In this case the latest issue of the New Left Review (NLR) contains an article
about the Savings crisis in the Global Economy and so does this weeks Economist magazine. They are both subscriber only content. however you can buy them online with paypal for each article or buy them at the local newstand. Both are well worth the price.
New Left Review 34, July-August 2005
Andrew Glyn: Imbalances in the Global Economy
Wide-ranging account of the growing disequilibria within an increasingly integrated global capitalism. Andrew Glyn takes the measure of China’s still gigantic catch-up potential, in comparison to previous Asian NIEs, and assesses the impact of its rise across different sectors of the world economy
The world economy
Sep 22nd 2005
From The Economist print edition
IS THE world economy in good or bad shape? Judged by the pace of growth, it is in rude health. Despite soaring oil prices, the IMF's latest World Economic Outlook reckons that global output will grow by 4.3% both this year and next, well above its trend rate.…
Suffice it to day they deal wit the curent American fiscal imbalance between savings, investment and deficit. The conclusions the both draw is that advanced industrial countries live with deficits, lower savings, and lower investments. That is deficits as currently experienced by the US economy have NO effect on investment or savings. Instead, investments and savings reverse roles in the new economy of longwave bubble in this case the current real estate boom over the last decade, has promoted personal deficits while corproate captial accumulates and is not invested. This anamolous situation is reversed in China and the newly industrialzed nations of the Pacific, where savings grow as does investment.
This is the new crisis of capitalism, America is now an economic basket case and only getting worse under George II's 'Vodoo Economic's" of tax cuts and deficit budgeting,. Says the Econonmist:
"The problem is that big-government conservatism is already stumbling under the weight of its own contradictions. The grandiose experiment in the Gulf could be enough to flatten it entirely. The first contradiction is Mr Bush's insistence on governing like a big-government conservative while taxing like a small-government one. Even before the hurricane hit, federal spending had been growing by 7% this year (on the heels of a 30% hike during Mr Bush's first term). Mr Bush has now promised to spend an additional $200 billion of federal money on rebuilding the Gulf, while ruling out tax increases to pay for it. The money can supposedly come from cuts in other government programmes. Fat chance." "Big-government conservatism faces its biggest test so far; it could prove fatal
This then has lead to the crisis of of the American Empire, it is not reaping profits from its colonies but instead in order to maintain its power is a net importer of investment from the hinterlands.
"America's current-account deficit, at 6% of GDP, is its highest on record; its net foreign liabilities, at 22% of GDP, are also close to an all-time high. Foreign central banks seem to have reduced their purchases of American Treasuries: official holdings of these rose by only $2 billion in the first seven months of 2005, against $295 billion in (the whole of) 2004 and $175 billion in 2003. If this trend continues, other currencies could one day challenge the dollar's dominance."How the dollar might lose its status as the world's main reserve currency
America is now a debtor nation relying soley on credit.
Thus the United States, which in the 1950s and 1960s had been the major source of world liquidity and of direct investment, in the 1980s became the world’s main debtor nation and by far the largest recipient of foreign capital. The extent of the reversal can be gauged from the change in the current account of the US balance of payments. In the five-year period 1965–69 that account still recorded a surplus of $12 billion, which constituted almost half (46 per cent) of the total surplus of G7 countries. In 1970–74, the surplus contracted to $4.1 billion and to 21 per cent of the total of G7 countries. In 1975–79, the surplus turned into a deficit of $7.4 billion. After that the deficit escalated to previously unimaginable levels: $146.5 billion in 1980–84; $660.6 billion in 1985–89; $324.4 billion in 1990–94; and $912.4 billion in 1995–99. As a result of these escalating US deficits, the $46.8 billion outflow of capital from G7 countries of the 1970s (as measured by their consolidated current account surpluses for the period 1970–79) turned into an inflow of $347.4 billion in 1980–1989, and of $318.3 billion in 1990–1999.
This was a reversal of historic proportions, that reflected an extraordinary, absolute and relative, capacity of the US political economy to attract capital from all over the world. It is likely that this was the single most important determinant of the contemporaneous reversal in the economic fortunes of North America and of the bifurcation in the economic fortunes of Third World regions. For the redirection of capital flows to the United States reflated both effective demand and investment in North America, while deflating it in the rest of the world. At the same time, this redirection enabled the United States to run large deficits in its balance of trade that created an expanding demand for imports of those goods that North American businesses no longer found profitable to produce. Since competitive pressures had become particularly intense in manufacturing industries, these imported goods tended to be industrial rather than agricultural products.
GIOVANNI ARRIGHI New Left Review 15, May-June 2002
Americans have maxed out their savings, rung up their credit cards all on the basis of a real estate bubble around housing prices. America as a nation has maxed out its savings, rung up its international credit, all on the basis of a real estate bubble that keeps the economy booming based on consumer spending rather than investment and production.
