ?corporate
governance? which in the U.S. itself produced the
meltdown of the post-2000 period. The U.S. gained
important advantage through the Asian crisis of
1997-1998, forcing open South Korea and other
countries for ?reform?. (Current studies estimate that
3.3 million service jobs will migrate from the U.S. to
India by 2015, making that country, along with China,
a further source of loot.) The U.S. has gained a
strong foothold throughout Eurasia, with troops from
Georgia to Uzbekistan (and Poland and Rumania agreeing
to U.S. bases)  with a policy aimed at keeping Europe,
Russia, India, China and Japan off-balance and thus
amenable to the needs of the world?s ?sole remaining
super-power?.

Unless and until the European Union can develop
political and military power to match its economic
size, the  biggest obstacle to this U.S. strategy of
making the rest of the world subsidize its decline is
Asia, and ultimately, China. Ever since the 1997-98
crisis, the Asian powers have been taking tentative
steps to build a trade bloc similar to the European
Union and to NAFTA, which would ultimately imply a
customs union, an Asian currency and something like an
Asian Monetary Fund independent of the IMF. (The
Japanese have made proposals for the latter, only to
be slapped down by the U.S.)  It is obvious to
everyone that the ultimate stakes in this strategy are
the breaking of dependence on access to the U.S.
market and from the ongoing accumulation of dollars in
exchange for goods. Accordingly, (as with Treasury
Secretary Robert Rubin in during the Asian meltdown)
the U.S. had ridiculed these attempts, just as it has
repeatedly (through Britain, through NATO and most
recently through the Afghan and Iraq wars) managed to
hobble European unification.

This brief analysis has up to now said nothing about
the other potential obstacle to U.S. capitalist crisis
management: the American working class. This is in
part because U.S. capital has been so successful,
since 1973, in driving down living standards for 80%
of the American population, with little open
resistance. One reflection of this success is the
falloff in strike activity to almost zero.  But it is
just possible that this attack on the working class
has gone about as far as it can go. The huge losses
sustained by the mutual funds of ordinary working
people in the stock market meltdown, the accelerating
disappearance of retirement for millions,  the
exploding cost of private health care, the endless
corporate scandals of recent years (Enron, World.com,
Tyco, etc.), the growing revulsion at CEO payouts by
looted corporations (or the $139 million payout to
Richard Grasso, former head of the New York Stock
Exchange) has eroded the right-wing populist base for
neo-liberal austerity of the past 30 years. The Los
Angeles supermarket and transit strikes that began in
October have witnessed  a widespread popular sympathy
and support not seen in years. To restore the minimum
wage in the U.S. ($6.50 per hour) to its purchasing
power of 30 years ago would mean increasing it to $18
per hour: even a modest working-class offensive to
regain the ground lost in the past three decades could
mark the end of the dollar empire.

http://home.earthlink.net/~lrgoldner/pause.htm


=====
*****************************************************************
?My other piece of advice, Copperfield,?
said Mr. Micawber, ?you know. Annual income
twenty pounds, annual expenditure nineteen and
six, result happiness. Annual income twenty
pounds, annual expenditure twenty pounds
ought and six, result misery. The blossom is
blighted, the leaf is withered, the god of day
goes down upon the dreary scene,
and ? and in short you are for ever floored. As I am!?

Charles Dickens' DAVID COPPERFIELD

http://profiles.yahoo.com/swillsqueal

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