Swine Flu Thoughts

The rate of mortality, or the death rate, is only one aspect of any pandemic. Equally important is the infection rate.

A flu virus with an infection rate of 10 %, and mortality rate of 3 %, will kill .3 out 100.

A flu virus with an infection rate of 50 % , and mortality rate of 1 %, will kill .5 out of 100.

The 1918 virus was close to a 50 % infection rate, with a mortality rate of 3-5 % .

Typical flu is around 15 % and .33 %

The current virus seems to have a higher than "typical" rate of infection. This is not surprising, given that it looks to be new, and therefore no one has immunity to it. The mortality rate is uncertain.

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There have been some mistaken assumptions about Mexico bandied about on the blogs, and perhaps implied a bit in the press. One of these is that Mexico is a poor country. When, by international standards, it's a middle income country.

Mexico, according to the 2007 World Bank estimates, is the world's 13th largest economy by GDP. It is 50th in per person GDP (with PPP), at $ 12,780. China is 90th, for instance. Argentina is 49th, Turkey 51st.

The areas of Mexico hit with the most deaths, however, are poorer areas – including southern cities like Oaxaca, and (probably) the shantytowns in and around Mexico City. Though, the areas of origin in the Mexico City deaths have not been announced. The north of Mexico, which has a relatively higher per person GDP, has not been hit as badly in terms of number of deaths.

Much about this flu is conjecture, but a really bad situation could develop in the urban slums of developing nations if this thing spreads like wildfire. I believe that is why the WHO is acting with some speed in increasing their pandemic alert.

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As has now been mentioned in the mass media, a Smithfield Foods farm in Veracruz, Mexico is the possible site of origination for the H1N1 pandemic.

There is a story-within-a-story about Smithfield Foods, described as the United States' largest hog and pork producer.

A few days before swin flu hit, rumors were rife about a possible takeover of Smithfield by the Chinese agriculture conglomerate COFCO. Smithfield has been losing money for a good period of time, and China is interested in their know-how in terms of developing their own agriculture sector, which is quite inefficient at the moment.

As mentioned in an earlier post, the modernization of the Chinese countryside is probably the best chance capitalism has to to break through the current global crisis of over-production/ under-consumption.

I wonder if the Smithfield rumor was advanced by the company, however, perhaps as a way to get government aid. A TARP for food companies ? Because I really doubt the U.S would let a foreign company control the nation's food supply to that extent. The Unocal – China deal was blocked for similar security reasons, albeit in energy.

As Kissinger said : “Control oil and you control nations; control food and you control the people.”

More Than a Bit Grey

Ages of some living Rock greats :

Paul Mc Cartney - 66
Mick Jagger - 65
Keith Richards - 65
Jimmy Page - 65
Bruce Springsteen - 59
Sting - 58
Bono - 48

Rock-n-Roll was once a symbol of youthful rebellion, but maybe about the time the Hall of Fame opened in Cleveland, in 1995, its calcification was firmly in place. Artistic movements generally start looking at past accomplishments when they've lost their revolutionary edge. The same could be said about large sections of jazz, since it has become entrenched in musical academia. It takes a lot of time to be creative and innovative, and cramming "the standards" as a 20 year old - whether it be in classical, jazz , or rock tends to direct creativity into established parameters. Craft is necessary, but it gets taken to the extreme of rigidity in most of academia. On top of this are the massive student loans that are piled up - requiring a day job after graduation unless one's parents are wealthy . And that reminds me of another bizarre thing - seeing college jazz bands at elite universities made up entirely of children of the ruling class.

But back to rock-n-roll. I know and love much of the music, can play it, and am generally shredworthy. But what's strange is how some rock musicians insist on acting like there's is the only hip thing going, and that classical musicians (for instance) are not "cool". Meanwhile, they are pushing 50 (or 60) and still trying sex, drugs, and rock-n-roll at the local club for 'the door', or tips. In a few years, they can get gigs at the senior center. In the meantime, let the kids have their moment and get off the stage.

