Surprise, The Communists Are Back

Russia and China are both laying blame for the global economic crisis on the United States and unfettered capitalism. But what exactly was China pursuing in selling us all those cheap goods? I didn't hear any complaints then.

While Mr. Wen never named the U.S., his critique of its failings was as sweeping as Mr. Putin's. The financial crisis, he said, was "attributable to inappropriate macroeconomic policies of some economies and their unsustainable model of development characterized by prolonged low savings and high consumption; excessive expansion of financial institutions in blind pursuit of profit" -- and other excesses.

This is our government's fault, but that is distinct from it being the fault of Capitalism. A system rigged to foster bad lending habits is not free market economics. It is social engineering gone wrong. True, that system was also exploited by greed on the part of some. But the fact remains our government created that system and the rules that determined its direction.

The real problem we face is that it isn't very clear if Obama will be the defender of free market capitalism we need. If he simply covers for bad housing policy out of Washington and wrongly allows pure capitalism to take the blame, we are going to have a real fight on our hands.

The International pressure cited above could lend support to an Obama move toward a far more managed and much less productive economy. The important thing will be separating reality from myth. I'm not confident we can rely on the media or Washington to effect that result.

It may not be over the top to suggest that the future of free market capitalism is on the line and decisions made over the next four years will greatly influence the result.

Comments

[jharp]

"Russia and China are both laying blame for the global economic crisis on the United States and unfettered Capitalism"

And they'd be right. Unfettered capitalism is not good and is a major cause of our problems today.

"This is our government's fault"

Yes, it is. And just who has been in charge?

"but that is distinct from it being the fault of Capitalism."

Unfettered capitalism, my friend. Unfettered is the key word. Something the wingnuts are obviously oblivious to.

How long till the new leader of the GOP, the drug addicted, three time divorced, limp, Limbo tries to explain that to the knuckledragging troglodytes? It'll crash their world having to actually think and realized we don't live in a world of absolutes.

[North Dallas Thirty]

LOL....the entertaining part about this is watching two economies that already both collapsed under the weight of Obama socialism starting to lecture the United States about the evils of capitalism.

Unlike theirs, our economy has not needed a total reboot and a complete repudiation of its fundamental principles in order to survive.

Meanwhile, we should note that the Obama Party and its shills in the media are now trying to argue that tax cuts are bad because people will only save the money and not consume it -- when this same Obama Party and its shills scream that lack of savings and high consumption is what created our economic problems.

Of coursse jharp hates capitalism; it rewards the competent and punishes the lazy. He is punished on a daily basis by capitalism because he is lazy, ignorant, and foolish.

Meanwhile, let's remember that jharp idolizes and supports Al Franken, who is a known drug user who stole money from charities to pay his salary, refused to pay his taxes, refused to provide worker's compensation for his employees, and proceeded to bankrupt and destroy his business. Jharp says Franken is "excellent".

[Anon]

On this I have to agree with Russia and China.

The economic collapse is the fault of the United States. Nobody forced us to start manufacturing all of our goods in China because it was cheaper, cheap labor, no quality control, no enviromental control. Nobody forced us to sit by for years and years while the Chinese and the Arabs bought up our treasury bonds. Nobody but us allowed, even encouraged the weak dollar.

Who else but the U.S. and its monetary policie and tax policies supported and encouraged or at best turned a blind eye to the consumer economy financed by credit and debt for the last 15 years?

And we certainly cannot blame the Russians or the Chinese for inventing a bunch of bull shit securities and then marketing across the globe based on faulty, false or non existant "risk management" and "audit controls".

[MarkJ]

jharp,

I can't imagine why you've got such a problem with "unfettered capitalism." After all, you're a product of it.

[Jake]

the drug addicted, three time divorced, limp, Limbo tries to explain that to the knuckledragging troglodytes? It'll crash their world having to actually think and realized we don't live in a world of absolutes.

Posted by: jharp | Wednesday, January 28, 2009 at 08:04 PM

We don't live in a world of absolutes, but it's fine to frame an individual in absolutist terms.

You, jharp, are an embarrassment to yourself. Google Intermittent Explosive Disorder. You're their poster child.

[jharp]

"I can't imagine why you've got such a problem with "unfettered capitalism." After all, you're a product of it."

How did you come up with that?

I've been to the Grand Canyon, Bryce Canyon, the Smoky Mountains and many other National Parks. A Socialist program.

I liked them all. A lot. A beautiful Socialist success story.

