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Hard money, hard times

By Owen Paine on Monday October 19, 2009 11:51 PM

Doctor of Econology Gentle Ben Bernanke has again sounded the dismal goat's horn, not for the first time, reconfirming our fate: we norte-americano job groundlings are to suffer a dose of protracted class immiseration.

Because it's our planetary duty. Translation: it's Wall Street's preferred pathway to rebalance global commerce. A necessary midcourse correction, so to speak, and we're elected to take the correction right in the paybasket.

"As the global economy recovers and trade volumes rebound, however, global imbalances may reassert themselves. As national leaders have emphasized in recent meetings of the G-20, policymakers around the world must guard against such an outcome. We understand, at least in principle, how to do this. The United States must increase its national saving rate. Although we should deploy, as best we can, tools to increase private saving, the most effective way to accomplish this goal is by establishing a sustainable fiscal trajectory, anchored by a clear commitment to substantially reduce federal deficits over time"
Yes, that's right, good people: instead of forcing currency zones in Asia and the Gulf region to allow the imperial dollar to seek its own far lower trade-balancing exchange rate, we the floorsweepers of empire are to be forced to live with massive job market slack and dismal household credit conditions for a long spell, or till Asian demand for our "output" catches up, depending on whichever hurts more and takes longer.

It's always a good first approximation to assume that worse for us is better for our plutonic superiors.

Oh and by the way: no, Ms Woodstock, this is not to aid the toiling masses of Asia. This is, as I too often point out here, them sacrificing us job goobers on the double cross of their phoney forex-fiddle-built, capital-export and product-import hegemonic dollar. Our homegrown multinational intermediaries need that steroidal dollar.

Hey, comrades -- you wouldn't want these earthwide bearers of brown technical progress, these missionaries for deep-dish commercial civilization, all crumpled up by a colossal dollar crash -- would you? I mean, really -- would you wanna see 'em rendered in one big compaction into an inky pile of useless trash bails?

Far better we geefers beat on, boats against the current, borne back ceaselessly into the blues.

Comments (11)

As Harry Braverman said, this impersonal, decentralized, totalitarian system does have its voices.

And it's true on paper/in moneyed pipedreams, there remains much in the way of concessions still to be squeezed out of the rich-country working and middle classes. So, sure, the system-voicers are going to start dreaming about another Reagan Revolution.

But late-stage addiction is a real hellfuck. A ten percent federal deficit isn't yielding more than a lower horizontal on the L, is it? Bailed-out banks are running TV ads about their eagerness to lend, for the all-too-obvious reason that they want to preempt pitchforks over their equally obvious UNwillingness to lend.


"The Chinese central bank's purchases have two effects. First, they help to keep interest rates low."
this is very miss leading

the rates are always ultimately fed produced
by fed control of the credit money net flows
in and out thru the fomc

what gobbbling the debt does is reduce our price level path
" China's purchase of dollar-based assets .....keeps down the value of its currency against the dollar."

the mechanisms can differ
ie lower dollar value thru higher price inflation here or lower exchange rate there
depending on whether the credit flow is allowed to inflate our prices or is gobbled up by china

now the knock on effects of inflation here
would obvously cause the fed to tighten credit
so by indirect mechanisms the us economy would have expanded more slowly then it did

hey sorry lots of inter-related moving parts here

problem short cuts imply simpler connections which build simpler models in folks heads
that allow the three card montee to work on em

even dean here possibly fully gets why he ought to state things more completely:

"Suppose China stopped buying up U.S. government debt. Interest rates in the U.S. would rise, which would have some negative impact on growth Of course, the Fed could try to offset this rise in rates by simply buying more debt itself. It has already been buying debt and it could simply buy enough to replace the lost demand from China. This would leave interest rates largely unchanged"
thank you dean
so why forget the fed's ability to counter any foreign buying or selling of dollars
by increasing the in flow of new credit money
ie the fomc could buy what china don't

okay so now there's more credit money in the system
but if the real production system has slack and is open to imports
maybe the inflation effect is largely zero
ie we get faster real growth just as with the china buy loop
never assume the market rate of interest is a given
ie a product of spontaneous market dynamics

why not just write this ??

