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Global Economy
<b> The End of 'Chimerica'</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->And so I came away from Chongqing thinking differently about China. In particular, I came away convinced that we are living through the end of something Moritz Schularick and I christened “Chimerica”. In our view, the most important thing to understand about the world economy over the past 10 years has been the relationship between China and America. If you think of it as one economy called Chimerica that relationship accounts for around 13 per cent of the world’s land surface, a quarter of its population, about a third of its gross domestic product and somewhere over half of economic growth in the past six years. <!--QuoteEnd--><!--QuoteEEnd-->
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->What are the geopolitical implications of all this? One is that the great reconvergence between East and West is speeding up. If you go back to the very first “BRICs” – Brazil, Russia, India, China – report that Jim O'Neill and his colleagues at Goldman Sachs produced in 2003, China was projected to overtake the United States in terms of gross domestic product in 2040. But in more recent reports, that has been brought forward to 2027. And maybe that makes sense. <!--QuoteEnd--><!--QuoteEEnd-->

<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->A third geopolitical consequence of the crisis we are living through is that troublemakers get richer. The effect on gross domestic product of an increase in the price of oil from $50 to $100 a barrel was a 16 per cent gain for Russia, a 24 per cent gain for Iran and a 33 per cent gain for Venezuela. High energy prices would not matter if there were more Norways or Canadas among the energy exporters, or if significant new sources of energy could be found in the United States itself. But this is not going to happen any time soon, even if restrictions on exploration and drilling in the US are lifted. The biggest increases in oil production in recent years have been in countries like Azerbaijan and Angola..<!--QuoteEnd--><!--QuoteEEnd-->
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The great geopolitical and economic shift from West to East that we are living through is no recent phenomenon. It began over a century ago, when Japan mounted the first effective Asian challenge to rampant European imperialism. Among other things, this great shift implies that a larger and larger proportion of global industrial production is being located in a more dangerous part of the world than previously. Even if there is no such thing as global warming – even if the climate change story is a complete fantasy – there is still a problem, simply because Asia is already much more vulnerable to natural disasters than the West. (Consider the death toll attributable to natural disasters in 2007: 47 dead in North America, 13,748 dead in Asia.) If the East becomes the workshop of the world, that workshop will suffer more typhoons, more earthquakes and more floods than when it was located in and around Dusseldorf or Detroit.

<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Back in 2006 Chinese state television broadcast a 12-part documentary entitled The Rise of the Great Powers which charted the experience of nine empires, beginning with the Portuguese empire and including the United States. The remarkable thing about this series was that it was not a series of polemics against Western imperialism. On the contrary, an official statement that accompanied that broadcast declared: “China should study the experiences of empires it once condemned as aggressors bent on exploitation.” And the lessons were fascinating: the crucial importance of maritime power, the vital need for political unity.<!--QuoteEnd--><!--QuoteEEnd-->
[b]America’s Fall from Power is a Reality
John Gray
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Our gaze might be on the markets melting down, but the upheaval we are experiencing is more than a financial crisis, however large. Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably. The era of American global leadership, reaching back to the Second World War, is over  <!--QuoteEnd--><!--QuoteEEnd-->
<b>Is anarchy loosed upon the world?
Tuesday, September 30, 2008

'TURNING and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world, ..."
The above are the first four lines of William Butler Yeats' poem The Second Coming and they resound today as the pillars of capitalism continue to crash like dominoes. This financial storm began with the unfettered greed that fed the sub-prime feeding frenzy until US property prices started sliding and finally collapsing leading to over three million Americans in the process of having lost, losing or about to lose their homes. Foreclosures by lenders also helped to speed the downward spiral and major banks in the US and on the European continent that were sucked into the sub-prime whorl were saddled with billions of dollars or euros in bad loans. Recovery will take years.</b>

