The Ending of America's Financial-Military Empire

by Dollars and Sense

Just posted at Counterpunch; hat-tip to Ben C.:

By MICHAEL HUDSON | June 15th

The city of Yekaterinburg, Russia's largest east of the Urals, may become known not only as the end of the road for the tsars but of American hegemony too; as the place not only where US U-2 pilot Gary Powers was shot down in 1960, but where the US-centered international financial order was brought to ground.

Challenging America is the prime focus of extended meetings in Yekaterinburg, Russia (formerly Sverdlovsk) today and tomorrow (June 15-16) for Chinese President Hu Jintao, Russian President Dmitry Medvedev and other top officials of the six-nation Shanghai Cooperation Organization (SCO). The alliance is comprised of Russia, China, Kazakhstan, Tajikistan, Kyrghyzstan and Uzbekistan, with observer status for Iran, India, Pakistan and Mongolia. It will be joined on Tuesday by Brazil for trade discussions among the so-called BRIC nations—Brazil, Russia, India and China.

The attendees have assured American diplomats that it is not their aim to dismantle the financial and military empire of the United States. They simply want to discuss mutual aid—but in a way that has no role for the United States, for NATO or for the US dollar as a vehicle for trade. US diplomats may well ask what this really means, if not a move to make US hegemony obsolete. After all, that is what a multipolar world means. For starters, in 2005 the SCO asked Washington to set a timeline to withdraw from its military bases in Central Asia. Two years later the SCO countries formally aligned themselves with the former CIS republics belonging to the Collective Security Treaty Organization (CSTO), established in 2002 as a counterweight to NATO.

Yet the Yekaterinburg meeting has elicited only a collective yawn from the US and even European press despite its agenda—nothing less than the replacement of the global dollar standard with a new financial and military defense system. A Council on Foreign Relations spokesman has said he hardly can imagine that Russia and China can overcome their geopolitical rivalry, suggesting that America can use the divide-and-conquer that Britain used so deftly for many centuries in fragmenting foreign opposition to its own empire. But George W. Bush ("I'm a uniter, not a divider") built on the Clinton administration's legacy in driving Russia, China and their neighbors to find a common ground when it comes to finding an alternative to the dollar and hence to the US ability to run balance-of-payments deficits ad infinitum.

What may prove to be the last rites of American hegemony began already in April at the G-20 conference, and became even more explicit at the St. Petersburg International Economic Forum on June 5, when Mr. Medvedev called for China, Russia and India to "build an increasingly multipolar world order." What this means in plain English is: We have reached our limit in subsidizing the United States' military encirclement of Eurasia while also allowing the US to appropriate our exports, companies, stocks and real estate in exchange for paper money of questionable worth.

The artificially maintained unipolar system," Mr. Medvedev spelled out, is based on "one big center of consumption, financed by a growing deficit, and thus growing debts, one formerly strong reserve currency, and one dominant system of assessing assets and risks." At the root of the global financial crisis, he concluded, is the fact that the United States makes too little and spends too much, particularly its vast military outlays, such as the stepped-up US military aid to Georgia announced just last week, the NATO missile shield in Eastern Europe and the US buildup in the oil-rich Middle East and Central Asia.

The sticking point for all these countries is the ability of the United States to print unlimited amounts of dollars. Overspending by U.S. consumers on imports in excess of exports, U.S. buy-outs of foreign companies and real estate, and the dollars that the Pentagon spends abroad all end up in foreign central banks. These banks then face a hard choice: either to recycle these dollars back to the United States by purchasing US Treasury bills, or to let the "free market" force up their currency relative to the dollar—thereby pricing their exports out of world markets and hence creating domestic unemployment and business insolvency.

Read the rest of the article.

Labels: balance of trade, China, dollar, militarism, Russia, trade deficit

 

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6/15/2009 03:47:00 PM 0 comments links to this post

 

The Sinking Dollar (Wallerstein)

by Dollars and Sense

Very clear and interesting commentary by Immanuel Wallerstein; hat-tip to Bob F. Also check out the cover story from our Jan/Feb issue.

May 15, 2009, Commentary No. 257

When Premier Wen Jiabao of China said in March of 2009 that he was "a little bit worried" about the state of the U.S. dollar, he echoed the feelings of states, enterprises, and individuals across the world. He called upon the United States "to maintain its good credit, to honor its promises and to guarantee the safety of China's assets."

