NYT: Whoops! It's 1985 All Over Again (financially)

[DeepModem Mom]

December 19, 2004
Whoops! It's 1985 All Over Again
By EDUARDO PORTER


....President Bush starts his second term facing a financial bugbear that shares many of the same qualities of the crisis two decades ago: The United States' budget deficit is bloated. Its trade deficit is hitting records every month. The mushrooming growth of its foreign debt is scaring financial markets. And foreign exchange rates seem out of kilter.

In 1985, President Ronald Reagan managed to avert a storm. When he started his second term, a large budget deficit and high interest rates were fueling a relentless climb in the dollar, opening a huge gap in the trade balance. Yet by 1989 the dollar had fallen 50 percent against the Japanese yen and more than 40 percent against the West German mark, without prompting runaway inflation. And the current account deficit - the broad gap between exports and imports of goods and services - had finally begun to close.

A major component of Mr. Reagan's strategy was built at the Plaza (Hotel in New York City), where finance ministers and heads of central banks of the United States, Japan, West Germany, Britain and France agreed to intervene in currency markets - furiously buying yen and marks - to reduce the value of the dollar. The meeting also inaugurated a period of monetary policy coordination and introduced an international dimension to what had been strictly domestic discussions of fiscal policy....

***

But other than exerting pressure on China to let its currency, the yuan, fluctuate in value against the dollar, the Bush administration appears uninterested in coordinating economic policy with other countries. It has mostly just exhorted them to spend more to help close the United States' trade deficit. And Congress, now controlled by Republicans, has shown no more interest in taking action....

***


http://www.nytimes.com/2004/12/19/business/yourmoney/19doll.html?pagewanted=print&position=

[sandnsea]

1. The invisible hand

The difference between Reagan and Bush is that Reagan had a little Democrat in him. Bush is a true capitalist Republican, the free market reigns. He won't do anything to "interfere" with the economy, even if it's 1929 again.

[DeepModem Mom]

3. "Even if it's 1929 again" --

and sounds like it could be, sandnsea!

[Selteri]

14. 1929 because of Republican influence

I only hope we can avoid it, but with the freedoms and restrictions that have been reversed under this administration, the previous Bush administration,the Regan administration and the Nixon-Ford administrations.

Companies that would have been trust busted even 20 years ago are being alowed to become huge behemoths through carefully constructed alliances. Minimum wage has become a joke compared to the cost of living in this country as well, working at Minimum wage one had to work 18 hour days at the very minimum to live on their own.

The collapse is already happening.

[yardwork]

15. If it takes a Depression to fight off a fascist takeover in the U.S.

I'll take the Depression. Sometimes Americans need a severe wake-up call to realize that it's time to start paying attention to who we're voting for and who is counting the votes, instead of smugly voting back in a chimp because he promises to keep gays from marrying.

[genieroze]

17. You said it!. eom

[despairing optimist]

31. Seeing that depression led to the rise of fascism and nazism . . .

I suggest, with due respect, that a depression coupled with endless fear of terrorist attacks will lead to even more circling the wagons and enforcing a rigid nationalist/"Christian"-religionist orthodoxy. In other words, be careful what you ask for. It may bring the purging of leftists and "politicals" as it did in Germany in the thirties, and this time it will be even more effective, thanks to electronic databases and the Internet.

Some distant island in the South Pacific is looking more attractive every day . . .

[agincourt]

32. Reasons I've heard for voting for Bush

I didn't like Theresa, she's too rich. Kerry wants to have lots of abortions. I like Laura better than Theresa. Kerry is too rich. Kerry dresses too expensive. Kerry is so negative. Kerry was a Hanoi spy. Kerry was a backstabber. Bush will save Social Security. Cal Thomas says I should vote for Bush. I don't like Michael Moore.....sigh. Sometimes nations fall because they get a general public too stupid to support democracy and civilization.