Lower and Lower

To combat the 1990-1991 recession, the Fed Funds rate was cut to 3 %.

To combat the 2001 recession, the rate was dropped to 1 %.

Now, a Federal Reserve study has put the 'ideal' interest rate, based on current economic conditions, at - 5 %.

Will the 'ideal' rate during the next recession be - 10 % ?

The U.S. consumer seems to have reached their endpoint in terms of personal deficit spending. Either there will be a source of new demand, or the world will be bloated with excess industrial capacity. Call it under-consumption, a crisis of over-production, or weak aggregate demand relative to capacity - but the world economy looks to be structurally fractured.

Swine Flu

Monday

Saw this in the news :

60 % of the residents in the town of La Gloria, Perote, state of Veracruz, were stricken with the flu in late March. The WHO was apparently notified on April 2 by a bio surveillance company called Veratect. Link

and the government's response :

The government has insisted it acted quickly and decisively when presented with the evidence of a new virus.

But even as it did so, it acknowledged the outbreak began earlier than April 12, the date it had previously linked to the first case. Cordova confirmed Monday that a 4-year-old boy who was part of an outbreak in eastern Veracruz state that began in February had swine flu. He later recovered.

Residents of the town of Perote said at the time that they had a new, aggressive bug — even taking to the streets to demonstrate against the pig farm they blamed for their illness — but were told they were suffering from a typical flu. It was only after U.S. labs confirmed a swine flu outbreak that Mexican officials sent the boy's sample in for swine flu testing.

Mexico's Agriculture Department said Monday that inspectors found no sign of swine flu among pigs around the farm in Veracruz, and that no infected pigs have been found yet anywhere in Mexico.

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Sunday

The current lack of mortality in the U.S and Canada, based on 20-30 cases, is not fully significant. The 1918 pandemic had a mortality rate of between 2-4 %. And, there might be multiple strains of the disease, with a more virulent mutation having developed in Mexico. A lot is unknown.

One speculation:

After flu infections, people can develop an additional bacterial "superinfection" that could be lethal, said Brian Currie, an infectious-diseases doctor and director of clinical research at Montefiore Medical Center in New York City. Currie said it remained a mystery why people in Mexico were dying while the cases reported in the United States have been relatively benign. "You've got to remember, this is a strain of flu nobody has seen before," Currie said.

Might this occur if there is no initial treatment of the flu symptoms ?

Many people in very poor areas of the developing world, for instance, the slums outside Mexico City - will go to a doctor only if they are very ill. There are simply not enough medical facilities in these areas. And, people don't have the money to justify seeing a doctor for anything mild. Because of that , the current denominator of this disease is unknown, and much higher than the hospitalized cases.

It looks like the disease spreads easily, given the outbreaks dispersed throughout Mexico, and the clusters in New Zealand and New York. This is extremely concerning.

The 1918 pandemic was most destructive in its second phase, after it evolved, not the initial outbreak in Kansas.

Given the availability of Tamilu and generally good health care in the developed world - the brunt of this, if it continues unabated, will be felt by the very poor of the developing world. And, their struggles will not necessarily be reported or acknowledged by people in power.

The Grand Chessboard

Having accomplished their general goals in Iraq, I expect the imperial aspects of U.S. foreign policy to focus more on strategies laid out in the 1998 book "The Grand Chessboard", by Zbigniew Brzezinski, Carter's National Security Adviser and Obama confidant. Namely, securing American control of the oil and natural gas resources in Central Asia and the Caucasus. This strategy is also a focus of conservative groups such as the Project for a New American Century. It is not a "conspiracy theory" - it is an often and publicly discussed plan that has included the top policy makers of both parties since the fall of the Soviet Union.

