[OPE] Michael Hudson on the US recession

From: Jurriaan Bendien (adsl675281@tiscali.nl)
Date: Sat Jun 21 2008 - 14:12:00 EDT

For Michael Hudson's latest, see: http://www.counterpunch.com/whitney06212008.html

He writes among other things that:

"In times past, bankruptcy would have wiped out the bad debts. The problem with debt write-offs is that bad savings go by the boards too. But today, the very wealthy hold most of the savings, so the government doesn't want to have them take a loss. It would rather wipe out pensioners, consumers, workers, industrial companies and foreign investors. So debts will be kept on the books and the economy will slowly be strangled by debt deflation."

US workers have accumulated some $3 trillion in 401(k) accounts, up from $1.6 trillion in 2002.   http://www.boston.com/business/articles/2008/06/06/more_dip_early_into_funds_for_retirement/?page=2
About half of Americans working full time (70 million people) hold a job with a retirement savings plan; the rate is much lower for part-time workers and the poor. The bottom 60 percent of taxpayers receives only 10 percent of the tax incentives for savings. In 2005, US Public Law 109-8 amended the Bankruptcy Code, by exempting most organised retirement plans, even those not subject to the Employee Retirement Income Security Act of 1974, and according them protected status, claimable as exempt property by a debtor declaring bankruptcy under the U.S. Bankruptcy Code. http://www.nytimes.com/2006/12/28/business/28scene.html

Hudson thinks "there won't be a rebound, and it will take longer than 2009 to recover". 

But this time frame will also obviously depend a lot on developments in the world economy, affecting imports and exports of products, services and capital. In this regard, the measured growth in value-added of the Triad countries (North America, Europe, Japan) is likely to hover at around 2% in the next year, and the housing boom has gone over its peak almost everywhere. Australia, overall the best performer in the OECD countries, still has a real GDP growth rate of about 3.9%. The main places where rapid output growth is still being achieved are China, India and some parts of Africa. The global economic picture is one of stagnation or sluggish growth, and if new financial crises break out, or energy prices continue to rise strongly, growth rates are likely to reduce further. One of the main factors propping up growth in Europe is the strong euro, and the ability to export within Europe, cushioning the impact of rising prices of imported oil and commodities (keep in mind here that petrol is heavily taxed in Europe). 

Perhaps the most significant new thing that Hudson says is that:

"In academic economic terms, America has never been in as "optimum" a position as it is today. That's the bad news. An optimum position is, mathematically speaking, one in which you can't move without making your situation worse. That's the position we're now in. There's nowhere to move - at least within the existing structure." 

But the US still has a lot of bargaining power in world affairs, enabling it to lever its problems against those of other countries. In that sense, I think we should not underestimate the wily US politicians. But it is probably fair comment to say that the US is now beginning to experience the kinds of problems which many other economies have been experiencing already in the last 30 years, and that will begin to change political alignments, with the possibility of a significant third party emerging. 


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