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U.S. economic outlook improves; structural basis of crisis continues to develop

January 5, 2017

It was noted in a previous article that the U.S. economic growth rate for 2016 might be less than the global growth average but higher than some First World countries’.(1) That would be the case despite anemic U.$. productivity growth. The OECD September interim economic outlook press handout also contained a forecast for u.$. 2017 real GDP growth: 2.1% – higher than the 1.4% for the entire euro area. The OECD November “Economic Outlook No. 100” press handout with revised projections shows u.$. 2017 real GDP growth as 2.3%, higher than the euro area’s 1.6% and higher than many individual OECD countries’ growth. In 2018, the gap between u.$. growth and world growth (“moving nominal GDP weights using purchasing power parities”) would be only about 0.6 points, smaller than the 1-point difference in the previous year. Though u.$. growth will still be less than world growth in 2018 (PPP weights), the u.$. growth rate is increasing at a faster rate than the world growth rate.

A Reuters report on a revised bank forecast is suggesting that u.$. 2018 growth may be slightly higher than global growth according to a different, nominal GDP weights approach.(2) The source HSBC report’s 2018 real GDP growth forecast for the u.$. (2.7%) is less than the OECD forecast (3.0%), but the united $tates’ 2017 and 2018 real GDP growth rates will be higher than the “developed” country averages, and many Third World countries’ (some of the exceptions are big and include Argentina, China, India, Indonesia, and the Philippines). HSBC also revised its 2017 “global inflation” forecast upward. Looking at different sources, this writer believes u.$. inflation will continue to increase between now and 2018 but that u.$. 2017 inflation will be less than HSBC’s global figure and slightly or much lower than inflation in Bangladesh, Brazil, China, India, Indonesia, Nigeria, Pakistan, and Russia, though higher than inflation in many First World countries.(3)

In terms of such inflation – neither too high nor too low for the united $tates – and growth of certain sectors and the u.$. economy as a whole, and unemployment that has continued to decrease since the end of 2009, things are looking up for the u.$. economy. This is reflected in Federal Reserve interest changes, themselves also reflected in demand for u.$. currency and dollar-denominated assets separately. At the time of this writing, the u.$. dollar is at its most valuable in many years relative to a basket of currencies.(4) There has been parallel news about U.S. Treasuries’ increasing in appeal to many investors (related to the u.$. economic outlook and interest rate increases) simultaneously with other investors’ selling Treasuries, while investors sell other countries’ bonds. The strong dollar may particularly affect countries classified as emerging markets, such as Azania, Brazil, China, India, the Philippines, Mexico, Russia, and Turkey – all of which may experience higher import costs, lower living standards, and higher borrowing and debt servicing costs. This may happen while many non-Americans continue to buy fixed-income dollar-denominated securities when u.$. inflation and global inflation are high enough and interest rates and yields still low enough for some such investment to be questionable.

In the past, more viewed strong u.$. economic news as being good for their country’s interests or global investors’ – a reflection of u.$. hegemony. Others associated foreign investment (whether in their own country or in the united $tates) with international exploitation (as if rich Indians’ investing and developing in the united $tates, or Chinese loans, were foreign exploitation of u.$. workers), ignoring the increasing contribution of what’s called “unequal exchange” to international exploitation. However, countries that have been deeply integrated in the world economy need both economic growth and productivity growth of their own, and need much foreign investment and financing on good terms, unless there is to be greater global economic crisis. Not all Amerikans are shortsighted about this; so, amerikan media reflecting global/retirement investment interests have been discussing the impact of u.$. interest rate increases on the Chinese economy, for example: capital outflows, growth, and default risks.(5)