A key component of this strategy was the construction of the Baku-Tbilisi-Ceyhan pipeline, which is owned by major Western corporations such as BP and Chevron, in partnership with Caucas countries such as Azjerbaijan. The goal in building the pipeline was to circumvent Russia, and its control of Central Asian oil and gas exports:

The first exports from the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and Baku-Tbilisi-Erzurum (BTE) gas pipeline reached their destinations in 2006.

With the construction of these routes, Russia's hold over Azerbaijani oil and gas -- and monopoly on Caspian energy export routes-- was broken.

Federico Bordonaro, from the Italy-based energy analysis group equilibri.net, says that Russia was not happy about the new pipelines.

"We have to remember that Russia has always fiercely opposed the realization of the BTC because it reduces its leverage toward the West when it comes to the transportation of Caspian resources toward the West," Bordonaro says.

The U.S. policy in Central Asia going forward seems poised to become more aggressive, given the relative calming of Iraq. This is made more true since it is the military realm, not economic, that is a bastion of American strategic dominance. Though technically not in Central Asia, but bordering it, I would place the repeated drone attacks on Pakistan in this category. While militarily worthless, they do have the "value" of destabilizing and putting pressure on their government. Pakistan has traditionally been a 'neutral' country in the political battles between the West, Russia, and the East. For instance, it collaborated on a deep sea port project with China, a key part of China's 'string of pearls' strategy. Now that Pakistan is on an IMF loan, and its government disintegrating, Washington will have the ability to exert greater leverage.

From "The Grand Chessboard" :

"America is now the only global superpower, and Eurasia is the globe's central arena. Hence, what happens to the distribution of power on the Eurasian continent will be of decisive importance to America's global primacy and to America's historical legacy." (p.194)

Proven Reserves of Oil, and Natural Gas (Billions of Barrels)
Oil and Gas Journal

Kazakhastan: 30, 67
Uzbekistan: 1 , 62
Turkmenistan: 1 , 94
Azerbijian: 7 , 45
Europe: 14, 218
United States 21, 237

Punta Colonet, and West Coast Port "Wars"

Punta Colonet is a currently an isolated farming area in Baja California, Mexico. It is the proposed site of a deep water seaport:

Mexico's government is preparing to open bidding on the largest infrastructure project in the nation's history, a $4-billion seaport that could transform this farming village into a cargo hub to rival the ports of Los Angeles and Long Beach.

If completed as planned by 2014, the port would be the linchpin of a new shipping route linking the Pacific Ocean to America's heartland. Vessels bearing shipping containers from Asia would offload them here on Mexico's Baja peninsula, about 150 miles south of Tijuana, where they would be whisked over newly constructed rail lines to the United States.

The massive development, which is to be privately funded, is attracting interest from heavyweights such as Mexican billionaire Carlos Slim Helu. The world's second-richest man is part of a consortium planning an "aggressive" run at the project, according to Miguel Favela, general director of Mexican operations for cargo terminal operator MTC Holdings of Oakland. (LA Times, March 2008)

Punta Colonel would most likley be non-union, or at least, not have the wages associated with the Longshoreman's and Teamsters unions. Because of the lower wage costs, it could pose a competitive threat to California's ports by the end of the next decade, especially if international trade does not recover and there is excess capacity in the industry. In this way, it would further the process of global wage arbitrage within the United States. And, though many Californians don't like the associated pollution that comes with their ports, they are an economic lifeblood, and any reduction in importance would further strain the state's economic future.

Punta Colonel might also work in relationship with the Trans-Texas Corridor - a proposed massive expansion in the transportation infrastructure from Mexico, through Texas, to points throughout the United States.




However, the Corridor and Punta Colonet face several "complications" to their future. Both are affected by the Obama administration's decision to ban Mexican trucking companies from operating in the United States. This eliminates the labor-cost savings that those firms bring.

Bidding has been delayed on the Punta Colonet port, given the current economy.

