Idiocy run amok
I have a saying: “If you are a fool, don’t advertise!”
Well, over the past few days several people have decided to advertise.
Michelle Bachmann, a candidate for the Republican Party nominee to challenge for the presidency, declared, in a speech on Friday in Iowa, that the economy would start to improve almost immediately after she became president because she would implement conservative economic policies to slash the nation’s debt, stop tax increases and cut regulations. Obviously she has been listening to neo-conservative economists who also are living in a fantasy world. Their simplicity and gibberish appeal to her.
Does she really believe that if Obama had pursued these policies when he became president (to tackle a recession that began under a Republican president), and Ben Bernanke had done nothing that the US economy would be thriving today? Welcome to Herbert Hoover economics!
I have commented on several occasions that in a way it is unfortunate Obama did not pursue these policies for this would have exposed the absurdity of neo-conservative economics. Fortunately, he did not, and more importantly, neither did Bernanke listen to the ravings of monetarist hawks. Otherwise, the US Government deficit would have been substantially larger today and the unemployment rate would have been well into double digits as the economy struggled in its third consecutive year of depression.
What set off Bachmann was the decision by Standard and Poor’s (S&P) to downgrade the US credit rating to AA+. S&P downgraded the US even though its two rival credit rating agencies, Fitch and Moody’s, affirmed the highest credit rating for the US. S&P downgraded the US a day after panic swamped stock and commodity markets around the world. To where did frightened investors run? Ah yes, US Government securities – the refuge for safety and security for investors worldwide.
Interest rates on US Government bonds with up to 30 years to maturity are at record lows. Who is right – investors or S&P? Not that I have much confidence in the combined intelligence of investors, but I have even less confidence in the ability of S&P to figure their way out of a paper bag.
As Paul Krugman duly noted in his blog: “it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated sub-prime-backed securities are now declaring that they are the judges of fiscal policy? Really?”
Finally, there is the Government of China that also jumped on the S&P downgrade bandwagon. In a commentary published Saturday in the New China News Agency, China demanded that the US “cure its addiction to debts” and “learn to live within its means”. The commentary added: “China, the largest creditor of the world’s sole superpower, has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets.”
Let’s try to understand these comments. Most regional and municipal governments in China have borrowed heavily to artificially prop up their economies, and there is increasing concern that there will be massive defaults on these debts in the near future.
China has built up its holdings of US Government securities in order to prevent a massive appreciation of its currency against the US dollar, again to artificially prop its economy. As noted by others: “China’s heavy reliance on US debt and the dollar is largely self-induced because of its decision to shun market forces and control the value of its currency to keep Chinese exports competitively cheap.”
And of course, China is a bastion for free speech, democratic principles, unimpeded capital flows, and honoring foreign copyright, trademarks, patents and design.
I will let my readers decide who is the greatest fool.
The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.