The US$700 billion ($1,001 billion) bailout awaiting the nod despite much bickering between Democrats and Republicans in Congress, has been estimated to cost every American, including babies and children, about US$2,300. Having unlearnt the lessons of the last Great Depression that began with the collapse of Wall Street on October 29, 1929, it will be the poor and the homeless Americans who will pay the biggest price. Removing the rules and regulations that kept unfettered greed at bay, the US economic gurus of laissez faire market policies have led to an economy hurtling blindingly without reins and unbridled greed as regulations fell one by one by the wayside. Under such circumstances, collapse was nothing but inevitable and the market that was allegedly supposed to correct itself fell apart like Humpty Dumpty.
In today's era of globalisation, the US financial debacle will have an immediate impact on world markets which has led to International Monetary Fund managing director Dominique Strauss-Kahn predicting financial anarchy in the world. While Asian economies have been largely left quite untouched, with Japan and China offering Asian financial support for what is left of the US economy, the US meltdown will definitely hit Asian exporters and their incomes.</b> Meanwhile, the Business Spectator points to the "other US$700 billion and growing US trade deficit accumulated mainly through the net cost of trade with China and the cost of oil imports. These dollars that have gone abroad are coming back to purchase US securities which the Spectator estimates at US$6.5 trillion currently and growing at US$50 billion a month. At this juncture, it is people like former Malaysian Prime Minister Dr Mahathir Mohamad who has been wagging his fingers at the US for the way in which he was chastised for rejecting IMF help and instituting currency controls after the Asian financial meltdown of 1997/98.

On top of this, the US is also fighting a war on two fronts and not making much headway to put it mildly. Now with its hollowed out Treasury and having frittered, or perhaps squandered, its once superstrong financial might, one wonders where the funds will come to finance the expensive war on terror that has already estimated to have cost the American people over US$3 trillion. The Bush administration will probably go down in history as the worst and most inept in American history. Amidst this it is Dick Cheney, probably the most powerful US vice-president in history, that must take a large part of the blame for many of the human rights abuses and failings under the Bush administration.

The Public-Private dichotomy of capitalism-communism was a christian theological product. Perhaps, it is this dichotomy which is collapsing. Look for Rajiv Malhotra's analysis of the current situation. RM stated that Corporations (capital "C") are modeled upon the Church. Probably, they are evolved/side product from Church versus State/Monarch tussle.
America Loses Its Dominant Economic Role</b>
see also images

already posted in #147
Aftenposten, Norway
<b>Crisis Without Leadership</b>
By Harald Stanghelle
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Still, they have been given the opportunity to show a completely different style of leadership. American voters will notice. Because the economic crisis now dominates the campaign completely. The conventional wisdom is that things will get worse. Or as one of the CNN-commentators summed it up: “Now is the time to really worry”. <!--QuoteEnd--><!--QuoteEEnd-->
Junge Welt, Germany
<b>Mutiny In The USA</b>

<b>Wall Street's pain may be India's long-term gain</b>
Prensa Libre, Guatemala
<b>The Moral of the U.S. Crisis</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--> In brief
Some consequences that the economic crisis has left
-At least 200 thousand jobs have been lost in 10 months
- One of the most hit sectors is the construction of homes, since almost 90 000 workers since December of 2007 were fired.
- United States companies in Guatemala have fired between 20 and 30 thousand workers
- Immigrants have suffered from the effects of the crisis in the United States, since they have lost their jobs, especially in the construction and food sectors

*Editor's note: American Mexican proverb meaning "we are capable of doing things through our own means"<!--QuoteEnd--><!--QuoteEEnd-->
<b>Why the U.S. economic slump may coast Obama to victory (I)</b>

<b>European leaders vow to fight financial crisis</b>

<b>Feeling Wall Street's pain, from Manila to Paris</b>

<b>For bailout to work, housing market needs to mend</b>
How bad is our economy?<i>
Robert Kuttner says the failed bailout bill would have helped the wrong people. J.D. Foster says the U.S. faces a fiscal crisis far greater than Wall Street's current malaise.
September 29, 2008</i>


<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The federal government also deserves blame. Years ago, it created a program that fostered a culture of imprudent mortgage lending to individuals who posed a high likelihood of foreclosure. It created and nurtured financial behemoths in Fannie Mae and Freddie Mac, which have now become wards of the state. It maintained a regulatory system fit for an age of typewriters and slide rules. And regulators worldwide were caught flat-footed as the threats built up.

