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November 4, 2010
Dollar in Dire Straits?
by Vibhas Tattu
The Federal Reserve in Washington has sailed into the blue. As widely expected by many across the world, Fed Chairman Bernake announced a massive tranche of $ 600 billion dollar “bond purchases” ostensibly to boost the flagging US economy and create jobs. This exercise has many politically correct and euphemistic names and economic theories to support it. “Quantitative Easing” is the phrase being used in world media to describe this affair. Since the first installment of the QE was already done by the Fed in 2008 / 2009 to the tune of $ 1700 billion, this second round is being referred to as “QE2”. The QE2 is being hailed as the kiss that will breathe new life into the US economy. In practical terms what the Fed Reserve has actually done is simply create, literally out of thin air, a bank balance of $ 600 billion in its own current account. The economists call this as debt financing. When my current account bank balance goes up it is usually after I have worked quite hard for a month and my employers send my salary from their account to mine as a compensation for my work. In other words, I have EARNED the credit and now I can spend it. This is by and large the mechanism by which ALL individuals or organizations throughout the world create wealth and operate their finances (at least all legal ones) . Governments don’t always work that way. They are above it all, like God, and can create things out of thin air. God said “Let There Be Light” and there was light. On Wednesday morning, Bernake & Co said “ Let There Be Money” and lo presto $ 600 billion dollars became available for the dubious “bond purchases”.
It is well to dwell a bit on this event which is raising so much expectation within the US and causing so much consternation in the emerging economies like China, India and Brazil.
Let’s review the facts. Despite astronomical and unprecedented financial injections into the US economy (QE1 = $ 1700 billion), the US unemployment rate remains at its highest since 1984. Consumer spending in the US is at its lowest in many years. The economy, it is feared, will be “deflationary” or shrink. This QE2 injection is expected to reverse this deflation by making money available cheaply to banks for lending and in turn to boost consumer spending. But who said banks don’t have money to lend? All the top banks in the US have returned to profit and are flush with funds. The likes of Bank of America, Goldman Sachs and Merrill Lynch turned in multibillion dollar profits for 2009 and multimillion dollar bonuses for their top exces. Even the black sheep of the banking community, Citibank, has shed all its fat and has returned to a modest profit. There are just no borrowers. It’s just that consumers and businesses don’t want to spend right now. So what will be the effect of this QE2 money? By most accounts, the huge infusion will cause the dollar to depreciate significantly and hence make US goods and services more competitive in the world market (now you know why China’s Commerce ministry is very upset with the QE2 - it makes their life difficult). Part of it will be invested within the US economy and generate fresh revenue streams and jobs. All this makes the QE2 sound like a wonderful thing for the American public, doesn’t it?
In fact what is most likely to happen is not so goody goody. A lot of the foreign reserves held by China ($ 1200 billion), India ($ 260 billion) and the rest of the world are in US Dollar currency. What the QE2 will do is reduce the value of these reserves (due to a depreciated dollar). This is unpalatable and will result in these emerging economies moving away from the dollar in the long run and cause a further erosion in the dollar value. The fact is that the US is no longer a net producer but rather a net consumer on the world scene. It is a fundamental truth of economics that unless your production of wealth keeps pace with your consumption of wealth, within reasonable limits, you are likely to end up as a sub-prime risk; and we all know how sub primes end up don’t we? By QE2 the US is increasing its long term chances of ending up as a sub-prime risk for itself and the world. Even in the short term the QE2 could well have very negative results. US funds are already flowing in large measure to foreign shores and it is feared by many that at least part of the QE2 funds will find their way to China and India and not be invested in the US at all. It is not very difficult to believe that the recent surge in market valuations in India are partly because the markets have already factored in the availability of the cheap QE2 money. At the Government level this sudden money flow could trigger what is being called as a “currency war” which threatens to escalate tensions between nations. Also the extent of the fund flows outside the US will restrict job creation within the US. So is the QE2 good at all? Probably not.
In the long run, a nation’s economy must be largely, if not wholly, self sufficient. The operative word being “self”. The reason America rose to prominence in the 20th century was due to its innovations as well as its domestic consumption. The reason why China and India are rising to prominence in the 21st century are also due to their own domestic innovations and consumption. As such if the US is facing hardships, it should look within to spur growth, and not try to spend its way out of it by debt financing. Already the fiscal deficit of the US is a matter of concern the world over. Continued US government excesses in the form of QE2 will dethrone the dollar from its position as the currency of choice. QE2, in the long run, will only hasten the exit of the dollar from the world stage. Austerity measures like the ones UK’s Government is taking are what are needed to save to US economy and the world economy at large.
