Thursday, June 26, 2008
The Economy is Dead! Long Live the Economy!
The Game is Over. There Won't be a Rebound - Mike Whitney Interviews Michael Hudson on the Economy
No rebounds, but there may be a few dead cat bounces.
"Supporting the dollar’s exchange rate by the traditional method of raising interest rates would have a very negative effect on the stock and bond markets – and on the mortgage market. This would lead foreign investors to sell U.S. securities, and likely would end up hurting more than helping the U.S. balance of payments and hence the dollar’s exchange rate.
So Bernanke is merely being polite in not rubbing the faces of European and Asian governments in the fact that unless they are willing to make a structural break and change the world monetary system radically, they will remain powerless to avoid giving the United States a free ride – including a free ride for its military spending and war in the Near East.
when a bubble bursts, time makes things worse. The financial sector has been living in the short run for quite a while now, and I suspect that a lot of money managers are planning to get out or be fired now that the game is over. And it really is over. The Treasury’s attempt to reflate the real estate market has not worked, and it can’t work. Mortgage arrears, defaults and foreclosures are rising, and much property has become unsaleable except at distress prices that leave homeowners with negative equity. This state of affairs prompts them to do just what Donald Trump would do in such a situation: to walk away from their property.
The banks are trying to win back their losses by arbitrage operations, borrowing from the Fed at a low interest rate and lending at a higher one, and gambling on options. But options and derivatives are a zero-sum game: one party’s gain is another’s loss. So the banks collectively are simply painting themselves into a deeper corner. They hope they can tell the Fed and Treasury to keep bailing them out or else they’ll fail and cost the FDIC even more money to make good on insuring the 'bad savings' that have been steered into these bad debts and bad gambles."
America's Free Lunch is Over - How Should the Middle East Invest Its Oil Profits? by Michael Hudson
Ding dong, neoliberalism is dying. What will replace it, and how will the world's geopolitics be reshaped? One interesting suggestion for a step towards a post-neoliberal, post-Pox Americana world, directed at the oil-rich Middle Eastern countries:
"Offer to buy out the U.S. bases under construction, perhaps including the Green Zone buildup, at fair market value (certainly not at the exorbitant prices that Republican campaign contributors have been paid, with contracts that both the United Nations and the U.S. Congressional Budget office have found to have been corrupt and handled with improper oversight). This can best be done by making clear to the United States that the free lunch it obtained after going off gold in 1971 is over.
Two centuries ago the United States announced the Monroe Doctrine: Europe should leave the Western Hemisphere to U.S. as a sphere of influence. Is it not time for the world to act symmetrically and ask that the United States for its part leave the Eastern Hemisphere to that region’s nations, to develop as they wish in peace?"