I've paid into medicare(government single payer health insurance) and my parents are enjoying the benefits and liking it a lot.

One of these days, I hope before I die, the wingnuts will figure that Capitalism needs some oversight. Witness the mess we are in today.

[mark l.]

if you are concerned with drug habits, jharp, how does obama's coke history sit with you?

[mark l.]

still trying to square 36% taxation on top earners income with 'unfettered'.

[mark l.]

jharp-

you'd better hope that no one looks at the wiki entry on the matter...

http://en.wikipedia.org/wiki/Government_policies_and_the_subprime_mortgage_crisis

"Government policies contributed significantly to the subprime mortgage crisis. Increasing home ownership was a goal of both the Clinton and Bush administrations. Consistent with this effort, the Clinton administration’s top housing official in the mid-1990s, Mr. Cisneros loosened mortgage restrictions. At about the same time the Community Reinvestment Act (CRA) was amended to strengthen it and reduce red-lining. The U.S. Congress didn't act during March 1995 congressional hearings when William A. Niskanen recommended that Congress repeal CRA and on September 10, 2003, when U.S. Congressman Ron Paul introduced a bill to abolish lending to people who couldn't afford to pay the money back. Capital requirements between banks and Freddie/Fannie have not been consistent."

I did a word search on 'capitalism'

the only occurence in the lengthy coverage:

"Gerald P. O'Driscoll, former vice president at the Federal Reserve Bank of Dallas, stated that Fannie Mae and Freddie Mac had become classic examples of crony capitalism."

instead of trying to convince us, you'd better start editting for wiki. They're burying you.

[mark l.]

If obama were smart, he would be sucking up to china, for geitner having the temerity to suggest(correctly) that china floats its currency. China is pissed becuase the good thing they had going is now going to change. They had no choice but to buy our debt, as we are the only customer who can support their growth and are willing to accept their goods, relatively hassle free, when compared to Europe. We've been funding their economic progress for over 10 years...

that's capitalism jharp. You may have noticed that we are at a point where we share one of the most symbiotic partnerships in the history of the world. Not a bad world to live in, when your two major super-powers, are partners in business. Good luck defining it's value. Definitely worth more than a cup of starbucks.

we could aggressively pursue a policy of protectionism, at the cost of losing someone who will finance our debt, losing the country that fills our shelves for the cheapest price, and create politcal friction between the last two men standing. As an american, am I happy that our money is being shipped oversees, and then lent back to us? no. Is there mitigation that in a 'global' view, we are funding their New Deal, improving one of the most populous(and civilized) countries? a lot. (The net impact is a downer, but something like a 53/47% split, agianst/for, the net difference is modest)

Russia?
after airing their biweekly issues with the US since the fall of the berlin wall, they finally have something to complain about. Russia's real complaint? 'We were making 140 dollars a barrel less than 6 months ago, now its 42. WTF?'

simple math for Russia-
export 5.17 million barrels a day, for 100 dollars less than peak price, for a year...

the financial crisis is costing them over 180 billion/year. now they won't be able to finance Chavez' sabre rattling. tsk, tsk.

The beauty of an occassional crisis is that if it is worldwide it knocks down the weakest states, which tend to have crappy govts. The oil decline thingy? Iran has their nuts in a vice. The high price of oil prevented the threat of limiting their oil sales. The counter is that now with oil low, all other oil exporters would, behind the scenes, favor blocking their oil from market to their own self-interest/capitalism. I wouldn't advise using the card, unless something changes...if we do it before Iran successfully detonates their nuke, then we would have nothing to say or do afterwards.

[mark l.]

"I've been to the Grand Canyon, Bryce Canyon, the Smoky Mountains and many other National Parks. A Socialist program."

weren't the smokies donated by wealthy individuals?

[WBestPresidentEver]

Mr. President, We Disagree
President Obama says that "economists from across the political spectrum agree" on the need for massive government spending to stimulate the economy. In fact, many economists disagree. Hundreds of them, including Nobel laureates and other prominent scholars, have signed the statement that appears in the Cato Institute's full page ad in the New York Times and in other national publications.
http://www.cato.org/

[WBestPresidentEver]

New world order will emerge in 2009, with U.S. plunging

Every so often in the history of international affairs, a great transnational turbulence shakes the foundations of the world and brings many of its older structures tumbling to the ground, as we witnessed in 1919, 1945 and 1989. In the confusion and babble that follow, it's difficult to see through the dust and recognize the shape of the altered strategic landscape.

