Friday, 30 January 2009

The Ugly Truth: America's Economy is Not Coming Back

Obviously the Obama administration recognizes that it needs to keep the finger of blame for the current economic collapse squarely pointed at the Bush administration, which is certainly fair in large part (though the Clinton deregulation of the banking industry played a major part in the financial crisis and its enthusiastic promotion of globalization began the massive shift of jobs overseas that has left the nation’s productive capacity hollowed out). But it also seems to recognize that it cannot tell the bitter truth, which is that our national economy will never “bounce back” to where it was in 2007.

America, and individual Americans, have been living profligately for years in an unreal economy, propped up by easy credit which inflated the value of real estate to incredible levels, and which led people to spend way beyond their means.

There's a long road ahead, but if you can identify the problems, then there is a good chance something can be done to improve the situation. This is what the author mentions toward the end of this article when she talks about being "honest" about the crisis.

[Posted at the SpookyWeather blog, January 30th, 2009.]


steven andresen said...


I'm told that for some strange reason the United States still attracts most of the world's investment moneys.

For some reason, they think it's safer here. I suspect that this is true because, the perception is that the economies in Europe and elsewhere are worse than the U.S. There are riots in eastern Europe, for example.

Can you confirm or have any info on whatever might make the rest of the world look worse economically.

I thought we were the basket case.

SpookyPunkos said...

Hmmmm... this is not an easy question to summarise.

Firstly, I'll straight out deny that I am an expert on economic matters, but as far as I can tell a lot of investment money that comes into the USA is of the big institutional and governmental sort. Because institutions and governments can conjure up a lot of money they have to put it somewhere. They look for opportunities to park their cash to make a few percent on billions of dollars etc (ie currency trading)- they'll look for whatever they can find.

As Mike Rivero has pointed out, a lot of the investing isn't into anything tangible but rather the focus has come onto money itself, and the manipulation of it to "create" more money. ie side betting on short term economic trends up or down or using the differences in interest rates. It's to make a quick buck, not to really invest in something.

The fact about the US and also the UK (and EU) is that these are the centres that oversee this money game, with the US as the central block in this trading/money making web. Traditionally the US has led the way having the largest economy, and they can talk the talk.

However, things are changing. This time, the US et al. set up a money making scheme that was too good to be true, it went way too far and has now collapsed. Spectacular fake profits were made, but it was a house of cards, the fall of which has now revealed many fundamental problems with the existing system.

As the credit/debt bubble is deflating the US, has done better to delay the inevitable, being the leader in manipulating the situation using bailouts and tricky accounting to keep companies and banks in business. The Europeans, being less sneaky in these matters, are falling faster and harder. Hence riots. (cultural differences, and educational differences might also play a role- their press may have informed them about certain schemes !)

Also, with various trade set ups, and with the petrodollar, we have certain understandings between governments ie Suadi Arabia, China, causing these countries to put money into the US to "prop up" their trading partners. They all rely on each other.

In the case of some large overseas investments, the foreign central banks are buying US dollars to keep up demand for the dollar to stop it crashing. I don't think they are buying it to use for purchasing oil (petrodollar) or because they think the US economy is going well and the value of the dollar will go up. It's mutually a "beneficial" situtation where the money itself has become the investment and these countries are protecting their longstanding investment.

It's a giant house of cards with those involved all holding hands, trying to keep the table steady.

I think the key words to think about here are "manipulation" of money- where is this done, who invests in this. Also, the word "perception". Of course there is "corruption" too.

In terms of corruption we know the US fudges its economic figures. Real unemployment and inflation is in the double digits. furthermore there is big time corruption in the big institutions and government. The rich looking after the rich, or the institutions looking after themselves. In this case these players are making things look better than they really are. The myth of the strong US economy.

Hopefully this reply is not too confusing, but these are some of the thoughts that spring to mind. I'm sure there's a few thing's I've overlooked, but this is the basic landscape I see.

At present I think the US can be seen as a very sophisticated basket case- one that is very hard to recognise ! In its defence, the US economy is very big and not everything is broken, but a lot is ...