After note on “The confirmation of Saint Paul”
A chart stolen from Mish’s blog:
Saint Paul finishes his piece on a dreadfully ominous note:
And despite the praise being handed out to those who helped us avoid the worst, we are not handling the crisis well: fiscal stimulus has been inadequate, financial support has contained the damage but not restored a healthy banking system. All indications are that we’re going to have seriously depressed output for years to come. It’s what I feared/predicted in that 2001 paper: “[I]ntellectually consistent solutions to a domestic financial crisis of this type, like solutions to a third-generation currency crisis, are likely to seem too radical to be implemented in practice. And partial measures are likely to fail.”
We should point out that it is only intellectually consistent to demand ever greater US public and private debt if ever greater debt is a possible route out of this mess.
It isn’t. Krugman’s statement never addresses the underlying problem, which is only superficially a financial one.
Properly restated, the Krugman model requires that one nation – the owner of the world reserve currency – must function as the net importer of the global surpluses being generated in those nations whose the national governments seek to pursue some economic policy goal. For instance, if China is to pursue its internal development with export-led growth, the United States has to accommodate this by converting Chinese exports into American imports. By the same token, if the US wants to pursue unrivaled military supremacy, Full Spectrum Dominance in global relations, it must accept that its manufacturing base will eventually be forced offshore – that, in the words of Peter Dorman, the less developed regions of the planet must be turned into export platforms – low-wage industrial parks for American capital.
The relationship is not, therefore, a one-way street. While it is true that China must constantly extend to the United States ever larger sums of credit, which are then wasted on newer and more horrible means of destroying life, it receives, in exchange, the means to increase the productive power of Chinese labor – which increase adds to the profits of both American and Chinese capital. The United States is exploiting China, but China is given, by this exploitation, enhanced capacity to exploit Chinese labor in the exchange.
(Both sides profit by it, and all the Academy Award level performances by Chuck Schumer – condemning China’s manipulation of its currency – which never quite reach the level of actual legislative action despite his vociferous finger wagging, are staged for your enjoyment alone. It is great T.V., but little more than that, since Schumer, as much as anyone, knows how necessary it is for China to subsidize the US Empire, so that the US Empire can subsidize the Zionist apartheid state).
The result of this economic circle jerk between the various states of the world market and the United States was/is the constant increase of global productive capacity, which augmentation has to be met by ever increasing flows of credit to the United States, generating swelling asset prices, and permeating the economic environment with the most sordid ponzi schemes. The dependence of growing productive capacity on ever increasing levels of debt is a flaw, a fault line running along the economic landscape which had to give way, sooner or later.
This appears to explain both the steepening upward curve in the addition of consumer credit seen from the late 1950s forward (and which suddenly exploded upward during the mid-1990s) and, the proliferation of a confusing assortment of new financial instruments packaged to move the risk of this dangerously volatile debt off the books of the big investment houses of Wall Street and into the hands of “dumb” money – pension plans, endowments, and the like.
The dangerous dependence on consumer and public debt to finance economic growth, the astonishing inflation of asset prices, and the proliferation of derivatives – what Buffet called financial weapons of mass destruction – were only symptoms of the most staggering expansion of the productive power of labor yet seen in human history, which expansion is today sounding the death knell for work itself. And all the filthy muck – the avarice, exploitation, and parasitism which passes itself off as high society – will die with it.
Work is dead, we think. And events in China and the United States will demonstrate this.