Peering through the wreckage of the past year's financial crisis, it seems clear that every nation was a loser in 2008. The world's developed economies have taken a heavy beating, whether measured by their collapsing industrial production, tumbling exports, surging unemployment, frozen credit markets or the near- paralysis of maritime trade.

Yet we also hear cries of distress across the globe. Vladimir Putin's proud Russia is reeling toward internal collapse. China is sending factory workers home to the countryside. The International Monetary Fund is trying to rescue Iceland and Ukraine from economic oblivion. Brazil's currency is plummeting against the U.S. dollar. And the brief honeymoon for commodity-exporting African countries is over. Which national economy didn't take a blow to the head in this annus horribilus?

When the dust settles, will we see all countries equally battered, like the streets of Dresden after the Allied bombings in February 1945? Will every power simply have taken several steps backwards, so that the "order of things" that existed in January 2008 will be the

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same in December 2009? I doubt it.

In the midst of general turmoil, there are always relative winners and losers. Those who are likely to lose most in the coming year will include Russia, Venezuela and Iran (too dependent on oil), most of Africa and Latin America (too tied to commodities), and Japan, Taiwan and South Korea (too wedded to exports, shipping, electronics).

By contrast, and unless it falls into the trap of a Pakistan war, India will advance; none of its banks (so far) are on the Bear Stearns Cos. track. China will take hits, but that probably means an increase in economic growth of 5 percent or 6 percent, deriving more from domestic development, and less from cheap exports.

Europe's prospects for 2009 are mixed, which is simply another way of saying that here, too, there will be relative winners and losers. Norway will ride the storm on its still-massive currency reserve and the rest of Scandinavia has strength in depth -- unlike the less competitive economies of East and Central Europe. Germany's combination of ultra-high-quality production, superb infrastructure and financial caution (few Germans use credit cards: Americans, take note!) give it strengths that are lacking in the U.K., France, Italy, Spain, Greece and other European countries that fell for easy credit and large government deficits. Prussian fiscal rectitude will keep the euro high, and compound the dollar's weaknesses.

The biggest question concerns the United States. My instinct tells me it will lose ground in 2009. I simply don't see how the Treasury can print $1 trillion to cover deficit spending, offer those bills at very low interest rates, and expect foreigners (not Americans, because we don't have the savings) to buy them, persuading the world to keep afloat its greatest debtor since Phillip II of Spain. Why should sensible Chinese investors do that when they can buy Swiss bonds, gold, or Scottish real estate? Yet if Asians decline to buy tens of billions of Treasuries each month in 2009, U.S. interest rates will have to go up again.

So: India up, China up, Germany up (all relatively). The developing world down, Russia down, most of Europe and Japan down, and President Barack Obama's America down and down. I'd like to believe I am very wrong. I worry that I'm not.

Paul Kennedy is professor of history and director of International Security Studies at Yale University. He is the author/editor of 19 books, including The Rise and Fall of the Great Powers. He wrote this column for Bloomberg News.

[jharp]

"I've been to the Grand Canyon, Bryce Canyon, the Smoky Mountains and many other National Parks. A Socialist program."

weren't the smokies donated by wealthy individuals?

I don't know and what does that have to do with anything?

They belong to everyone now. And everyone has equal access.

In other words, Socialism.

[jharp]

"Nobody forced us to start manufacturing all of our goods in China because it was cheaper, cheap labor,"

That was the market forces that led us to trading with China. Retailers were "forced" by the market or they went out of business.

[jharp]

instead of trying to convince us, you'd better start editting for wiki. They're burying you.

Posted by: mark l. | Thursday, January 29, 2009 at 12:53 AM

I really have no idea what you intended with this post. Nor do I think you do either.

Seems to confirm my point that unfettered or not fettered enough capitalism leads to problems. That was my original point.

Did you post this because you agree?

[mark l.]

we have a 'mixed economy'-characterized by capitalism and socialism.

if we should have less capitalism, perhaps there is a country which features stronger elemenets of socialsim that could be the role model for success.

fannie and freddie would not exist in a truly capitalistic country.

[WAHOO WILLIE]

"The economic collapse is the fault of the United States. Nobody forced us to start manufacturing all of our goods in China because it was cheaper,....."

Again I will say that the success of China's trip to capitalism is your fault Americans....Yep, it is you and I who would rather pay $7 for a shirt made by Chinese slave labor at Wallyworld than to pay $17 for better US made shirts. It really is that simple and though it costs me more, I manage to boycott asian goods mostly. Getting harder and harder to do and yes I do buy imported goods from other countries. Help your country by boycotting asian imports wherever you can.

