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Thread: A Flawed Strategy for the "War on Terror"

  1. #41
    Council Member SteveMetz's Avatar
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    Quote Originally Posted by tequila View Post
    Dominique, first off you really, really shouldn't source anything from Commentary.
    Why is that? It has an ideological leaning, but so do many journals. As a scholar, I'd consider a citation from Commentary as valid as one from the Atlantic, New Republic, Weekly Standard, Harpers, New Yorker, National Review, etc.

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    Council Member tequila's Avatar
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    Quote Originally Posted by SteveMetz View Post
    Why is that? It has an ideological leaning, but so do many journals. As a scholar, I'd consider a citation from Commentary as valid as one from the Atlantic, New Republic, Weekly Standard, Harpers, New Yorker, National Review, etc.
    Perhaps the events of the past four years have overly soured me on things written by Podhoretz, Gelernter, Peretz, Muravchik, Herman, etc. When I read Commentary nowadays, I smell Socialist Worker circa 1991.

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    Council Member Tacitus's Avatar
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    Quote Originally Posted by tequila View Post
    Tacitus, you and I are in 100% agreement. There is no purely rational economic reason for this. Thus we look for other reasons.

    Also that is why I noted the various extra-economic causes of such large levels of irrational foreign investment in U.S. assets. Yes, the Chinese, the Saudis/Gulfies, and to a lesser extent the Russians are largely financing American domestic consumption, and losing a lot of reserves doing so. The question is, why do they bother to do this when rational economic actors would abandon the U.S. for better returns elsewhere?

    The Chinese do it because they still see U.S. assets as safe, to curry favor in Washington, to keep its largest export market stable, and to safeguard its own export-driven growth. If the Chinese were a democracy, they likely would not have continued to subsidize the U.S. since doing so in essence costs the Chinese worker enormous sums. But since when has China ever listened to its workers?

    The Saudis/Gulf States do it largely for the same reason why they buy F-16s. The stability of the U.S. economy is critical to the maintenance of the Saudi regime, and it doesn't hurt to have some buy-in to the political system.

    However, this odd situation where poorer countries are investing in and subsidizing the wealthiest economy in the world (a subsidy accruing disproportionately to a select few in the U.S. financial sector --- note the rise of private equity firms driven by the frothing debt market, whose LBO-driven M&A boom has in turn propelled the U.S. stock market to its current levels) but the gravy train is not going to run forever. The imbalances caused, especially by China's Treasury buying spree of the past decade, are building to a point where even the PBoC is starting to realize its unsustainability.
    Tequila,

    That is a solid answer to the question of why they do this. Indeed, it pretty much the ONLY credible explanation that economists can come up with these days. It is just economic intertia, the natural coninutation of an unbalanced economic policy until it blows up on somebody.

    This state of affairs continues at the moment because of their desire for "stability." Because no dollar crisis has erupted, it is assumed by the government that this can just continue forever. Taking preventative measures would likely cause some pain, and better to shift that onto the next guy who follows along, if it is in fact, needed at all.

    Allow me to use an analogy here. Picture a tranquil Alpine setting. All the towns and villages are down in the valley. Snow keep falling and falling in the mountains in the higher elevations. Alert people down below are nervous about this and warn of a massive avalanche if things continue. They are scoffed at by the others, "Don't you see it is different this time because (fill in your own explanation). And everyone goes about their business. Bold weathermen have attempted to climb up higher to measure the snowpack to try to measure how much can be accumulated before the avalanche triggers, but even they admit that this is impossible because there are too many variables and unknowns involved to confidently predict the breaking point. But from merely looking at historical examples, they know such a point exists, and we are past points where it has occured in recorded history. Down in the valley, it all seems great... except for these irritating worry-wart weathermen who seem to be crying wolf all the time about the record snowfalls up in the mountains.

    Doesn't this end in a dollar crisis? And then the Federal Reserve has to either allow the value of the dollar to crash against foreign currencies and gold, or ratchet up interest rates to very high levels to defend the value of the currency? Pick your poison, so to speak. That's where these sort of circumstances always led in all the economic classes I ever took. The crazy thing is that we have seen this movie before in the runup to the collapse of the Bretton Woods system. Hello 1970s all over again?
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