<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The Paulson plan's sticker price of $700 billion is shocking, but in context, the consequences for the federal debt and deficit are relatively minor. The real fiscal crisis, which is just around the corner, is more than 100 times greater. That crisis involves the promises made through Medicare and Social Security. Compared with the excess costs in these central federal entitlement programs, the Paulson plan's size is just a warm-up. <!--QuoteEnd--><!--QuoteEEnd-->
Nikkei Shinbun, Japan
<b>Can the Japanese Make the U.S. Financial Crisis a Good Opportunity?</b>

* SEPTEMBER 30, 2008
<b>Bank Crisis Deepens in Europe</b>

* SEPTEMBER 29, 2008
<b>Lehman's Demise Triggered Cash Crunch Around Globe</b>
<b>The economic disaster that is military keynesianism</b>
Why the US has really gone broke

<i>Global confidence in the US economy has reached zero, as was proved by last month’s stock market meltdown. But there is an enormous anomaly in the US economy above and beyond the subprime mortgage crisis, the housing bubble and the prospect of recession: 60 years of misallocation of resources, and borrowings, to the establishment and maintenance of a military-industrial complex as the basis of the nation’s economic life</i>

<b>By Chalmers Johnson </b>

<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The military adventurers in the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups thought that they were the “smartest guys in the room” — the title of Alex Gibney’s prize-winning film on what went wrong at Enron. The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay or repudiate. This fiscal irresponsibility has been disguised through many manipulative financial schemes (causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

There are three broad aspects to the US debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on “defence” projects that bear no relation to the national security of the US. We are also keeping the income tax burdens on the richest segment of the population at strikingly low levels.

Second, we continue to believe that we can compensate for the accelerating erosion of our base and our loss of jobs to foreign countries through massive military expenditures — “military Keynesianism” (which I discuss in detail in my book Nemesis: The Last Days of the American Republic). By that, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.

Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of the US. These are what economists call opportunity costs, things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world’s number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs, an infinitely more efficient use of scarce resources than arms manufacturing.

<b>Fiscal disaster</b>

It is virtually impossible to overstate the profligacy of what our government spends on the military. The Department of Defense’s planned expenditures for the fiscal year 2008 are larger than all other nations’ military budgets combined. The supplementary budget to pay for the current wars in Iraq and Afghanistan, not part of the official defence budget, is itself larger than the combined military budgets of Russia and China. Defence-related spending for fiscal 2008 will exceed $1 trillion for the first time in history. The US has become the largest single seller of arms and munitions to other nations on Earth. Leaving out President Bush’s two on-going wars, defence spending has doubled since the mid-1990s. The defence budget for fiscal 2008 is the largest since the second world war.

Before we try to break down and analyse this gargantuan sum, there is one important caveat. Figures on defence spending are notoriously unreliable. The numbers released by the Congressional Reference Service and the Congressional Budget Office do not agree with each other. Robert Higgs, senior fellow for political economy at the Independent Institute, says: “A well-founded rule of thumb is to take the Pentagon’s (always well publicised) basic budget total and double it” (1). Even a cursory reading of newspaper articles about the Department of Defense will turn up major differences in statistics about its expenses. Some 30-40% of the defence budget is “black”,” meaning that these sections contain hidden expenditures for classified projects. There is no possible way to know what they include or whether their total amounts are accurate.

There are many reasons for this budgetary sleight-of-hand — including a desire for secrecy on the part of the president, the secretary of defence, and the military-industrial complex — but the chief one is that members of Congress, who profit enormously from defence jobs and pork-barrel projects in their districts, have a political interest in supporting the Department of Defense. In 1996, in an attempt to bring accounting standards within the executive branch closer to those of the civilian economy, Congress passed the Federal Financial Management Improvement Act. It required all federal agencies to hire outside auditors to review their books and release the results to the public. Neither the Department of Defense, nor the Department of Homeland Security, has ever complied. Congress has complained, but not penalised either department for ignoring the law. All numbers released by the Pentagon should be regarded as suspect.

In discussing the fiscal 2008 defence budget, as released on 7 February 2007, I have been guided by two experienced and reliable analysts: William D Hartung of the New America Foundation’s Arms and Security Initiative (2) and Fred Kaplan, defence correspondent for Slate.org (3). They agree that the Department of Defense requested $481.4bn for salaries, operations (except in Iraq and Afghanistan), and equipment. They also agree on a figure of $141.7bn for the “supplemental” budget to fight the global war on terrorism — that is, the two on-going wars that the general public may think are actually covered by the basic Pentagon budget. The Department of Defense also asked for an extra $93.4bn to pay for hitherto unmentioned war costs in the remainder of 2007 and, most creatively, an additional “allowance” (a new term in defence budget documents) of $50bn to be charged to fiscal year 2009. This makes a total spending request by the Department of Defense of $766.5bn.