Mexico's largest construction firm, ICA, does not expect the 50bn-peso (US$3.26bn) Punta Colonet port project, in Baja California state, to be tendered before 2010, the firm's VP of administration and finance, Alonso Quintana, told BNamericas.
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The announcement followed a statement made on January 14 that the tender would be postponed indefinitely due to the global economic crisis, the second time the project had been delayed. (Business News Americas, March 2009)

Its future is also complicated by the expansion of the Panama Canal.

IMF Hints that G7 Countries Alone Cannot Prevent Depression

The IMF recently suggested that the traditional capitalist powers are cash strapped, and incapable of driving the world economy out of recession.

This recession is likely to be "unusually long and severe, and the recovery sluggish," said the Fund, releasing two advance chapters from its World Economic Outlook. However, it warned there is a risk that it could spiral down into a full-blown slump unless further action is taken to stop "feedback effects" gathering force.
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Mr. Strauss-Kahn (head of the IMF) called for a urgent action to "cleanse banks" of toxic assets and for further fiscal stimulus beyond the 2pc of global GDP already agreed. The snag is that high-debt countries may have hit the limits already.

"The impact becomes negative for debt levels that exceed 60pc of GDP," said the Fund.

What was the public debt to GDP ratio of the traditional capitalist powers, the G7, even before the bank bailouts ?


United States, 61 %
Japan, 170 %
Germany, 63 %
United Kingdom, 47 %
France, 67 %
Italy, 104 %
Canada, 62 %


Source: CIA Factbook 2007 and 2008


This may be behind the rumors of a press to get the IMF to sell part of its gold reserves. Though sold on the open market, one presumes most would end up with China, the oil-exporters, or perhaps Russia and India - countries that desire larger gold reserves. In return, the IMF would dramatically bolster its lending capacity.

It's unlikely an IMF gold sale would be endorsed by the United States. And I don't necessarily agree with the IMF's conclusions. The US can probably borrow quite a bit more than 60 % of GDP, without a "negative impact" to itself. But, large US debt offerings do crowd out other countries, particularly developing ones.

20 Years Since Tiananmen Square

Twenty years ago this week began the protests that culminated in the Tiananmen Square massacre. While initially student and intellectual in nature, they eventually encompassed vast sections of Chinese society. This importantly included segments of the peasantry and the emerging urban working class, the later best represented by the formation of the Workers Autonomous Federation - active in many cities at that time.

What happened in crushing these protests, was nothing less than a government turning against its own people. There was the wholesale arrest of tens of thousands, and murder of hundreds, or possibly thousands, of civilians. Multiple divisions of the Army were called in to retake the city of Beijing.

The crackdown proved to Western capital that the government in China was willing to do anything to maintain control, and that China was a safe place to invest.

20 years later, quite a bit has changed in China. It is much wealthier, especially in sections of the traditional merchant class. But it is still an autocratic government resting on a foundation of repression. This autocracy is justified by Western Beijing apologists as understandable, based upon their crude stereotypes of the Chinese people. These stereotypes include notions that the Chinese are uniform, lack individuality, and value an imposed social order over freedom. The apologists say, either loudly or quietly - some people don't really want democracy, and authoritarianism is OK for them.

But time and time again, humans have shown that not to be the case. Autocratic governments are unable to withstand crisis without mass repression, or imploding, because people ultimately don't want to live that way.

El Sistema

Some good news: The Venezuela Youth Symphony, and El Sistema. One of the most important things going on in the music world today.

Here is an encore performance of their top youth symphony playing Bernstein's "Mambo".

Some background on video, and an older article from 2005, the year of their 30th anniversary.

Census Time

Now that the Census is upon us, it's interesting to look at its mention in the U.S. Constitution.

From Article 1, Section 2:

Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers...The actual Enumeration shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years, in such Manner as they shall by Law direct."

