Editore"s Note
Tilting at Windmills

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July 19, 2008
By: Kevin Drum

THE ECONOMY....A few days ago, in passing, I remarked that I was impressed (surprised?) by the ability of our economy to absorb so much catastrophe in such a short time without things being even worse than they are. What accounts for this? Via Mark Thoma, Tim Duy proposes several factors but singles one of them out as the most critical:

Perhaps most importantly, however, is the massive liquidity injections from the rest of the world, or what Brad Setser calls "the quiet bailout." In the first half of this, global central banks accumulated $283.5 billion of Treasuries and Agencies, something around $1,000 per capita. This is real money — I outlined the likely implications in January. Foreign CBs are happily financing the first US stimulus package; will they be happy to finance a second? Do they have a choice? Their accumulation of Agency debt is also keeping the US mortgage market afloat. Do not underestimate the impact of these foreign capital inflows. If the rest of the world treated the US like we treated emerging Asia in 1997-1998, the US economy would experience a slowdown commensurate with the magnitude of the financial market crisis.

If this is really the primary explanation for our ability to ride out the storm, then we're back to the same old place we've always been: foreigners are keeping the American economy afloat, and they'll continue to do so until they decide to stop — which could be anytime from tomorrow morning to never. It all depends on how much faith they maintain in America as a good place to invest their money.

Of course, foreign investment in the U.S. will eventually slow down. It has to. The only question is whether this investment bubble unwinds slowly or, like most bubbles, in a panic. Neither is a very pleasant long-term prospect, but obviously there's unpleasant and there's unpleasant. Let's hope for the former.

Kevin Drum 11:04 AM Permalink | Trackbacks | Comments (45)

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alternatively, we could note that things can almost always be "worse than they are" but how they "are" right now, in the economy, is pretty poor....

Posted by: howard on July 19, 2008 at 11:23 AM | PERMALINK

They cannot fund ud until they stop, unless they are far more intelligent than us, and we are not yet mentally disabled.

They will stop bailing us out after China goes through this next round of infrastructure development, then they will drop us like a rock.

How many foreigners want to tax their citizens to pay for our entitlements?


Posted by: M on July 19, 2008 at 11:25 AM | PERMALINK

I have always depended on the kindness of strangers.
.

Posted by: American Prosperity on July 19, 2008 at 11:37 AM | PERMALINK

Kevin, your readers might be interested in what foreign newspapers are saying about what was discussed during the secret Congessional session held recently. Click here for details:

1. The imminent collapse of the U.S. Economy to occur sometime in late 2008

2, The imminent collapse of the U.S. Government finances sometime in mid 2009

3. The possibility of Civil War inside the United States as a result of the collapse

and there is more....

I'm not sure I believe it, I'm just sayin'....

Posted by: The Conservative Deflator on July 19, 2008 at 11:48 AM | PERMALINK

Economics has found large economies act differently than small ones. The US' huge economy, including its large geographical area, accounts for it ability to withstand shocks and still keep growing, which is also why it still attracts foreign capital inflows.

There have been articles about the troubles of Iceland's economy recently. Even though its economy was robust, its small size left it very vulnerable to changes in the wider world economy, which is causing suffering now that the US' economy is able to avoid because of its great size.

The PNAC scum counted on the the US' huge economy to be able to waste ungodly sums on war and occupation without crashing as part of their strategy to rule the world. They understood the power of our economy and incorporated it into their imperialist ideology. It is unfortunate that such a huge waste of treasure and lives has not led to greater economic hardship for Americans, fooling them into thinking they are exceptional and worthy of their hard power.

Posted by: Brojo on July 19, 2008 at 11:52 AM | PERMALINK

"Let's hope for the former."

Can't we do more than just hope? How about re-examining the the laissez fairey tales that have been pushed so aggressively in the past few years?

Posted by: Independent on July 19, 2008 at 12:08 PM | PERMALINK

Keep clapping.

Posted by: thersites on July 19, 2008 at 12:10 PM | PERMALINK

All over the world, people are coming out from behind the ox and plow, and getting plugged into cutting edge learning, and rapidly becoming much more productive. So, if the financial system doesn't handcuff us up on paper, and we can solve energy and climate issues, couldn't things start getting rapidly better and better for the vast majority of humans.

Posted by: ferd on July 19, 2008 at 12:15 PM | PERMALINK

Keep clapping.