But there is much more. In an attempt to disguise the true size of the US military empire, the government has long hidden major military-related expenditures in departments other than Defense. For example, $23.4bn for the Department of Energy goes towards developing and maintaining nuclear warheads; and $25.3bn in the Department of State budget is spent on foreign military assistance (primarily for Israel, Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, the United Arab Republic, Egypt and Pakistan). Another $1.03bn outside the official Department of Defense budget is now needed for recruitment and re-enlistment incentives for the overstretched US military, up from a mere $174m in 2003, when the war in Iraq began. The Department of Veterans Affairs currently gets at least $75.7bn, 50% of it for the long-term care of the most seriously injured among the 28,870 soldiers so far wounded in Iraq and 1,708 in Afghanistan. The amount is universally derided as inadequate. Another $46.4bn goes to the Department of Homeland Security.

Missing from this compilation is $1.9bn to the Department of Justice for the paramilitary activities of the FBI; $38.5bn to the Department of the Treasury for the Military Retirement Fund; $7.6bn for the military-related activities of the National Aeronautics and Space Administration; and well over $200bn in interest for past debt-financed defence outlays. This brings US spending for its military establishment during the current fiscal year, conservatively calculated, to at least $1.1 trillion.
Military Keynesianism</b>

Such expenditures are not only morally obscene, they are fiscally unsustainable. Many neo-conservatives and poorly informed patriotic Americans believe that, even though our defence budget is huge, we can afford it because we are the richest country on Earth. That statement is no longer true. The world’s richest political entity, according to the CIA’s World Factbook, is the European Union. The EU’s 2006 GDP was estimated to be slightly larger than that of the US. Moreover, China’s 2006 GDP was only slightly smaller than that of the US, and Japan was the world’s fourth richest nation.

A more telling comparison that reveals just how much worse we’re doing can be found among the current accounts of various nations. The current account measures the net trade surplus or deficit of a country plus cross-border payments of interest, royalties, dividends, capital gains, foreign aid, and other income. In order for Japan to manufacture anything, it must import all required raw materials. Even after this incredible expense is met, it still has an $88bn per year trade surplus with the US and enjoys the world’s second highest current account balance (China is number one). The US is number 163 — last on the list, worse than countries such as Australia and the UK that also have large trade deficits. Its 2006 current account deficit was $811.5bn; second worst was Spain at $106.4bn. This is unsustainable.

It’s not just that our tastes for foreign goods, including imported oil, vastly exceed our ability to pay for them. We are financing them through massive borrowing. On 7 November 2007, the US Treasury announced that the national debt had breached _$9 trillion for the first time. This was just five weeks after Congress raised the “debt ceiling” to $9.815 trillion. If you begin in 1789, at the moment the constitution became the supreme law of the land, the debt accumulated by the federal government did not top $1 trillion until 1981. When George Bush became president in January 2001, it stood at approximately $5.7 trillion. Since then, it has increased by 45%. This huge debt can be largely explained by our defence expenditures.

<b>The top spenders</b>

The world’s top 10 military spenders and the approximate amounts each currently budgets for its military establishment are:Rank  Country  Military budget
1.  United States (FY 2008 budget)  $623bn
2.  China (2004)  $65bn
3.  Russia  $50bn
4.  France (2005)  $45bn
5.  United Kingdom  $42.8bn
6.  Japan (2007)  $41.75bn
7.  Germany (2003)  $35.1bn
8.  Italy (2003)  $28.2bn
9.  South Korea (2003)  $21.1bn
10.  India (2005 est.)  $19bn
World total military expenditures (2004 est)  $1,100bn
World total (minus the US)  $500bn

Our excessive military expenditures did not occur over just a few short years or simply because of the Bush administration’s policies. They have been going on for a very long time in accordance with a superficially plausible ideology, and have now become so entrenched in our democratic political system that they are starting to wreak havoc. This is military Keynesianism — the determination to maintain a permanent war economy and to treat military output as an ordinary economic product, even though it makes no contribution to either production or consumption.

