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Post by redwolf on Dec 13, 2008 10:00:03 GMT -6
Here is a good analysis by Stiglitz of what caused the financial crisis. The last paragraph sums it up nicely. Capitalist Foolsby Joseph E. Stiglitz Behind the debate over remaking U.S. financial policy will be a debate over who’s to blame. It’s crucial to get the history right, writes a Nobel-laureate economist, identifying five key mistakes—under Reagan, Clinton, and Bush II—and one national delusion.www.commondreams.org/view/2008/12/10-1
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Post by judes on Dec 13, 2008 13:14:50 GMT -6
It is a pretty good article in summary, but severely overlooks one of the biggest contributory factors. That is the outsourcing of production and jobs that have crippled our economy and the American consumer. It misses the point almost completely in the passage below; the fact is that we have hardly any "American" goods left that we can purchase anymore even if we wanted to. We have to purchase foreign oil because we don't have enough here, but the reliance of purchasing everything else that is foreign is a self inflicted wound. It needs to be corrected, and soon.
Later on he talks about exports having helped to keep our economy going longer than it may have other wise. But the sad fact is we hardly export anything anymore either. Our biggest export is probably agricultural products, and correct me if I'm wrong but I believe that is the most heavily "protected" industry we have in terms of government subsidies. Now isn't that rather ironic? After that we export scrap materials and raw materials, that's what third world countries do. When will economists start recognizing the damage our outsourcing and trade deficits have wrought, and the role they played in creating this chain of events?
With America so dependent on oil imports, we had to spend several hundred billion more to purchase oil-money that otherwise would have been spent on American goods. Normally this would have led to an economic slowdown, as it had in the 1970s. But the Fed met the challenge in the most myopic way imaginable.
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Post by unlawflcombatnt on Dec 13, 2008 15:20:44 GMT -6
It is a pretty good article in summary, but severely overlooks one of the biggest contributory factors. That is the outsourcing of production and jobs that have crippled our economy and the American consumer....When will economists start recognizing the damage our outsourcing and trade deficits have wrought, and the role they played in creating this chain of events? Judes, I completely agree. The one problem I have with the article is the omission of the contribution from outsourcing, and especially the following comment: " As consumption contracted, exports kept the economy going" Exports did not EVER keep our economy going. But beyond that misstatement, however, Stiglitz's article is excellent. He makes the most convincing argument I've heard yet about why we need regulation. He makes it very clear just where and how the de-regulatory fervor screwed us. Though he didn't spell it out specifically, the effect of the Glass-Steagall repeal was to allow financial institutions to take high-risk gambles with depositors money, which had previously been very well protected from risk. With Glass-Steagall's repeal, the net effect was to transfer some of the risk of the high-risk investment bank behavior onto low-risk bank depositors. (I think) The involvement of Rubin and Summers in this mess is very concerning. I already knew that Rubin, and to a lesser extent Summers, were big advocates of NAFTA, China PNTR, and globalization in general. Here, Stiglitz makes it clear that Obama appointees Robt. Rubin and Larry Summers were also right at the center of the de-regulatory movement--essentially being co-conspirators with Greedspan in the financial deregulation that caused the current financial crisis. Obama's diehard supporters should take note of these appointees, instead of blindly supporting everything he does. These 2 appointments are grave mistakes. (Rubin and Summers should be fired outright, unless they publicly acknowledge previous blunders, and indicate they're going to "change-the-course." ) Stiglitz's critique of the capital gains tax reduction was excellent. (Personally, I don't understand why capital gains aren't taxed at a HIGHER rate than wages. It seems that reducing capital gains taxes encourage speculation, and increased turnover of assets for short-term gains at the expense of long-term losses. Is that supposed to be "good" for the economy?) Here's the passage on capital gains tax cuts: " The cut in the tax rate on capital gains contributed to the crisis in another way. It was a decision that turned on values: those who speculated (read: gambled) and won were taxed more lightly than wage earners who simply worked hard. But more than that, the decision encouraged leveraging, because interest was tax-deductible. If, for instance, you borrowed a million to buy a home or took a $100,000 home-equity loan to buy stock, the interest would be fully deductible every year. Any capital gains you made were taxed lightly-and at some possibly remote day in the future. The Bush administration was providing an open invitation to excessive borrowing and lending-not that American consumers needed any more encouragement." To me, the Housing-Credit Bubble was like Tylenol 3 or Vicodin. Both are highly