The Fed’s desire to appear to take bold and concrete steps to stave off economic woes is laudable but sometimes no action is the best action. At the risk of sounding brutal, I would like to turn Marie Antoinette’s famous coinage on its head and say to Bernake & Co “If they don’t have cake, let them eat bread instead”. A little austerity never hurt anyone.
Vibhas Tattu hails from India and is a manufacturing engineer by profession. He has worked in India, USA and now in the United Arab Emirates. Vibhas is interested in Shakespeare, Indian music, poetry (English, Hindi and Marathi) and a new found love of writing.
Tattu has a bachelor’s degree in Production Engineering from the University of Bombay and Master’s degree in Industrial Engineering and Operations Research from the University of California at Berkeley, where he was a Fellow.
EMAIL: vibhas1@gmail.com
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June 21, 2010
THINKING OTHERWISE – Technical Hubris: and the Sinkhole of Obama’s Centrism
by William Irwin Thompson
“We Irish think otherwise” Bishop Berkeley
Tower of Babel, Bruegel
When a technological enthusiast recently called for an undersea nuclear blast to seal the BP oil leak in the Gulf of Mexico, I recalled another time some forty years ago, when another American engineer, fascinated by the entire moon’s vibration at the lift off of the Apollo moon capsule, called for an atomic blast on the moon to measure its scale of resonant vibration. It was, no doubt, an opportunity for a fascinating experiment, and our short-sleeved and short-sighted, flat-topped but unlevel-headed NASA engineer probably got off at the thought of shaking Mother Nature up a bit.
It never occurred to the lunatic engineer to consider that the moon’s orbit might be disturbed enough to be gravitationally attracted back to Earth, or displaced from its protective position for us on Earth as an attractor for asteroids; nor did it occur to the atomic bomb enthusiast that a tsunami might take out all the Florida Keys and coastal cities of the Gulf and poison the food chain for a quarter of a million years.
Speaking as a former MIT professor, I must say that the fact that two technicians could utter such nonsense indicates our great failing in the education of engineers, architects, and technical experts of all sorts. We Americans have an admirable “Can do!” mentality, but considering our fixing of Iraq and our present fixing of Afghanistan, it is time to step back, re-assess, and perhaps develop a new and humbler mentality, one that is no longer based on the World War Two mind-set of fixing the old world order with a new one based on atom bombs and Marshall Plans and newsreels of GI’s passing out Hershey bars to the admiring children standing to the side of history in their tattered European rags.
We need to think in a new way. When designing anything, the first thing we should ask is: What does the system excrete and how can we recycle that shadow-form into its on-going forms of production? The second question we should ask is: What are the ways the system can fail, and how can we make failure reinforce a process of correction and rescue?
All human systems fail at some point. Bowstrings snap, bullets jam, boilers explode, and airplanes crash. Deep sea oil rigs and nuclear reactors are simply too complex for Homo sapiens sapiens to be wise enough to manage. And if human cleverness is compromised by the greed and short-sightedness of a Halliburton or a BP and capitalism’s systemic purchase of government officials, then we are doubly exposed, as the surrounding system of management is not one of protection, but of menace.
In the Jeffersonian eighteenth-century agrarian vision of governance, “That government is best that governs least.” Since history has been said to repeat itself, the first time as tragedy, the second time as farce, Jefferson has found his farcical reprise with the contemporary Tea Partiers.
Because our TV instantiated short-term memories have robbed us of the long-term memory of history and the reflective ponderings of reading, our contemporary citizens, incited by Rupert Murdoch’s Fox News, are angry and threatened. But they do not direct their anger at the invisible forces that do actually threaten them–such as Goldman Sachs, Fox News, Halliburton, or BP; instead, they direct their anger into the channels suggested to them by the owners of the media. So birthers claim Obama is an alien and that his programs are socialist, when they are entirely centrist and completely lacking in the ability to re-vision our historical situation and energize a new paradigm of political and civilizational thinking.
Were the Tea Partiers and the fans of Sarah Palin reflective citizens and intelligent readers, they might be able to recall in the long-term memory of history the real conditions of life in an unrestrained world of free enterprise. There were twelve hour work days, child labor and no public education; there was no public health or safety requirements for the work place; there was no public inspection of meat factories or sea food and produce. What was indeed free and omnipresent was disease and death. Government was, and has become again, a more civil form of organized crime.
