Sunday Sep 7 2008
All times are London time
For a Saturday column in the FT, I have returned to the topic of money flowing into the US, both in the form of European shoppers in New York and sovereign wealth funds buying stakes in US businesses. You can read it here and comment below.
About this blog
I am the FT's chief business commentator and this blog is about business, finance, media, technology and related matters. I live in New York so there is a bias towards US topics but I range more widely. Comments and criticism, which hopefully are at least as interesting as anything I write, are welcome. There is more about me on my columnist page.
John Gapper writes: “If US consumers had saved more, spent less, and filled up their SUV’s less frequently - and US financial institutions and not embarked on their own credit binge - they might not be in such an embarrasing condition. But they acted as they did and must live with a weak dollar.”
It is, of course, always fun to blame US consumers for spending too much and for saving too little, and to downplay the role of financial institutions, which have not only “embarked on a credit binge”, but are deeply involved in deceptive subprime mortgage lending which could cause as many as two million Americans to lose their homes and their life savings. However, the weakness in the dollar is not so much embarrasing - in New York, where I live, we are used to welcoming foreign tourists and immigrants alike - as it is extremely dangerous. By making many imported goods, including many necessities of life, unaffordable - since almost everything is imported now - it can cut off demand and cause a world wide recession. Alternatively, or perhaps simultaneously, the dollar could go the way of the Thai Baht or the Mexican Peso in the 1990’s, not to mention the German hyperinflation after WWI.
Is this really all the fault of those incorrigible SUV drivers and holiday season shoppers? Or is it more the fault of a Federal Reserve which has created bubble after bubble, most recently in the housing market, by keeping interest rates artificially low, and depending on China and Japan to print money for us in effect by supporting our unsustainable deficits? And above all, is the weak dollar not primarily the fault of the Bush administration, which has run up a huge deficit by cutting taxes for the largest corporations and richest Americans, while wasting hundreds of billions of dollars on an Iraq war that has benefitted no one except for well- connected defense contractors and big oil companies which, after almost five years of horrible carnage and devastation, are still waiting to get their piece of the action?
Posted by: Roger Algase | December 2nd, 2007 at 5:59 am | Report this commentFurther to my earlier comment, if the US consumers whom John Gapper critizes were a little less profligate in their spending habits, would there not be a real danger of a severe world wide recession, as argued by Richard Duncan in his provocative book “The Dollar Crisis” (John Wiley & Sons, 2005)? This is not to say that Duncan is alone in this regard.
Duncan points out, as have others, that the rest of the world is compelled to recycle surplus dollars resulting from the huge US balance of trade deficit back into the US in order to keep its consumer bubble(s) going so as to stave off a global recession and the dollar’s eventual collapse.
His solution, which should be anathema to most globalization supporters, is for China and other low wage countries to increase minimum wages in order to stimulate domestic demand, so the world will no longer be so dependent on US consumers. What the result would be for a global economy that increasingly depends on Chinese sweatshop labor and the ban on union activity typical of a dictatorship, Duncan does not say.
However, in addition to averting a global economic meltdown (if Duncan is right) there is something to be said for making an attempt to mitigate the social Darwinism at the basis of the “free market” and “free trade” globalization system by adopting and enforcing both minimum wage and environmental standards. This could lift the billions of people who are not benefiting from the current system out of poverty and misery.
The argument against putting the brakes on the excesses in the current laissez faire or “neoliberal” international system is that it is creating prosperity in many places where none existed before, and that “a rising tide lifts all boats”. But the boats that are being lifted are mainly yachts.
Posted by: Roger Algase | December 2nd, 2007 at 4:06 pm | Report this commentMy apologies for misspelling “criticizes” in the first sentence of my above comment.
Posted by: Roger Algase | December 2nd, 2007 at 4:11 pm | Report this commentThe only alternative the US has is a cross-party Democratic-Republican Alliance to increase oil taxes at least to half the British level…
Posted by: Enrique | December 3rd, 2007 at 12:18 am | Report this comment