addicting, but highly effective pain-killers. The patient doesn't feel the pain, but the damage continues unabated. And when the pain from the damage is ignored, the patient can cause even further damage. Which is exactly what happened with the US economy. Since 1998, the Globalization-outsourcing wave has devastated our economy, our manufacturing base, and American workers. The easy credit masked the real-wage declines of American worker-consumers. The loss of wages was offset by the increased ability of American worker-consumers to borrow. This allowed them to continue spending without interruption, and insulated them from the loss of buying power that should have occurred from declining real wages. This also pacified the masses from the true effects of outsourcing, and blunted the public outcry that should have occurred. Now that the Housing-Credit bubble has burst, the effects of years of real wage stagnation are surfacing, and the true "benefits" of globalization are becoming apparent. And those benefits were accrued exclusively by the richest Americans, at the expense of everyone else. The massive credit bubble has exaggerated the effect, by allowing working Americans to get even further in debt, while allowing rich financiers to suck off even more of their wealth than would have otherwise been possible. And now that some pain is being felt by the rich instigators of the outsourcing and financial scams, the government is bilking the victims of the scam--the American taxpayers--to preserve the wealth of those who profiteered from it. The net effect of the government bailout is to preserve the previously obtained upward redistribution of wealth, and prevent any of it from trickling downward. Giving taxpayers' money to rich financiers helps only rich financiers. The increase in the money supply of $4-8 trillion has gone only to those at the top. And since there has been no concomitant increase in real wealth, it means that each dollar is worth less, since there are more dollars representing exactly the same amount of wealth. And since none of these additional Corporate welfare dollars have gone to the non-rich, and each dollar is now worth proportionally less, it means the non-rich have less wealth as a result. Thus, the combined bailouts have further redistributed wealth upward. The $10,000 a person holds today is a smaller fraction of the total $$ in existence. And again, since the new, higher total of $$ represents the same amount of wealth, those with the smaller fraction of the total have a smaller fraction of the total wealth. The bailouts are nothing more than an attempt to transfer wealth upward, to mitigate the losses of the rich financial gangsters who created the financial crisis. The "patient" -- the US Economy -- has run out of Tylenol #3 and Vicodin. And the damage caused by not feeling the original pain is now that much worse.
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Post by redwolf on Dec 13, 2008 15:33:41 GMT -6
I certainly agree, judes. Outsourcing has probably had a more devastating effect on Main St. than anything Wall St. has done. Although the high unemployment that is coming as a result of their shenanigans is going to be rough.
What if you were going to add #6 to Stiglitz's list? What is the watershed moment for outsourcing? I wouldn't say it is NAFTA. Is it when China was granted membership to the WTO? What is the main culprit in lowering the trade barrier with China?
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Post by judes on Dec 13, 2008 16:36:56 GMT -6
I think it started with the most favored nation status granted to China in the 1980's and has been exacerbated ever since with increasingly more devastating trade policies. Clinton shares a big part of the blame with his renewal on MFN for China. www.cnn.com/ALLPOLITICS/1998/06/03/china.trade/The Trade Act of 1974 allowed "nonmarket economy" countries to be granted a waiver and have their MFN status restored. Under the conditions of that act the waiver must be renewed every year. In 1979 President Jimmy Carter sent Congress a trade agreement with China that included a MFN waiver. Normal trade status was formally restored to China on Feb. 1, 1980.
Despite a strained relationship after China's 1989 crackdown of protestors in Tiananmen Square, China has been granted a MFN waiver every year since 1980. Btw, very well put ULC, I totally agree with you. I can think back to the time of the housing "boom", and almost everyone I knew was taking out a home equity loan of some sort. I remember thinking how strange it was. I actually took out a loan also, but we used it to add on to and renovate a small older home we purchased that was in need of repair, and it has held the value so far. I am so glad we did that instead of buying one of the mcmansions going up everywhere. I remember seeing these huge homes and thinking, what am I doing wrong, people who make less than me are living in these mansions, and I couldn't understand it.
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Post by redwolf on Dec 13, 2008 18:59:50 GMT -6
From your link, judes:
Normal trade status was formally restored to China on Feb. 1, 1980.
Who was president then?
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Post by judes on Dec 13, 2008 19:53:38 GMT -6
Well that would be Jimmy Carter. I think it started there and has gotten progressively worse, with every administration since selling out the American worker more and more. Just my opinion of course.
