Mother Jones: What Could Go Wrong in 2005

[paineinthearse]

What Could Go Wrong in 2005. Landmarks to future economic catastrophe we should keep in sight over the next eleven months.

January 21, 2005
By Marshall Auerback

Introduction by Tom Engelhardt

On Tuesday, Greg Ip of the Wall Street Journal wrote a front-page piece on the beleaguered U.S. economy, "As Dollar Weakens, Hidden Strength May Stave Off Crisis," that, amid much reassurance, caught something of our fraught economic moment. It held more than the usual number of hints of economic Armageddon as it cited a "growing chorus" of experts warning "that the U.S.'s gaping budget and trade deficits will lead to a crisis in which the dollar falls much more sharply, driving up interest rates and squeezing the economy." Is the United States, the piece wondered, at the edge of the sort of currency collapse followed by deep recession that has in recent
years hit lesser powers from Mexico and Argentina to Thailand? While he concluded, as one might expect in the WSJ, that "a review of past crises world-wide suggests the U.S. has enough going for it now to avoid a similar fate," some of the quotes from experts in the piece must have raised an eyebrow or two in financial circles. For instance, Barry Eichengreen, an economic historian at the University of California, Berkeley, is cited as pointing out ominously that "there is no historical precedent for such a large economy being
so heavily in debt to the rest of the world. "

It seemed the perfect moment then to call in money manager Marshall
Auerback. His assignment: To survey the future for signs of onrushing
economic apocalypse. His advantage over Ip is that any unvarnished
conclusions on the main screen of Tomdispatch are unlikely to start a
panicked rush for the financial exits. With the freedom on
non-influence deep in his heart, he now offers a guided tour of the possible best of the worst for the year to come, suggesting for us economic tourists what landmarks to future catastrophe we should keep in sight over the next eleven months.

What Could Go Wrong in 2005?
By Marshall Auerback

In his 1849 novel, Les Guepes, Alphonse Karr penned the classic line: "The more things change, the more they stay the same." In the case of the United States in 2005, however, the opposite might be true: The more things stay the same, the more they are likely to change…for the worse. In that regard, compiling a list of potential threats to the U.S. this year has a strangely déjà-vu-all-over-again feeling. After all, such a list would represent nothing more than a longstanding catalogue of economic policy-making run amok. Virtually the same list could have been drawn up in 2004, or 2003, or previous years.

Such threats would include: a persistent and increasing resort to
debt-financed growth and a concomitant, growing imbalance in the trade deficit, leading the U.S. ever further into financial dependency and so leaving it dangerously indebted to rival nations, which could (at least theoretically) pull the plug at any time. This, in turn, is occurring against the backdrop of an increasingly problematic, Vietnam-style quagmire in Iraq, against imperial overstretch, and against a related ongoing crisis in energy prices, itself spurring an ever more frantic competition for energy security, which will surely intensify existing global and regional rivalries.

more......

http://www.motherjones.com/news/dailymojo/2005/01/what_could_go_wrong.html

[gasperc]

1. with China's fate precariously linked to ours

my guess is that China sees so real advantage to put a hold on buying up US treasuries since in turn the US keeps buying Billions of dollars worth of Chinese goods.

So what is clear is that we can't complain, compel, critisize or even whisper any human, environmental or other abuses that China may commit. China could simply "go to war" with us by not buying as much or any treasury bonds. However, this would immediately affect thier own economy as a huge downturn in the US economy would be bad for China as well. Only a boycott by American consumers may prove affective against China but again you can't do something to one without affecting the other.

My personal take, proven by Enron's collapse, is that a limit gets reached where inflated figures of wealth created through immense borrowing eventually reaches a breaking point. China has been buying say 10 and 20 year treasuries. Eventually these will come due, will China simply roll over the earnings into additional treasuries? But more importantly, we'll have pay the interest on the Bonds they bought today. Which will drain additional $$$ from our Treasury, which I bet isn't even showing up on future budget plans.