Even five years ago, this would have seemed a very presumptuous request. Now it seems "understandable" even to Janet Yellen, the President of the San Francisco Federal Reserve Bank, although she considers China's proposals concerning the world's reserve currency "far from being a practical alternative."

There are only two ways to store wealth: in actual physical structures and in some form of money (currency, bonds, gold). They both entail risks for the holder. Physical structures deteriorate unless used and using them involves costs. To utilize such structures to obtain income and therefore profits depends on the "market" - that is, on the availability of buyers willing to purchase what the physical structures can produce.

Physical structures are at least tangible. Money (which is denominated in nominal figures) is merely a potential claim on physical structures. The value of that claim depends on its exchange relation with physical structures. And this relation can and does vary constantly. If it varies a small amount, hardly anyone notices. But if it varies considerably and frequently, its holders either gain or lose a lot of wealth, often quite rapidly.

A reserve currency in economic terms is really nothing but the most reliable form of money, the one that varies least. It is therefore the safest place to store whatever wealth one has that is not in the form of physical structures. Since at least 1945, the world's reserve currency has been the U.S. dollar. It still is the U.S. dollar.

The country that issues the reserve currency has one singular advantage over all other countries. It is the only country that can legally print the currency, whenever it thinks it is in its interest to do so.

Currencies all have exchange rates with other currencies. Since the United States ended its fixed rate of exchange with gold in 1973, the dollar has fluctuated against other currencies, up and down. When its currency went down against another currency, it made selling its exports easier because the buyer of the exports required less of its own currency. But it also made importing more expensive, since it required more dollars to pay for the imported item.

In the short run, a weakened currency may increase employment at home. But this is at best a short-run advantage. In the middle run, there are greater advantages to having a so-called strong currency. It means that the holder of such currency has a greater command on world wealth as measured in physical structures and products.

Over the middle run, reserve currencies are strong currencies and want to remain strong. The strength of a reserve currency derives not only from its command over world wealth but from the political power it offers in the world-system. This is why the world's reserve currency tends to be the currency of the world's hegemonic power, even if it is a declining hegemonic power. This is why the U.S. dollar is the world's reserve currency.

Read the rest of the commentary.

Labels: China, dollar, Immanuel Wallerstein, reserve currency

 

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5/25/2009 10:18:00 AM 1 comments links to this post

 

China Reduces US Dollar Reserves In February

by Dollars and Sense

It's hard to tell how significant or durable an occurence this is, but it certainly deserves close attention. From Brad Setser's fine blog, Follow the Money:

China Reduced Its Dollar Holdings in FebruaryPosted on Wednesday, April 15th, 2009
by bsetser

It is a good thing the US trade deficit has come down, because foreign demand for US financial assets--actually foreign demand for US assets other than short-term Treasury bills--has dried up.

Foreign investors bought $68 billion of T-bills in February. Russia alone (likely Russia's central bank) bought close to $14 billion. Private investors--seemingly Japanese private investors--also bought $23.5b of longer-term Treasury notes. Otherwise, though, foreign investors didn't buy much of anything. And Americans also didn’t buy many foreign assets.*

After Keith Bradsher's New York Times article, though, all eyes are on China.

In February, China bought Treasuries. $4.64b by my count. It bought $5.61b of bills, while reducing its long-term Treasury holdings by $0.96 billion.

But China also reduced its US bank deposits by $17.24 billion.

Consequently, by my count, China's total US holdings fell by $13 billion. Short-term claims fell by $11.3b, and long-term claims fell by $2b. The data on China’s short-term claims can be found here.

Is this the beginning of the end? Has China decided to stop buying US assets?

Read the rest of the post

Labels: bailout, Brad Setser, China, dollar, financial crisis, Monetary Policy, trade deficit, Treasury bonds

 

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4/15/2009 11:28:00 AM 0 comments links to this post

 

China To TIGHTEN Credit

by Dollars and Sense

They did this in the run-up to the crash, too. And were blamed for it then. Article contains a distressing picture of China's real estate market from one of Chiona's chief economists, which would pour some cold water on hopes that China's stimulus program can create, rather quickly, demand on the scale required to put a serious dent in trade and currency imbalances. From The Financial Times:

Beijing to tighten controls on credit
By Kathrin Hille and Jamil Anderlini in Beijing
Published: April 12 2009 16:43

China's central bank on Sunday warned it planned to "strictly control" credit to some sectors of the economy after the country recorded a record surge in bank loans and money supply in March.