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Post by kramer on Dec 14, 2008 18:15:16 GMT -6
I think it started with the most favored nation status granted to China in the 1980's and has been exacerbated ever since with increasingly more devastating trade policies. Clinton shares a big part of the blame with his renewal on MFN for China. www.cnn.com/ALLPOLITICS/1998/06/03/china.trade/Actually, it was Clinton who gave them permanent MFN (he called it PNTR) trading status and this was after the Clinton Admin and the DNC were caught receiving illegal contributions from the communist Chinese government. Kind of makes one wonder if giving them PNTR was payoff for their contributions. Kramer
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Post by jeffolie on Dec 14, 2008 19:10:30 GMT -6
The US will diminish and fail over the long term as long as multinational corporations are allowed to exploit the wage arbitrage virtually anywhere in the world. China is certainly an evil doer in politics, human rights, environmental actions, etc. But multinationals use their most willing dance partner with the docile communist workforce. I expect that will change with the Fall and Decline of China but the root of the problem is unfair trade. It use to be that imports were a mere 10% of the economy and the impact of unfair trade was muted. In fact the Japanese bragged that they imported all of their oil but added value to its manufacturing products that grew their trading empire until bad central planning resulted in its peak in 1990. The US has moved more inline with central planning and is subject to the same corrupt malinvestment that happens with bad centralize, corrupt political direction. The voters will revolt after the end of the financial world as we know in 2012. Our corrupted politics will be at the mercy of the mob of destitude, financially illiterate voters looking for strong leadership to relieve the pain. I am optimistic enough to hope for a new long term recovery and revitilization after a dramatic decline. It seems that America will repeat the experience of ruining its currency again to stimulate itself out of the political and economic mess we are entering. Currently a trend among China, Europe and the US is a 'Beggar Thy Neighbor' trading policy that has been tried and failed. China announced it is going to expand its money supply by 17% next year by printing. China's malinvestment has left in with vast overcapacity, unemployment, hundreds of millions of migrant workers now trying to return to thier farms. The US is grossly malinvested in service sector employment and, as well stated by prior posters, does not manufacture much. It will take a massive political change to shift to manufacturing which is hated by extremist environmentalis employing lawsuits to stop manufacturers. An example here in California is the eco-friendly solar and wind farms east of San Deigo that can not build Transmission lines to ship their electrical power to San Deigo. Tariffs are needed but there is little or no movement by the corrupt politicans in their direction.
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Post by db on Dec 16, 2008 18:15:42 GMT -6
American Corporate Oligarchists (and their lackeys) = Capitalist Fools.
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Post by judes on Jan 25, 2009 13:07:37 GMT -6
I think it started with the most favored nation status granted to China in the 1980's and has been exacerbated ever since with increasingly more devastating trade policies. Clinton shares a big part of the blame with his renewal on MFN for China. www.cnn.com/ALLPOLITICS/1998/06/03/china.trade/Actually, it was Clinton who gave them permanent MFN (he called it PNTR) trading status and this was after the Clinton Admin and the DNC were caught receiving illegal contributions from the communist Chinese government. Kind of makes one wonder if giving them PNTR was payoff for their contributions. Kramer I came across some information regarding Henry Kissinger and it made me think of this thread. It appears the relationship to get in bed with China was really started under Nixon through Henry Kissinger in his goal for a New World Order. It didn't become official until under Carter for other reasons, but it was the Nixon/Kissinger admin that was pushing it for their global agenda. Here is an "interesting" (for lack of a better word) article by Kissinger, using the current economic crisis to promote his agenda for the continued pursuit of the New "World" Order through our ties with China. (Curiously my original source for this article link is now not functioning since last night. It had some very interesting references on Kissinger in the comment section including this: aidseugenics.blogspot.com/2008/01/background-politics-of-contaminated.html, but I managed to find the article here:) eyesonthelies.com/2009/01/24/henry-kissinger-the-world-must-forge-a-new-order-or-retreat-to-chaos/.... "The new administration could make no worse mistake than to rest on its initial popularity. The role of China in a new world order is crucial. A relationship that started on both sides as essentially a strategic design to constrain a common adversary has evolved over the decades into a pillar of the international system. China made possible the American consumption splurge by buying American debt; America helped the modernisation of the Chinese economy by opening its markets to Chinese goods.
Each side of the Pacific needs the cooperation of the other in addressing the consequences of the financial crisis. Now that the global financial collapse has devastated Chinese export markets, China is emphasising infrastructure development and domestic consumption. It will not be easy to shift gears rapidly, and the Chinese growth rate may fall temporarily below the 7.5 per cent that Chinese experts define as the line that challenges political stability.
What kind of global economic order arises will depend importantly on how China and America deal with each other over the next few years. A frustrated China may take another look at an exclusive regional Asian structure, for which the nucleus already exists in the ASEAN-plus-three concept. At the same time, if protectionism grows in America or if China comes to be seen as a long-term adversary, a self-fulfilling prophecy may blight the prospects of global order. Such a return to mercantilism and 19th-century diplomacy would divide the world into competing regional units with dangerous long-term consequences.
The Sino-American relationship needs to be taken to a new level. This generation of leaders has the opportunity to shape relations into a design for a common destiny, much as was done with trans-Atlantic relations in the postwar period – except that the challenges now are more political and economic than military.