Indeed. I can't believe that twenty years of excesses can be set right in one year with only a token amount of hardship. Yes some real estate speculators lost their money, a few homeowners had to walk away or were forced out, and a few shareholders lost their money. In all these cases, what has happened is only a natural consequence of succumbing to greed. These things happen even when we have a strong economy.

I think it is too early to celebrate. Financial companies have been amassing huge derivative instruments (their growth didn't slow down a bit in the last one year) and home prices haven't yet reverted to their mean.

Sure, oil prices went down a bit last week. There may have been a "Iran attack" premium built into it before the pullback. However, if someone thinks oil prices have gone up purely on mideast uncertainties, they haven't been paying attention to the dramatic growth of energy use in China and India.

Posted by: rational on July 19, 2008 at 12:32 PM | PERMALINK

Wasn't this support by outside country's what kept the Austria- Hungarian empireafloat when it was referred to as the "sick man of Europe"
This also seems to have been the pattern for the Turkish Empire.

The historical precedents are not good.

Posted by: Ken on July 19, 2008 at 12:53 PM | PERMALINK

Wasn't this support by outside country's what kept the Austria- Hungarian empire afloat when it was referred to as the "sick man of Europe"
This also seems to have been the pattern for the Turkish Empire.

The historical precedents are not good.

Posted by: Ken on July 19, 2008 at 12:53 PM | PERMALINK

The thing is, world trade is now so interdependent, that the foreigners who are keeping our economy afloat cannot affort to let it fail. After all it's largely our consumption and spending that is propelling their economies along.

Can you imagine what would happen to the Chinese economy, for example, if the US economy tanked so badly that we stopped importing goods from China?

Basically, we are now at the point where if the US economy were ever to collapse it would cause a worldwide depression. And everybody who lends to us knows it.

Posted by: mfw13 on July 19, 2008 at 1:01 PM | PERMALINK

>"Keep clapping."

Correct. The downturn is still in its early stages. Consumer level inflation is now running at about 12.9% annualized. Bank interest is at 4%. Inflation adjusted stock market returns are now at a negative for last 10 years.

The post Reagan US economy has been based on smoke and mirrors. Unfortunately, reality is a harsh mistress and will be paid sooner or later.

It's later now.

Posted by: Buford on July 19, 2008 at 1:06 PM | PERMALINK

We've been protecting our standard of living by public and personal borrowing, buying low priced goods from overseas, and, psychologically, by nibbling away at fringes such as pensions and health insurance (which are not as noticeable as salary givebacks).

Posted by: Luther on July 19, 2008 at 1:35 PM | PERMALINK
foreigners are keeping the American economy afloat, and they'll continue to do so until they decide to stop — which could be anytime from tomorrow morning to never. It all depends on how much faith they maintain in America as a good place to invest their money.

Well, not just their faith in America as a good place to invest. We're also pointing a gun at their heads, and at their neighbors' heads. "Nice little country you have there. It would be too bad if anything happened to it".

Posted by: Gary Sugar on July 19, 2008 at 1:46 PM | PERMALINK

This flow of liquidity is already slowing down. Inflation in Asia is forcing those govts to raise interest rates and propping up their currencies. Meantime the oil rich Gulf sheikhs are being crushed with inflation and lower asset values because they are pegged to the dollar. The first factor will move money from Asian economies back home to the higher money rates and away from the weaker dollar, this has the effect of further increasing their currencies and weakening ours. with the exception of one or two Gulf states, many of the flush Arab states and Sovereign Wealth Funds are diversifying into non dollar assets in Europe mainly.
The only option open to the Fed at this time is to raise rates in order to stop inflation and try to prop up the dollar, this will worsen the credit crunch in the short term but the long term effect of doing nothing is worse... this is not a V shaped recession folks... if you read Krugman on July 18 you can hear an economist describe it.

The 25+ year era of binge living on leverage and credit for investors, corporations and ordinary Americans is coming to an end.

Posted by: leftymn on July 19, 2008 at 1:48 PM | PERMALINK

The vision that Al Gore spoke of on Thursday is the answer to America's economic crisis.