[llmart]

33. Agreed 100%!!!

That's exactly what it will take. I would feel sorry for those of us who saw it coming and predicted it and fought against it, but I have to believe that those of us who are smart enough to prepare will be OK.

I once had a boss who came from a privileged background. He knew about my background of coming from a poor family that was happy with what we had and could always survive no matter what. One time he told me, "I wish I was more like you and didn't worry about losing my money and not having enough." He spent all his time trying to protect all his money and wealth and never really lived.

The people in this country might be better people and more understanding of other countries if we weren't so cocksure of ourselves. All this blustering of "We're the best" is going to come back to haunt us.

[tblue37]

35. That reminds me of something I read about Barbara Bush.

In one interview she told the reporter that when she and Poppy Bush had to move from the White House to private life, she felt terrified over the fact that they were going to have to pay for their own mail again.

Of course, they do get a lot of mail as public figures, but they are multimillionaires. She shouldn't worry so much about paying for her own stamps. But that's the thing about the super rich--they never feel they have enough money to be really safe and secure, so they have to take more and more and more from the middle class and the poor.

[sportndandy]

7. Bite your lying tongue!

Reagan was a lucky bastard, unless he planned to sell our entire national debt to the japanese and then destroy the value of the debt by making the dollar worthless. Its a great (devious) plan, but I don't think anyone would have thought of it, much less that senile joker.

(Apologies to anyone who has friend or family member who is or was a senile president)

[UpInArms]

12. flashing back

http://encarta.msn.com/encyclopedia_761571000/article.html

excerpt:

Campaigning in 1980

In 1979 (GWH) Bush launched a long-shot campaign for the 1980 Republican presidential nomination. It was a bold move for a politician who had not been elected to office for a decade. Bush outlasted all of the six candidates in the primaries except former California governor Ronald Reagan. Bush tried to establish himself as the moderate voice of responsible Republicans. He condemned as “voodoo economics” Reagan's campaign promise to increase military spending and cut taxes while balancing the budget. This would supposedly be possible because cutting taxes would cause the economy to grow and a growing economy would generate additional revenue. But Reagan easily won the nomination with the support of social conservatives, who favored government action to stem what they considered to be the decline of morals in the United States, and economic conservatives, who opposed government regulation of the economy and spending on social programs. To mollify moderate Republicans and increase his appeal to conservative Democrats, Reagan asked Bush to be his running mate. The Reagan-Bush ticket defeated incumbent President Jimmy Carter and Vice President Walter Mondale in 1980, and they were reelected in a landslide in 1984.

...more...

[PROGRESSIVE1]

18. Also, Reagan had room to work with. The debt was not as....

high as it is now.

Under Reagan/Bush, the debt went from 33% to 67%. Under Bush II i went from 55% to 70% in the first term. The debt will be 90% by 2009 at the current rate of spending.

The higher the debt is, the harder it is pay it off and the harder it is to get more investments into the country. The only time that we can afford to hold such a large debt is during a MAJOR war such as WWII.

[ClintonTyree]

2. The economy is strong, who ARE these people.............

that keep demeaning our pResidents fiscal policy? Everything is wonderful, there's no need for any intervention.
At least that was the talk at last week's "economic summit" attended by Bush sycophants from throughout the country. Everything is fine. We have a robust economy and all is well. :eyes:
They don't WANT to do anything about it. Bankrupting the country is their goal, no matter how many "little people" get ruined along the way. It won't phase Bush's rich buddies in the least, but they'll finally be able to scrap all of those entitlement programs that suck so much money from the coffers. Money that justly belongs to the rich.
"Let them eat cake" is the prevailing attitude in the Bush administration. They couldn't give a rat's ass about how the economy affects middle and lower class people. It's all theres, and damn it, they have a "mandate" and SOOOO much "political capital" to spend so nobody can stop them. :eyes:
Think again boys, we're mad as hell and we're not going to take it any more. They're in for a very rude awakening and it's going to happen sooner rather than later. :mad:

