...a Solution to the Crisis?
by, 15th-July-2009 at 06:03 PM (1038 Views)
Here is a solution to the GFC... read about it!
** make sense? A little too Utopian and based on the responses to the blog, already objections are building... not many people are capable of thinking and reacting sensibly when they are confronting with an overwhelming problem. Fear, pride and ego would make sure they missed the big picture and the inevitable future.The trouble is that Americans can’t spend. They have to save. The combination of a catastrophic decline in wealth and a sudden bulge in retirements gives America the profile of Japan during the lost decade of the 1990s. The Keynesian approach is a one-country model, which states that if the population wants to save rather than spend, the government should spend for them. America appears to be getting away with this because the dollar is a reserve currency and the world has to hold dollars — but the grumbling overseas might lead to the rest of the world ditching the dollar eventually, making the US like like Britain in the 1960s and 1970s.
The Keynesian stimulus isn’t working very well, as the miserable employment data tells us, and the stock market clearly doesn’t believe Obama’s demurral that it will work later in the year. There’s already talk about another stimulus package. FInanced by whom, and how? The deficit is already approaching $2 trillion.
If we follow Robert Mundell and throw out the single-country model of the Keynesians, it is obvious that Americans can save in another fashion, that is, by exporting. China’s underdeveloped interior is potentially the world’s biggest export market, flanked by similar markts in Asia and elsewhere in the developing world. The transition would still be painful, and the frictions considerable, but America could reorient itself to th global market. There would be a recovery. As matters stand we face a lost decade...
The paradigm shift that has been set in motion will not change until and unless the forces effecting the change are altered. At this rate, and by repeating their past erroneous actions, they are ensuring their own misfortune.