The just concluded G-20, where the US was part of a minority of 3 calling for more spending, countries agreed to disagree, otherwise the default option in a quickly diverging (unraveling?) world.
On the one hand, smaller countries may be reluctant to keep spending, thus growing deficits and possibly losing some of their sovereignty--see Greece, that little economy that was used to remind some that they cannot undo 50 years of prosperity just by offering savings and trade alternatives to the dollar.
On the other hand, if the US believes in stimulus, what's there to stimulate anymore, besides deficit-growing consumption? The US move could be seen as an effort to make to world in the eyes of the bond-holders/buyers equally leveraged.
All in all, I expect that what I wrote more than 2 years ago to increasingly become part of our daily lives, protectionism. Who said that the renewal part of capitalism was fun?
Given the current strengthening of the power of the US executive branch, I wonder how prepared the system will be to cope with a downward readjustment. On paper, the government and the corporations look stronger by the day. In reality, a major diversion will be required to put all that in motion.
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2 comments:
Historical ignorance and a failure to adjust for LIBOR is always a prescription for smug, blind, and stupid economic policy. European economies were in far greater debt in the 1930s than they are now. The English and the French were forced to convert there arms orders into debenture T-Notes (I.O.U.'s at interest) to the U.S. Treasury by then Treasury Secretary William Gibbs MacAdoo. MacAdoo shut down Wall Street markets for one full month in 1914 when England and France attempted to convert all of their U.S. notes into gold in order to purchase arms, for conducting the then European War, when the U.S. was still pursuing peace and neutrality. Instead MacAdoo forced the English and French to purchase their arms using debt notes. The result was "peace and prosperity", that got MacAdoo's father-in-law, President Woodrow Wilson, re-elected. The nation was split between Allied and German sentiment. German attempts to get involved in establishing a sympathetic government in Mexico tipped the scales of public opinion against Germany. The U.S. went to war. The stimulus and debt transfer made the U.S. the richest most powerful nation in the world.
In the 1920s everyone had a party. Lot's of financial criminal activity and stock manipulation ensued by the largely unregulated and celebrated 'private sector.' In Europe, the French and English attempted to transfer all of the debt and interest they had incurred by transferring it to the Germans through 'reparations.' The Germans attempted to print their way out of their debt crisis. The hyper-inflation of the Weimar Republic and the psychotic reaction of the German National Socialist forces and racism set the stage for WWII. - That's an over-simplified "Monarch Notes" version of events - but the point that there was a huge rolling European debt caused by a legacy of wars and arms expenditures is the point.
The irony of the current mess is that Germany's fear of history and the culture's anal-retentive tendency to hoard and restrict spending, may send Europe into another Depression and pull the world along for the ride. Hopefully less, "unemotional and objective" minds than the Germans who have always fancied themselves 'hyper-rationalists' when they have always been fighting a tendency to hysteria, will prevail. Keynes was proven correct in the last world wide Depression, and it is depressing to see a bunch of Republicans bent upon punishing the poor, and Germans fearing the ghost of Weimar, driving over the cliff together into the abyss while opinions weigh with sheer fiction that "European debt problems were far less severe in the 1930s." Such opinions are simply false at be and malicious delusional lies if they are spoken from a base of historical factual knowledge.
Too bad no one dares go near a radical re-assessment of the phenomenon of "global markets" deciding the fate of entire nations. This phrase is, after all, a euphemism for the totemic system of corporations and shareholders, mediated through a subsystem of institutionalized bookies, and supinely deferred to ultimately on the basis of a sheer arrogance of entitlement to have one's wealth multiply, regardless of all externalized costs to the world community and to any sort of genuine collective sanity.
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