The interconnectedness of the world economy means that US economic woes will have severe effects on others.
The official US unemployment rate is 9.1 per cent, but the “real unemployment” rate is 22.6 per cent
During the Tajik Civil War of the late 1990s, soldiers loyal to the central government found an ingeniously simple way to conserve bullets while massacring members of the Taliban-trained opposition movement. They tied their victims together with rope and chucked them into the Pyanj, the river that marks the border with Afghanistan. “As long as one of them couldn’t swim,” explained a survivor of that forgotten hangover of the Soviet collapse as he walked me to one of the promontories used for this act of genocide, “they all died”.
Such is the state of today’s integrated global economy.
Interdependence, liberal economists believe, furthers peace - a sort of economic mutual assured destruction. If China or the United States were to attack the other, the attacker would suffer grave consequences. But as the US economy deteriorates from the Lost Decade of the 2000s through the post-2008 meltdown into what is increasingly looking like Marx’s classic crisis of late-stage capitalism, internationalisation looks more like a suicide pact.
Like those Tajiks whose fates were linked by tightly-tied lengths of cheap rope, Europe, China and most of the rest of the world are bound to the United States, a nation that seems both unable to swim and unwilling to learn.
The collapse of the Soviet Union, a process that began in the 1970s and culminated with dissolution in 1991, had wide-ranging international implications. Russia became a mafia-run narco-state; millions perished of famine. Weakened Russian control of Central Asia, especially Afghanistan, set the stage for an emboldened and highly organised radical Islamist movement. Not least, it left the United States as the world’s last remaining superpower.
From an economic perspective, however, the effects were basically neutral. Coupled with its reliance on state-owned manufacturing industries to minimise dependence on foreign trade, the USSR’s use of a closed currency ensured that other countries were not significantly affected when the ruble went into a tailspin.
Partly due to its wild deficit spending on the gigantic military infrastructure it claimed was necessary to fight the Cold War - and then, after brief talk of a “peace dividend” during the 1990s, even more profligacy on the Global War on Terror - now the United States is, like the Soviet Union before it, staring down the barrel of economic apocalypse…
The United States is in a depression
No question about it.
Unlike the Great Depression of 1929-1943, however, Americans are not only suffering from lower wages, but burdened with skyrocketing “real inflation” of over 10 per cent per annum. Again, the official inflation rate does not adequately consider the rising costs of housing, food or energy.
The Obama Administration pretends there’s no problem. It has been in office for two and half years, yet the president has never bothered to submit a jobs-creation bill to Congress. Faced with falling poll numbers and a reelection campaign next year, Obama’s “jobs offensive” entails calls for “extending the Social Security payroll tax break, investing in infrastructure and extending unemployment insurance”, according to The Associated Press. Those measures stand no chance of passage by the Republican-dominated Congress - which is fine, since they would fall woefully short of the trillions in direct stimulus needed to jumpstart the stalled economy anyway.
Where could economic growth come from?
Not from the US government.
In 2009 the Obama Administration might have pushed for a radical reorientation of the federal government’s priorities, shrinking the military, ending its foreign wars, and redirecting investment funds domestically. They instead chose to grease their banker buddies. Now the political landscape has worsened for the Democrats. “There is no political constituency fighting for direct job creation by government, either through federal aid to prevent layoffs in local government or through public works projects,” notes Stephen Foley of the UK Independent. “These ideas represent the fastest way to lower unemployment, but government is now out of the business of job creation. It is cuts, cuts, cuts all the way from here.”
Nor will the next boom come from corporations.
Companies aren’t hiring because there’s no demand. There’s no demand because companies aren’t hiring. So much for the magic of the marketplace.
Corporations are hoarding so much cash - cash that could drive recovery if it were invested in expanded and new lines of business - that even banks don’t want it anymore. Bank of New York Mellon Corp. took the extraordinary step of charging a fee on deposits of amounts over $50m. “Since the beginning of the year, US bank holdings of cash are up 83 per cent, or $890bn, to $1.98tn,” reports The Wall Street Journal. Banks have more money than they know what to do with. “Consumer loans, by contrast, have grown 0.2 per cent, or $1.7bn.” …
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