We need a new American economy, driven by the New Industrial Revolution of the 21st Century, and a transition to an energy economy based on maximally efficient use of abundant, free energy from the sun and wind. We need to put millions of people to work in high-quality, high-paying jobs that cannot be outsourced, building wind turbine "farms" and concentrating solar thermal power plants, installing distributed solar photovoltaics, building "zero net energy" houses that generate 100 percent of their own power, retrofitting older houses, offices and factories with modern efficiency technologies, building efficient electric rail public transport, cultivating locally-produced organic food in small family and community-supported farms in greenbelt suburbs surrounding our major cities, and on and on. The dinosaurs of the old fossil-fuel-age technologies are headed towards extinction. If we don't want to go down with them we need to evolve, and fast.

Gore's vision of the USA obtaining 100 percent of its electricity from wind, solar and geothermal energy within ten years is a very good and entirely achievable goal that will not only go a long way towards dealing with the global warming crisis, and towards ending a militaristic US foreign policy based on dominating the world's dwindling fossil fuel supplies, but will lay the foundation of long-term, self-reliant, egalitarian prosperity for America.

Posted by: SecularAnimist on July 19, 2008 at 1:49 PM | PERMALINK

Tim Duy's 3-point analysis of why things aren't as bad as you would expect them to be is a fairly valid one actually. But, I disagree with the relatively optimistic longer-term predictions one might draw from it.

(1) The nature of the expansion defines the nature of the following contraction. The post-tech bubble expansion was anemic by most measures.... The tepid upside suggests a tepid downside....

I agree with this statement. However, it also needs to be pointed out that the tech boom since it was so much stronger than the housing boom, by definition, had to create a far more powerful contraction. Without massive domestic spending increases for wars and people extracting equity from homes for consumption we probably would have had near zero growth (on average) the last seven years. The 2001 recession was the first where we continued to accumulate debt instead of retiring it.

(2) The impact of the consumer slowdown is partially offshored, a point which I think deserves greater attention. This shifts job destruction to an overseas producer....


We are growing at about 0% right now, China is supposedly "cooled down" to a 10% growth rate. Those numbers could be cooked and they are growing a lot less than they say, but that doesn't sound like much "job destruction" occurring in China.

(3) Perhaps most importantly, however, is the massive liquidity injections from the rest of the world, or what Brad Setser calls “the quiet bailout.” In the first half of this, global central banks accumulated $283.5 billion of Treasuries and Agencies, something around $1,000 per capita. This is real money.... Foreign CBs are happily financing the first US stimulus package; will they be happy to finance a second? Do they have a choice?

Yes, this is the most important point. Just how willing to finance our debt is everybody else going to be? The people financing our debt are subsidizing their exports to us in order to keep their own economies afloat. I just think that banks are going to cut off so much credit to consumers here in the US that no matter how much of our debt the foreigners buy it won't enable the consumer to buy their stuff anyway. We will have lower interest rates with credit drying up anyhow, so why buy US debt? It won't help them as much they thought. I think that's when things get bad.

Posted by: Doc at the Radar Station on July 19, 2008 at 1:54 PM | PERMALINK

The important part to remember is that a Bear market/economy is a mirror image of a Bull market/economy. In a Bull market most people reap the benefits even if they didn't explicitly position themselves for that benefit. In a Bear market, most peple suffer even if they explicitly plan to avoid the pain. Bear markets/economies spread pain around. We haven't seen enough of that yet. All we got was one formal bank failure! And that is supposed to be the end of this long period of excesses?

Posted by: rational on July 19, 2008 at 2:48 PM | PERMALINK

SecAn is absolutely right. And it's too bad we weren't smart enough to elect Al Gore 8 years ago. (oh, wait...)

But how is the proposed program, or set of programs, going to be funded? We're looking a a huge investment. In the long run it would pay off, but in the short run I fear we are sort of tapped-out. I hope I am wrong.

Analogously, I'd love to invest in making my house more energy-efficient, and that, too, would pay off, but in today's market the equity to fund that investment just isn't there.


Posted by: thersites on July 19, 2008 at 2:49 PM | PERMALINK

Or maybe, per Kevin Phillips, the government has fudged economic indicator stats so much that the economy is actually a lot worse than officially reckoned.

The spread between bank interest and inflation Buford references? I believe that's part of stagflation.

Ken, no, it was the Ottoman Empire that was "the sick man of Europe."

Posted by: SocraticGadfly on July 19, 2008 at 2:56 PM | PERMALINK

Deflator, that website you linked to is even more goldbug libertarian/American Patriot movement nutbar than Ron Paul. Why would you believe a word on it?