The complexity of the emerging world requires from America a more historical approach than the insistence that every problem has a final solution expressible in programmes with specific time limits not infrequently geared to our political process. We must learn to operate within the attainable and be prepared to pursue ultimate ends by the accumulation of nuance. An international order can be permanent only if its participants have a share not only in building but also in securing it. In this manner, America and its potential partners have a unique opportunity to transform a moment of crisis into a vision of hope."
and from Wikipedia: en.wikipedia.org/wiki/Henry_Kissinger"Kissinger sought to place diplomatic pressure on the Soviet Union. He made two trips to the People's Republic of China in July and October, 1971 (the first of which was made in secret) to confer with Premier Zhou Enlai, then in charge of Chinese foreign policy. This paved the way for the groundbreaking 1972 summit between Nixon, Zhou, and Communist Party of China Chairman Mao Zedong, as well as the formalization of relations between the two countries, ending 23 years of diplomatic isolation and mutual hostility. The result was the formation of a tacit strategic anti-Soviet alliance between China and the United States. While Kissinger's diplomacy led to economic and cultural exchanges between the two sides and the establishment of Liaison Offices in the Chinese and American capitals, with serious implications for Indochinese matters, full normalization of relations with the People's Republic of China would not occur until 1979, for reasons including the following: Watergate (see article) overshadowed the latter years of the Nixon presidency. Second, the United States also continued to recognize the Republic of China government on Taiwan. Nevertheless, the idea of opening to China is often cited as Kissinger's international masterstroke, and the ultimate reward for his faith in realpolitik.[citation needed]"
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Post by unlawflcombatnt on Jan 25, 2009 13:46:01 GMT -6
Kissinger's warning about protectionism is disgusting. If he really cared anything about how this country was doing, he'd save his words (and hot air) to criticize China for employing every unfair trade practice ever invented, and for continuing to endanger American citizens by producing dangerous products that are sold to US consumers. Also, its' always amazing to see how politicians can use so many words to say absolutely nothing. The following passage is a perfect example: The complexity of the emerging world requires from America a more historical approach than the insistence that every problem has a final solution expressible in programmes with specific time limits not infrequently geared to our political process. We must learn to operate within the attainable and be prepared to pursue ultimate ends by the accumulation of nuance. An international order can be permanent only if its participants have a share not only in building but also in securing it. In this manner, America and its potential partners have a unique opportunity to transform a moment of crisis into a vision of hope." Kissinger should be a speech-writer for Obama. (Maybe he already is.) Last, but not least. No discussion about China is complete without mentioning currency manipulation. Rather than trying to make any kind of verbal argument about it, I'm enclosing a 5-day graph showing how the Chinese Yuan moves in relation to the US dollar, compared to 5 other foreign currencies. ichart.finance.yahoo.com/z?s=EURUSD=X&t=5d&q=l&l=on&z=m&c=GBPUSD=X,JPYUSD=X,CNYUSD=X,SEKUSD=X,CHFUSD=X&a=v&p= s.png[/img] Here's the link: ichart.finance.yahoo.com/z?s=EURUSD=X&t=5d&q=l&l=on&z=m&c=GBPUSD=X,JPYUSD=X,CNYUSD=X,SEKUSD=X,CHFUSD=X&a=v&p= s
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Post by mdub on Jan 26, 2009 19:53:58 GMT -6
ULC -
I agree with everything you wrote, except that the money to bail out the banksters has mostly been borrowed from abroad. When foreigners get tired of lending to us, we'll start printing $$. Most households cannot afford a tax increase. The gov't may at some point try to raise taxes anyway. I'm guessing people will riot when or if this happens.
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Post by unlawflcombatnt on Jan 27, 2009 10:38:00 GMT -6
ULC - I agree with everything you wrote, except that the money to bail out the banksters has mostly been borrowed from abroad. You're right. But eventually US taxpayers will be forced to pay off the loans to the banksters, either directly through taxes, or indirectly from inflation. At present, the most "productive" taxes we could levy are Tariffs. Raising the post-tariff price on imports would result in excellent investment incentivization. It would make US goods more price-competitive with foreign imports. It would increase purchase of American goods--thus increasing demand for capital investment in US manufacturing, as well as demand for American workers. This would create a positive feedback loop--sustained largely by an increase in wage-financed consumer spending. As wage-financed production demand increases, it will spur domestic investment demand--to provide for the increased production demand. None of this would take place overnight. The restoration would definitely take some time. But over the longer run, it would revive our economy. We could really use the $700 billion in production demand that we lose to imports each year. At bare minimum, we should be able to regain the ~$400 billion in non-energy production demand.
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