The first government response to America's sinking economy was denial. We were told as recently as a month ago by administration officials and Wall Street charlatans that the economy was robust and that there would not be a recession. Now we are told that the economy is in trouble, but that the government is taking decisive action to shore it up.
We saw how effective the first "decisive" proposal was. Bush announced a plan to give every adult taxpayer (no poor people, thank you) $800 in a tax rebate this April. The stock market responded to this idea by dropping a few percent. The idea, as I wrote in my last column, was stupid to begin with because, with the US no longer producing much of anything, all that bonus borrowed cash would end up getting spent on imported goods anyhow, doing next to nothing for the US economy.
So now the Federal Reserve has weighed in with a 3/4 percent cut in the Federal Funds rate. Even though commercial banks followed suit, lowering the prime lending rate by a similar 3/4 percent, the stock market showed how much good that move would do, dropping almost 300 points at the opening bell today--about what it had been expected to do even without an interest-rate cut.
There was one place where the Fed's action did have an impact though: the exchange value of the dollar in foreign currency markets. No sooner was word of the interest rate cut announced, than the dollar fell against major currencies like the British Pound, the Euro and the Japanese Yen.
And there's the rub. The Fed is in a trap. It cannot cut interest rates much more without causing a collapse in the dollar, which, because of the huge US trade imbalance, and all those consumer goods and raw materials--especially oil--that are imported--would lead to serious and politically dangerous inflation. And there is another constraint: with the current rate cut, the US now has the third lowest interest rates in the world. If the Fed makes another cut, as it has hinted it might in a week or so, only Japan would have a lower interest rate environment than the US. That makes the dollar a very undesirable currency for foreigner investors, which means they won't want to hold dollars, and they won't want to hold US stocks.
Yet if the Fed doesn't cut interest rates even further, the stock market will continue to plunge, which again discourages foreign investors from pouring their money into the U.S., which in turn puts downward pressure on the dollar.
This was all predictable.
An economy that is almost wholly dependent on consumer spending, which is the case in the US, is in big trouble when consumers start to worry about the security of their jobs, and when they see inflation eating away at their disposable income. They naturally just stop spending. And that is happening, too.
So get ready for some hard economic times. The next step will be soaring inflation, as strapped companies in China, India and elsewere start raising their prices for goods shipped to the US and paid for in dollars. Then the Fed will have to respond by raising interest rates again, in an effort to shore up the currency. And with that will come deeper recession and an even lower stock market.
The Bush chickens--endless deficits as far as the eye can see, and a $2-trillion military debacle that has no end in sight and that is sucking money out of the country like a giant industrial vacuum cleaner--are coming home to roost. The President and Vice President clearly hoped that they could pass the wreckage of their eight years in office on to the next president and run off to retirement and senior stateeman status before it all blew up, but their luck ran out. The economic shit has hit the fan. Chances are that the war that they have tried to tuck away in the closet with a "surge" in troops and a brutal campaign of aerial bombardment, will also blow up on them before the year is out.
That's small consolation for all of us who have to live with the ensuing disasters, but at least--if we can't see them properly impeached and indicted, we'll have the satisfaction of seeing Bush and Cheney run out of town next January on a rail.
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DAVE LINDORFF is a Philadelphia-based investigative reporter and columnist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006 and now in papeerback). His work is available at www.thiscantbehappening.net
http://www.thiscantbehappening.net
Dave Lindorff, a columnist for Counterpunch, is author of several recent books ("This Can't Be Happening! Resisting the Disintegration of American Democracy" and "Killing Time: An Investigation into the Death Penalty Case of Mumia Abu-Jamal"). His latest book, coauthored with Barbara Olshanshky, is "The Case for Impeachment: The Legal Argument for Removing President George W. Bush from Office (St. Martin's Press, May 2006). His writing is available at http://www.thiscantbehappening.net
I apologize if this is off-topic, but I have been asking a question which no one else has answered, and I'm hoping that you or someone else at OpEdNews can educate me.
Catherine Austin Fitts -- former Assistant Secretary of Housing/Federal Housing Commissioner at the United States Department of Housing and Urban Development -- has been saying that we should invest in local economies, and that "securitizing" our local group of businesses is the best way to invest.
How do we DO that? Fitts speaks in vague generalities (she says she's under a gag order -- a la Sibel Edmonds -- and so has to speak peripherally).
Does anyone know what concrete steps to take to develop local economies? Is Fitts a genius or full of hot air?
(Again, sorry if this is off-topic.)
by
George Washington (60 articles, 17 quicklinks, 85 diaries, 153 comments)
on Tuesday, January 22, 2008 at 2:16:48 PM
I will refer you to Dennis Kucinich's H.R. 3400: Rebuilding America's Infrastructure. In this bill you will find specifications for the creation of a Federal Bank for Infrastructure Modernization. This provides a low-interest (0.5%) cost of financing for local infrastructure modernization projects. The credit made available through the FBIM will be used to purchase the Municipal Bonds of those localities who wish to participate in this initiative.
The FBIM is created along the same lines as FDR's Reconstruction Finance Corporation, which agency was essential for halting the destructive impact to our nation's physical economy brought on by the Great Depression.
Per the undersecretary's intent in suggesting the need for "securitization," be careful. She may be promoting schemes where private financial entities trap local governments, both with carrots that might more assuredly lead to projects becoming outright boondoggles, as well as sticks that send long-term costs of financing through the roof, leaving the municipality realizing much less benefit as a result of their well-intended investment.
Schwartzenneger and Bloomberg are masters of this game. Be careful of these two. They talk a great game. However, they're representing their financial backers...
by
GoldenT (6 articles, 1 quicklinks, 1 diaries, 51 comments)
on Thursday, January 24, 2008 at 3:03:55 AM