Posted by: SocraticGadfly on July 19, 2008 at 3:23 PM | PERMALINK

When we stop buying their stuff they'll stop propping us us.

If we go down so do they.

Posted by: jeff on July 19, 2008 at 3:40 PM | PERMALINK

The international economy and security structure is a hup and spoke structure. America is the hub. Most countries are either a spoke or the rim. But that's why they are funding us. If we collapse, then everyone and everything collapses.

No one wanted to predict that the United States would purposely allow and elect a total train wreck administration. But that's what they did. We are being held together by spit and chewing gum.

Posted by: Bub on July 19, 2008 at 4:08 PM | PERMALINK

What Bub said. And don't underestimate just how bad the effects will be if McCain is elected for any reason. There needs to be a strong signal of change.

Posted by: Bruce the Canuck on July 19, 2008 at 5:20 PM | PERMALINK

blockquote>Kevin: "If this is really the primary explanation for our ability to ride out the storm, then we're back to the same old place we've always been: foreigners are keeping the American economy afloat ..."

As they so often have throughout our nation's history. Where do you think we'd be today, if London's financiers hadn't underwritten and invested in the development of the U.S. railroad networks during the mid- to late-19th century?

Posted by: Out & About in The Castro. on July 19, 2008 at 5:32 PM | PERMALINK

thersites wrote:

But how is the proposed program, or set of programs, going to be funded? We're looking a a huge investment. In the long run it would pay off, but in the short run I fear we are sort of tapped-out. I hope I am wrong.

When we're looking at some problem like running out of petroleum (and we don't know how soon), or running out of coal (and we know we've got about 9 decades, tops, depending on how and how soon we replace petroleum to power motor vehicles (since those vehicle are likely to be powered with electricity from coal-fueled generators, which will increase our current rate of usage of coal and thereby bring the end-date for coal closer than the 90-year mark)), those are problems on the scale of one any lawyer or law student is familiar with: the government seizing of the steel mills during WWII. When that happened, the Supreme Court determine in a landmark case that the government had power during a national emergency to take control of factories to help solve the crisis. Instead of counting on a bunch of jackasses like George Bush in the U.S. and in the international energy industry to get us moving toawards greener energy sources, and to be straight with us about what a conservative estimate about how much fuel we have left is, we should be using the strength of government to impose emergency measures-- indeed, heavy taxes on the rich and confisactory measures on appropriate industries if need be-- to avoid all risk of a famine, economic disaster, or civil unrest, disasters the likes of which leaders like Bush have proven themselves unable to successfully deal with (9/11, Katrina). The energey crisis isn't a little problem, it's a big problem, and it should be taken care of in a decisive and expeditious way that doesn't leave us gambling on uncertainties like a bunch of idiotic frat boys. If that involves clamping down on the rich and big business to get what we need to get the job done, we should take a lesson from our forebears and solve real problems before they get out of hand, not make excuses like the worst of the Republicans are all too ready to do at any turn in the road. Unlike Al Qaeda, the energy crisis (if it is seriously fumbled) really does pose a risk of destroying our nation.

Posted by: Swan on July 19, 2008 at 6:26 PM | PERMALINK

Wasnt their a Spanish bank that just went OOB?

Posted by: Jet on July 19, 2008 at 7:37 PM | PERMALINK

This might be impossible to do, but does anyone have a quick FAQ style explanation on how the hell all this came to be?

Posted by: Ben on July 19, 2008 at 8:16 PM | PERMALINK

SecularAnimist : "We need a new American economy, driven by the New Industrial Revolution of the 21st Century, and a transition to an energy economy based on maximally efficient use of abundant, free energy from the sun and wind....Gore's vision of the USA obtaining 100 percent of its electricity from wind, solar and geothermal energy within ten years is a very good and entirely achievable goal"

Yep, I agree totally. But I suspect the majority of Americans will not see it this way. The biggest challenge facing Americans right now is their own inability to comprehend and adapt.

Posted by: PTate in MN on July 19, 2008 at 8:29 PM | PERMALINK
that website ... is even more goldbug libertarian/American Patriot movement nutbar than Ron Paul. Why would you believe a word on it?

Really lunatics. These people are stocking up on canned goods for when the revolution starts.

