Predictable and StrangePosted: September 29, 2008
What is going on is both so predictable and at the same time too strange for words. Predictable: the finance crisis — whether triggered by the housing mortgage debacle, the oil problem or some other factor. Because one does not really have to be a banking expert to understand the basics of the mechanism: Banks are the kind of infrastructure to lend money for business needs that are expected to result in gains — profits — later with which the loans will be paid back. The loans are paid out of what? a) Of people’s savings deposits: money they have earned and that they don’t need for their own business needs but would like to earn interest on by lending it out to those who do. So now what happens if people don’t have money saved? (The US has one of the lowest savings rates in the world, according to my imperfect knowledge.) Well, the banks will just have to borrow the money the need for their loans. Where? The savings accounts are empty. Other banks? No savings there either. So: b) the government? It prints money. Never mind that unrestrained money printing will lead to inflation. So that will work, up to a point. Or: c) foreign investors? Yeah: they have sold us so much stuff and piled up savings they’ll lend to the US, as long as it invests and uses it wisely, and doesn’t deposit it overseas, outsource its own industries, wastes it on frivolous wars and excessive CEO bonuses. Now for some reason, the foreign investors have gotten the impression that the US is doing just all those unwise things. And some of the biggest ones — do we have to name names? — are getting antsy about it. And what they want the US to do is to fix it, somehow — by the only remaining means, strategy b) above. Hoping, holding their breaths, that the old capitalist remedy of kickstarting the economy to eventually raise tax income to pay off that loans while keeping inflation under control (by producing so much stuff that prices will be kept down through competition) will work one more time.
All of this was predictable. What hadn’t been predicted properly was that it happened so fast; even those foreign lenders were taken by surprise. And they have intervened with the US government to apply the above fix. Subtly at first, then increasingly insistently and openly. The really strange part is that nowhere in the US media is this mentioned, least of all in the campaign rhetoric, on both sides. I don’t scrutinize all of the US media, but I had to find it spelled out in foreign newspapers (Die Zeit, in my case). The public is bickering about whether it is good or bad to ‘bail out Wall Street’ — plausibly enough, and the right talk rants are whipping up sentiment — and fears — against it by calling it ‘socialism’. Missing the point entirely: namely that the Bush administration whom nobody could suspect of socialist leanings, simply does not have any other choice. It is over the barrel by the lenders: they are now pulling the US strings. And both candidates are promising both programs (neglecting to mention the fact that these imply more spending) and at the same time tax cuts — for slightly different constituencies, — just like the good ol’ days of the 20th century, as if nothing had happened. Should we have predicted that too?