Like most economists in the world, most Chinese economists might view things like capital inflows, capital intensity, technical development and productivity as being important while not viewing trade between different countries as an area of international exploitation to the extent it really is. Some in the West seem to view productivity as more relevant to domestic inequality than to global inequality and call for wage increases and so-called working class rule in their countries regardless of how income is actually produced, who produces most of the wealth appearing in First world service and manufacturing industries, and the impact on other people. In actuality, productivity is a key topic in international exploitation through trade. Like many u.$. Democrats and so-called leftists who may have fascism problems worse than Trump’s or Bernie Sander’s, u.$. president-elect Donald Trump has emphasized an employment problem of some amerikans trained for manufacturing jobs. Many have been criticizing the corporate location decisions allegedly related to Trump’s influence as being too piecemeal and limited in terms of bringing back manufacturing jobs. For others, the real story has been an enormous increase in u.$. manufacturing productivity potentially leading to more foreign investment in the u.$. manufacturing sector and at least some increase in u.$. manufacturing employment.(6) This may make the u.$. economy less skewed toward services and make it easier for the u.$. economy and productivity to grow. Amerikan manufacturing jobs will still involve hidden transfers from other countries and exploitation of workers in the Third World. The illusion of sustainability of the united $tates’ extremely high productivity will persist.

Employment growth relative to GDP growth seems to be partly responsible for lower u.$. productivity growth figures despite less labor force participation, but the united $tates for decades now has held a position of supremacy not just in terms of GDP per capita, but also in terms of GDP per hour worked and GDP per persyn employed – in comparison with countries with populations larger than 20 million people.(7) France (population almost 70 million) has been an exception, and the united $tates has changed places with it in some years, but the u.$. is still among the five most productive countries. (Whether Qatar and Liechtenstein are ignored or not, most of these these countries are highly productive in many different sectors. Oil/fuel as a percentage of exports is not more than 10% for any of them or any contender except for Qatar and possibly some other countries with fewer than ten million people.) That is, the u.$. is the most exploitive country/entity internationally when both productivity and workforce size are considered. The united $tates’ neighbors in the top five are countries that are several (the Netherlands) or dozens (Luxembourg) of times smaller than it. The proper comparison is arguably more with countries like India, Indonesia, Russia, or Japan – all of which have labor productivity much less than the united $tates’ and much less than France’s, Germany’s, and southern Ireland’s. The united $tates’ GDPs per hour worked and persyn employed are significantly higher than the averages in the eurozone, “mature economies,” the group of OECD members, and of course the world as a whole. The united $tates’ productivity rank as a large country has basically remain unchanged for decades. That is in spite of low-to-negative productivity growth in the last two years. U.$. productivity growth may increase with more foreign investment.

China is often accused of devaluing its currency, but it is now having to sell its dollar holdings to support the yuan’s value.(8) China is selling U.S. Treasuries and other dollar reserves partly to limit capital outflow. Iran and Saudi Arabia are both having to deal with similar or related situations.(9) The Iranian rial reached a low as the u.$. dollar reached a high. All of this is a consequence of the dollar’s predominance in various areas, which Iran has tried to oppose by doing business with other countries in other currencies.

Depreciation hasn’t appeared in Saudi Arabia in the same way, but only because the Saudi riyal is pegged to the dollar. Saudi Arabia has to buy riyals and sell dollars to support the riyal. Countries with dollar pegs are trading some inflation for a loss of flexibility. Unfortunately for both Saudi Arabia and Iran, however, dollar appreciation has coincided with a decrease in the dollar price of oil(10) and a decrease in the value of non-dollar currencies exchanged for oil.

To address its fiscal problems, Saudi Arabia has sold U.S. Treasuries and also issued its own dollar-denominated bonds. Now it needs to deal with an oil price decline in the middle of trying to support oil production cut agreements. Any significant oil price decrease at this time may be psychologically important though the fewer dollars per barrel may be just as valuable as the price paid before. On top of this, unexpected increase in the value of the dollar will impact Saudi Arabia negatively as it goes from being a loaner to a borrower of dollars. Saudi Arabia’s challenges have led to speculation appearing in the media, in recent months, about abandoning the riyal-dollar peg. If Saudi Arabia were to drop the dollar peg, there would be more inflation and instability.

