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(to be sent to Letter and copied to Martin Wolf)

Dear Sirs,

In his article today (" The Federal Reserve must prolong the party"), Martin Wolf refuses to acknowledge one obvious origin of the current financial crisis: the explicit policies of the Bush administration, pushed with the open support of the Greenspan Fed. These policies, via targetted tax cuts, massive corporate pork made possible by a war of choice, and lax monetary and banking policies, had as sole goal to make the rich richer. 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 ofthat wealth easier forthe owner class, and share buybacks (instead of investment) was one of the preferred instruments.

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 allowing them to keep on consuming - by spending money provided by easy debt instead of by actual income. The fact that spending was underpinned by debt and not by income, which is an invitable result of the neoliberal pollicies pursued, is the main cause of the American deficits and the need for the rest of the world to finance them. As US spending is directed at manufacturing based in other countries, their complicity has been easy enough to procure.

At this stage, 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, will can only lead to a worse outcome in the end, is utterly irresponsible.

Amendments, comments, ideas?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Wed Aug 22nd, 2007 at 04:36:06 AM EST

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