The central bank's statement, made after a routine quarterly monetary policy meeting, followed the release on Saturday of the money supply data. The data appeared to confirm that Beijing's stimulus measures are revitalising the domestic economy but raised credit risk and inflation concerns.

Read the rest of the article

Labels: bailout, China, financial crisis, Monetary Policy, Trade

 

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4/14/2009 03:29:00 PM 0 comments links to this post

 

China to stick with US bonds (FT)

by Dollars and Sense

From yesterday's Financial Times; hat-tip to Larry P. for this. The money quote is from Luo Ping, director-general of the China Banking Regulatory Commission: "We hate you guys" (said of the United States, or its financial system and government, at least). Treasuries—can't live with 'em, can't live without 'em.

We cover this and related issues about the risk of capital flight (why it started to happen, but reversed when the financial crisis went global) in Marie Duggan's cover article in the current issue, "The Specter of Capital Flight: How Long Will the Power of the U.S. Dollar Protect the United States?" It's available only in the print edition, but you can order that issue here, or subscribe.

By Henny Sender in New York | February 11 2009 23:33

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its "only option" in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world's largest holding of Treasuries.

However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.

Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances.

"Except for US Treasuries, what can you hold?" he asked. "Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option."

Mr Luo, whose English tends toward the colloquial, added: "We hate you guys. Once you start issuing $1 trillion-$2 trillion . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

Read the rest of the article.

Labels: capital flight, China, Treasury bonds

 

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2/12/2009 12:50:00 PM 0 comments links to this post

 

Unrest in China: Worse Than Reported

by Dollars and Sense

From Yves Smith's Naked Capitalism:

Sunday, February 1, 2009
Unrest in China Worse Than Widely Reported

When we have featured articles that mention growing unrest in China, we've been told that it's overblown. The usual arguments: most of the people losing their jobs in Guangdong were young women who could go back to the provinces; that the violence wasn't organized and hence posed not real threat to the authorities; that the people who had lost their jobs could go back to doing what they did before, namely, subsistence farming.

I've had trouble with these arguments because they run afoul of history. Large scale internal migrations when driven by worsening economic conditions tend to be disruptive, as this Times Online article suggests (hat tip reader Paul):

Bankruptcies, unemployment and social unrest are spreading more widely in China than officially reported, according to independent research that paints an ominous picture for the world economy.

The research was conducted for The Sunday Times over the last two months in three provinces vital to Chinese trade--Guangdong, Zhejiang and Jiangsu. It found that the global economic crisis has scythed through exports and set off dozens of protests that are never mentioned by the state media.

While troubling for the Chinese government, this should strengthen the argument of Premier Wen Jiabao, who will say on a visit to London this week that his country faces enormous problems and cannot let its currency rise in response to American demands.....


Yves here, Note that Wen had taken the reverse line at Davos, that growth in China would remain "fast and steady". That had struck me as amazingly bad poker. Japan has played up its basket case status, when it has in fact (until recently) had a robust export sector. Why? If the rest of the world thinks Japan is in terrible shape, no one will bust their chops for keeping the yen weak, which worked until carry trade unwinding drove it from the 115-125 level versus the greenback to its recent high of 86 and change. Wen should instead be stressing how bad things are. Back to the article:

However, a growing number of economists say the unrest proves that it is not the exchange rate but years of sweatshop wages and income inequality in China that have distorted global competition and stifled domestic demand. The influential Far Eastern Economic Review headlined its latest issue "The coming crack-up of the China Model".

Yasheng Huang, a professor at the Massachusetts Institute of Technology, said corruption and a deeply flawed model of economic reform had led to a collapse in personal income growth and a wealth gap that could leave China looking like a Latin American economy.

Richard Duncan, a partner at Blackhorse Asset Management in Singapore, has argued that the only way to create consumers is to raise wages to a legal minimum of $5 (3.50 pounds) a day across Asia--a "trickle up" theory.

Read the rest of the post

Labels: China, labor, labor unrest, Yves Smith

 

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2/01/2009 03:36:00 PM 0 comments links to this post

 

Meanwhile, in China...

by Dollars and Sense

From The Observer:


China fears riots will spread as boom goes sour
Today millions will leave the cities to return to their rural family homes for the new year celebrations. But this year Beijing hopes the newly jobless revellers will stay there - to prevent a fresh wave of unrest in the cities

Tania Branigan in Dongguan
The Observer, Sunday 25 January 2009

They surged into the grimy streets around the factory: first scores, then hundreds, then more than a thousand, as word spread and tension loaded the stale, grey air. The boldest overturned a police van and smashed up motorcycles, then tore through the building destroying computers and equipment. The mood was exhilarated, angry and frightened.

