Jim D. writes:
Marvin Gandall wrote:
The traditional strategy of cutting interest rates to cope with a
financial
crisis hasn't worked this time because the core capitalist countries no
longer dominate the global economy as they once did. The devalued USD
coupled with rapid economic growth in in China and other newly emergent
economies whose currencies are pegged to the dollar have sent food,
energy,
and other commodity prices soaring.
maybe, but there's a problem more immediate which also prevents
rate-cutting from working well: banks and similar financial
institutions aren't suffering from a liquidity crisis (with obvious
exceptions like IndyMac) but from bad balance sheets, i.e., a lot of
assets turned out to be bad. They're intermittently refusing to lend
and driving long-term rates (like the mortgage rate) upward even
though short rates are down.
=================================
That's true. And if they can't clear their bad debt in the market, wouldn't
the only way out be to set up an RTC and/or nationalize the housing GSE's,
which would likely see a resumption of dollar depreciation and corresponding
commodity price inflation contributing to a shift in global economic power
as described in the article? The issue ultimately turns on whether China and
the commodity exporting nations will sharply contract with the fall in G7
demand, resulting in a global depression, or whether their home markets have
developed to the point they can remain relatively insulated from the
downturn and, to some degree, assume the role of markets and lenders of last
resort that has previously belonged to the US. Even if the losses and
economic impact turn out to be milder than anticipated, I think the trauma
has been such that there will be some re-regulation as well as an attempt to
further integrate China and the other major emerging nations into the
management of the global economy. Would you agree?
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