Mea Culpa: The Fed May In Fact be in a Financial Mess | 32 comments (32 topical, 0 editorial, 0 hidden)

I didn't say it ensures the American Base ... (4.00 / 3)

... Empire will collapse, I wrote it threatens the American Base Empire.

What often happens with Imperial Overstretch is that lots of essential stuff are sacrificed in the medium term to preserve the Empire, but in the longer term it is for naught, because that sacrifice includes the economic basis for actually being able to maintain the base empire.

If the US$ collapses, there goes the overseas base network. It may require throwing a lot of essential government spending overboard first, and could take a decade with cycles of dollar dives before it becomes completely untenable, but its a system that is a drain on the external accounts, and a country cannot simply will the rest of the world into wanting to acquire financial assets denominated in its currency.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 01:24:38 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (4.00 / 2)

If US creditors are savvy they will say to the military industrial complex - or rather,to their banks - that they are quite happy to provide funding beyond the dreams of avarice to "re-skill" in more constructive technologies......

....but funding allowing continued weaponry etc development is no longer available....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Sep 24th, 2008 at 01:35:50 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (none / 1)

US creditors that are creditors due to standing at the Military Industrial Complex trough filling their bellies?

Those creditors are less than likely to make that argument. That's why there is a serious risk of the US pursuing the maintenance of the Base Network Empire well after it becomes clear to all and sundry that it is not sustainable over the longer term.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 01:40:27 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (none / 0)

When I say US creditors I mean everyone to whom US Inc owes money.....

Maybe led by China, of course, but they would never dream of acting alone.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Sep 24th, 2008 at 01:52:28 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (4.00 / 3)

That gets back to the window of opportunity that I referred to previously ... as long as China is rushing headlong through this stage of its demographic transition, its focus will remain fairly short term.

Once the bulge created by the pro-population-explosion policies of Mao begins to pass out of child bearing age, the need to grow employment at this massive pace will begin to ebb with it. And unless the US gets its economic house in order, there's a good chance that that will be the end of the Chinese propping up the US$.

Now, under much of the conventional wisdom, the economic threat to the US of the Base Network Empire does not appear to be a short-term problem, though it clearly undermines the strength of the US Economy long term.

Now, certainly, if the US$ appears to be not worth holding in the short term, then obviously the Chinese will abandon it. But if the US government has bungled economic management that badly, it would also be a poor risk in terms of making a "we'll keep financing you if you deliberately adopt a peace-time economy" deal. The pragmatic focus would be on Europe and Japan among high income nations, probably also including Australasia for its resources.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 02:14:43 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (none / 1)

Interesting perspective re demographics, Bruce.

But China would have a big incentive to invest in a US "Green New Deal" or maybe a redeployment from a War on Terror to a War on Climate Change:

(a) substitution - because every barrel the US saves and does not consume is one more available to China;

(b) technology transfer - any breakthrough technologies or advances would be simpler and cheaper for them to get at if they invested heavily in them, or even owned them.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Wed Sep 24th, 2008 at 03:00:47 PM EST
[ Parent ]

... but that's if the US economy does not ... (4.00 / 2)

... start spirally down the toilet. If it does, we'll be going through demand destruction because of the collapsing dollar, and Europe, Japan and Australasia are better bets for technology transfer.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 04:04:03 PM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (4.00 / 2)

I doubt that economic necessity will ever suffice to dial down fantasies of Imperial Domination. That will require political leadership and re-education of the US population as to what their defense dollars really have been buying.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 24th, 2008 at 03:29:04 PM EST
[ Parent ]

It really can do. We really cannot force ... (4.00 / 3)

... people overseas to want to hold US dollars.

A polity rebelling against the fact that it cannot afford the external account spending that it wishes to engage in gets to see its exchange rates plunge as long as it keeps up the fight.

And a country that has its exchange rates plunge rapidly enough is heading for hyperinflation, if it is structurally dependent on imports, as the US has become over the last three decades.

