It's not true but Americans like to believe their idol, Ronald Reagan, vanquished the Soviet Union by forcing Moscow into a ruinous arms race that left the country bankrupt. It was actually a nation with a feeble manufacturing sector and broad fiscal deficits that became entirely dependent on oil exports at high world oil prices that toppled when oil prices collapsed.
Today we're confronted with another superpower with a gutted manufacturing sector and broad fiscal deficits - federal, state, municipal, corporate and individual - that may just have fallen prey to a predator entirely of its own making. The United States of America and the People's Republic of China.
A couple of years back I wrote of how diabolical it would be if China's communist dictatorship had schemed to use its adversary's weapon, capitalism, to bring its rival down and clear the way for its own ascendancy. What a perfect scheme - soak up your enemy's wealth, use it to grow your own economy and undermine your opponent's economy, and then wait for victory to arrive at your doorstep with nary a cannon being fired. Lull your opponent into crafting his own demise.
Whether that was a deliberate plot by Beijing or just the inevitable result of the Reign of Greed crafted by Ronald Reagan and embraced by America and its economic oligarchy ever since probably doesn't make a lot of difference at this point. After all, no one really forced American companies and their key investors to shift all those plants and all those manufacturing jobs to China did they? No one forced the American government to sit by while America's wealth was drained away to grow the economy of its main rival, did they? And no one forced America, its government and its industries and its people, to become addicted to foreign loans, did they? Who forced any American or American institution to consistently spend more than they made?
Finally Americans are waking up and beginning to wonder if they've been had. From The New York Times:
"In March 2005, a low-key Princeton economist ...coined a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.
The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.
Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences...
In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.
China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.
“This was a blinking red light,” said Kenneth S. Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund. “We should have reacted to it.”
In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy."
...Today, with the wreckage around him, Mr. Bernanke said he regretted that more was not done to regulate financial institutions and mortgage providers, which might have prevented the flood of investment, including that from China, from being so badly used. But the Fed’s role in regulation is limited to banks. And stricter regulation by itself would not have been enough, he insisted.
...The inaction was because of a range of factors, political and economic. By the yardsticks that appeared to matter most — prosperity and growth — the relationship between China and the United States also seemed to be paying off for both countries. Neither had a strong incentive to break an addiction: China to strong export growth and financial stability; the United States to cheap imports and low-cost foreign loans.
...Mr. Greenspan and the Bush administration treated the record American trade deficit and heavy foreign borrowing as an abstract threat, not an urgent problem.
Mr. Bernanke, after he took charge of the Fed, warned that the imbalances between the countries were growing more serious. By then, however, it was too late to do much about them. And the White House still regarded imbalances as an arcane subject best left to economists.
...By the early part of this decade, the United States was importing huge amounts of Chinese-made goods — toys, shoes, flat-screen televisions and auto parts — while selling much less to China in return.
“For consumers, this was a net benefit because of the availability of cheaper goods,” said Laurence H. Meyer, a former Fed governor. “There’s no question that China put downward pressure on inflation rates.”
But in classical economics, that trade gap could not have persisted for long without bankrupting the American economy. Except that China recycled its trade profits right back into the United States.
It did so to protect its own interests. China kept its banks under tight state control and its currency on a short leash to ensure financial stability. It required companies and individuals to save in the state-run banking system most foreign currency — primarily dollars — that they earned from foreign trade and investment.
America continues to pressure China to revalue its currency, something that might have been done in boom times. But, with American consumption waning, China's economy is feeling the pinch and suddenly forcing an already restive Chinese people to endure employment insecurity and higher prices at the same time is risky business.
Throughout the Cold War we were taught that democracy was ours and capitalism was ours too and that they went hand in glove. Communism, by contrast, was dictatorship and vile socialism. We never imagined how well capitalism could thrive under communist rule but, as it turns out, capitalism seems to like political certainty over the messy and fickle business that is our cherished democracy.
How will America get out of this genuinely Made in America mess? That all depends on whether the America people want to merely fix the symptoms or are willing to actually cure their disease.
Today we're confronted with another superpower with a gutted manufacturing sector and broad fiscal deficits - federal, state, municipal, corporate and individual - that may just have fallen prey to a predator entirely of its own making. The United States of America and the People's Republic of China.