Posted by: Gary Sugar on July 19, 2008 at 8:31 PM | PERMALINK

According to all indications, the foreclosure problem will last at least more years, and this will continue to negatively impact the economy. Additionally, seniors, the disadvantaged/ unemployed and college students are severely impacted by gasoline prices. It emanated from Enron scandal's CEO/Bush's buddy Ken Lay--total corporate corruption, and investor fraud--which continues to this day.
Subsequently, Bush invaded Iraq with totally disengenous "intelligence."
It is the war's impact. It is the expense and ongoing threat related to war-mongering republicans that has ruined this economy, not to mention an unregulated banking industry--a republican wet dream--and fraudulent lending practices that further ruined this economy, along with the falling dollar, failing airlines, and long-term crucial energy efficiency...any of us could go on and on.
How much more will we accept?

Posted by: consider wisely always/a different voice on July 19, 2008 at 8:40 PM | PERMALINK

Read the second part of this article, the portion in italics (2 + 2 = 4) to get a good idea of how the plunge protection team (PPT) helped the financial stocks find a footing last week. Last week's unusually strong recovery in financials is encouraging folks to believe that the worst is behind, but you have to understand the underlying machinations to know it was carefully engineered. Link: http://www.minyanville.com/articles/bears-asia-contagion-google-goog-wfc/index/a/18096

Posted by: rational on July 19, 2008 at 10:06 PM | PERMALINK

There's a saying that if you owe someone $1,000,000, then they have something over you; but if you owe them $1,000,000,000, then you have it over them.

tyrannogenius

Posted by: Neil B. ♪ ♪ ♪ on July 19, 2008 at 10:17 PM | PERMALINK

All over the world, people are coming out from behind the ox and plow, and getting plugged into cutting edge learning, and rapidly becoming much more productive. So, if the financial system doesn't handcuff us up on paper, and we can solve energy and climate issues, couldn't things start getting rapidly better and better for the vast majority of humans.
Posted by: ferd on July 19, 2008 at 12:15 PM

Sadly ferd, I don't think so. The resource demand and side-effects from all that grasping burn out commodities and/or raise their prices to huge levels, just look up all the "peak _____" and Hubbert articles in Wikipedia. We need a smaller population to dilute the demand and stress on the Earth.

Posted by: Neil B. ♪ ♪ ♪ on July 19, 2008 at 10:21 PM | PERMALINK

This might be impossible to do, but does anyone have a quick FAQ style explanation on how the hell all this came to be?
Posted by: Ben on July 19, 2008 at 8:16 PM |

Actually I think it's simple: "Supply Side Economic" philosophy behind Repubican rule says that if you concentrate wealth, make the rich richer, they'll spend all that money on building new factories, creating new jobs, "If you build it they will come" kind of theory of economics. This is all a complete an utter myth manufactured on the right.

We have a market based, or centerd, economy. Nobody builds anything unless there's demand for it. The problem with concentrating wealth is it shrinks demand.

Here's how/why: Imagine a small town of 50 people, they all have old cars that need to be replace. They all have $25,000, so they can all buy new cars - the near realized demand for cars is 50. But one of those residents is Donald Trump. He opens a casino in his garage. A year later, Donald has $1 million and the rest, on average, have only $5,000 - only not evenly, a few didn't gamble and a few lost everything, borrowed $5000 from Donald to buy groceries. Now the demand for cars is down to 10 - three of which are for Donald. Meanwhile the demand for helicopters went up, from zero, to one because Donald wants one. Donald has thought about expanding his casino, but realizes the market has tapped out. So he's looking for other spots in other counties to invest in.

So you see, as wealth concentrates, demand shrinks in the commercial economy, while luxury boutique items experience an increase in demand. As demand shrinks, factories close and business suffers. Because jobs are scarce, people lose bargaining power, so their wages remain stagnant and with inflation, actually go down. The rich get richer, but everyone else gets poorer. We see this too: median family income has gone down 5% since 2001 while the top .1 has gone 50% and the top .01% has gone up 500%.

Clinton manage to average creating 2.5 million jobs a year. Bush is likely to average less than one million per year. Economist estimate that the U.S. has to net creating 150,000 new jobs a month to stay even, the Bush recession of 2001 in jobs has in effect, never quite gone away. The Bush era has been a great depression in jobs.