The original purpose of the Census was as a headcount. Its modern function includes an attempt to statistically analyze the U.S. population. The 'long forms' are especially intrusive. And, extremely inaccurate given that a substantial chunk of the population isn't interested in giving out that kind of information. One can look at the inaccuracy of exit polling, over the last few election cycles, to see how self-selection can skew results. Add to this the politicized context of the Census at the endpoint of interpretation. Though it is supposed to include everyone, on my experience with long forms in 2000, on door to door follow-ups there are plenty of gaps in information and people unwilling to share. This is why Census workers are passing out "Your Answers are Confidential" notifications right now.

But, problems with privacy wouldn't be with the Census worker at the door. It would be at the final destination of the information.

"Global Imbalances" (Updated 6/3)

Hank Paulson, back in November:

But let us not forget one fundamental issue which lies at the heart of our problems. Over a period of years, persistent and growing global imbalances fueled a dramatic increase in capital flows, low interest rates, excessive risk taking and a global search for return. Those excesses cannot be attributed to any single nation. There is no doubt that low U.S. savings are a significant factor, but the lack of consumption and accumulation of reserves in Asia and oil-exporting countries and structural issues in Europe have also fed the imbalances.

If we only address particular regulatory issues – as critical as they are – without addressing the global imbalances that fueled recent excesses, we will have missed an opportunity to dramatically improve the foundation for global markets and economic vitality going forward. The pressure from global imbalances will simply build up again until it finds another outlet.

"Global imbalances" are a symptom of weak aggregate demand, relative to productive capacity. Or, what the Left has historically called a 'crisis of over-production'.

Asia's "lack of consumption" is caused by the need to suppress wages, as various countries compete to maintain export-oriented industries, and support new investment. Indeed, when China passed its most stringent labor law in 2007 (now unenforced), they were scolded by the US-China Business Council, who warned, "The Draft Law may … reduce employment opportunities for PRC workers and negatively impact PRC's competitiveness and appeal as a destination for foreign investment." Many of these industries are labor intensive, and important in keeping unemployment from rising.

This is the paradox of capitalism when it runs into a technological or geographic wall - wages must be supressed to maintain profit, which simultaneously destroys demand. Meanwhile, capacity is overextended as companies fight for increased market share. And capital becomes increasingly speculative, as productive sources of profit dwindle.

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Update (6/3/09): Despite the recent rise in the markets, stimulus is not structural reform. It can merely buy time. Simon Johnson asks "Is Mr. Geithner trying to persuade China to reflate a new version of our financial bubble ?" The answer seem to be yes.

The US has liquidated more of its domestic overcapacity during this recession than many countries. This is less the case in China, Japan, and other countries where employment is part of the social contract. As the U.S. consumer wilts during this liquidation (expressed through unemployment), stimulus through global government spending is maintaining worldwide capacity. Social crisis is being averted through extreme increases in deficit spending. This, when governments are faced with capital that is more liquid and difficult to tax than ever before. Resolutions within the traditional nation-state framework seem difficult.

More than anything, capitalism requires expansion in order to remain healthy. The expansion of capitalism into China's vast interior heartland is a often mentioned possibility, usually worded as the need to increase China's domestic consumption. This expansion would also carry the risk of social chaos and instability, as it would require modernizing the agricultural sector, and pushing a new group of people off the land and into the cities.

If stimulus does not follow with a structural increase in aggregate private demand, "global imbalances" mean either years of economic stagnation, or a worldwide liquidation of capacity that will have calamitous consequences.

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Related Posts :

Jawboning China to Consume

G20 Avoiding the Bigger Issues

Why Young Americans Avoid the Math and Science Fields (Nowadays): A Hypothesis

Unfortunately, too many careers in math and science have become associated with militarism , environmental destruction, and greed for quite a number of people in the United States. Though, this association is often unconscious, or unarticulated.

