The exchanges on the current US and world macro economy have generated lots of empirical content. I've briefly (and sometimes crudely) edited some of the highlights of this discussion. Mostly, I'm in agreement with Fred and Rakesh. However, if in fact the world economy is headed into a depression (I don't believe that it is) more - not less - foreign capital is likely to pure into the US. Capital will seek security. Although the 30 year US treasury is disappearing, other Treasury bonds will be snapped up by nervous investors seeking a safe haven. Ultimately, profitability, unemployment, and the stock market are affected by the same forces. The unemployment is a lagging indicator. Similarly, Fred's profit calculations indicate where the economy has been. The stock market indicates where it's going, say in 6 - 9 months. My reading of the tea leaves (the stock market data) suggests that the economy is already at or near bottom. If P/E ratios remain high after nearly 19 months of decline in the market - nearly 60 percent in the NASDAQ and about 25 - 30 percent in the Dow - it may be an indicator of substantial strength. If there is an implementation of military keynesian and if the US economy does recover to say 2 percent for 2002, that will aid Europe and Japan. Although, the internal problems of Japan may mean some decline in that economy regardless of what happens in the US and Europe. With low energy prices, low interest interests, low wages, and a burst of federal spending, I don't see anything that will keep the US economy in recession. peace, patrick (Patrick) In order to avoid a deep and unusually long recession, i.e., greater than 9 -11 months, huge federal deficits are necessary along with lower interest rates. I would also through into the mix tax cuts for the low and moderate income households. Other options may also be necessary. (Rakesh) Huge federal deficits without runaway interest rates and credit crunches would not be possible in the US, given the total debt situation, if the US did not have the political power to coerce the Sa'udis and other Gulf elites to hold its (overpriced) Treasuries and to convince the BoJ that it has to do likewise if there is to be access to the US market and no retrenchment of the US military. At this point American Keynesianism is only a euphemism for the IPE theoretic euphemism of exploitative hegemonism. That is, America can escape the ravages of a global depression by Keynesian deficits only because it can as the lone superpower exercise imperial power. As the political scientist Susan Strange put it in Mad Money (1998): the US can use "its bargaining power as military protector, or as interventionist meddler, or as major trading partner to get its own way and to make others undergo the painful adjustments." American Keynesianism, potentially enabled by the inflow of global capital,may lessen the severity of the downturn in the US but it will not stimulate the world economy sufficiently to lift it out of the impending global depression. I have submitted such an idea here before, Jerry has challenged it, and I welcome hisrestating or adding to his criticism. (Fred) Current profit rates are about 30% below post-war peak of late 1940s, which is pretty close to 1991 92 levels. The rate of profit declined about 50% from the late 1940s to the early 1970s, and then recovered about one-third of that decline through 1994, so that the rate of profit in the early 90s remained about 30% below its early postwar peak. US and Japan are in a recession and Europe is headed toward recession Rate of unemployment and stock market indicators give slightly different picture of US economy than rate of profit and indebtedness. The stock market is still a bubble, in spite of the 25% decline so far.As Rakesh pointed out, price-earning ratios are still high by historical standards. The stock market boom of the late 90s was also due in part to the inflow of foreign capital, much of which went into the US stock market. The boom was also due to US firms repurchasing their own stock. Roughly half of the very large amounts of money borrowed by US corporations in the 90s was used to repurchase their own stock. This is not a sign of a healthy economy. US economy has been able to achieve low rates of unemployment, despite the low rate of profit, because of a huge inflow of foreign capital into the US - $400-500 billion a year for the last several years, after averaging around $200 billion a year since the early 1980s. (Rakesh) Despite the US feds efforts to decrease both short term and now long term rates, junk debt borrowing costs have risen considerably; the spread over comparable Treasurys has risen about 3x since mid 1998. There has been a squeeze on the supply of credit of highly leveraged businesses and companies--see WSJ 10/29/01, p. C1. (Fred) Interest rates began to rise in 1999, but (surprisingly) interest payment of the NFCB sector increased about 25% before that, from 1997 to 1999, while the gross profit (profit plus interest) remained more or less constant. The explanation must be that the NFCB sector took on more debt in relation to its income or gross profit. Rising energy prices contributed to the decline in the rate of profit since 1999, but falling energy prices had the opposite effect from 1997 to 1999. The rate of surplus value has not declined in the 1990s.
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