The political economics of this situation is pretty straightforward. We have a double deficit problem.
By Daniel at 13 November, 2009, 11:59 pm
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The government deficit has a strange history with the Republicans led by Bush and cheered on by Greenspan worrying over a no-debt economy less tha a decade ago. (Adults, let’s not forget this most important point of recent history.) If not for the Bush-Greenspan tax policies, the US debt would be trillions less heading into the Bush-Greenspan Great Recession.
The trade deficit is the result of US policies begun under Reagan fostered by Bush, Clinton, Bush and now Obama to open up US markets and put the financial sector in charge of the economy. Forget production, trust Greenspan-Paulson-Geitner-Bernake to make the US top dog by controlling the world’s finances. (Stupid Chinese learning to make things rather than make new financial products like derivatives.) Fortunately, most the world bought up lots of the US’s not-so-good debt, so our problems our theirs as well. Unfortunately, we still import a lot.
Also, contributing to the US trade deficit is the fact that so many countries cannot access debt in their own currency so they MUST accumulate dollars. This may change within a few years, but it is still true for now.
Underlying this messy situation is a basic problem of mature capitalism: a tendency towards stagnation. This leads to a tendency towards financial expansion as the governments of the developed countries try to inflate in order to counter the underlying tendency. Finance happily goes along, particularly when it feels like the state will bail it out.
No “solution’ is possible until reality is faced. Quick sum up: there is no solution on the horizon.
- political.economist
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