"It happened so quickly ... There were maybe 500 involved and another 1,000 watching them. People were yelling: 'It's good to smash'," said a witness.

But the riot late last year at the Kai Da factory in Dongguan, amid the grim industrial sprawl of the Pearl River Delta, was not an isolated incident. It was one of tens of thousands of protests, many erupting from the same mixture of economic grievances, resentment of police and swirling rumour.

The numbers have been climbing steadily for years. But as the Chinese New Year dawns and the global economic crisis deepens, the government fears that mass unrest could challenge its control of the country, threatening a communist regime that has embraced capitalism with spectacular results.

Today should be the highlight of the year for migrant workers in the country's southern manufacturing hub, but the hundreds of millions who have travelled home for their annual family reunion have little to celebrate. This is the year of the ox in the Chinese zodiac; a symbol of hard work and tenacity. But no one feels bullish as exports plummet and factories shut their doors.

Read the rest of the article

Labels: China, financial crisis

 

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1/25/2009 04:28:00 PM 0 comments links to this post

 

Trade: Throwing Oil on the Fire

by Dollars and Sense

From The International Herald Tribune. Particularly noteworthy (i.e. scary):

"China will resort to tariff and trade policies to facilitate export of labor-intensive and core technology-supported industries," Li Yizhong, the minister of industry and information technology, said at a conference Dec. 19.
Increased export incentives by China have the potential to create a trade issue for the incoming U.S. administration of Barack Obama, particularly regarding textiles.

China's measures to help exporters are starting to cause concern in other Asian countries that compete with it, and raise the risk of a protectionist reaction against China. Indonesia, one of the largest Asian markets, imposed a series of administrative measures Thursday that were meant to reduce smuggling but will have the practical effect of making it harder to import Chinese goods.

Looks more and more like the crash precipitated in no small part due to reliance on the export model and credit is to be combated by redoubling of key policies of the export model; and this without the credit!




Rising desperation as China's exports drop

International Herald Tribune
By Keith Bradsher
Thursday, January 1, 2009

HONG KONG: At the docks here, the stacks of shipping containers that used to loom above the highway overpass are gone. Logistics managers say they negotiate deeper discounts every week on ships that are leaving half empty.

In nearby Guangdong Province, so many factories are closing without paying employees that some workers are resigning pre-emptively and demanding immediate pay before their employers go bankrupt.

In Sichuan and other interior provinces, municipal officials are desperately searching for ways to provide jobs for millions of out-of-work migrant laborers whose families no longer need them for farming.

Those are the effects of millions of Americans' cutting their spending.

American retailers, after suffering a dismal holiday shopping season, are delaying payment for Chinese goods 90 or even 120 days after shipping, in contrast to the usual 30 to 45 days, requiring their suppliers to try to borrow more money to cover the difference. Some Chinese suppliers who cannot raise the money - many already operate on thin margins - are going out of business.

At the same time, retailers are demanding that exporters show that they have strong balance sheets and will not go bankrupt before completing orders. Exporters, worried the retailers will fail before paying for their purchases, are reluctant to let goods be loaded onto ships. And banks, for the same reason, have cut back on guaranteeing retailers' payments to exporters.

Read the rest of the article

Labels: bailout, China, financial crisis, Trade

 

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1/01/2009 01:44:00 PM 0 comments links to this post

 

Something Else To Worry About

by Dollars and Sense

The Financial Times' John Authurs on last week's other (besides the US jobs reports) big event affecting the markets:

Long View: Eyes on the renminbi
By John Authers Financial Times
Friday Dec 5 2008 16:45

In a year when we have all grown used to extreme numbers, this week was book-ended by two shocking figures. Only one seems shocking at first to those outside the market.

The news came on Friday that more than half a million jobs were lost in the US last month, the worst month in more than a quarter of a century.

The week began with the news that the Chinese renminbi had depreciated by 0.73 per cent on Monday. This appears trivial by comparison, but generated almost as much concern as the news on US jobs later in the week. Why?

