Big changes loom before us; why are they invisible to most experts?
Here are some things to think about before you vote in November, more excerpts from the 7 July 2008 issue of Truth and Beauty, by Eric Kraus (an American expat living in Russia). Why do most analysts (CIA, Wall Street, academic), let alone voters, not see the great changes looming over the world?
History repeats itself – Analysts repeat each other
The fundamental problem of most “respectable” academic analysis is not sloth or intellectual weakness; quite the opposite, many of the nontraditional analysts are more inclined to be soft in their treatment of the data. The problem instead is the almost-systematic inability of the economic establishment to accept the possibility of fundamental change – of major discontinuities and shifts in the basic model. In brief, they are extremely skilled in the assessment of continuous, stepwise shifts in the current system – but hopeless at spotting the occasional significant disruptions.
The Decline of the West
One of our recurrent themes over the years has been the secular decline in the economic preeminence of the West due to the rapid rise of the newly emerging economies, especially of Asia. We believe that the current financial crisis marks a sharp acceleration in this process – and that by the time the crisis has past, our perceptions of the relative importance of the emergings vs. the old G7 economies will be fundamentally altered. The almost incredibly short-sighted economic policies the Bush administration will have greatly accelerated (though not caused) this process. As a major commodities producer and a re-emerging economic power, Russia will be a net beneficiary.
Our Currency – and Now, Unexpectedly, Our Problem!
We’re strong dollar people in this administration – and have always been for the strong dollar…
President George Bush
Pigs can fly – they nearly blot out the sun!
Truth & Beauty
T&B was much amused at the spectacle of the heads of both the US Treasury and the Fed scurrying about trying to prop up the dollar. Until very recently, their statements in support of a strong dollar but also for “letting the markets work their magic” were systematically accompanied by a wink and a nudge. Official policy was to allow the dollar to weaken in order to support the flagging US economy. – No longer!
As the decline in the dollar has picked up momentum, threatening a veritable dollar crisis, the very real possibility that the greenback might forfeit its benchmark status caused a sudden reversal in US policy – and for good reason.
…A loss of reserve status would imperil both the funding of the current account and of the burgeoning budget deficit. Thus the edifying sight of US Treasury Secretary Paulson touring the Gulf States, pleading with them not to drop the dollar peg. Meanwhile, Ben Bernanke broke with longstanding Fed practice whereby it never becomes involved in dollar-policy, proclaiming the “fundamental strength” of the US currency. For once, these strong dollar statements were very much intended to be taken at face value, with even just a hint of threat of outright currency intervention – previously proscribed as unthinkable in light of their puerile, vacuous Ayn Randish free-market philosophy.
Alas, their policy options are essentially nil. The decline of the dollar could be arrested only by the expectation of a series of US rate-hikes – not currently a realistic option. Even assuming that US financial institutions are not faced with further collapse, the second dip of the recession will hit no latter than next autumn, and it will most likely be severe.
The current hiatus in the US economic downturn is attributable to a combination of extremely lax monetary and expansionary fiscal policies. Both are exhausted. The US no longer has the luxury of enjoying the decline in the dollar; further loosening of either fiscal or monetary policy would be catastrophic for the currency, accelerating its loss of reserve status, and driving commodities ballistic.
… Talk is cheap, but to actually reverse the secular loss of primacy of the US currency would require a series of painful interest rate hikes along with a restrictive fiscal policy, i.e. engineering a severe recession aimed at redressing the twin deficits. We see no signs of anything approaching the staunch political will to do so, and we can safely assume that the US administration will faithfully adhere to Oscar Wilde’s maxim that ” to regain my youth, I would do anything in the world…except, of course, take exercise, get up early, or be respectable”
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For more information about this subject
A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
Diagnosing the eagle, chapter I — the housing bust (6 December 2007)
Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.