Friday, March 20, 2009

The United States of Ponzi

That's the title from Nouriel Roubini's latest column:
Americans lived in a "Made-off" and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its over-leveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now collapsed in a heap.

[snip]

A country that has--for over 25 years--spent more than income and thus run an endless string of current account deficit--and has thus become the largest net foreign debtor in the world (with net foreign liabilities that are likely to be over $3 trillion by the end of this year)--is also a Ponzi country that may eventually default on its foreign debt if it does not, over time, tighten its belt and start running smaller current account deficits and actual trade surpluses.

Whenever you persistently consume more than your income year after year (a household with negative savings, a government with budget deficit, a firm or financial institution with persistent losses, a country with a current account deficit) you are playing a Ponzi game. In the jargon of formal economics, you are not satisfying your long-run inter-temporal budget constraint as you borrow to finance the interest rate on your previous debt, and are thus following an unsustainable debt dynamics that eventually leads to outright insolvency.

The whole thing is worth reading (h/t to The Newshoggers' Ron Beasley), who furthre comments:
I think the root of this problem goes back nearly 30 years with Ronald Reagan's successful attempt to destroy the US middle class. The spending power of the middle class was what drove the US economy. To make up for diminishing disposable income the Greenspan Fed flooded the economy with easy credit. This policy was carried our on steroids by Greenspan before the 2004 election in order to make appear that the "recovery " continued to give George W. Bush an election boost. This credit frenzy was enough to bring the Ponzi economy down.
It bears repeating - the whole fucking economy was one big ponzi scheme, and has been since the Raygun regime ushered in the era of neoliberalism that has led (and continues to lead) to what blogger Richard Estes refers to as the sub-proletarianization of America. Remember:
The U.S. economy, under the Reagan doctrine that carried on, even through the Clinton years, is primarily composed of abandoning production in favor of Wall Street "paper" gambling (for real dollars), a frenzy of consumption (although most of the goods consumed are now manufactured overseas -- in let's say China, for instance), and the reliance on gargantuan personal and national debt.
There's no big secret here; no need for conspiracy theories. We need only remind ourselves that economic theorists, pundits, and politicians who advocate and put into practice the sort of bubble economy that we have lived under in recent decades - one in which predatory capitalists operate under almost absolute impunity - was pretty much out in the open. Journalists such as Naomi Klein were able to put the pieces together some time ago. The propaganda used to sell neoliberalism to the masses was there for all to see, from the esoteric pronouncements of "the end of history" to the more mundane claims that "wealth" could expand indefinitely. Alas, the after the end of the end of history, the chickens came back home to roost. Those at or near the bottom of the scheme (e.g., the folks who got suckered into subprime mortgages or placed their faith in 401ks) were the first to realize this and the first to feel the pain. At this point, those at or near the top of the pyramid are still living in some form of denial - or maybe not. Hell, there may be precious little for them to care about as long as there's enough loot to arm sufficient numbers of mercenaries and build and maintain a sufficient number of prisons to protect them from any angry formerly middle class mob that may form along the way. At this point, the transfer of wealth is pretty well complete.

No comments:

Post a Comment