Read the rest of the article

Labels: China, currencies, financial crisis, Financial Times, John Authers

 

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12/06/2008 12:18:00 PM 0 comments links to this post

 

$600 Billion Plan: Not Enough to Sustain Rally

by Dollars and Sense

Despite a stimulus plan of historic scale, the announcement of China's $600 billion program, though sufficient to fuel major rallies on equity markets in Asia and, to a lesser degree, Europe early, has been eclipsed by a continuing stream of bad bad news from the US. And the article doesn't even mention Circuit City's filing for bankruptcy. From Reuters:


Oil falls, recession concerns outweigh China plan
Mon Nov 10, 2008 1:46pm EST

By Edward McAllister

NEW YORK (Reuters) - Oil prices fell on Monday as concerns about the mounting global financial crisis offset Saudi Arabia's move to cut supplies and China's launch of a $600 billion economic stimulus plan.

U.S. stocks cut gains as General Motors shares slumped, Fannie Mae recorded a record $29 billion loss and the United States pledged further support for struggling insurer AIG.

U.S. crude fell 91 cents to $60.13 a barrel by 12:41 p.m. EST, after rising as high as $65.56 on news of China's stimulus plan. London Brent crude was down 63 cents at $56.72.

"The crude futures rally didn't last even half a day today because the oil markets are vulnerable to the steady drumbeat of bad economic data," said Gene Mcgillian, an analyst at Tradition Energy in Stamford, Connecticut.

"Bad news from Fannie Mae, AIG and earlier GM all point to demand destruction," he added.

The U.S. government restructured its bailout of American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz), raising the package to a record $150 billion with easier terms, after a smaller rescue plan failed to stabilize the ailing insurance giant.

China's spending package aims to boost domestic demand and help the world's forth largest economy ride out the credit crisis, but analysts said it would take time to filter through to the energy markets.

"If you step back, you realize China's stimulus could take months, or even years, to affect energy markets," said Phil Flynn, an analyst at Alaron Trading.

"After the initial boost to the market, the excitement is wearing off. It's an admission that China's economy is slowing."

Saudi Arabia told refiners in Asia it would cut December supplies by 5 percent, signaling its adherence to an OPEC plan to cut output.

Oil prices fell nearly 10 percent last week and dipped below $60 the previous week to their lowest level since March 2007, after a string of dismal economic reports from the United States sharpened fears of a protracted recession.

(Additional reporting by Gene Ramos and Robert Gibbons in New York, Fayen Wong in Perth and Barbara Lewis and Alex Lawler in London; Editing by Walter Bagley)

Labels: AIG, China, Circuit City, Fannie Mae, financial crisis, financial crisis bailout, General Motors

 

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11/10/2008 02:47:00 PM 0 comments links to this post

 

This Just In: D&S Reads the News (#2)

by Dollars and Sense

The second in a new series of blog entries by D&S collective member Larry Peterson.

Before getting into the econ nitty-gritty, I'm going to take this opportunity to briefly lay out my plans for this series of blog entries, and invite suggestions, criticisms, and comments. It's my impression that lots of people aren't aware of the diversity of opinions and magnitude of the disagreements that characterize academic and policy discussions in economics, finance and business, even among conventional practitioners. That being the case, it behooves all of us, and especially those of us who consider questions of justice to be an essential motivator in our thinking about such issues, to attempt to maintain as broad an overview of the subject as we can.

Accordingly, I propose, in this series of blog entries, to use my familiarity with the literature to trawl, two or three times a week, for stories, especially in the mainstream press, but also in academic papers and longer articles, that seem to me to be emblematic of how the economy interfaces with questions of justice in its current conjuncture. In addition, I hope to find stories that aren't widely disseminated or discussed in the mainstream press (though they are, in many instances, mined from it).

In short, I hope to provide a useful reference and summary for those who, while interested in economic issues in general, aren't familiar with all the facets of the controversies that animate—or should animate, from the perspective of those for whom social justice issues are important, or indeed paramount—its public debates.

As for a name, I propose two candidates: "Moral Hazards" and "Lagging Indicators." If anyone has any strong feelings about the name, or proposes an alternative, I'm all ears. Otherwise I'd probably go with the former.

Oh—then there's me. I'm a very recent addition to the D&S collective, and am a member of the Union for Radical Political Economics (URPE). I'm not a professional economist or journalist, but have studied all aspects of economics, finance and business pretty intensively for about fifteen years now. Hey, that was good enough for Marx, right (forgive me, Karl!)?