When people are faced with the hard choice between handing over hard currency (by hypothesis, not US$) to get oil, or to fund an overseas base network, I'm expecting the Military Industrial Complex to go up against the Highway Suburban Complex and come out second.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 04:09:00 PM EST
[ Parent ]

Re: It really can do. We really cannot force ... (none / 1)

As the external account deficit is the problem, that creates a national security argument for switching transportation energy over to renewables. Add that to an easily salable "neo-mercantilist" popular argument and you have even more ammunition for rebuilding the energy and transportation sectors around renewables. It is not like we don't have any oil. But we may have trouble financing reconstruction of energy and transportation while simultaneously playing global hegemon. Perhaps we can engineer a "twofer" here. End of Empire and Dawn of Self Sufficiency on Energy.

Without a vibrant economy that can generate money and goods we cannot long maintain effective military power. Played intelligently, we can maintain enough power to matter. Played stupidly we could become irrelevant. That should be the outline of the national security discussion.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Sep 24th, 2008 at 08:36:40 PM EST
[ Parent ]

I have been thinking of it as a sequential ... (4.00 / 2)

... process ... pursuit of Energy Independence leading the rise of a hot growth industry without a stake in the Military-Industrial-Complex and acting a core part of the opposing coalition that is necessary to wind back from Imperial Overstretch.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 09:13:57 PM EST
[ Parent ]

Re: It really can do. We really cannot force ... (4.00 / 3)

China doesn't want USD. The government already has quite enough junk T-bills.

South China Morning Post
China banks told to halt lending to US banks
by Alan Wheatley and Langi Chiang
Sep 24, 2008 9:52pm EDT
BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.
The Hong Kong newspaper cited unidentified industry sources as saying the instruction from the China Banking Regulatory Commission (CBRC) applied to interbank lending of all currencies to U.S. banks but not to banks from other countries.
"The decree appears to be Beijing's first attempt to erect defences against the deepening U.S. financial meltdown after the mainland's major lenders reported billions of U.S. dollars in exposure to the credit crisis," the SCMP said.
A spokesman for the CBRC had no immediate comment.

The only resolution to this political quandry is of course to seize all assets of Chineses nationals and banks held by US bank branches. That'll show 'em, the terrists.

Diversity is the key to economic and political evolution.

by Cat on Thu Sep 25th, 2008 at 06:12:31 AM EST
[ Parent ]

Well, yes, the US does use the ... (none / 1)

... "freezing assets" tool an awful lot it seems ... another reason why a lot of countries would be happier with the Euro as the international reserve currency. If their central banks have reserve accounts in Euros, they get to choose which Eurozone country to hold it in, and if one gets stroppy, they can move it to another.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Thu Sep 25th, 2008 at 06:58:16 AM EST
[ Parent ]

Re: It really can do. We really cannot force ... (none / 0)

MT, any sense of what kind of tsunami would be unleashed should China decide to sell even 0.1% of its supply of US paper? How about 1?

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Sep 25th, 2008 at 10:02:07 AM EST
[ Parent ]

Re: It really can do. We really cannot force ... (none / 0)

LOL. No. I'm more interested in how Congress can support the US labor force with greenbacks no matter their banana value.

Diversity is the key to economic and political evolution.

by Cat on Thu Sep 25th, 2008 at 11:46:35 AM EST
[ Parent ]

Re: I didn't say it ensures the American Base ... (4.00 / 2)

Ah sorry. Timescale is all and in this you are correct.

keep to the Fen Causeway

by Helen (lareinagal at yahoo dot co dot uk) on Wed Sep 24th, 2008 at 01:38:26 PM EST
[ Parent ]

Note added to the essay. nt. (none / 0)

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Wed Sep 24th, 2008 at 01:48:14 PM EST
[ Parent ]

Mea Culpa: The Fed May In Fact be in a Financial Mess | 32 comments (32 topical, 0 editorial, 0 hidden)

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