[jharp]

"we have a 'mixed economy'-characterized by capitalism and socialism."

Yes we do. Thanks for posting. Pure Socialism=Bad, Pure Captalism=Bad.

Seems to seem our national parks, interstate highways, lakes, rivers, and beaches work out pretty good.

Now we need to borrow from the single payer health care systems that also work far better than ours and help American industry become competitive again.

[jharp]

"Again I will say that the success of China's trip to capitalism is your fault Americans....Yep, it is you and I who would rather pay $7 for a shirt made by Chinese slave labor at Wallyworld than to pay $17 for better US made shirts. It really is that simple and though it costs me more, I manage to boycott asian goods mostly. Getting harder and harder to do and yes I do buy imported goods from other countries. Help your country by boycotting asian imports wherever you can."

Some truth here Willie but not all of it.

Slave labor in China is a fallacy. Wal Mart and almost every other retailer conduct inspections to make certain this is not happening. Though not perfect it works pretty well.

Shirts made in China can be and often are just as good of quality as in the U.S.

I have visited dozens of Chinese factories. They can and do make stuff as good or as cheap as you want. The workers get housed, get fed, get clothed (work clothes), get health care, and at the end of the month have a couple of hundred dollars. And no need for a car.

Better than a lot of the stiffs right here in the U.S.

I've said it before and I'll say it again. Health care costs are crippling U.S. businesses. We pay 2 to 3 times what the rest of the world pays. For the same quality of care.

[jharp]

Slave labor in China is a fallacy. Wal Mart and almost every other retailer conduct inspections to make certain this is not happening.

And by the way, you can thank liberals for this.

[Todd]

I would say the economic collapse can be blamed upon many factors, but I would highlight 3 of significance which does implicate the United States as being ground zero for the crisis. But, that doesn't mean the rest of the world acted responsibly either.

1) The deregulation of the financial markets, starting with the dismantling of the Glass Steagall Act of 1932 which was very effective in keeping our financial institutions out of trouble for over 60 years. That was the start of the launch of massive amounts of financial derivatives, and the securitization of mortgages that sowed the seeds of the economic meltdown. However, while it may have started here, the irresponsible risk-taking was not germane strictly to American financial institutions. It was widely embraced globally, with great enthusiasm especially by European banks. It can be argued, however, that the U.S. was the trendsetter because of the massive deregulation and lack of oversight in our markets. After all, hasn't the United States always trumpeted it's markets as being the best,most transparent, most liquid and most efficient markets anywhere?

2) The love affair with consumerism in the United States in the last 25 years which led to a savings rate of virtually 0% in recent years. Just like there was a bubble in the stock market and there was a bubble in the housing market, there was also a bubble in consumer spending that eventually had to end at some point as consumers eventually shopped till they dropped, totally out of money. This was decidedly an American phenomenon much more so than an international phenomenon. I personally find it very difficult to summon up much of any sympathy for those people who ran up their credit card debt, and bought cars and houses they couldn't afford, put no money aside for a rainy day, and now are sitting in financial ruin.

3) The 1990's tax change that exempted $250,000 per individual and $500,000 per married couple of gains on their primary residences. This preferential tax treatment for real estate was a key ingredient in creating the conditions for a bubble in the housing market as it encouraged speculation and greed. Where else could you make $250,000-500,000 legally in this country and not have to pay any tax whatsoever if you owned the house for 2 years? A realtor I did business with told me she had a married couple as clients who were actually buying houses and moving every 2 years, so they could start from scratch again and make another $500,000 in the next 2 years. If you were going to deliberately try to create a bubble in an asset class, you would start by giving it a huge preferential tax treatment.

[Todd]

"This is our government's fault, but that is distinct from it being the fault of Capitalism. A system rigged to foster bad lending habits is not free market economics. It is social engineering gone wrong."
---------------
I think that's the same old game of blaming all of the problems on the Democrats and the CRA, trying to force financial institutions to lend to minorities. At least, that's what it sounds like to me when you describe it as social engineering gone wrong.

The fact of the matter is that delinquencies in prime mortgages and jumbo mortgages are also running very high, just lagging a year or so behind the delinquencies in subprime. This was the fault of capitalism in that unabashed capitalists like Larry Kudlow and Arthur Laffer fully supported the idea of the less regulation, the better off we'd all be. We found out the hard way that some regulation is good regulation.