Interested in physics ? There's a good chance you will be working for the military. Interested in geology ? You almost certainly will be working for an oil company. Interested in discovering a new medical cure ? Most likely the cure will be used for profit, and the producer will seek to restrict the use of affordable generics. Like math ? Time to work in some quant funds. In the 'real world', I've seen the disincentive these type of careers offer for intelligent people interested in social improvement.

These associations became particularly intense in American society after Vietnam. The best and the brightest, the intellectual elite, used the scientific revolution begun in the Renaissance to kill millions of extremely poor people. In a war which ended in defeat.

The values of greed and domination that many of the sciences have become associated with, are not things that fundamentally inspire - and so, many talented people go into more esoteric, or 'worthless', liberal arts fields. I suspect the emphasis on 'renewable energy' coming from so many in power, and their mouthpieces, is to make science and math seem 'cool' again.

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Related: Cyber Security Talent Shortage

Marx on the Future of World Trade

The fulcrum of world commerce, in the Middle Ages Italy, more recently England, is now the Southern half of the North American continent...Thanks to the gold of California and to the tireless energy of the Yankees both coasts of the Pacific will soon be thickly populated, as industrialized and as open to trade as the coast from Boston to New Orleans is now. The Pacific Ocean will then play the same role the Atlantic Ocean is playing now and the role that the Mediterranean played in the days of classical antiquity and in the Middle Ages - the role of the great water highway of world commerce - and the Atlantic Ocean will sink to the level of a great lake such as the Mediterranean is today.

Source:(Karl Marx; His Life and Thought, Mc Lellan, p.221)

The Iraq War, a Success...

That is, from the viewpoint of U.S. imperial interests. The invasion toppled a longtime enemy, and served as a warning to smaller countries in the region thinking about greater independence. Iraq now exists as a balkanized, deeply divided country, that is susceptible to classic divide and rule strategies.

The invasion opened up Iraq to the Western private sector - especially in the oil industry. American and British oil companies were the first recipients of contracts to service and develop Iraqi oil fields. Of course, non-Western companies will also play a role, eventually. But the U.S. will be the dominant player by virtue of its military presence. It's worth remembering that Obama never promised to withdraw all U.S. troops from Iraq, just the main body of combat forces. Maintaining a large standing army in the Middle East is poor tactics, too expensive, and irritates the local population. However, there will be a U.S. military presence in Iraq for the indefinite future, working with the Iraqi military in a training capacity, and in small elite units fighting 'Al-Qaeda' remnants. This presence will give the U.S. crucial leverage, and contacts, as the military power structure is developed within Iraq. It's also the long-term tactic being attempted in Afghanistan.

More Turbulence in the Former Soviet Bloc

Moldova, the poorest country in Europe, has recently been the scene of protests similar to those that occurred in Georgia, Kyrgyzstan, and the Ukraine in recent years. The political divisions within the countries are similar, as well, as there is an intense struggle between Russia and the West for influence in regions once within the realm of the Soviet Union. The European Union and United States want continued economic expansion into low-wage countries, in order to revitalize corporate profit rates, and develop new markets. Russia wants a buffer with the West, to preserve its own political and territorial sovereignty. Russian peacekeepers currently occupy a part of Moldova, known as Transdniestria, which was the scene of a civil war in the early 1990's.

Russian Foreign Minister Sergei Lavrov said the United States and Russia should not force former Soviet republics to choose between an alliance with Washington and Moscow, RIA news agency reported on Thursday...."It is inadmissible to try to place a false choice before them -- either you are with us or against us -- otherwise this will lead to a whole struggle for spheres of influence," Lavrov was quoted as saying by the agency.

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Meanwhile, in Georgia, president Mikheil Saakashvili's popularity has eroded since last summer's military defeat at the hands of Russia.

In the capital of Tbilisi :

Tens of thousands of protesters marched through the streets of this capital city on Thursday bearing signs and chanting slogans against President Mikheil Saakashvili, who took office five years ago with promises of a progressive, pro-Western government.