[mutius]

4. These people

are the ones who stole the surplus and gave themselves a tax cut. these people are the ones who are letting America die. bush, how in the hell does he sleep at night? best part of this is that 59,000,000 people, put these people in control with the help of the media.:grr:

[indepat]

20. Not just 59 million, but everyone with the right to vote who failed to

vote for Kerry have, in effect, ratified everything this Administration has done/wrought (econonically, politically, and militarily) and plans to wreak upon this nation and the world for, we truly get the government we deserve when returning any incumbant to office and everything its known and planned policies and actions bring, for good or bad.

[Prodemsouth]

6. Oh yeah we Americans have a way of deling with the rich don't we...

(scarc off) the bastards were lucky to only have to deal with FDR- when they should have got Huey or Eugene. We need a real anti -rich backlash in America if 1929 happens again. - seal the boarders and take it from them this time.

[sled]

10. Hear!!! Hear!!!

"I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom."

Thomas Jefferson:
To Samuel Kercheval Monticello, July 12, 1816

http://odur.let.rug.nl/~usa/P/tj3/writings/brf/jefl246....

[DeepModem Mom]

11. Ah, Mr. Jefferson -- I never tire of hearing from him...

thank you, sled!

[sled]

13. You're very welcome

It's like great classical music, to me, that all Americans need to hear...daily... ;-)

"...gives boldness, enterprise, and independence to the mind."

[reprobate]

16. You sound like you are in favor of a 'revolution'.

If that's true, please tell me where to assemble. And which arms to bring.

Seriously tho, if there is another 1929 I think you may be right. Once enough people are hungry, once enough people are homeless, once enough people die from sickness that they cant afford, you WILL see a revolution. Whether it's a quiet political revolution, or a noisy shooting revolution will depend on the junta's reaction to it and how violently they try to suppress it.

May we live in interesting times.

[sled]

25. Same Jefferson, same letter...

"And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second; that second for a third; and so on, till the bulk of the society is reduced to be mere automatons of misery, and to have no sensibilities left but for sinning and suffering. Then begins, indeed, the bellum omnium in omnia (war of all against all), which some philosophers observing to be so general in this world, have mistaken it for the natural, instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression."

Thomas Jefferson:
To Samuel Kercheval, Monticello, July 12, 1816

http://odur.let.rug.nl/~usa/P/tj3/writings/brf/jefl246

[stevedeshazer]

27. Great stuff from TJeff

Very apt nearly 200 years later.

[spotbird]

29. As long as people have cable TV and Ramen noodles

the Republicans will rule, a friend of mine likes to say.

When Ramen noodles are unfordable the shit will hit the fan.

[kineneb]

28. about the cake

If I remember history correctly, the last time a country had that attitude they eventually came out about 9" shorter... and missing their heads.
Remember the Bastille!

[muriel_volestrangler]

5. It's too much to hope that Bush can see a link here

The over-consumption by the USA is screwing up everyone's economy; and over-consumption by the USA is screwing up the world's climate. Can you see the similarity, Dubya?

Unfortunately the NYT thinks Europe needs to consume more. But Europe's use of resources is above what the world can bear in the long term too. There's no point in making even more environmental problems just to save Dubya's arse.

[Dancing_Dave]

37. Right on!

[Kolesar]

8. That was a good read

No mention of the effects of the current high energy prices though. I know oil imports contribute greatly to our massive trade deficit.
-=-=-=-
Look at how the "economists" are trying to "finesse" the dollar's fall:
"
First, the dollar must decline further against the Chinese yuan and other Asian currencies. The dollar's steep but narrow fall to date has placed a heavy burden on the exports of a small set of countries, while doing nothing to the exchange rates of China and some other major Asian exporters. And with the yuan's value virtually pegged to the dollar's, other Asian countries, like Japan and South Korea, have been reluctant to let their currencies rise much.

