[lbo-talk] capitalism and collapse

Robert Wrubel bobwrubel at yahoo.com
Sat Aug 11 11:17:36 PDT 2007


--- Marvin Gandall <marvgandall at videotron.ca> wrote:

"Also, isn't the current account deficit only a serious problem if there is a depression? Short of that, might not rate cuts even have the effect of encouraging foreign buying of rebounding US stocks and corporate bonds?"

With China threatening to dump some of its treasury holdings (if the US continues to talk about human rights issues, or barriers against certain Chinese products),it seems more likely that rates will increase, in order to attract new foreign lenders.

On a related issue, how can Bernanke talk about fear of inflation as the reason the Fed wont lower interest rates to restore liquidity? How could inflation be a threat in this tottering financial moment?

BobW


> Patrick Bond writes:
>
> > From: "James Heartfield"
> <Heartfield at blueyonder.co.uk>
> [...]
>
> >> Will the current subprime collapse lead to a
> generalised market failure?
> >> We
> >> will see, but it does not seem likely.
> >
> > That may be (I'd agree - there's lots more
> financial slack in the system),
> > but the word 'crisis' is useful because it
> suggests that the correction
> > ahead will entail either serious displacement
> efforts (Fed bailouts along
> > the lines of 9/98) or moving the cost to those
> least able to pay (the
> > low/medium-income homeowners - especially
> African-Americans - who are
> > going
> > to be on the streets very soon).
> >
> > The more serious problem, it seems, is the durable
> US current account
> > deficit, a geographical and temporal displacement
> that may be untenable.
> ======================================
> It seems the Fed and other central banks are for now
> prepared to let the big
> financial institutions take a hit to break the
> speculative frenzy in the
> more complex and illiquid derivatives, while
> ensuring that there are
> adequate reserves in the system to maintain the
> wider flow of credit to the
> real economy. It's only if and when it appears that
> panic is spreading and
> credit tightening among consumers and producers that
> you're likely to get
> more urgent measures.
>
> However, some federal relief for defaulting
> homeowners might become
> unavoidable, including a loosening of buying
> constraints on Fannie Mae,
> after higher rates start kicking in on adjustable
> rate mortgages later this
> fall. It's also an election year, and Hillary has
> already started
> campaigning around the issue.
>
> Also, isn't the current account deficit only a
> serious problem if there is a
> depression? Short of that, might not rate cuts even
> have the effect of
> encouraging foreign buying of rebounding US stocks
> and corporate bonds?
>
> Of course, I'm conscious that the resiliency of the
> system tends to
> encourage complacency, and will do so until we're
> deep into a crisis.
>
>
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>
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>



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