These were the good old days of the culture of the real America, before uppity blacks from Harvard and Latina judges from Princeton led the rural white Tea Partiers and Libertarians into this miasma of a multi-culti world.
President Obama ran his campaign on a program of hope and a renewed sense of the invincible American “Can do!” spirit with his incantatory slogan of “Yes, we can!” Readers of his book, Dreams from My Father, will recognize in his presidency the traits he showed early on as the nice young black man who learned how not to make elderly white women like his grandmother feel afraid. He was always an idealist, but never an ideologue. And so to save the economic system, he rescued the banks. To get health insurance passed by Congress, he appeased the medical insurance corporations. To keep the lights on for American cities and the American economy running on its airplanes, trucks, and SUVs, he has called for off-shore drilling and more nuclear reactors. Nowhere has he called for the re-visioning of industrial civilization, the rethinking of the global projection of American military power, and at no time has he recognized that our technological mentality is contributing to our extinction. While President Obama seeks to fix failed states in Pakistan and Afghanistan northern Mexico is fast becoming a failed state.The drug wars have opened a giant sinkhole that can swallow up the entire Southwest and turn El Paso, Tucson, and Los Angeles into other versions of Ciudad Juarez.
In fact, the sinkhole, like the black oil jet in the sea, has become an archetypal symbol of our new political landscape. Obama reached across the aisle in a spirit of rational compromise, but the aisle was only a red carpet over an abyss.
Sinkhole, Guatemala
William Irwin Thompson (born July, 1938) is known primarily as a social philosopher and cultural critic, but he has also been writing and publishing poetry throughout his career and received the Oslo International Poetry Festival Award in 1986. He has made significant contributions to cultural history, social criticism, the philosophy of science, and the study of myth. He is the founder of the Lindisfarne Association. In 2009, Wild River Books published his latest book, Still Travels: Three Long Poems. To order, click here: Wild River Books.
To support our mission and passion for good storytelling, please make a tax-deductible donation by clicking here: Wild River Donation.
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October 7, 2009
Peace Talks – The Fulbright Scholarships and Senator J. William Fulbright
by Harriet Mayor Fulbright
(Editor’s Note: This is the seventh in a series of Wednesday talks with Harriet Mayor Fulbright, President and Founder of the J. William and Harriet Fulbright Center.)
 Harriet Mayor Fulbright Photo by Ed Keating
Whenever I travel, be it in Africa, Asia, South America, or the United States, I am always asked about my husband, Senator J. William Fulbright and the creation of the Fulbright Scholarships.
J. William Fulbright (1905-1995), born in Sumner, Missouri, was raised in Fayetteville, Arkansas and was educated at the University of Arkansas. He then attended Oxford University as a Rhodes Scholar where he received a Master of Arts degree. His experience as a foreign student would change his life and how he viewed the world.
When Fulbright returned to the United States, he studied law at the George Washington University in Washington, D.C. From 1939 to 1941, Fulbright served as president of the University of Arkansas, at the time the youngest university president in the country.
He entered Congress as a member of the U.S. House of Representatives in January 1943. In September of that year, in the midst of World War II, he initiated the Fulbright Resolution in the House, encouraging United States participation in what became the United Nations. It was his view throughout his lifetime, that a peaceful world would require debate, discussion and cooperation from all countries.
He was elected to the U.S. Senate and served from 1945 through 1974 becoming one of its most influential and best-known members. His legislation establishing the Fulbright Program, a direct outgrowth of his experience as a student, was signed into law in 1946.
From 1959-1974 Fulbright served as chairman of the Senate Foreign Relations Committee, the longest serving chairman of that committee in history. In 1993 he was presented the Presidential Medal of Freedom by President Clinton. Fulbright believed that education was the best foundation for developing leaders and active citizens, and for solving future political conflicts through rational and humane means instead of war.
He also believed in political institutions as forums where solutions for complex problems should be sought through reasonable debate and negotiations. Fulbright was the only Senator who voted against the appropriations for Senator McCarthy’s Un-American Activities Committee. He lodged serious objections to President Kennedy in advance of the Bay of Pigs invasion in 1961. And, he was a powerful voice in opposition to the war in Vietnam.
Although Fulbright’s career was marked by these notable cases of dissent, the Senator is better known for his work in building programs and institutions for peace-making and cross-cultural understanding, most notably the Fulbright Program, the scholarship and grants program for college students and senior scholars.
From November 1 – 3, 2009, the Fulbright Center will host its first annual Global Symposium of Peaceful Nations at the Mayflower Hotel in Washington, DC. For more information, please contact: info@peacefulnations.org
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