[Marxism] Michael Hudson: The game is over

Louis Proyect lnp3 at panix.com
Sat Jun 21 07:25:19 MDT 2008

Weekend Edition
June 21 / 22, 2008

An Interview with Michael Hudson on the Economy
The Game is Over. There Won't be a Rebound


Mike Whitney: Fed chairman Bernanke has been on a spree lately, 
delivering three speeches in the last two weeks. Every chance he 
gets, he talks tough about the strong dollar and "holding the line" 
against inflation. Treasury Secretary Henry Paulson even said that 
"intervention" in the currency markets was still an option. Is all of 
this jawboning just saber rattling to keep the dollar from 
plummeting, or is there a chance that Bernanke actually will raise 
rates at the Fed's August meeting?

Michael Hudson: The United States always has steered its monetary 
policy almost exclusively with domestic objectives in mind. This 
means ignoring the balance of payments. Like the domestic U.S. 
economy itself, the global financial system also is all about getting 
a free lunch. When Europe and Asia receive excess dollars, these are 
turned over to their central banks, which have little alternative but 
to recycle these back to the United States by buying U.S. Treasury 
bonds. Foreign governments – and their taxpayers – are thus financing 
the domestic U.S. federal budget deficit, which itself stems largely 
from the war in Iraq that most foreign voters oppose.

Supporting the dollar's exchange rate by the traditional method of 
raising interest rates would have a very negative effect on the stock 
and bond markets – and on the mortgage market. This would lead 
foreign investors to sell U.S. securities, and likely would end up 
hurting more than helping the U.S. balance of payments and hence the 
dollar's exchange rate.

  So Bernanke is merely being polite in not rubbing the faces of 
European and Asian governments in the fact that unless they are 
willing to make a structural break and change the world monetary 
system radically, they will remain powerless to avoid giving the 
United States a free ride – including a free ride for its military 
spending and war in the Near East.


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