The global economy is in recession, U.S. Secretary of Treasury Tim Geithner said yesterday in a semi-annual report to Congress on international economic and exchange rate policies. Since the start of the recession there have been “more than 5 million job losses” in the United States; job losses globally are “much larger” since the second half of 2008.
Geithner claims that the financial shocks of the past 20 months have caused “transformational changes to the environment in which the U.S. economy operates.”
Well, the political landscape has certainly changed. Several bills are now pending or threatened in Congress that address currency manipulation and trade policies, and they could potentially close the U.S. market to goods from countries such as China, Korea and Japan.
The problem has been festering for a long time. In the aftermath of the emerging market crises of the late 1990s, many governments put in place “sound policies and institutions,” he said, and attracted considerable capital inflow.
Geithner fails to point out that this transfer of capital hurt job growth in the United States as factories were built elsewhere, and caused real wages here to decline for the vast majority of Americans. Economic theory is all well and good in an academic setting but the U.S. needs high paying jobs, now and in the future.
And I also find it amusing that the man who evaded paying his share of income taxes, also did not comment on whether the U.S. had instituted the sound policies and institutions he claims foreign economies have. Geithner, of course, presided over the Federal Reserve Bank in New York as the worst Ponzi schemes, mortgage backed securities frauds, and credit default insurance scams careened out of control and brought the global economy to a crashing halt. These unsound practices presided over by demonstrably incompetent institutions put U.S. taxpayers on the hook for billions upon billions of dollars in bailouts — with no end in sight.
The fact remains that foreign economies were and are in Geithner’s words increasingly “dependent on exports for their economic growth and job creation” and accumulated large stockpiles of foreign exchange reserves, often as a form of self-insurance.”
Translation: foreign economies depend on the U.S. to buy their manufactured goods, a proposition that is now dubious as U.S. consumers pull back on spending, but they have little interest in buying goods from us. The U.S. auto market – running at less than 10 million units annually – is but one example of the how the Great Recession is a global affair in its effects. It’s also a demonstration of how major Asian and European companies continue sell large numbers of vehicles with the help of their government’s trade and currency policies; policies that also block the sale of our goods and services to them.
The looming issue for all of us is how we get the U.S. back on track and create jobs in our country, when our trading partners have well organized industrial policies that are designed to take jobs from the U.S., while using this country as the market for goods that used to be manufactured here. This creates a collision of political expediency and economic theory that is on view in Geithner’s report, and in the increasing anger of Congressional Committees. (more…)