The media has been again discussing u.$. oil production as a factor limiting the effectiveness of production cuts.(11) Another, possible factor being discussed is the contribution of dollar-related pressures to cheating on production cut agreements.

The united $tates is a debtor country, but it exploits the world through dollar dominance and high so-called productivity in numerous industries. Dollar dominance and extremely high u.$. productivity contribute to crisis that the united $tates is able bear better than others. The petrodollar standard plays a major role in propping up dollar dominance in general. Saudi Arabia continues to support the petrodollar standard. The standard is increasingly against Saudi Arabia’s own interests as it loses dollar-denominated assets and various assets in the united $tates and issues dollar-denominated debt instead of owning it.

Saudi Arabia should stop selling oil for dollars, or at least accept more currencies for oil or accept dollars only as part of a currency basket. If it were to withdraw from the petrodollar, though, it would risk being invaded as Iran does and Iraq did. The petrodollar standard benefits the united $tates that much whether it has energy independence or itself produces/consumes much oil or not.

There are various ways in which Saudi Arabia could be subject to blackmail or pressure. Iranians have been critical of certain Saudis of course, but Iranians understand blackmail and are against it. At the same time, more Saudis may come to understand that, in the long run, Saudis may not be much more wealthy than Iranians regardless of what the Saudis could do to try to prevent the inevitable. Saudi Arabia has one of highest GDPs per capita in the world currently and has many millionaires and impressive buildings in some cities etc., but structurally it has little in common with any First World country. Its wealth is due to oil, not development of capital into finance capital. Many consider Saudi Arabia to be an emerging market though its economy is more distorted than many emerging market economies. Blackmail or no blackmail, the Saudis need to take actions that may appear to be very risky and would probably be painful. Some things are a matter of timing or pacing. Saudi Arabia faces external threats from the AmeriKKKans, but also contradictory pressures from Saudis, some of whom are prone to collaborating with the amerikans to oppose Saudi leaders if Saudi living standards fall too quickly.

The world economy and the American-Palestinian conflict

The Israeli shekel also lost value versus the u.$. dollar. Some Israelis welcome weakening of the shekel as a way to help with Israeli exports, but there are other considerations.(12) Israel is exposed to economic and financial pressures related to u.$. dominance as others are.

I$rael receives billions of dollars in aid unlike Saudi Arabia, which receives very little free aid. (I$rael reached aid agreements with the amerikans under both Republican and Democratic settlements before and after I$rael was incentivizing settlement building in the West Bank.) By the same token, the I$raeli entity has much in common with Egypt, Jordan, and Iraq and even Palestine now, as recipients of at least hundreds or tens of millions of dollars in u.$. aid. The aid comes with obligations to the amerikans (though the u.$. has been less willing to withhold aid in I$rael’s case), but there is still an independence of interests. Just days before the UN Security Council vote on West Bank settlement activity, an Asia Times contributor was talking about a “love upgrade” in Chinese-Israeli economic relations.(13) Israel’s contradictory relationship with another country, Russia, was also in the news again in December. Nonetheless, both China and Russia voted in favor of adopting Resolution 2334.

As a candidate and now as President-elect, Donald Trump has indirectly tried to divide Russia from China through public statements treating u.$. relations with China and Russia differently – an approach that other amerikans disagree with. However, China and Russia may both play a role in bringing about a situation in the Middle East that the united $tates doesn’t prefer. If the u.$. entity wants Russia to be its enemy, to a certain extent that has to be allowed without anyone’s opposing Russia too much.

Like many other countries, Iran “welcomed” the UNSC settlements resolution. The Iranians welcomed it though Resolution 2334 supposedly is about saving the two-state solution, which the amerikans have obstructed and continue to obstruct despite supporting it verbally. To the extent that even Iran cannot fully support skipping the two-state stage of progress in Palestine, there will have to be some level of relations between non-Arab and non-Muslim countries and Israel. Supporting the Palestinian nation’s cause shouldn’t be viewed as a burden to be left to Arab and Muslim countries only, but most countries in the world already recognize both a Palestinian state and Israel and have to work in and around that framework. China, Russia and Israel may move closer to each other and farther away from the united $tates without undermining the two-state solution. People in various countries have economic reasons to support or allow this.