American pressure on China to let its currency float has been unsuccessful so far. But a multilateral approach - one that could guarantee that other Asian currencies rose in tandem so as not to reduce China's export competitiveness in the region - might work, some economists say.

"I could see the Europeans, the Japanese and the Canadians being very enthusiastic about this," Robert D. Hormats, a vice chairman at Goldman Sachs International, said of such a multilateral agreement. "They argue that they are taking the brunt of the dollar's adjustment."

[Massachusetts]

9. 1985 All Over Agagin

We can pull out that Dire Straits album and load down "Money For Nothing" on our iPods, and feel at home again. I just love a Monarchy.:hippie:

[Minstrel Boy]

19. Whoops! It's 1984 all over again.

And for the first time, too.

[Strelnikov_]

21. We Have As Much Chance Of Changing Course As A Bobsled

The only question is how fast will we be going when we crash.

“When he started his second term, a large budget deficit and high interest rates were fueling a relentless climb in the dollar, opening a huge gap in the trade balance.”

What we have now is a weak dollar with an even larger trade gap (3.4% of GDP then vs. 5.5% now).

“At the end of last year, the nation's financial deficit - what the United States owes the rest of the world, minus what the rest of the world owes the United States - amounted to more than $3 trillion, about 30 percent of the country's annual economic output. And it is growing. In the 12 months through October, foreigners acquired nearly $885 billion of new United States government and corporate debt.”

So, of foreign held debt, 30% of the total has been added in the last year. At that rate, foreign held debt will nearly double over a four year period, and triple in a six year period.

[tedzbear]

22. The difference this time is that the dollar is weak.

"When Reagan started his second term, a large budget deficit and high interest rates were fueling a relentless climb in the dollar, opening a huge gap in the trade balance."


Reagan had the luxury of starting out with a strong dollar. Bush is starting out with a weak dollar that is already falling.

[Cha]

23. Too bad they didn't mention

it's "1984 all over again", too!

[Historic NY]

24. My advice lock in at loans or mortages now. Then start saving a modest..

amount cause the interest rates are going to climb. Oh the days of those 12 & 14% CD's again a dream come true, for us savers. I'm trying right now to restructure my debt I need a quick 35k and hate to take it from the bank.

PS look for the bubble to burst on home buying soon, it coming faster than we think.

[xxqqqzme]

26. I am hoping the hom buying bubble does

burst soon. I'll B buying in the next month or so.

[kineneb]

30. While saving, plant a garden

For those of us who have nothing to save except our sanity: plant a small garden. Part of that trade deficit is imported food. If the housing bubble bursts, at least we won't be paving over any more farm land.

[BronxBoy]

38. AMEN

The money we were going to spend on XMAS presents is going into clearing some trees on our property to make way for our home gardens. $4 a pound for tomatoes!!!

[DeepModem Mom]

39. Smart move, BronxBoy -- and welcome to DU!

[llmart]

34. Those of us who are old enough.......

remember the days of 12-14% interest on CD's. Good advice. I'm switching whatever I have left from stock funds to insured, safer investments. I truly hope those who have been living way beyond their means suffer greatly. I want to watch and laugh.

[ausiedownunderground]

