http://www.counterpunch.com/whitney06212008.html
Weekend Edition
June 21 / 22, 2008
An Interview with Michael Hudson on the Economy
The Game is Over. There Won't be a Rebound
By MIKE WHITNEY
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.
(clip)
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