The Economist warns that Inflation that terror of the 1970's is raising its head again thanks to the artifical growth bubble in the United States funded entirely on the speculative market in Housing. Not only are houses being bought and sold for a profit but Credit is being overextended to Americans based on their mortgages, in otherwords America is a nation in debt.
INFLATION was supposed to be dead. Yet back-of-the-envelope estimates by The Economist suggest that in September America's 12-month rate of consumer-price inflation will jump above 4%—the highest since 1991.
With inflation edging up almost everywhere, is there a risk of a repeat of the 1970s? A burst of double-digit inflation seems unlikely. Prices took off in the 1970s largely because of serious policy errors. Policymakers now understand that rising inflation harms growth, and independent central banks are more likely to stamp on inflation swiftly.
The real worry with rising inflation expectations is less that they herald a surge in inflation than that they will limit the ability of the Fed or other central banks to cut interest rates if growth stumbles. It is commonly argued in America that if the housing bubble were to burst, and falling house prices threatened to choke consumer spending, the Fed would slash interest rates to prop up the economy, as it did after the stockmarket bubble popped in 2001-02. But then inflation was falling. Today, with inflation rising, the Fed would no longer have that option. If the economy hits trouble, investors and homebuyers should not expect to be bailed out again.
Which is a scary place to be at when the bubble bursts.
housing affordability is deteriorating quickly. In hot markets
on the coasts, such as Los Angeles, the income share required for
mortgage payments on a newly purchased home already matches the
previous two peaks seen in the early 1980s and the late 1980s.
More recently, even affordability in the country as a whole has
started to deteriorate quickly. For example, the National
Association of Realtors -- not an organization known for
excessive bearishness on the housing market -- reports that their
US affordability index now stands at the lowest level since 1991.
Thus, housing valuations are stretched, and are becoming more
stretched the longer the current boom continues.
Goldman Sachs Economist on the Bubble
Finance capital in America, and indeed all G8 countries, are now flthy rich with profits from the investment boom, but are not investing! Warren Buffet: U S Capitalism in Crisis
Corporate capitalism and it's vampyric master; Finance capital, insist on more tax cuts though, so as to make even more profits, for the sake of profits. American investment in production is the lowest it has been in over twenty years back when the market crashed. Which is why there is a global movement to loot pension funds which are seen as another source of captial for profit without having to use it to invest in production.
THE DECLINE OF CORPORATE INCOME TAX REVENUES
By Joel Friedman
A weak economy, new tax breaks, and aggressive tax sheltering have pushed corporate income tax receipts down to historically low levels, both relative to the size of the economy and as a share of total federal revenues. According to the most recent budget projections of the Congressional Budget Office, corporate revenues will remain at historically low levels even after the economy recovers, and even if the large new corporate tax breaks enacted in 2002 and 2003 are allowed to expire on schedule. Deficits over the next decade are now projected to be enormous in size. A joint analysis by the Center on Budget and Policy Priorities, the Concord Coalition, and the Committee for Economic Development projects deficits totaling $5 trillion through 2013. An analysis by Brookings economists reaches a very similar conclusion, while Goldman Sachs projects deficits totaling $5.5 trillion. Despite the deteriorating fiscal outlook and the historically low corporate revenue collections we already face, Congress nonetheless seems poised to shower more tax breaks on corporations that would cause deficits to grow substantially larger over time
In 2003, ten large US corporations listed at the end of this report each earned more than $1 billion in pre-tax profits, yet paid no federal income taxes:
• Collectively these ten Benedict Arnold companies earned $30 billion in profits
and paid their CEOs $126 million. The $12.6 million average pay of the CEOs
of these firms was 51% higher than the $9.6 million received by the average
large-company CEO as reported by Business Week.2
• If these ten firms paid taxes at the 35% statutory tax rate, they would have
contributed more than $11.7 billion to the federal treasury instead of extracting
$3.3 billion in refunds, a $14 billion budget swing from just ten companies!
The Myths Underlying Corporate Tax Breaks
Myth # 1: Corporate Tax Breaks Increase Investment and
Stimulate Job Growth
This widely popular myth has led a public increasingly starved for good jobs to
enthusiastically embrace corporate tax breaks. If only the myth were true! To the
contrary, not only did US private non-residential investment fall 7% between 2001 and
2003, according to the Commerce Department, but those companies receiving the
greatest accelerated depreciation tax savings saw their investment decline the most.