This ideology goes back to the first years of the cold war. During the late 1940s, the US was haunted by economic anxieties. The great depression of the 1930s had been overcome only by the war production boom of the second world war. With peace and demobilisation, there was a pervasive fear that the depression would return. During 1949, alarmed by the Soviet Union’s detonation of an atomic bomb, the looming Communist victory in the Chinese civil war, a domestic recession, and the lowering of the Iron Curtain around the USSR’s European satellites, the US sought to draft basic strategy for the emerging cold war. The result was the militaristic National Security Council Report 68 (NSC-68) drafted under the supervision of Paul Nitze, then head of the Policy Planning Staff in the State Department. Dated 14 April 1950 and signed by President Harry S Truman on 30 September 1950, it laid out the basic public economic policies that the US pursues to the present day.

In its conclusions, NSC-68 asserted: “One of the most significant lessons of our World War II experience was that the American economy, when it operates at a level approaching full efficiency, can provide enormous resources for purposes other than civilian consumption while simultaneously providing a high standard of living” (4).

With this understanding, US strategists began to build up a massive munitions industry, both to counter the military might of the Soviet Union (which they consistently overstated) and also to maintain full employment, as well as ward off a possible return of the depression. The result was that, under Pentagon leadership, entire new industries were created to manufacture large aircraft, nuclear-powered submarines, nuclear warheads, intercontinental ballistic missiles, and surveillance and communications satellites. This led to what President Eisenhower warned against in his farewell address of 6 February 1961: “The conjunction of an immense military establishment and a large arms industry is new in the American experience” — the military-industrial complex.

By 1990 the value of the weapons, equipment and factories devoted to the Department of Defense was 83% of the value of all plants and equipment in US manufacturing. From 1947 to 1990, the combined US military budgets amounted to $8.7 trillion. Even though the Soviet Union no longer exists, US reliance on military Keynesianism has, if anything, ratcheted up, thanks to the massive vested interests that have become entrenched around the military establishment. Over time, a commitment to both guns and butter has proven an unstable configuration. Military industries crowd out the civilian economy and lead to severe economic weaknesses. Devotion to military Keynesianism is a form of slow economic suicide.
Higher spending, fewer jobs

On 1 May 2007, the Center for Economic and Policy Research of Washington, DC, released a study prepared by the economic and political forecasting company Global Insight on the long-term economic impact of increased military spending. Guided by economist Dean Baker, this research showed that, after an initial demand stimulus, by about the sixth year the effect of increased military spending turns negative. The US economy has had to cope with growing defence spending for more than 60 years. Baker found that, after 10 years of higher defence spending, there would be 464,000 fewer jobs than in a scenario that involved lower defence spending.

Baker concluded: “It is often believed that wars and military spending increases are good for the economy. In fact, most economic models show that military spending diverts resources from productive uses, such as consumption and investment, and ultimately slows economic growth and reduces employment” (5).

These are only some of the many deleterious effects of military Keynesianism.

It was believed that the US could afford both a massive military establishment and a high standard of living, and that it needed both to maintain full employment. But it did not work out that way. By the 1960s it was becoming apparent that turning over the nation’s largest manufacturing enterprises to the Department of Defense and producing goods without any investment or consumption value was starting to crowd out civilian economic activities. The historian Thomas E Woods Jr observes that, during the 1950s and 1960s, between one-third and two-thirds of all US research talent was siphoned off into the military sector (6). It is, of course, impossible to know what innovations never appeared as a result of this diversion of resources and brainpower into the service of the military, but it was during the 1960s that we first began to notice Japan was outpacing us in the design and quality of a range of consumer goods, including household electronics and automobiles.

<b>Can we reverse the trend?
Nuclear weapons furnish a striking illustration of these anomalies. Between the 1940s and 1996, the US spent at least $5.8 trillion on the development, testing and construction of nuclear bombs. By 1967, the peak year of its nuclear stockpile, the US possessed some 32,500 deliverable atomic and hydrogen bombs, none of which, thankfully, was ever used. They perfectly illustrate the Keynesian principle that the government can provide make-work jobs to keep people employed. <b>Nuclear weapons were not just America’s secret weapon, but also its secret economic weapon. </b>As of 2006, we still had 9,960 of them. There is today no sane use for them, while the trillions spent on them could have been used to solve the problems of social security and health care, quality education and access to higher education for all, not to speak of the retention of highly-skilled jobs within the economy.