okay if china stops buying our debt with their trade surplus dollars

"... the Fed doesn't intervene and lets interest rates rise. This will have some negative impact on growth, but there will also be a very positive side from China's decision to stop buying dollars. The dollar would fall in value against China's currency. This would make Chinese goods more expensive in the United States, leading U.S. consumers to purchases fewer imports from China and more domestically produced goods "

that is if the increased interest rate didn't lead to a fully off setting influx of foreign demand for dollars
the carry trade it's called
imagine you want to hold somebodies money
you have choices and the choices have dynamic ratios to each other
and interets rates
the change in the ratios is effected by the change in the interest rates right?
one is after total return here
and if interest rates are policy driven and the rate of expansion of the stocks of each currency can thus be modified...
well its worse then trying to picjk stocks
but it's done and it has its own knock on effects obvously

again the hidden variable trick

the answer is to get above this tiered market place and organize a global version of the fed
well that aint' gonna happen
side gaff:

"Even the rise in interest rates would have a positive effect since it would allow for the completion of the deflation of the housing bubble"
nonsense we need inflation
so let the chinese stop buying securities and let the fed buy em
let the dollar fall and inflation rise
that way house prices fall in real terms not nominal
ie the holders of the motrtgages take the hit

come on dean boy
you almost scored a touch down for the otgher team

rule the only good interest rate is zero
anything heading in the other direction is job class BAD

the method in dean's madness

"While decision of the Chinese to stop buying dollars might be good for the economy, it is likely to be disastrous for Citigroup and the rest of the basket case banks. If interest rates rose, then the value of the government bonds they hold would plummet"

but if he thought that thru he'd realize its a samson move for job class advocates ....eh ??


is my last it ..unclear ??

"it" is the notion one might spike the bondholders by raising rates

first that ie higher interest rates would obviously also add slack to the job market
by slowing expansion


thanks for the Dean Baker link... I'm a big fan

I think Owen has quite a lot of company, behind closed doors and off-the-record.

I was talking to an IMF big-wig last week about this stuff, and according to him there has been a conscious decision made to let China 'cheat' in the same way that Germany and Japan were allowed to cheat post-WWII, up until the Plaza Accord. He tended to look at it more as an IR issue of avoiding war with a nascent power, a type of appeasement policy. It's also based on a recognition that the simplistic Ricardian comparative advantage theory doesn't really work in reality. Given that there are economies of scale, those who have developed a large industry have a distinct advantage over those who might be better suited to that industry according to the theory of comparative advantage. In order to develop the economies of scale necessary to realize comparative advantages and complete globally, rising powers are allowed to cheat via currency manipulation/protectionism.
The basic idea is that the world of trade is like a poker cash-game. Any new player who sits down at the table will find themselves short-stacked and at an absolute disadvantage to those who have been playing for a while and have built a large stack. In order to bring more players into the game (or convince them to play the game, rather than rob it), those just starting out are allowed to cheat in order to build their stack. The problem always comes when the new player has built a big stack, but doesn't want to stop cheating.

That's the rationale used to justify the status quo amongst the elite Niall Ferguson types anyway.

I think it fails to take into account the division of domestic interests identified by Owen and Dean. The status quo is great for Wall Street, WalMart trans-nats and the CCP & their cronies, but it's a big shit-pie for workers in both countries. Americans get no jobs and cheap imports that they can't afford to buy because they have no jobs, Chinese get endless amounts of low-paying work and expensive imports that they can't afford to buy because their jobs pay next-to-nothing.

I thought that the crisis would have brought this system down by forcing the Americans to print money & devalue, and the Chinese to appreciate the yuan in order to reorient their economy towards domestic consumption. So far both sides seem dead set against any attempts to fix the situation, but I wonder how long they can keep it going. They may have barely avoided disaster in the last crisis, but by sticking to the policy they are ensuring that another one is right around the corner.


The quote is so mealy-mouthed, couched in such bathetic dessicated academic thoughtless speech, that I have no recourse but to take back his professorship and, while I"m at it, his stewardship of the world's imploding economy.
It was that "our leaders must guard against" tripe that initiated my reverse peristalsis. I can guard against hate, I can guard against purple zombies, I can guard against not getting seventy-five vestal vergins coming through the air - but that doesn't mean I'm doing anything about anything.
Or maybe it was the "sustainable" that did it. The word is hereby stricken from English. "Sustainable" applies only, and henceforth, and back through time, to bullshit, and bullshit only.
I realize I am not connecting with the thread here, but I'm still keeping it terse, keeping the jabs flying, and not inviting a counterpunch.
Hey, MJS, when is that Richard Dawkins demolition of yours going to hit the newsstand? Sales are getting slow hereabouts. Richard seems to be doing just fine, but Christianity seems on the way out...