The protesters gathered in front of the Parliament building to demand the resignation of the president, whom opposition speakers denounced as a tyrant who had mishandled the war with Russia. While the atmosphere was tense, the day’s events unfolded without violence.

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The deteriorating economy is a major backdrop, as well:

Former Soviet-bloc states are facing their worst recession since the collapse of European communism two decades ago, ratings agency Fitch warned Wednesday.

Another View on U.S. Hegemony

From an interesting interview with Robert P. Brenner, professor at UCLA, in Japan Focus :

Jeong: Do you think that the current crisis will lead to a challenge to U.S. hegemony? World-system theorists, like Immanuel Wallerstein, who was also interviewed for The Hankyoreh, are arguing that the hegemony of U.S. imperialism is declining.

Brenner: This is, again, a very complex question. Perhaps I am mistaken, but I think that many of those who believe that there has been a decline in U.S. hegemony basically view U.S. hegemony as mainly an expression of U.S. geopolitical power, and, in the end, U.S. force. From this standpoint, it’s mainly U.S. dominance that makes for U.S. leadership, it’s U.S. power over and against other countries that keeps the U.S. on top. I don’t see U.S. hegemony that way. I see the elites of the world, especially the elites of the capitalist core, broadly conceived as being very happy with U.S. hegemony, because what it means for them is that the U.S. assumes the role and the cost of world policeman. This is true, I think, of the elites even of most poor countries today.

What is the goal of the U.S. world policeman? It’s not to attack other countries. Mainly, it’s to keep social order on a world scale, to create stable conditions for global capital accumulation. Its main purpose is to wipe out any popular challenges to capitalism, to support the existing structures of class relations. For most of the postwar period, there were nationalist-statist challenges, especially from below, the free rein of capital. They unquestionably were met by the most brutal U.S. force, the most naked expressions of U.S. domination. Although within the core there was U.S. hegemony, outside of it there was dominance. But, with the fall of the Soviet Union, China and Vietnam taking the capitalist road, and the defeat of national liberation movements in places like southern Africa and Central America, resistance to capitalism in the developing world was very much weakened, at least for the time being. So, today, the governments and elites not only of western and eastern Europe, Japan, and Korea, but also Brazil, India, and China -- most any place you can name -- would prefer the continuation of U.S. hegemony. U.S. hegemony will fall not because of the rise of another power capable of contending for world domination. Above all, China prefers U.S. hegemony. The U.S. is not planning to attack China and, until now, the U.S. has kept its market wide open to Chinese exports. With the U.S. providing the role of world policeman and insuring ever freer trade and capital movements, China has been allowed to compete in terms of cost of production, on an equal playing field, and this has been incredibly beneficial to China -- it couldn’t be better...

The G20 seems to have been an attempt to both stabilize the current order, while beginning the simmer of competitive forces that will emerge should it fall apart. The root imbalances of the world economy remain, largely, excess capacity relative to aggregate demand, and will likely re-emerge once the current wave of stimulus flows through the economy.

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Brenner mentions two "falling apart" scenarios:

...The depth of the Chinese crisis may be so great that it can no longer afford to finance U.S. deficits. Or, the assumption of ever greater U.S. deficits and printing of money by the Federal Reserve could lead to the collapse of the dollar, detonating true catastrophe. In either case, all bets are off.

U.S. GDP and Personal Consumption

There are four major components of U.S. GDP: Private Domestic Investment, Government Consumption and Investment, Net Exports, and Personal Consumption. Since 1970, Personal Consumption has increased significantly in its share of GDP, while the Net Exports component has declined.





Personal consumption has been fostered by lower interest rates, making debt easier to obtain and also service. The Fed Funds rate has plummeted since 1980, and now stands at essentially zero. But despite this, debt servicing obligations have increased markedly.




