Thursday, February 12, 2009

Of economic opinions and commentators

There is a lot of blogging being done out there in these times of economical crisis -- yes, it is a crisis. Most of it is utter garbage, mixing opinions with specifically picked facts to serve a given purpose, yet somehow,  I still find it important to read it all. There is an old saying that goes something like : "Fool is the one who ignores what he considers not worthy, for wise is the one who can learn from anything."

Most of the wisest things i read were published in my favorite monthly publication, Le Monde Diplomatique. On the counterpart, a hellish lot of garbage can be found pretty much anywhere. Then again, during one of my many news scavenging sessions, I was genuinely surprised to find this little post from a man i never noticed before. I do believe this man has a proper sense of economical and political analysis. Here's an excerpt.
US policymakers have ignored the fact that consumer demand in the 21st century has been driven, not by increases in real income, but by increased consumer indebtedness.  This fact makes it pointless to try to stimulate the economy by bailing out banks so that they can lend more to consumers.  The American consumers have no more capacity to borrow.

With the decline in the values of their principal assets--their homes--with the destruction of half of their pension assets, and with joblessness facing them, Americans cannot and will not spend.

Why bail out GM and Citibank when the firms are moving as many operations offshore as they possibly can?


The US government really has only two possibilities for financing its budget deficit.  One is a second collapse in the stock market, which would drive the surviving investors with what they have left into “safe” US Treasury bonds.  The other is for the Federal Reserve to monetize the Treasury debt.

Monetizing the debt means that when no one is willing or able to purchase the Treasury’s bonds, the Federal Reserve buys them by creating bank deposits for the Treasury’s account.  

In other words, the Fed “prints money” with which to buy the Treasury’s bonds.

Once this happens, the US dollar will cease to be the reserve currency.  

In addition, China, Japan and Saudi Arabia, countries that hold enormous quantities of US Treasury debt in addition to other US dollar assets, will sell, hoping to get out before others.  

The US dollar will become worthless, the currency of a banana republic.

I'll keep on the lookout for more interresting articles on this. I beleive that the current economical difficulties are of enoumous importance to us all. Not only are we at risk of loosing big, decisions will soon be made that will dictate the governance of our everyday life for decades to come. I might don't think much of the last decades of governance we just endured, but I certainly won't fallback to cynicism and apathy.

Comments? More reading suggestions?