The pioneer in analysing what has been lost as a result of military Keynesianism was the late Seymour Melman (1917-2004), a professor of industrial engineering and operations research at Columbia University. His 1970 book, Pentagon Capitalism: The Political Economy of War, was a prescient analysis of the unintended consequences of the US preoccupation with its armed forces and their weaponry since the onset of the cold war. Melman wrote: “From 1946 to 1969, the United States government spent over $1,000bn on the military, more than half of this under the Kennedy and Johnson administrations — the period during which the [Pentagon-dominated] state management was established as a formal institution. This sum of staggering size (try to visualize a billion of something) does not express the cost of the military establishment to the nation as a whole. The true cost is measured by what has been foregone, by the accumulated deterioration in many facets of life, by the inability to alleviate human wretchedness of long duration.”

In an important exegesis on Melman’s relevance to the current American economic situation, Thomas Woods writes: “According to the US Department of Defense, during the four decades from 1947 through 1987 it used (in 1982 dollars) $7.62 trillion in capital resources. In 1985, the Department of Commerce estimated the value of the nation’s plant and equipment, and infrastructure, at just over _$7.29 trillion… The amount spent over that period could have doubled the American capital stock or modernized and replaced its existing stock” (7).

The fact that we did not modernise or replace our capital assets is one of the main reasons why, by the turn of the 21st century, our manufacturing base had all but evaporated. Machine tools, an industry on which Melman was an authority, are a particularly important symptom. In November 1968, a five-year inventory disclosed “that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States’ machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the second world war. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry.”

Nothing has been done since 1968 to reverse these trends and it shows today in our massive imports of equipment — from medical machines like _proton accelerators for radiological therapy (made primarily in Belgium, Germany, and Japan) to cars and trucks.

<b>Our short tenure as the world’s lone superpower has come to an end.</b> As Harvard economics professor Benjamin Friedman has written: “Again and again it has always been the world’s leading lending country that has been the premier country in terms of political influence, diplomatic influence and cultural influence. It’s no accident that we took over the role from the British at the same time that we took over the job of being the world’s leading lending country. Today we are no longer the world’s leading lending country. In fact we are now the world’s biggest debtor country, and we are continuing to wield influence on the basis of military prowess alone” (8).

Some of the damage can never be rectified. There are, however, some steps that the US urgently needs to take. These include reversing Bush’s 2001 and 2003 tax cuts for the wealthy, beginning to liquidate our global empire of over 800 military bases, cutting from the defence budget all projects that bear no relationship to national security and ceasing to use the defence budget as a Keynesian jobs programme.

If we do these things we have a chance of squeaking by. If we don’t, we face probable national insolvency and a long depression.<!--QuoteEnd--><!--QuoteEEnd-->
<b>An Ugly Market's Lessons for Investors</b>
October 5, 2008 at 08:13:32
<b>Now that Wall Street has been bailed out, where is the rest of USA going?</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->So far, the United States has spent about $985 billion in corporate welfare for the Wall Street Bailout ($700 billion), the nationalization of Fannie Mae and Freddie Mac ($200 billion), and the takeover of AIG ($85 billion). Altogether that figure represents about seven percent of the US Gross Domestic Product (GDP).  <!--QuoteEnd--><!--QuoteEEnd-->
<b>Mangled Economics in Democratic America</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Asia is no help either. On several occasions, the U.S. authorities have been able to "kick out” capital from Asia, creating artificial crises, or inflating stories of avian flu or atypical pneumonia (SARS). These tricks do not work anymore, because not a single normal capitalist will take away money from calm Hong Kong and move it to panic-stricken New York, even if they’ll frighten him with some new "atypical angina." <!--QuoteEnd--><!--QuoteEEnd-->
<b>America's house of cards - make that, credit cards </b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->For the past decade, the American dream has been built on a house of cards - credit cards. But getting out of debt is far more excruciating than getting into it. "Deleveraging" is what it's called, and it's hard.

"The major institutions of the world all want to deleverage," says Warren Buffett. That means they're going to cut down on their lending. Credit card companies are deleveraging too, by clamping down on people's spending limits and bribing them to pay up. Businesses will be forced to deleverage by cutting costs and shedding jobs. How many? The U.S. unemployment rate is at a five-year high of 6.1 per cent. Mr. Buffett thinks it could go to 10 or 12 per cent. "As long as Americans remain at the end of their ropes, the American economy will continue to decline," writes Mr. Reich.<!--QuoteEnd--><!--QuoteEEnd-->
<b>Is the sun setting on US economic supremacy?</b>
By Ding Yifan (China Daily)
Updated: 2008-09-26 07:49
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->This is not the first time foreign investors have suffered enormous losses from a financial crisis in the US. Japan was the largest victim of the bursting of the US real estate bubble in the 1980s. It is estimated that by the early 1990s, Japan had suffered losses of around $70 billion, equivalent to its trade surplus with the US during the 1980s. The East Asian nation then fell into a 10-year economic recession.