According to CTJ, the 25 largest beneficiaries of accelerated depreciation deductions tied
to new investment cut their total property, plant and equipment spending by 27% between
2001 and 2003. The other 250 companies in the study saw their investment spending fall
just 8%.15 Similarly, corporate tax cuts are no panacea for job growth. The ten corporate Benedict Arnold companies (those paying no taxes in 2003) collectively employed 765,500 peopleat the end of 2003, and added an anemic 1,518 jobs, a 0.2% increase, in 2004.16 Job
growth in the corporate Benedict Arnold companies was even worse than the anemic
1.1% job growth delivered by the economy as a whole.
If America is Empire then the Emperor, has no clothes! Tis a reflection in a mirror darkly, of the truimph of Keynesianism for corporations.
The neo-liberalism that began in the 1970's, and truimphed in the Reagan/Thatcher/Mulroney era of the eighties that crowed about the end of Keynesianism, which had rescued capitalism from the ravages of depression and continued to be the golden goose of post WWII growth, merely turned Keynes on his head. They had not abandoned his General Theory, they simply reversed the capital flows, now consumers and their savings were used to prime the pump instead of finance capital.
So Americans and their government and corporations are now in the same debt boat. Finance capital in America on the other hand is flush with cash, but being deficit shy, would rather see the State go into debt, than invest their profits in production and manufaturing, except abroad.
And when they do invest its with borrowed money from foriegn investors, which is why in the globalized economy more American corporations are being bought off by their European, Japanese, Russian and Chinese competitiors. Dahlmer Chrysler is only one example of this take over of American corprotations because of their debt crisis. Imagine if China and Japan the USA's largest creditors, call in their chips, whats for sale then?!
In the wings awaits America's major competitor, the one they did not wage Cold War with, China. See my article China: The Truimph of State Capitalism
If America was the Western Migration of capitalism from England and Europe in the 19th Century, and the 2oth was America's century with capitalism moving from the bastions of the Eastern Sea Board to all points west ending in the Silcon valley boom of California.
Then the 21st Century is the age of Capital in the Pacific. Japan, Korea, the Phillipines, Malaysia/Indonesia, Hong Kong, are now little tigers of new industrial capitalism in the Pacfic. The farthest Western shore, China, now arises on the horizon of glorious global capitalism. Ironic that.
"Globalization, State Sovereignty, and the 'Endless' Accumulation of Capital"
For what we know, the present rise of East Asia to most dynamic center of processes of capital accumulation on a world scale may well be the preamble to a recentering of the regional and world economies on China as they were in pre-modern times. But whether or not that will actually happen, the main features of the on-going East Asian economic renaissance are sufficiently clear to provide us with some insights into its likely future trajectory and implications for the global economy at large.
First, the renaissance is as much the product of the contradictions of US world hegemony as of East Asia's geo- historical heritage. The contradictions of US world hegemony concern primarily the dependence of US power and wealth on a path of development characterized by high protection and reproduction costs--that is, on the formation of a world-encompassing, capital- intensive military apparatus on the one side, and on the diffusion of wasteful and unsustainable patterns of mass consumption on the other. Nowhere have these contradictions been more evident than in East Asia. Not only did the Korean and Vietnam wars reveal the limits of the actual power wielded by the US warfare-welfare state. Equally important, as those limits tightened and expansion along the path of high protection and reproduction costs began to yield decreasing returns and to destablize US world power, East Asia's geo-historical heritage of comparatively low reproduction and protection costs gave the region's governmental and business agencies a decisive competitive advantage in a global economy more closely integrated than ever before. Whether this heritage will be preserved remains unclear. But for the time being the East Asian expansion has been the tracklaying vehicle of a developmental path far more economical and sustainable than the US path.
Second, the renaissance has been associated with a structural differentiation of power in the region that has left the United States in control of most of the guns, Japan and the Overseas Chinese in control of most of the money, and the PRC in control of most of the labor. This structural differentiation--which has no precedent in previous hegemonic transitions--makes it extremely unlikely that any single state operating in the region, the United States included, will acquire the capabilities needed to become hegemonic regionally and globally. Only a plurality of states acting in concert with one another has any chance of bringing into existence an East Asian-based new world order. This plurality may well include the United States and, in any event, US policies towards the region will remain as important a factor as any other in determining whether, when and how such a regionally-based new world order would actually emerge.
Third, the process of economic expansion and integration of the East Asian region is a process structurally open to the rest of the global economy. In part, this openess is a heritage of the interstitial nature of the process vis-a-vis the networks of power of the United States. In part, it is due to the important role played by informal business networks with ramifications throughout the global economy in promoting the integration of the region. And in part, it is due to the continuing dependence of East Asia on other regions of the global economy for raw materials, high technology, and cultural products. The strong forward and backward linkages that connect the East Asian regional economy to the rest of the world augur well for the future of the global economy, assuming that the economic expansion of East Asia is not brought to a premature end by internal conflicts, mismanagement, or US resistance to the loss of power and prestige, though not necessarily of wealth and welfare, that the recentering of the global economy on East Asia entails.