This world has an open economy. The Amazon, the Middle East and US economic policy, affects us all.
Recent acceleration of Amazon deforestation provoked concerned world leaders to dissuade Brazil from its current course of action. The world’s greatest lung is threatened at a time when the planet so desperately needs every carbon sponge it can find. As I write at least another football field of pristine, ancient forest, has disappeared. It will probably be reduced to firewood as well, compounding the environmental impact.
Further north, the US is in the throws of an intense pre-election season, the outcome of which will either bring America’s oldest, blackest or most female candidate to the white house. The black and the woman, Obama and Clinton, are neck and neck on super-Tuesday. Obama has a slight edge, but the pundits still feel she will surge – we will know soon enough. The Republicans, however, seem to have an emerging winner in John MCain, although Mitt Romney may give them a better chance of winning against the Democratic hopefuls. But, so what … a president is not defining to US politics as the constitution has enough checks and balances to outlive individual players.
But what does concern is the legacy Bush will leave. Again, maybe it’s not Bush as such. After all, he no longer has majority support in either house of the US legislature, so if his latest economic proposals find the light of day, blame democracy.
To offset sub-prime fallout, the Fed cut interest rates. The idea is to soften the blow to consumers, whilst stimulating growth to offset a looming recession. But a low interest rate aggravates an already worrying level of Dollar disinvestment, whilst reducing the price of US investments to foreign buyers. A lower interest rate also does little to address the structural inadequacies of the US economy.
All economies face cycles, a healthy feature of progress. Contraction leads to consolidation, rationalization and spring-cleaning. It tightens belts, clears out dead wood and restores efficiencies. Funding it away, merely delays the evil day of reckoning, whilst making the inevitable fall harder on all and tougher on recovery.
In a desperate measure, the US exchequer initiated tax rebates to alleviate some of the burdens facing sub-prime victims. 38% of the beneficiaries said they will not spend that money immediately – good for them. 62% will convert the benefit into short-term consumption spending, wiping out any good that the measure sought to do, whilst aggravating dangerously high public debt levels.
Now President Bush wants to inject $3trillion into the economy, significantly on defence spending, to shore up a sagging economy. The money for that will take the US deficit and its public debt levels well beyond current critical levels. It is interesting that the last great depression was resolved by a “New Deal”, which involved massive public spending and deficit funding. Could the next depression risk being triggered by the same policies and, if so, what policies lie beyond that to rescue the US if such policies fail?
Again we might all say “so what?” The painfully passé and naïve Monroe doctrine stated “you worry about your hemisphere and we’ll worry about ours.” That thinking still prevails: we have only to consider the intransigence of Bush over environmental issues. The global economy is pegged against the Dollar, the world’s reserve currency: so US domestic policy is a global issue.
However, of graver concern is the fact that the clouds of war are slowly gathering in the middle-east and major powers smell blood. There are pickings aplenty beneath middle-east soil, but if the US also falls on its sword and allows its economic crises to threaten its role in the region, a dangerous world-class conflict becomes a greater likelihood.
Russia is rising to political prominence again and March elections look increasingly dodgy for Putin’s opponents. China is short of resources to fuel its economic growth, but has over-capitalized on military spending, thereby reserving her military options. India and Pakistan are also part of this heady mix, whilst NATO and Europe talk about their own plans for shoring up their own strategic capabilities. If the US is marginalized, the balance of power could shift and open up the world’s hotbed to dangerous opportunism.
Recent acceleration of Amazon deforestation provoked concerned world leaders to dissuade Brazil from its current course of action. The world’s greatest lung is threatened at a time when the planet so desperately needs every carbon sponge it can find. As I write at least another football field of pristine, ancient forest, has disappeared. It will probably be reduced to firewood as well, compounding the environmental impact.
Further north, the US is in the throws of an intense pre-election season, the outcome of which will either bring America’s oldest, blackest or most female candidate to the white house. The black and the woman, Obama and Clinton, are neck and neck on super-Tuesday. Obama has a slight edge, but the pundits still feel she will surge – we will know soon enough. The Republicans, however, seem to have an emerging winner in John MCain, although Mitt Romney may give them a better chance of winning against the Democratic hopefuls. But, so what … a president is not defining to US politics as the constitution has enough checks and balances to outlive individual players.
But what does concern is the legacy Bush will leave. Again, maybe it’s not Bush as such. After all, he no longer has majority support in either house of the US legislature, so if his latest economic proposals find the light of day, blame democracy.
To offset sub-prime fallout, the Fed cut interest rates. The idea is to soften the blow to consumers, whilst stimulating growth to offset a looming recession. But a low interest rate aggravates an already worrying level of Dollar disinvestment, whilst reducing the price of US investments to foreign buyers. A lower interest rate also does little to address the structural inadequacies of the US economy.
All economies face cycles, a healthy feature of progress. Contraction leads to consolidation, rationalization and spring-cleaning. It tightens belts, clears out dead wood and restores efficiencies. Funding it away, merely delays the evil day of reckoning, whilst making the inevitable fall harder on all and tougher on recovery.
In a desperate measure, the US exchequer initiated tax rebates to alleviate some of the burdens facing sub-prime victims. 38% of the beneficiaries said they will not spend that money immediately – good for them. 62% will convert the benefit into short-term consumption spending, wiping out any good that the measure sought to do, whilst aggravating dangerously high public debt levels.
Now President Bush wants to inject $3trillion into the economy, significantly on defence spending, to shore up a sagging economy. The money for that will take the US deficit and its public debt levels well beyond current critical levels. It is interesting that the last great depression was resolved by a “New Deal”, which involved massive public spending and deficit funding. Could the next depression risk being triggered by the same policies and, if so, what policies lie beyond that to rescue the US if such policies fail?
Again we might all say “so what?” The painfully passé and naïve Monroe doctrine stated “you worry about your hemisphere and we’ll worry about ours.” That thinking still prevails: we have only to consider the intransigence of Bush over environmental issues. The global economy is pegged against the Dollar, the world’s reserve currency: so US domestic policy is a global issue.
However, of graver concern is the fact that the clouds of war are slowly gathering in the middle-east and major powers smell blood. There are pickings aplenty beneath middle-east soil, but if the US also falls on its sword and allows its economic crises to threaten its role in the region, a dangerous world-class conflict becomes a greater likelihood.
Russia is rising to political prominence again and March elections look increasingly dodgy for Putin’s opponents. China is short of resources to fuel its economic growth, but has over-capitalized on military spending, thereby reserving her military options. India and Pakistan are also part of this heady mix, whilst NATO and Europe talk about their own plans for shoring up their own strategic capabilities. If the US is marginalized, the balance of power could shift and open up the world’s hotbed to dangerous opportunism.
(c) Peter Eleazar at www.bethelstone.com
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