With rates so low, there seems little chance of increasing the dynamicism in personal consumption until balance sheets are repaired. Lower consumption might re-balance the trade deficit, through a decrease in imports, which would ameliorate GDP decline. (8/12 Note : So far, the trade deficit hasn't narrowed significantly. GDP has been supported by government consumption and investment)

The Green Shoots of Recovery...OK

Peter Kretzmer, senior economist at Bank of America said the fact that job losses appear to have peaked in January is a positive sign.

"The losses continue to be severe but we do see, and I think the market sees, some apparent peaking in the rate of decline, and that stabilization is providing a little bit of cheer to the market," he said.

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"We can't find green shoots of recovery in this report -- though it would not be the first place we'd expect to see them," said IHS Global Insight economist Nigel Gault. "The jobs market will follow rather than lead."

I guess "green shoots of recovery" is the new phrase. Just like "the next 6 months" was for Iraq.

The question is not only how far the economy will fall (although + 10 % unemployment is bad enough), but what type of recovery there will be. There is nothing to indicate that it will be stronger than the debt-ridden, anemic recovery of 2001-2006 - the weakest since World War 2. And, there's the question of a double dip recession after the flurry of stimulus programs subside.

We are still in the early innings of this.

An Atomized Society

A string of shootings in the U.S. in the last month alone has claimed the lives of 53 people

U.S. society is too individualistic in its understanding of reality. Mixed with the easy availability of weapons, and economic stress, and there is the constant drumbeat of unstable individuals who seek revenge on a warped personal basis. There are few accessible social organizations that exist as an outlet for despair or disfunction. And fewer independent organizations for political activism, where one feels that a difference can be made, or a voice can be heard. We're all supposed to be rich, or getting there soon. If not, just shut up.

The G20: Avoiding the Bigger Issues

Martin Wolf:

Unfortunately, no consensus exists on the underlying causes of this crisis or on the best ways to escape from it. The US and UK agree that the excesses of the financial sectors have their roots not just in deregulation, but also in the massive excess supply of surplus countries, of which China, Germany and Japan (with respective current account surpluses of $372bn, $253bn and $211bn in 2007) are the most significant. But China and the continental European countries, led by Germany, argue it is all the fault of profligate deficit countries. Yet China also hopes that the world will soon be able to absorb its excess supply again.

Obama is quoted in the article "G-20's Hidden Issue; A Global Trade Imbalance":

"In some ways, the world has become accustomed to the United States being a voracious consumer market and the engine that drives a lot of economic growth worldwide," Obama said, hinting that this position may not be sustainable. "We're going to have to take into account a whole host of factors that can increase our savings rate and start dealing with our long-term fiscal position as well as our current account deficits."

What does 'dealing with our long-term fiscal position' mean, in this context ? After doling out trillions to the finance sector, it seems to portend austerity and cuts in social programs, especially entitlements. And perhaps a small increase in taxes for the wealthy, so there is the cover of 'shared sacrifice'. In terms of the current account balance, it means renegotiating free trade agreements (as will likely be done with South Korea), as well restoring profitability to Domestic Nonfinancial industries. This restoration looks to be achieved by a mauling of wages, induced by the recession. Countries that have relied on exporting to the United States should expect to deal with a long-term shift in U.S. consumption.

Krugman writes:

The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.

And that failure to face up to new realities is the main reason that, despite some glimmers of good news — the G-20 summit accomplished more than I thought it would — this crisis probably still has years to run.

Can China , in particular, shore up domestic demand when they are not enforcing new minimum wage and labor laws, and trying to preserve low wage export industries ? A possible 'solution', in the medium term, seems to come from China's desire to reform its agricultural sector by making it possible for more productive farmers to own larger tracts of land. This would push a new group of peasants off the land, to serve as a newly exploitable class of labor in the cities. This, in turn, would boost profits and allow for an expansion of the Chinese middle class. But, plans to reform the rural areas of China carry with them explosive possibilities. For now, unemployed migrant workers can return home because they have land to go to. If they don't, it creates the possibility of a large urban and unemployed working class during a recession.

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