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Dear Sirs,

In his article today (" The Federal Reserve must prolong the party"), Martin Wolf refuses to acknowledge one obvious cause of the current financial crisis: the policies of the Bush administration, carried out with the open support of the Greenspan Fed. These policies, through tax cuts targeted at the well-off, massive corporate pork made possible by a war of choice, and lax monetary and banking policies, had making the investment class richer as their goal - at the expense of everyone else who participates in the economy.

Stagnant wages, made possible by weakening of corporate regulation and increased access to the Chinese labor pool, were instrumental in making higher profits possible, and lax monetary conditions allowed bubbling financial asset values. Lower taxes made capture of that wealth easier for the rich, and share buybacks (instead of investment) have been among the preferred instruments to get it done.

The debt bubble also had the great advantage of making it possible to hide from most Americans that they were not sharing in that wealth capture, by hooking consumers on a habit of corrosive easy debt which substituted for actual income increases. The fact that spending growth was underpinned by debt and not by income is an invitable result of the neoliberal policies pursued and the main cause of the American deficits, as financed by the rest of the world. With US spending directed at manufacturing based in other countries, their complicity has been easy enough to procure.

The imbalances are totally unsustainable and need to be corrected - in fact, they should have been several years ago. That correction will be painful enough; arguing for yet another round of the bubble merry-go round, which can only lead to an even worse crisis later, is utterly irresponsible.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed Aug 22nd, 2007 at 06:32:34 AM EST
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