US economuy now following in footsteps of Russia and France ..,
a view from Asia ... (posted in Member's Area due to gov't policy content)
(snip)"In the case of Russia, the country has unilaterally decided to back certain national champions while letting others fail on their international debt obligations. The scale of government involvement in the debt market problems suggests that it is not entirely up to the individual corporate to decide on repaying its foreign creditors; being reclassified as a lower-priority industry automatically means the company is effectively expected to secure a restructuring on its foreign debt that would allow precious foreign exchange to be used instead to repay the obligations of those closer to the Kremlin.
Why France? Typically in a debt restructuring, creditors would gain control of the company and decide on selling assets as merits their intentions to get the maximum repayment. This is, however, difficult to achieve in France, where archaic corporate laws and frequent government intervention mean that the ability of a foreign creditor to enforce collateral pledges remains questionable.
Into this group we must also add countries that are sorely tempted to go back to their socialist roots, ignoring the gains made by opening up to globalization. This motley crew of countries could range from the Balkans to the Baltic States, and within their ambit include various trouble-prone countries (at least politically) such as Greece and Poland. All of these countries can summarily change the nature of their statutes, the pledges made with institutions in the European Union for some and the International Monetary Fund for others. That they are currently rich and want to stay that way would be the only plausible explanation for their actions.
The other common thread uniting these countries is ideological disdain for free markets, as shown by both Putin and French President Nikolas Sarkozy in their criticism of laissez-faire. As all good communists do, these leaders have confused cause with effect in order to build up a self-serving system of patronage in their backyards.
The consequences for Russia are easy to arrive at, namely mounting unemployment, bread and meat queues and increased repression of its people. As for countries like France, the consequences will be a significant spike in unemployment, higher taxes that push out its best brains and entrepreneurs, reduced efficiency and a long-lasting recession. So, no change there.
The last category of "both" is occupied by a heavyweight. This is the country that has more debt than any other, a dysfunctional banking system, a regime change underway, millions of unemployed people, thousands of bust companies and dozens of scam artists. The Land of the Free is now the land of a thousand scams, where everything from the currency to bonds and stocks is mispriced.
Yes ladies and gentlemen [ of Asia - sic ], the one country where you have no hope whatsoever of recovering your debt as measured by its current purchasing power is the United States of America. For this is a country that has no source of refinancing except for fresh debt issuance, no industry that it could excel in to generate profits that could prove a succor in the recession and certainly not a lot of confidence-inspiring institutions or even people. Whether it is the parallels to Lehman Brothers or Bernie Madoff, the story for the US is the same - all the world's smoke and its mirrors cannot conjure up the actual cash flow required for the US to repay its creditors.
The first actions of president-elect Barack Obama have been deeply disappointing, if setting off a dozen alarm bells. Be it the Keynesian spending package announced to build bridges to nowhere (see Honey, I switched the medication, Asia Times Online, December 13, 2008 ) or the much-vaunted rescue of the automakers that were signed off by President George W Bush apparently with the support of the Obama team, the move towards socialism is unmistakable.
Rather than being a dogmatic gag reflex, my objections are based on cold numbers: reduced corporate efficiency in the United States means there will be a longer recession with more protracted job losses. The destruction of the middle class in the country also means a surge in poverty across the developed world, as purchases of discretionary items and vacations fall off a cliff.
The US government is able to finance these expeditions because the rest of the world, including the incredibly dense Asian central bankers, continue to buy into the age-old malarkey of risk-free rates and the US dollar as the reserve currency. An objective longer-term look at the US suggests that the country's decline is permanent, not cyclical; accelerated as it is by the declining demographic profile.
It took millions of new immigrants from Europe and a world war to pull the US out of its first Great Depression; I shudder to even consider what it would take for the country to get out of this one. (snip)
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Keep in mind that this article is targeted to a readership of Asians ... who except for the Saudi Oil Sheiks ( who are now in deep cash flow distress due to declining crude oil prices) are the only major global source from which America can 'borrow' the trillion plus dollars needed to fund next year's economic stimulus / bailouts / social program spending !
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