The Bushies all knew the problems of supply-side economics, but, like the scorpion on the frogs back, they can't help themselves. They lower taxes for the wealthy and start wars increasing debt. In the long term, they are hoping to bankrupt the country so that it will have to abandon the great white whale, Social Security.

To shore up demand, they borrow massive amounts of money from China at artificially low rates. China complies because they need American demand too to help them relocate America's industrial base to China. The reduced interest rates allows Americans to refinance their homes. Their mortgage payment goes from $1550 to $850. The $700 dollars freed up from the artificially lowered interest rate goes into the economy as new demand. Suddenly mom and dad are driving a new Cadillac Escalade. Voila, you have a growing economy even though there is little new jobs and wages are declining.

When the string runs out on remortgaging, artful mortgaging takes its place: second, flexible and subprime mortgages. That string finally ran out last summer, a year earlier than it was supposed for the Bush administration.

The opposite of supply-side is demand side economics. But the effects are not completely opposite to supply-side. The idea is you increase demand by helping the poor become richer. Ideally by allowing them to capture a fair share of gains through increased productivity and/other new efficiencies in the economy. As the poor get more money, they buy new things from the companies owned by rich people, so the rich people get richer too and because their are increases in demand, rich people decide to build new factories, creating jobs, and tightening the labor market, raising wages, and increasing demand, and so you have a positive cycle.

Since 1980, our society has been dominated by supply-side theories. The GNP has more than doubled since 1980, but median family income has stayed about the same. So all that growth went to the richest among us. Clinton's mildly anti-supply policies caused a massive 50% increase in GNP, and only near the end did wages start to bump up. The Bush recession of 2001 was a deflationary one: too little money was chasing too much supply. The proper response would have been demand side economics. Instead Bush chose supply side, which could only make things worse. However, thanks to China's central banks generosity, the problem was swept under the rug of mortgage based stimulus. All the imbalances that existed in 2001 are still out there.

Meanwhile the low interest rates have caused the value of the dollar, against the Euro to collapse. That drives all commodity prices, food and gas, up. So now you have a situation where jobs and wages are declining and prices for commodities are going up. Because the value of the dollar is falling and oil is traded in dollars, massive amount of speculation is taking place in oil markets as traders try to guess supply, demand for oil AND the value of the dollar it's traded in.

In some ways, this is alot like 1929. Wealth concentrated and demand couldn't keep up with supply. Soon demand collapsed. People initially tried to borrow money to bridge the gap to sustain family life styles, but when the bridge failed to make it to the other store, the whole thing collapsed.

There is no history of supply-side (also called, trickled down or neo-liberal economics) policies ever working anywhere. There is one slight anecdotal situation that occured during the Kennedy presidency but there we are talking about extreme tax rates left over from funding WWII - 95 % at the highest bracket. Kennedy cut it down to somewhere in the 60% range. Economic growth soon followed, but that was also during a time of growing spending on Vietnam War and growing productivity from infrastructure improvements, like the interstate highway system.

There is a history of supply-side type economics causing massive failure and epic collapse across history going back to Ancient Egypt's Middle Kingdom. The pattern is wealth and power concentrate, the wealthy and powerful use their influence to avoid paying taxes, the state runs short of the funds it needs to fund the army and maitain itself.

This sort of thing caused the collapse of Egypt's Middle Kingdom, the Roman Empire where a 500 year dark age ensued (See Nobel Prize winning Economic Historian Douglas C. North's "Structure and Change in Economic History" pgs 100-115), Pre-Islamic Mecca (Islam was a reaction to it), Byzantium (circa 1071 prior to the battle of Manzikurt), Medieval Japan (200 year dark age, no invasion, just a collapse of civil institutions), Hapsburg Spain, Bourbon France, Romanov Russia, Coolidge/Hoover America (triggering the Great Depression, the rise of Hitler, WWII and the holocaust) and now our current situation.

So you see, if you have a fundamental knowledge of civics and history (and geography) you know that the Republican policies were absurd from the start.

Posted by: Bub on July 19, 2008 at 11:29 PM | PERMALINK

The thing that helps balance the books is the falling dollar. So sure, the Europeans will bail us out, but the price is that they get more and more US assets for fewer and fewer Euros.

Posted by: Joe Buck on July 20, 2008 at 12:32 AM | PERMALINK

Bub on July 19, 2008 at 11:29 PM |
"like the scorpion on the frogs back"


A footnote: I thought that the image was that of a camel and the scorpion both wanting to cross a body of water and that its origin was Arabic literature.

