RichardAWilson
22nd June 2011, 07:29
Repeated: A response I posted in another thread. Just wanted to post it in a new thread for review and debate.
The Global-Economy will continue to weaken. China is suffering from a real estate bubble which was financed and underwritten by the Chinese Central Bank. China continues to maintain a fixed exchange peg with the American Dollar as a method of maintaining industrial competitiveness.
The problem is that the dollar has continued to depreciate: Which has led to an overall depreciation of the Chinese Yuan. In order to facilitate the peg: China fired the printing presses. Now China is suffering from unsustainable producer, consumer and financial inflation.
Meanwhile, the European Union is suffering from a fiscal contagion that threatens: Athens, Dublin, Lisbon and Madrid. It’s widespread: The strength of the Common Currency has made European goods less competitive.
Since the mid-90s: Europe, much like America, has been running large and growing trade deficits.
In Greece: Those trade deficits have grown to unprecedented proportions. Low interest rates (from the European Central Bank), which were designed to revive the French and German economies, led to financial bubbles in those economies.
Spain’s Housing Bubble, for instance, was much larger than Southern California’s.
The same is the case for Ireland’s Housing Bubble.
To Summarize: Low interest rates and global misallocations in savings and spending led to large European housing bubbles: While the Strong Currency contributed to trade and capital imbalances.
Japan has been a mess since the late 80s and continues to suffer from consumer price deflation and general malaise. Tokyo is the world’s leading debtor in relation to GDP.
International Agencies have been slashing Japan’s Ratings.
While Tokyo’s indebtedness hasn’t become a Greek-style problem: Most of the nation’s governmental obligations are financed from within: As the population continues to age and dwindle - Japan will come to depend on foreign capital. Foreigners will not be as generous to Tokyo as the Japanese citizens have been.
This leaves us (America) with a problem. Should the European contagion spread: It would further undermine confidence in the global financial system. Can we say the Lehman Brothers? This means the financial system would freeze again and consumer and business spending would be dampened. The problem could even spread to our States (California).
Furthermore: Consumer and business spending remains constrained. State and local authorities are implementing European-style Austerity in a bid to balance the books. The problem is that fiscal austerity reduces aggregate demand and contributes to an even weaker economy:
I.e. Even lower tax revenues, more spending on UI Benefits and Social Welfare. Federal Spending, even with the so-called Stimulus and the Bush Tax Cutting Extension and the White House’s Payroll Tax Cutting, won’t be sufficient to offset the declines in state and local spending.
The American Problem is clear: Money is flowing: It’s just not being utilized. Corporate America is sitting on $2 Trillion in Cash and the Banks are sitting on another $1 Trillion in “Excess Reserves.”
Until there is more aggregate demand (more spending): Businesses aren't going to spend. Until there is more confidence in the invisible recovery: Banks aren't going to lend.
Supply-Side Economics will only work (reinforce growth) when businesses and individuals are spending and investing:
Just as Monetary Stimulus (By the Federal Reserve) will only work when banks are lending and businesses and consumers are borrowing.
The White House doesn't understand this. The Federal Reserve does understand: However, there is little the Fed can do besides keeping interest rates low and printing even more money. The super-rich on Wall St., which now controls Washington and Corporate America - financial parasites are a different breed than the Industrial Robber Barons - don't care about the overall economy: Because stocks can continue to appreciate and profitability can remain strong: Even if the economy sucks.
The Global-Economy will continue to weaken. China is suffering from a real estate bubble which was financed and underwritten by the Chinese Central Bank. China continues to maintain a fixed exchange peg with the American Dollar as a method of maintaining industrial competitiveness.
The problem is that the dollar has continued to depreciate: Which has led to an overall depreciation of the Chinese Yuan. In order to facilitate the peg: China fired the printing presses. Now China is suffering from unsustainable producer, consumer and financial inflation.
Meanwhile, the European Union is suffering from a fiscal contagion that threatens: Athens, Dublin, Lisbon and Madrid. It’s widespread: The strength of the Common Currency has made European goods less competitive.
Since the mid-90s: Europe, much like America, has been running large and growing trade deficits.
In Greece: Those trade deficits have grown to unprecedented proportions. Low interest rates (from the European Central Bank), which were designed to revive the French and German economies, led to financial bubbles in those economies.
Spain’s Housing Bubble, for instance, was much larger than Southern California’s.
The same is the case for Ireland’s Housing Bubble.
To Summarize: Low interest rates and global misallocations in savings and spending led to large European housing bubbles: While the Strong Currency contributed to trade and capital imbalances.
Japan has been a mess since the late 80s and continues to suffer from consumer price deflation and general malaise. Tokyo is the world’s leading debtor in relation to GDP.
International Agencies have been slashing Japan’s Ratings.
While Tokyo’s indebtedness hasn’t become a Greek-style problem: Most of the nation’s governmental obligations are financed from within: As the population continues to age and dwindle - Japan will come to depend on foreign capital. Foreigners will not be as generous to Tokyo as the Japanese citizens have been.
This leaves us (America) with a problem. Should the European contagion spread: It would further undermine confidence in the global financial system. Can we say the Lehman Brothers? This means the financial system would freeze again and consumer and business spending would be dampened. The problem could even spread to our States (California).
Furthermore: Consumer and business spending remains constrained. State and local authorities are implementing European-style Austerity in a bid to balance the books. The problem is that fiscal austerity reduces aggregate demand and contributes to an even weaker economy:
I.e. Even lower tax revenues, more spending on UI Benefits and Social Welfare. Federal Spending, even with the so-called Stimulus and the Bush Tax Cutting Extension and the White House’s Payroll Tax Cutting, won’t be sufficient to offset the declines in state and local spending.
The American Problem is clear: Money is flowing: It’s just not being utilized. Corporate America is sitting on $2 Trillion in Cash and the Banks are sitting on another $1 Trillion in “Excess Reserves.”
Until there is more aggregate demand (more spending): Businesses aren't going to spend. Until there is more confidence in the invisible recovery: Banks aren't going to lend.
Supply-Side Economics will only work (reinforce growth) when businesses and individuals are spending and investing:
Just as Monetary Stimulus (By the Federal Reserve) will only work when banks are lending and businesses and consumers are borrowing.
The White House doesn't understand this. The Federal Reserve does understand: However, there is little the Fed can do besides keeping interest rates low and printing even more money. The super-rich on Wall St., which now controls Washington and Corporate America - financial parasites are a different breed than the Industrial Robber Barons - don't care about the overall economy: Because stocks can continue to appreciate and profitability can remain strong: Even if the economy sucks.