It would be impossible for developing countries intent on absorbing US capital not to be affected by the economic crisis engulfing that country. For instance, a number of US corporations based in India are facing serious fund shortages, prompting them to withdraw capital from the Indian market, and resulting in a steep decline in the Indian stock market.<!--QuoteEnd--><!--QuoteEEnd-->
<b>Europe governments go their own way on crisis</b>
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->"I think at this point (a coordinated cut is) quite likely with the current spread of problems at full strength on the European financial system," said Luca Cazzulani, a strategist with UniCredit in Milan.

So far, the banks have continued to flood the money markets with additional liquidity. On Monday, the ECB injected another $50 billion into money markets while the BoE added another $10 billion.

Additionally, the Fed said that 28-day and 84-day cash loans being made available to banks will be boosted to $150 billion each, effective Monday. Those increases will eventually bring the amounts outstanding under the program to $600 billion.

EU finance ministers have an opportunity to discuss the crisis sweeping the Continent as they sit down for two days of talks in Luxembourg.

"This is a very serious situation and one that needs to be addressed ... but it's true that there is not one single magic bullet that will solve this," said EU spokesman Johannes Laitenberger.

The latest attempt at finding a common response came after a weekend commitment by Europe's four leading economic powers — Germany, France, Britain and Italy — fell apart when Merkel announced Sunday that all 568 billion euros ($786 billion) worth of private deposits held in Germany would be guaranteed alongside a new 50 billion euros ($69 billion) bailout package for Hypo Real Estate AG, Germany's second-biggest mortgage lender. <!--QuoteEnd--><!--QuoteEEnd-->
America and the New Financial World
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->  Soon enough, America's financial crisis will wind down -- maybe in a month, maybe in a year. Yet regardless of when, this crisis marks the beginning of a new era for the U.S. For more than six decades, from the end of World War II in 1945 until now, the U.S. was the hub of global capital and capitalism.<b> In the years to come, it will remain a vital center, but not the center.</b>
<b>In 1945, after an exhausting three decades of exertion against Germany, the United Kingdom emerged militarily victorious only to see itself economically exhausted. A year later, it was bankrupt, unable to find capital and on the verge of collapse. It had nowhere to turn but the U.S., which then dictated terms that amounted to a withdrawal of Great Britain from the world stage. </b>The U.S. is not yet in the position of Great Britain, and our creditors in China are not yet as we were then. But absent a more humble and realistic attitude toward capital in Washington, that is the path we're headed down.

<b>What is happening to finance today is similar to what happened to manufacturing beginning in the 1970s.</b> Until then, U.S. manufacturing accounted for as much as half of all global output. By the 1970s, Germany and Japan began to exert themselves as manufacturing titans. So did Taiwan, Singapore, Korea and others that had benefited from American aid. The globalization of manufacturing continued, and was accelerated by the information technology revolution of the 1990s. While the U.S. today continues to produce a decent share of global manufactured goods, it is one among many and employs only 13 million people (10% of the workforce) in a sector that in the middle of the 20th century accounted for a third of all jobs. The same thing is now happening with finance.

<b>In the past five years, there has been a transfer of wealth from the U.S. and Europe to Asia, the Middle East and Russia of trillions of dollars for oil and raw materials as well as inexpensive manufactured goods.</b> Whether or not that transfer has been positive or negative for the U.S. economy writ large -- and there is considerable debate on that subject -- <b>the outflow of wealth is a fact.</b>

You can argue that the transfer of dollars to goods-producing countries, China above all, has provided American consumers with products that might otherwise be unaffordable but has had a negative effect on the U.S. labor force. The transfer of wealth to oil-producing states and countries rich in base metals has been an economic drain, especially as the price has spiked and the cost has risen.

<b>That wealth transfer occurred just as the U.S. financial system began to expand its exposure to the housing market. The movement of capital away from the U.S. was one reason hungry banks turned to more absurd forms of leverage.</b> That disguised the erosion of real capital.