Posted by: Pip's Squeak on July 20, 2008 at 1:12 AM | PERMALINK

PTate says of the looming energy crunch: But I suspect the majority of Americans will not see it this way. The biggest challenge facing Americans right now is their own inability to comprehend and adapt.

I'm not so sure it's "inability" as it is refusal.

Americans don't want to be told their shit does, in fact, stink. They don't want to be told American exceptionalism (Democratic as well as Republican versions) is sometimes little more than a bedtime story. They don't want to be told that technology might not bail them out of every fix.

Posted by: SocraticGadfly on July 20, 2008 at 1:37 AM | PERMALINK

An addendum to my comment just above. Peak Oil, as opposed to global warming, is largely a bipartisan conspiracy of silence.

And, by 2030? The world should be at Peak Natural Gas, too. Not only the U.S., but North America as a continent, has already peaked.

Posted by: SocraticGadfly on July 20, 2008 at 1:51 AM | PERMALINK

Kevin: the ability of our economy to absorb so much catastrophe in such a short time without things being even worse than they are.

Actually, they are worse than the stock market and the government stats indicate. Already discussed some months ago was the decision during the Clinton administration to calculate inflation, unemployment claims and unemployment itself in ways that minimized the negative data.

The Fed, the Treasury Dept. and Congress can continue pumping up liquidity to prop up Wall Street and the financial sector, but that has only inflated commodity prices. Look at a chart of the dollar and oil prices over the past year. The rise in oil prices is the inverse of the dollar decline.

Inflation (not the bogus "core rate") has reached a point where the Fed will have to begin taking measures to reign in the money supply by raising interest rates and other measures.

This will be the other shoe dropping. The stock market will continue down, bonds will fall and unemployment will increase. It looks grim now, and we're only in the bottom of the third inning.

Posted by: DevilDog on July 20, 2008 at 6:59 AM | PERMALINK

How much of that foreign banking money is of American origin? There's a lot of US money that isn't in US banks, investment houses, and such. Not enough to make a huge difference, but probably enough to make a difference in the minds of the directors of those foreign banks at a time when losing liquidity may be the same as going out of business.

All those tax havens just might be diversifying our economic interests. Would it be irony or just business as usual if the scummy businessmen and scummy businesses (the ones that put US money out of the reach of the US Treasury)were also the ones that made this economic fall softer? My vote is for both.

Posted by: jon on July 20, 2008 at 7:21 AM | PERMALINK

"Reckless, self-enriching capitalists get on your knees and thank the rescuing Washington socialists, for without them, you would surely be in chains."
--Ralph Nader

Posted by: Quotation Man on July 20, 2008 at 3:32 PM | PERMALINK

Just as Phil Gramm changed the rules and ruined housing mortgages and oil market speculating and just as the Bushies (IMO) have maniupulated Fannie & Freddie it is their meddling in a sensibly regulated free market which is screwing things up.

Now I read two curious things: one is that they're trying to interfere in the normal operation of short-selling in the stock markets and the number of companies failing is growing at a rapid rate.

Put those together with all this talk about the economy collapsing and you have a man-made disaster like all the others we've seen recently.

Why would they want to interfere with short-selling?

You can make more on the collapse if there's no short-selling to stabilize things before the market gets to the point of collapse.

Posted by: MarkH on July 20, 2008 at 4:13 PM | PERMALINK

Bob writes:

The rich get richer, but everyone else gets poorer. We see this too: median family income has gone down 5% since 2001 while the top .1 has gone 50% and the top .01% has gone up 500%.

Didn't the same thing happened from the early 90s to 2000? And yet, the 90s is heralded as an era when the economy was strong enough to lift all boats, when the jobless rate went to historical lows. Also, didn't demand-side economics fail in the 70s, with stagflation? I agree that supply-side purists are wrong - you can't tax cut your way to growth, but I think the answer is a mixture of supply-side and demand-side policies, and I disagree with your analogy of the town with 50 people - that's not what happened. The flow of easy credit surely contributed to wealth concentration, but the money didn't come from regular people - it came from overseas investors with deep pockets. Also, with the collapse of the credit bubble, the wealth concentration will certainly go back down. I doubt your statistics go beyond early 2007.

Posted by: Andy on July 20, 2008 at 7:48 PM | PERMALINK
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