With Benjamin Netanyahu under investigation again over corruption allegations, naturally there is also discussion in the media suggesting Netanyahu may be vulnerable to blackmail by I$raelis even more right-wing than Netanyahu. Maybe some Israelis who can see the future and aren’t stupid can do something about that. Depending on the amerikkkans is a bad strategy. It results in fighting that benefits the amerikans more than anyone else.

A war resulting from West Bank settlement activity, from continuing the Gaza blockade, and from keeping Marwan Barghouti in I$raeli prison, would cause the shekel to weaken against various currencies. Israel would have less control over that. War isn’t a good way to help Israeli exporters. Check what happened to exports around when the Palestinian death toll spiked in 2002, 2009, 2012, and 2014. ◊

• “Economic slowdown and productivity: where class struggle meets crisis,” 2016 August.
• “Yemen war: Amerikan “blackmailing” of Saudi Arabia discussed in Iranian media,” 2016 December.
• “AmeriKKKa is still the dominant power in the world and needs to be opposed as such,” 2016 December.
• “Obama uses UN abstention to bolster reputation while the longstanding American-Palestinian conflict comes into focus for some,” 2016 December.
• “UPDATE 1-Israel economy grows 3.8 pct in 2016, slower 2017 expected,” 2016 December 29.

1. “AmeriKKKa is still the dominant power in the world and needs to be opposed as such,” 2016 December.
“Global growth warning: weak trade, financial distortions,” 2016 September 21.
See: “Escaping the low-growth trap? : Effective fiscal initiatives, avoiding trade pitfalls,” 2016 November 28.
2. “HSBC raises world economic growth, inflation forecasts, dubs moves ‘rare treat’,” 2017 January 4.
3. “2016 charts of the week : 2017 inflation forecast.” 2016 June 24.
“United States inflation rate forecast 2016-2020,” 2016 January 4.
4. “RPT-FOREX-Dollar hits 14-year highs after strong U.S. manufacturing data,” 2017 January 3.
5. “Investors soured on emerging markets in 2016,” 2017 January 4.
“Those higher interest rates in the US next year could make big problems for China,” 2016 December 15.
“US interest rate rises set to expose China’s frailties,” 2016 December 8.
6. “U.S. manufacturing growth continues, but jobs are trailing,” 2016 December 15.
7. “The Conference Board Total Economy Database : Summary Tables,” 2016 November.
“International comparisons of GDP per capita and per hour, 1960-2011,” 2012 November 7.
“GDP per hour worked.”
8. “Re-energized dollar looms over the rest of the world,” 2017 January 1.
“China Sells Off Stock of US Treasury Securities to Protect Yuan,” 2016 December 30.
“Yuan is not done being battered by the US dollar,” 2016 December 30.
9. “Heat is on currencies with pegs to dollar,” 2016 December 13.
“Iran’s rial at all-time low over strong dollar, other woes,” 2016 December 27.
10. “US crude settles at $52.33, down 2.6%, hitting two-week low on strong dollar,” 2016 January 3.
“Oil dives two percent, strong dollar knocks crude off 18-month high,” 2017 January 3.
11. “Oil in 2017 seen capped below $60/barrel by strong dollar, US shale,” 2017 January 4.
“Oil faces a dollar ‘double whammy’: lower demand and higher odds of OPEC cheating,” 2016 December 28.
“Oil prices rise on expected drop in U.S. crude inventories,” 2017 January 4.
12. “Shekel halts depreciation against dollar,” 2017 January 4.
“Senior Bank of Israel official says shekel ‘notably Overvalued’,” 2016 December 15.
“Bank of Israel’s love of dollars inflicts heavy tax on Israelis,” 2016 December 20.
13. “China & Israel business relations: A love upgrade,” 2016 December 20.

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