> From: "Patrick L. Mason" <pmason@garnet.acns.fsu.edu> > Date: Mon, 29 Oct 2001 11:01:06 -0500 > Subject: Re: [OPE-L:6107] Re: falling profits > > The US economy is quite strong because the 20 year crisis from 1973 to > 1992. The weakest sectors of the American economy were obliterated. The > standard of living of most households were driven downward. And, during the > 1990s government debt was severely reduced. Unlike Japan, the US public has > the capacity to run enormous deficits to fight off unemployment. > > Further, (if I remember correctly) unemployment in the "troubled" Japanese > economy is "only" around 4 or 5 %, which is pretty close to the > unemployment rate in the strong US economy. China has been experiencing > phenomenal growth. > > I'll hold off on using the word "crisis" until the US economy reaches 8 - > 10 percent unemployment. At that point, the rest of the world will no > longer have the gigantic American market to run surpluses in the balance in > the trade. > > Think about what's happened to the stock market in the last 1 1/2 years. > The Dow was near 12,000 now it's hovering around 9,500. The NASDAQ was > around 4,500 (I think) now it's about 1,800. Despite these enormous > reductions in asset values, the unemployment has ticked up "only" about 1.2 > percentage points. > > The stock markets today are right about where they were on September 10, > despite sharp declines in the week after September 11. > > So, I take the unemployment numbers and the stock market numbers to > indicate substantial strength in the real economy. > > peace, patrick Patrick, you are using the rate of unemployment and the stock market as your main indicators of the strength of the US economy. I think these are superficial indicators. I emphasize the more fundamental indicators of the rate of profit and the level of indebtedness. I argue that the US economy has been able to achieve low rates of unemployment, despite the low rate of profit, because of a huge inflow of foreign capital into the US - $400-500 billion a year for the last several years, after averaging around $200 billion a year since the early 1980s. (Capital and Class, no. 67, Spring 1999) "The United States Economy at the Turn of the Century: Entering a New Era of Prosperity?" - my answer, as you might imagine, is no) As Rakesh put it, "the rest of the world has been subsidizing the US economy." However, this increasing dependence of the US economy on foreign capital runs the risk that this foreign capital may one day flow out, which would worsen the US economy considerably. The stock market is still a bubble, in spite of the 25% decline so far. As Rakesh pointed out, price-earning ratios are still high by historical standards. The stock market boom of the late 90s was also due in part to the inflow of foreign capital, much of which went into the US stock market. The boom was also due to US firms repurchasing their own stock. Roughly half of the very large amounts of money borrowed by US corporations in the 90s was used to repurchase their own stock. This is not a sign of a healthy economy. So I think the rate of unemployment and the stock market are superficial indicators of strength in the US economy, both of which are likely to weaken considerably in the current recession. The underlying indicators of the rate of profit and the level of indebtedness show weakness and vulnerability instead. Comradely, Fred
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