LI is in NYC for the moment. We wrote a one sentence post that Blogger, somehow, didn’t register. We would play by play this visit, except that that information is privileged: we are using it to embody the life of one of the characters in the novel we are writing. We have also considered the topic of NYC on the eve of Bush’s tropic of cannibals convention, but we would only say the expected: given our own political and cultural prejudices, and those of our friends, we did not meet, shall we say, with a lot of receptivity to the idea from Gothamites.
So no, just a small note about economics. The NYT published an article about the oil price shock Friday that encapsulated current Wall Street wisdom. That wisdom scoffs at the idea that an oil price spike, in a semi-deflationary climate, is going to do much to this economy. What amazes us about such wisdom is that the same people who are continually ranting about globalism seem so unable to apply it to such things as oil price spikes. Here’s the deal, as we see it – the oil price spike’s effects on this country will come via China and Japan. Those countries, as the price of oil goes over 50 dollars a barrell, are going to have to divert the money they have been spending to buy dollars – to buy T-notes, for instance -- to buying oil. What this means is that the dollar will go down while the U.S. government will be forced to increase interest to attract buyers of its debts. This is a perfect double whammy. The odds of it increase as oil moves upwards. The U.S. has relied heavily, for the last three years, on Asian banks to float our fiscal mismanagement. As the contrarian investors like to point out, this is because the U.S. has no savings. We are a black pit of debt, with the credit card taking the place of the social welfare state. The importance of the oil price spike isn’t in the effect it will have on the American motorist, but the effect it will have on Asian banks. Is this so hard to see?
As usual, Gretchen Morgenson in the Times gets both the cw and what’s wrong with it:
“A throng of strategists on Wall Street argue that rising crude prices do not hurt as much as they have in the past because the economy is not as energy dependent as it once was. The amount of energy needed to generate $1 in gross domestic product has fallen by roughly 50 percent in the past three decades, according to Morgan Stanley.”
But Morgenson is not buying this story. Her take is a traditional one: regardless of the weak labor market, regardless of the continuing oversupplies that are pushing down certain consumer and durable goods, high oil prices mean spreading inflation through the whole bloodstream of the economy. And that is a recipe for recession:
"No one knows, of course, where oil prices could go. But Mr. Roach [Stephen Roach, a Morgan Stanley analyst] said that recent levels are approaching oil-shock territory. And that makes the United States economy especially vulnerable to a recession.
Mr. Roach said the price of oil must stay at current levels for between three and six months to produce a true energy shock. It may not. But if it does? In the past, Mr. Roach found that oil shocks have always been followed by recessions.
What all three [recessions] had in common, Mr. Roach said, was that the economy was stalling when the oil shock hit. In both 1973 and 1990, the economy was growing 2.2 percent annually. In the second half of 1979, growth was even weaker, averaging 0.6 percent, annualized. An oil shock, he said, "rarely comes at a time of economic strength and resilience when we can shrug it off and keep growing."
At a time when deep structural damage is being made to America's post-war economic culture of a kind to revolutionize the middle class -- by dumping them into the revolutionary/reactionary class of the exploited and immiserated -- the newspapers focus on the tussle between Kerry and a bunch of reactionary vets. It is a sign, surely, of how bad things are. It is also a sign of what bad advice Kerry is getting -- this is a one day phenomena that could easily be stopped by Kerry stepping out of the faux hero persona, which fits him like a cheap suit on an obvious cutout, and telling, briefly, what he did, and asking voters to compare it with what George Bush did. Period.
And then we can get to the real issue of debating the disastrous choices with which we have been landed by the malignacy of the crew which presently holds power in Washington.