Alrighty (to use the favorite expression of our esteemed co-editor here): I'm going to focus today on two issues: trade with China and the housing bubble (so much for all the bit about attempting to publicise what often gets overlooked, I know). Last week the administration slapped import duties on certain Chinese manufactured goods, claiming they were the beneficiaries of improper subsidies. And today, reports The New York Times (U.S. Toughens Its Position on China Trade), a World Trade Organization complaint is being prepared against China which will center on trade barriers and the piracy of goods. The Times notes that the recent aggressiveness towards China in trade matters stems from an increasing impatience in the Democratic-led Congress for action. In this light, the Bush administration appears to be attempting to prevent Congress from taking even harsher actions in the future, if nothing is done now. The administration is particularly keen to avoid such a scenario while Treasury Secretary Henry Paulson is engaged in sensitive ongoing talks about revaluing China's currency in an attempt to reverse the humungous US trade deficit with China. The Times also says that China is trying to ease tensions by committing to more large bulk purchases of US imports, which the administration no doubts hopes will keep select members of Congress quiet while softer diplomacy is given a chance to work.

The reason I picked this article to comment on is that it's interesting to juxtapose it with a piece that appears in today's Asia Times (How Foreign Firms Dodge Taxes in China). The article, by Olivia Chung, begins with a paradox: "It seems strange that while Chinese enterprises, including state-owned, joint-stock and private companies, have been making profits in recent years, nearly half of all foreign owned-businesses have been losing money. Yet while so many foreign enterprises claim to be losing money, China witnesses a continual rise in its foreigh direct investment (FDI)." The article goes on to present some pretty astonishing statistics (mostly from official Chinese sources): two-thirds of foreign companies in China report "extraordinary losses;" of the top 10 countries or regions investing in China in 2005, many were offshore financial centers (including Hong Kong) customarily grouped as tax shelters, and that these foreign funds often outstripped those provided by major trading partners, including the US; and finally, the kicker: "…foreign funded companies contributed to one-third of China's industrial output, but generated one-fifth of the total tax revenues." The upshot of the story is clear: foreign investors in China are being accused of using all manner of devices to transfer costs to their Chinese subsidiaries while repatriating profits without paying tax. That being the case, the US complaints about China may not resonate as much with trade negotiators in Beijing (though the article also mentions how Chinese firms game the system by registering as foreign, and that local officials encourage foreign investors to play the tax-avoidance game to pad the books on local production.

Now to the housing bubble. The Washington Post had an article today which suggests that one of the most alarming, yet underappreciated aspects of the housing bubble is the prevalence of fraud. It notes that a confluence of developments led to a situation rife with opportunities for criminal gain, from lax-or no-oversight of new mortgage companies to the huge demand for bonds made up of repackaged mortgage loans (a good deal purchased by the very Chinese we want to stop from buying our bonds now). Much of this stuff is common knowledge now, so I'll simply let the follwing comment from the article speak for itself: "No one knows exactly how extensive the crime has become, but new data from the federal government suggest that it has jumped tenfold since 2000 (another bubble year, recall, LP). Prosecutors are finding cases all over the country in which sham transactions, based on fraudulent appeals, led to homes changing hands at far above their real value." If such homes were purchased far above cost, that must have driven up the values of surrounding properties in to a similar extent. And that means there may be more-perhaps far more air left in the housing bubble than we care to imagine. This is particularly so inasmuch as investment in industrial property, which offset losses in the constructions sector for a while, appears to be tapering off as well. (Note also the April 7th op-ed piece on the housing crisis by Dean Baker of the left-leaning Economic Policy Institute (and also an occasional D&S contributor.)

Oh—one last thing. The New York Times reported yesterday (Democrats Seek to Lead the Way in Tax Overhaul) about Democratic efforts to abolish the alternative minimum tax. This tax is slated to fall on unprecedented numbers of Americans in coming years (as their nominal incomes enter brackets set long ago, before the inflations of the ‘seventies and ‘eighties), and most politicians want to avoid this at all costs. The Democrats, while deserving applause for attemting to shield middle-class families from the incidence of this tax, propose no new taxes to offset the losses in revenue. The Times notes that this amount "…would be far bigger than Democratic initiatives to provide money for children's health care, education or any other spending program." Scared of their obscenely wealthy donors, ir seems the Dems are all too willing to shelter the rich by abolishing the AMT altogether, rather than for families earning up to, say, $250,000 a year (or raising other taxes on them). This inn is already full.

Labels: alternative minimum tax, China, fair trade, housing bubble, subprime lending, URPE

 

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4/10/2007 10:03:00 PM 0 comments