Friday, January 28, 2005
Robert Kuttner on the Coming Bush Depression (From Beijing, with Love)
It's grimly amusing to hear the cons and their trained TV and radio pundits hold forth on how our economy is allegedly not in recession when I see the half-vacant hulks of once-thriving shopping malls like Minneapolis' City Center. But as bad as the present is, the future -- unless Bush suddenly turns into John Maynard Keynes and starts taxing the bejeezus out of the rich -- is going to get worse:
America's deteriorating fiscal situation, unfortunately, is not lost either on world money markets or on the Federal Reserve. Although no world leader would willfully plunge the world into depression, that's not how markets work. Markets are purely self-interested. Lately, markets, with good reason, have been betting against the dollar. As the U.S. trade deficit approaches a staggering 7 percent, it's not clear how much longer foreign investors will keep investing in dollars and dollar-securities, such as corporate stocks and government bonds. As for the Chinese, Clyde Prestowitz of the Economic Strategy Institute, formerly a senior trade negotiator in the Reagan administration, offers the following scenario: In a future crisis involving the tense China-Taiwan relationship, the Chinese ambassador suggests to Secretary of State Condoleezza Rice that maybe the United States would like to move its warships 500 miles away from Taiwan. Rice demurs. The next day, the Bank of China sells a few -- just a very few to get our attention -- U.S. Treasury securities. Money markets reel. Would the Chinese play such a risky game? They have their own interests, geopolitical as well as economic. They are certainly not an American pawn, less so with every passing year. Miscalculations have happened in world economic relations before, and with calamitous results.What, Bushistas miscalculate? The self-styled "Vulcans"? The events of the last four years should be answer enough. We're talking about an administration that sent young College Republican-type trustafarian brats to run Paul Bremer's CPA in Iraq -- a job that they did horribly. Meanwhile, it's time to switch from ARMs to fixed-rate mortgages:
The Federal Reserve, meanwhile, is increasingly worried about inflation, largely of the imported variety due to the weak dollar. The Fed is steadily raising interest rates. With every quarter-point hike, consumers pay more for mortgage and credit card loans, investors in stocks become more wary, and the air goes out of the economy. Alan Greenspan kept rates very low long enough to get George W. Bush reelected. Now he is reverting to type.But there is a silver lining of sorts:
The only good news is that all this bad news makes Social Security privatization, or permanent tax cuts for the wealthy, less than an even bet.
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