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  Struggle against the credit crisis in the United States: fire extinction with kerosene?

Auđra Radzevičiűtë
2009 03 26

Today there are no doubts that the global financial crisis was provoked by systematic mistakes of the American market economy. It is interesting to know how this country is fighting against the crisis and its after-effects or eliminating the reasons which predetermined the beginning of the economic recession.

According to The Times, „obamanomics“ will not try to rebuild America on the principle that „market is always right“. Instead, it will seek to „cure“ the American economy – that was president B.Obama’s riposte to the slogan of populist conservatism: „If it ain’t broke, don‘t fix it“.

 The Times also writes that the crisis triggered by bankruptcy of Lehman Brothers, appeared to have discredited many of the assumptions on which the American prosperity and even democracy was founded. In 1989 the entire world concluded that there was no serious alternative to market forces as a means of organizing productive activity. In 2009 the whole world seems to have reached the opposite conclusion.

How is struggle against the crisis organized in the United States?

In the middle of January, the United States Senate permitted B.Obama‘s administration using the second portion of the anti-crisis financial reserve, i.e. USD 350 billion. President is going to focus on specific areas, namely: support of small business, credit guarantee assurance, and, most importantly, establishment of additional 2,5-3 million jobs via modernization of national infrastructure and schools, development of alternative energy and support of health care system etc.  It is worth while reminding that G.Bush administration spent the first USD 350 billion for the support of the banking system and car industry. Have these efforts been effective? Hardly.

It is not clear on whether B.Obama‘s anti-crisis plan will be effective, since the most important thing is effective allocation of support. According to Bloomberg agency, president initiated essential changes in the procedure for allocation of funds.

Plan reviewers say that B.Obama‘s team lack constructive thinking: reduction of taxes would only increase the budget deficit, whereas investment into infrastructure wouldn’t give the expected effect.  Fr.Roosvelt‘s plan for alleviating the effects of the Great Depression is recalled when speaking about construction of roads and bridges. Then it turned out to be an effective anti-crisis measure, because it dragged up the car industry, increased transportation business and developed „life on wheels“. Will this be effective today? Hardly.

G.Soros, the American financier, is convinced that B.Obama has to make the difficult decision between too key issues: partial nationalizing of banks or nationalizing „toxic equities“ in banks.  The first would hit bank shareholders and participants of pension funds, but at the same time ensure economic revitalization. The second measure would drive the U.S financial system into a deadlock because of the necessity to renounce the bank self-defense instinct.

According to the Russian economist S.Glazyev, the American anti-crisis measures remind fire extinction with kerosene. The U.S economic and social support costs have increased enormously, the indebtedness increased 1,5 times, the budget reached a trillion dollar deficit, whereas the U.S currency production per quarter reached USD 2 trillion milestone. With such an „anti-crisis“ practice the global economy would soon be overloaded with the billow of cheap dollars and this would bring to hyperinflation and even to the financial collapse.

According to forecasts of The Wall Street Journal, the year 2009 would be more difficult than expected, and recession in the United States would be the longest and most intense since the end of World War II. „The U.S banking and financial system is insolvent, whereas the credit crisis continues, because heavily indebted families, financial companies and corporations aggressively reduce part of lent funds“, writes the newspaper.  During the G-20 summit the world leaders agreed to coordinate crisis management actions, but this would hardly happen, since politicians elaborate anti-crisis plans pursuant to needs of the electorate instead of focusing on economic problems. Thus, politics will further control economy and this would be the major threat to markets.

This phenomenon is especially apparent in the countries where the command economy pushes governments towards national capitalism. Companies and entire sectors which should be allowed to drown are put into lifeboats. According to The Wall Street Journal, this happens in Europe and Asia, and New York is no more the financial capital of America. Washington is the capital from now on...

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