A couple of years back I wrote of how diabolical it would be if China's communist dictatorship had schemed to use its adversary's weapon, capitalism, to bring its rival down and clear the way for its own ascendancy. What a perfect scheme - soak up your enemy's wealth, use it to grow your own economy and undermine your opponent's economy, and then wait for victory to arrive at your doorstep with nary a cannon being fired. Lull your opponent into crafting his own demise.
Whether that was a deliberate plot by Beijing or just the inevitable result of the Reign of Greed crafted by Ronald Reagan and embraced by America and its economic oligarchy ever since probably doesn't make a lot of difference at this point. After all, no one really forced American companies and their key investors to shift all those plants and all those manufacturing jobs to China did they? No one forced the American government to sit by while America's wealth was drained away to grow the economy of its main rival, did they? And no one forced America, its government and its industries and its people, to become addicted to foreign loans, did they? Who forced any American or American institution to consistently spend more than they made?
Finally Americans are waking up and beginning to wonder if they've been had. From The New York Times:
"In March 2005, a low-key Princeton economist ...coined a novel theory to explain the growing tendency of Americans to borrow from foreigners, particularly the Chinese, to finance their heavy spending.
The problem, he said, was not that Americans spend too much, but that foreigners save too much. The Chinese have piled up so much excess savings that they lend money to the United States at low rates, underwriting American consumption.
Today, the dependence of the United States on Chinese money looks less benign. And the economist who proposed the theory, Ben S. Bernanke, is dealing with the consequences...
In the past decade, China has invested upward of $1 trillion, mostly earnings from manufacturing exports, into American government bonds and government-backed mortgage debt. That has lowered interest rates and helped fuel a historic consumption binge and housing bubble in the United States.
China, some economists say, lulled American consumers, and their leaders, into complacency about their spendthrift ways.
“This was a blinking red light,” said Kenneth S. Rogoff, a professor of economics at Harvard and a former chief economist at the International Monetary Fund. “We should have reacted to it.”
In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy."
...Today, with the wreckage around him, Mr. Bernanke said he regretted that more was not done to regulate financial institutions and mortgage providers, which might have prevented the flood of investment, including that from China, from being so badly used. But the Fed’s role in regulation is limited to banks. And stricter regulation by itself would not have been enough, he insisted.
...The inaction was because of a range of factors, political and economic. By the yardsticks that appeared to matter most — prosperity and growth — the relationship between China and the United States also seemed to be paying off for both countries. Neither had a strong incentive to break an addiction: China to strong export growth and financial stability; the United States to cheap imports and low-cost foreign loans.
...Mr. Greenspan and the Bush administration treated the record American trade deficit and heavy foreign borrowing as an abstract threat, not an urgent problem.
Mr. Bernanke, after he took charge of the Fed, warned that the imbalances between the countries were growing more serious. By then, however, it was too late to do much about them. And the White House still regarded imbalances as an arcane subject best left to economists.
...By the early part of this decade, the United States was importing huge amounts of Chinese-made goods — toys, shoes, flat-screen televisions and auto parts — while selling much less to China in return.
“For consumers, this was a net benefit because of the availability of cheaper goods,” said Laurence H. Meyer, a former Fed governor. “There’s no question that China put downward pressure on inflation rates.”
But in classical economics, that trade gap could not have persisted for long without bankrupting the American economy. Except that China recycled its trade profits right back into the United States.
It did so to protect its own interests. China kept its banks under tight state control and its currency on a short leash to ensure financial stability. It required companies and individuals to save in the state-run banking system most foreign currency — primarily dollars — that they earned from foreign trade and investment.
America continues to pressure China to revalue its currency, something that might have been done in boom times. But, with American consumption waning, China's economy is feeling the pinch and suddenly forcing an already restive Chinese people to endure employment insecurity and higher prices at the same time is risky business.
Throughout the Cold War we were taught that democracy was ours and capitalism was ours too and that they went hand in glove. Communism, by contrast, was dictatorship and vile socialism. We never imagined how well capitalism could thrive under communist rule but, as it turns out, capitalism seems to like political certainty over the messy and fickle business that is our cherished democracy.
How will America get out of this genuinely Made in America mess? That all depends on whether the America people want to merely fix the symptoms or are willing to actually cure their disease.
No comments:
Post a Comment