"Bailed-out banks are running TV ads about their eagerness to lend"

Citibank had dayglo vest-wearing goodwill ambassadors deployed at Chinatown (NYC) streetcorners this past weekend... I figured it was an impression management exercise.


noted wind bag boro-sage:


"a new global trade strategy. We can't go back to current account deficits over 6 percent of gross domestic product, financed by borrowing from abroad. "

fairly obvious fact

"China, now some three-quarters of our manufactured goods deficit, is by far the hub of the problem."
nasty focusing--the us market made china just like it made japan and korea
the us market can make the next china too

"The president has wisely called on the international community to adjust cooperatively, challenging the Chinese and other mercantilist nations to expand domestic demand and reduce their reliance on exports"
precisely what china has done this past year

but here comes a little sunlight:

" that isn't going to happen so long as the Chinese are free to manipulate their currency"
fine so let's act to rectify that unilaterally with a ppp tax
but be fair and put it on all imports
until the forex fiddles end
more china bashing:

" subsidize their exports, savage their workers and environment, and mandate global corporations transfer jobs and technology to them."

note in particular the last count
is a lovely trans nat alibi
" boys and girls ...china MADE us do it "

BORO attacks !! :

".. we'll need to show some bite."

great err bite
wall street's head off..right ??
force the dollar down agin the oilers and the asians

errr noooo
we're leading by example
we're building an uncle sponsored
" ..bold manufacturing policy around new energy "

what ??? that'll end
the forex fiddlers jam session ???

yup here's why

it " ...will encourage companies, including Chinese companies, to make things here."

sky hook number 13 appears over head
hanging from it
the prize line of the post:

"We can't exchange dependence on foreign oil with dependence on foreign-made windmills"
...errr ..after that puff
of medicine wagon smoke
".. we should be debating putting a lid on our deficits, and announcing that we will move slowly to balance our trade. "

debating and announcing ...slowly
what bite eh ???

now before we can call him cream puff
he hits us with some hands grasping hands forming a virtuous circle shit

"If all adjust, we can have more trade, not less, but we can't go back to the old imbalances no matter what they do."

you're either forex
or against us pal
which is it ???


"I thought that the crisis would have brought this system down by forcing the Americans to print money & devalue"
the oil states thailand korea the trst of souhteast asia and of course the subcontinent
all peg de facto to the rmb and together
they all will easily absorb the dollar flow
created by our 300 billion dollar trade gap
by recylcing it into us security paper
hence no deval thru that mechanism is possible
in fact a deval will require direct
emergency tariffs triggering either a sudden wave of revals across the pacific into the indian ocean and up into persian gulf
that or a trade war of delightful proportions

, " the Chinese to appreciate the yuan in order to reorient their economy towards domestic consumption."
not necessary as they've shown
exports dove and yet the ecoonmy is regained its 10% growth rate
thru deficit spending and prodigal
domestic credit flows

"So far both sides seem dead set against any attempts to fix the situation"

if you mean the exchange rate ...yup

if you mean the trade imbalance nope

both are acting and in the case of china quite amazingly
by pinch penny occidental standards

but not by way of a change
in the dollar/ rmb exchange rate

china has incresaed consumption 15%
in a time of global contraction
and compatibly
our consumption has stagnated
that oughta marginally improve
the bilateral trade balance
all by itself if that contrast continues

but more importantly
the switch to high domestic consumption growth
imagine 15% in one year
reduces china's dependence on exports right
it's assignment from the big 20 economies

of coures china has to maintain its hyper growth path
and like japan and korea
the trade gap may "need " to continue

of course it can
as long as the exchange rate remains so viciously tilted
around 7rmb to 1 dollar now
prolly oughta be 3.5 to 1



nice graph of fired for ever
share of job losers
note the recent bending of the curve....UP-wise
looks nasty

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