36. 1985 economically - 1984 socially-never a truer word was spoken

In 1985 Reagan wasn't in the middle of a "real" war - although according to Fox, CNN, NBC etc etc this war is "Grenada" all over again. Down here in Oz we know your in a real war this time with the hopeful prospect of escalating it to include the whole middle east if were all lucky! This has a good economic effect in that it allows the US military-industrial complex to greatly expand production and as a consequence hire all you guys to make bombs and guns and missiles and death rays and photon torpedo's and light sabres etc etc. Your taxes are then passed back to the government which then spends it on more bomb making etc etc and the cycle continues. However it also has bad economic effect in that the real war has to be paid for with little real benefits trickling back - unless your in the transfer tube industry or want to start a private mercenery business. As the war gets bigger and more and more costlier the question will be are the increasing tax revenues from the military-industrial complex expansion covering the costs of fighting every "rag-head" on the planet? If they do - then the smiling chimp and his merry men will make hay in the sunshine. If they don't then Alan Greenscam is going to have to hire more printing presses.
The smirking chimp a la 2004, has a falling dollar and historically low interest rates compared to Reagan's 1985. Normal economic theory would suggest that a low dollar will make US products that are still made in the US more competitive against the rest of the world's products and so the US deficit will over time start to close up again. However unlike 1985 there are a couple of wildcards today that may throw a spanner in normal economic theory. The rest of the world and the US's dependance on China for manufacturing affordable goods. China's renminibi currency is currently pegged to the US dollar so as the dollar dives the renminibi dives with it - no advantage there! However the rest of the worlds currencies rise making Chinese goods even cheaper than they are now. More US manufacturing sees the getting richer rest of the world countries buying more and more Chinese goods so decides to move out to China to take advantage of its much cheaper production costs leaving less and less goods being made in America which in turn causes the US Trade deficit to keep rising as American's will only be able to buy Chinese products with their reduced dollar wealth. So the reduction in US consumers purchasing power which should slow up the trade deficit over time could be negated by the fact that Chinese products are still very affordable.
This problem is further compounded by the fact that "just quietly" the rest of the world hates the smirking chimp's guts. As a consequence of this and from conversations i've had with quite a few people here in OZ and over the rest of the world there does appear to be a growing boycott of anything American's produce. If this really gets going around the world sales of "Made in America" products or sales of American company subsidiary's producing in other countries could fall dramatically no matter how low the dollar is!
The other difference that The Smirking Chimp and his cronies face that Reagan did not is historically low interest rates. This phenomenon has not just been restricted to the US. All anglo-saxon based countries have experienced this. However non have experienced it the way the US has. Down here in Oz official government interest rates fell to a low of 4.5%. The cheapest mortgage rate fell to 6% which by Oz standards historically was incredibly low. US Fed rates fell to 1%!!!!!! In Oz these rates created a Housing Bubble frenzy and i mean frenzy!!! In November 2003 the Oz rates were raised by 0.25%. In December 2003 they were raised a further 0.25%. They have not moved since then. Over the last 12 months the bubble has burst!! Housing activity has slowed pretty dramatically and prices have fallen over the year. Houses down 10-15% since the peak at the end of 2003, and more worringly apartments and what you guys might call "condo's" down 20-25% Some poor people who bought at the peak are still crying in their soup bowels. I don't exactly know how frenzied the US building and house buying market got but at 1% official rates i suspect it was pretty ugly! Now that Greenscam is starting to "crank" em up i suspect it won't take long for the pain to start if the Oz experience is anything to go by. Just 2, 0.25% hikes and the bubble began deflating over the next 12 months. Consumer spending over here has followed suit as people spend more of their income trying to keep their housing investments. The cost has been that people have found it hard to consume less and personnel credit for consumption items has skyrocketed. Ozzies like most Anglo-Saxon's still find it incredibly hard to save up for that latest gadget or car or TV etc etc. I think Oz is probably about 12 months ahead of the US on the cycle of pain so if our experience is any example be very careful in your house or condo purchasing plans as you may be buying at the "Peak"!!!!!! of the cycle.

[sweetheart]

40. though a huge difference is the end of the cold war

In 85, there was the notion that western economies should stick
together to stay strong in the face of totalitarianism. This drove
the plaza accord to join people together.

In this 2004-5, to prevent totalitarianism of the bush variety, the
very opposite remedies are needed, even if the rest of the world
will have to absorb a recession to dump the dollar and bush's
power with it.

[mutius]

41. NYTimes says shrub

is man of the year.

[mutius]

42. Shrub man of the year 2004

http://www.cnn.com/2004/US/12/19/time.moy.bush.reut/index.html