25.04.2009
April 20, 2009 (the date of publication in Russian)
Maxim Kalashnikov
THE US ECONOMY: BALANCING ON THE BRINK OF THE ABYSS
The Great Depression-2 gains speed
UNEMPLOYMENT EXCEEDS THE LEVEL OF 1930S
The whole world's attention is focused today on the economy of the United States. This is not surprising, as global markets and national economies greatly depend on its condition. On the second year of the Great Depression-1, in 1930, unemployment in the United States encompassed 8.7% of the working-age population. In the America of 2009, the number of unemployed (including part-time jobs) amounts to 13.5%. Recently, economist John Williams and his colleague Paul Craig Roberts (former Deputy Treasury Secretary and co-editor of Wall Street Journal), made a sensational statement. They have found out that in case the number of unemployed was calculated according to the criteria of 1930s, it should be estimated in 17.5%.
Official indices of unemployment are not promising as well. In late March, the monthly report of the US Labor Statistics Bureau sorted out the disadvantaged states where unemployment exceeded 10% by February. The list includes Michigan (12.5), Rhode Island (11.4%), South Carolina (10.9%), Oregon (10.9), California (10.6%), North Carolina (10.3%), and Nevada (10.2%). States, where unemployment exceeds 9%, are even more numerous. Williams and Roberts indicate that those data were derived from calculation according to the U-3 procedure that does not consider part-time jobs and non-registered unemployed individuals. Use of a more precise U-6 procedure would almost double the above figures, they insist. Gross unemployment is officially estimated in 8.5% with a monthly surplus of 650,000 persons.
Believe the referred scholars or not, indirect calculations reveal an alarming increment of unemployment in the United States. One of those indirect indices is the amount of trade in retail networks. In March, this figure sank by 1.8% against February. For the United States, where retail trade is a significant part of GDP, that is a sensitive change.
HOW TO SAVE THE US AUTO INDUSTRY?
The automotive industry of the United States is declining as well. Though President Barack Obama threatens to cut off the sources of government subsidies for the auto industry unless it starts producing less "environmentally hazardous" and more energy-saving car models, most of the experts are skeptical on these incantations, reminding that sales depend on quality of design and influence of the price factor on fuel. A common American is being told the most unpleasant thing he would expect: that the price of his labor force is going to be devaluated to the level of a Chinese worker. And, certainly, officials intone that in order to save GM, Chrysler and Ford, their creditors should write off part of the industries' debts.
Like the last CPSU General Secretary, Mr. Obama is trying to convince the national audience: "This reorganization, whatever painful it could be in the short-term span, will generate a new start of the great American industry that will provide new jobs, create new value, and beef up production of low-cost autos and trucks which will lead us to the future energy independence".
But, ironically, in order to reach this goal, the oil prices should rise and not fall. Energy-efficient and environmentally safe car models are more expensive. Consumers haven't got so far an impetus for purchasing "ecomobiles". On the other hand, the design of US autos is poorer than that of Japanese and European rivals.
Obama's opponents indicate that in March, the Americans purchased 33,000 luxury brands like Mercedes-Benz and BMW, while the number of released energy-saving cars was twice smaller. While fuel prices were higher, American consumers also preferred Toyota Prius to home-made low-cost cars. Therefore, the energy-saving hybrids are unlikely to rescue Detroit.
For decades, the US auto industry had been producing massive and powerful car models absorbing lots of fuel. Meanwhile, West European producers, accustomed to high fuel prices (in the EU, 70% of gasoline price comprises taxes), have bypassed Detroit in production of modern-design energy-saving cars, reminds Walter McManus, Michigan University economist and former GM analyst. He traces the problem back to early 1970s. In case Obama succeeds in steamrolling the bill, restricting the amount of emission of greenhouse gases, transition of the US motor vehicle fleet to energy-saving designs will require years. By that time, the Europeans and the Japanese may conquer the US market once again.
In any case, the US economy is encountered with further recession – with a new surge of unemployment.
BERNANKE PRINTS MONEY
The described development is taking place on the background of the "dollar flood". The Federal Reserve wildly emits new currency. The scale of support of private banks is estimated in $12.8 trillion. Fed's boss Ben Bernanke aggravated the problem, proposing a new $ 2trillion program of crediting financial institutions supposed to buy out "toxic assets". Many specialists fear of the downfall of the United States into hyperinflation. Observers interpret the increase of the USD price of oil as the first sign of this development. Another disturbing phenomenon is evaporation of the pension arrears of the US middle class.
On the other hand, the amount of loans issued by banks has been unrestrictedly increasing – from $1.75 trillion in 2000 to 4.4 trillion in 2007. Meanwhile, the current account deficit of the United States, increasing by $100 billion per year in 1990s, has reached a fantastic figure of $788 million in 2006. Thus, Fed is now inflating a new financial bubble. The amount of "toxic assets", according to various sources, has reached $30 trillion, twice exceeding the annual GDP of the United States, reports economic analyst Henry Liu in Asia Times. In the framework of the "new monetarist" policy, bad debts are transformed into new derivatives (so called securitization). Sooner or later, this artificial structure will crumble.
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