Even as that was happening, however, American financial institutions still wore the mantle of global leadership. As China, the Gulf region, India, Brazil and other parts of the world have increased in affluence, they relied on the expertise, acumen and advice of Wall Street. Go to any region of the world and you will find central banks and investment banks staffed by people educated at U.S. business schools and graced with resumes that include time at the formerly premier institutions of Wall Street. Few major deals were brokered without involvement from a U.S. bank or access to Wall Street financing. That is now at an end.

It is at an end for two reasons. One is structural. There are now vibrant economies that don't depend on the U.S., are not heavily levered, and have a burgeoning, confident and ambitious middle class. But it is also at an end because those newly affluent regions of the world do not find the U.S. a welcoming home for capital.

There is no small irony in the fact that state-driven capitalism, which is the norm in the Persian Gulf and China, finds the U.S. too restrictive.<b> Sovereign wealth funds, with enough cash on hand to bail out Wall Street and the U.S. housing market many times over, invested billions a year ago but are now saying no.</b>

Uncertain growth for the United States is one reason. But the nature of the American regulatory regime is also to blame. Sarbanes-Oxley and the Patriot Act -- whose anti-money-laundering provisions had the unintended consequence of repelling legitimate investors -- combined with a tax code that places a heavy burden on corporations doing business in the U.S. has meant that, as the wealth transfer has happened, there is less and less inclination for global institutions to place that capital in the U.S.

This is a fact regardless of whether you believe that a high corporate tax rate is morally and fiscally correct. In truth, because of the differentials between high U.S. corporate taxes and the rates in Europe (lower) and Asia (in places nonexistent), even U.S.-listed companies that operate globally keep their profits outside the U.S., and thereby avoid those high taxes altogether.

In addition,<b> the regulatory requirements of listing a company in the U.S. have led many companies to look to other markets and other exchanges for financing, hence the boom of financial centers such as Hong Kong, Dubai and even London.</b>

This should not be a partisan argument. It is perfectly fair to argue that wealthy corporations should pay a greater share of the tax base than struggling middle-class Americans. Fair, but not realistic. <b>The U.S. government can no longer dictate to global capital. Once, when the U.S. was the engine of global growth, when the world needed Wall Street for funding, capital could be taxed and controlled by the fiat of the U.S. government. No longer. The U.S. may have the will; it does not have the power.</b>

<b>The current debate in Washington gives no indication that this reality is understood</b>. Both sides of the aisle are susceptible to a false sense of American economic sovereignty. Companies and countries flush with cash increasingly view U.S. laws, regulations and attitudes as undue burdens. As consumer activity accelerates outside the U.S. and Europe, and as financial centers spring up elsewhere, there is increasingly less inclination and less need for the world to go either to Wall Street or to Main Street.

For now, even with the breakdown of Wall Street, the U.S. remains vital to the global economy. It is the largest market, with a dynamic consumer culture, innovative companies, and is deeply enmeshed in the international system. <b>But it is not the alpha and the omega; it is not the center; and the crisis hitting Wall Street is leading the rest of the world to form bonds that bypass the U.S.</b>

Not all of this need be an absolute negative. In a truly interconnected world, more affluence and activity globally can be a universal benefit. U.S. companies operating outside the United States and Europe have already been reaping the rewards. <b>But failure to accept the new reality will lead to the worst of all worlds.</b>

<b>As the U.S. government plunges into the markets, we must understand that this is the end of an era, and that attempts to unilaterally force capital to stay here will only lead to its continued flight. We are now one market among many, a huge and affluent one to be sure, but a wise nation recognizes both its strengths and its limitations. A more secure domestic capital base depends on the U.S. being seen as a desirable place for investment, and not as King Lear raging against the storm, alone, deluded and abandoned.</b><!--QuoteEnd--><!--QuoteEEnd-->
<b>India Inc expects short-term relief</b><!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Several firms, which were facing problems in meeting even their working capital requirements, expected banks to loosen their purse strings for lending. "Today we are seeing a lot of credit constraints in the market even for working capital. In this scenario, any step by RBI is welcome," said Seshagiri Rao, director-finance, JSW Steel.

State-run oil refiners, which were finding it hard to fund their crude purchases, expected some of the tightening to ease.

"We are delighted as this will improve liquidity at a time when we are finding it difficult to borrow money," said S V Narasimhan, director-finance, Indian Oil Corporation.

The real estate sector, which is grappling with a climbing inventory of unsold stock and shortage of funds because of the ongoing tightness in the market, also expected some relief.

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