Question and Answer on Recession Dynamics - Fall 2009

Structural Origins
from its position as holder of the world's reserve currency, beginning in the early 80s, the us has moved to break the link between the domestic economy and consumption norms and the accumultation needs of capital. by the late 70s, the profitability of us captial weakened in the face of lower cost competition from europe and japan. the productivity/consumption nexus of development was disrupted by lower cost imports. the dollar weakened leading to the first and second oil crises.

the volker regime squeezed dollar obligations globally, the dollar denominated debts in the developing world soared with the rise of the dollar, collapsing those development models unable to meet rising debt payments.

how are existing debts affected by a rising dollar?

a rising dollar increases the cost of paying off a debt, while a cheaper dollar allows debt to be paid off at a lower cost to the debtor.

how are existing debts affected by a cheaper dollar?

for the creditor, a cheaper dollar increases the likelihood that the debt will be paid off, rather than go into default. however, the dollar recovered will not easily find comparable interest rates, in a sense the dollar recovered are devalued. the value of your dollar claims has been reduced by the lowered interest rates.

during this recession, this devalued dollar may still be able to purchase goods at a lower price. consumption may not yet show inflation, but investment opportunities will encounter the flooding market of dollars.

the current econ crisis

the current econ crisis appears as a 'debt crisis'. a loose dollar regime has led to a pyramid of debt claims unsupported by incomes.

why this extreme recession?

this is the more difficult structural problem of the us economy and its global role as unique superpower.


Temporary exit strategy for toxic debt levels

debt must be reduced dramatically. programs such as tarp, homeowner tax credits, cash for clunkers are attempts to prop up market, allowing past debts to float lower, but avoiding a catastrophic reduction. after this first phase, of preventing collapse, debt must again be allowed to be devalued. this will mean more bankruptcy for companies and individuals.

the stimulus

the stimulus program is an attempt to maintain production and incomes. this is different than the effort above to revive the credit markets through some debt support.

does the stimulus threaten our children's (grandchildren's) future with enormous debt?
government stimulus has the positive effect of maintaining and extending production. as a country we are better off for it. but won't the debt crush our grandchildren? children and grandchildren are, of course, already suffering from this great recession. they are paying from the debt machine which served to balloon wall street profits, but this is very different from the stimulus program.


isn't this just another debt balloon? this time a government debt balloon?
greater government involvement in the economy may lead to politication of choices of economic investment, more likelihood of corruption from control of which economic projects to fund. its probably a good idea to not have the government decide which economic projects to fund.

is greater gov participation in the econ socialism?
the us government has for a long time socialized expenditures for many of the most vital segments of the econ. we receive a public education, our health benefits are subsidized at our place of work, our retirements are made possible by social security and medicare, our country is protected by government military expenditures.
but most importantly the us government subsidizes captialist accumulation, we the tax payer provide enormous tax benefits to private corporations, in addition to spending on all matter of infrastructure costs. this is one aspect of socialism for captitalism.

too big to fail
as businesses morphed into multi-national enterprises, extending production lines and product sales globally, the demands for credit for consumers to more easily assure sales and debt for greatly enlarged production resulted in greater reliance and intertwining with financial markets. with the size of these companies now threatening to capsized the economy, the government becomes the final insuror of the greatly expanded debt, both for consumption and investment. we have too big to fail. this is another aspect of socialism for captial.

socialization of costs, privatization of profits. one possible solution is to tax the too big to fail companies to provide a rainy day fund for the inevitable future busts.