NEWS FLASH - WAKE UP PEOPLE!
July 16, 2009
There's Nothing Left to Recover
What Economy?
By PAUL CRAIG ROBERTS (Former Assistant Secretary of the Treasury)
There is no economy left to recover. The US manufacturing economy was
lost to offshoring and free trade ideology. It was replaced by a
mythical “New Economy.”
The “New Economy” was based on services. Its artificial life was fed by
the Federal Reserve’s artificially low interest rates, which produced a
real estate bubble, and by “free market” financial deregulation, which
unleashed financial gangsters to new heights of debt leverage and
fraudulent financial products.
The real economy was traded away for a make-believe economy. When the
make-believe economy collapsed, Americans’ wealth in their real estate,
pensions, and savings collapsed dramatically while their jobs disappeared.
The debt economy caused Americans to leverage their assets. They
refinanced their homes and spent the equity. They maxed out numerous
credit cards. They worked as many jobs as they could find. Debt
expansion and multiple family incomes kept the economy going.
And now suddenly Americans can’t borrow in order to spend. They are over
their heads in debt. Jobs are disappearing. America’s consumer economy,
approximately 70% of GDP, is dead. Those Americans who still have jobs
are saving against the prospect of job loss. Millions are homeless. Some
have moved in with family and friends; others are living in tent cities.
Meanwhile the US government’s budget deficit has jumped from $455
billion in 2008 to $2,000 billion this year, with another $2,000 billion
on the books for 2010. And President Obama has intensified America’s
expensive war of aggression in Afghanistan and initiated a new war in
Pakistan.
There is no way for these deficits to be financed except by printing
money or by further collapse in stock markets that would drive people
out of equity into bonds.
The US government’s budget is 50% in the red. That means half of every
dollar the federal government spends must be borrowed or printed.
Because of the worldwide debacle caused by Wall Street’s financial
gangsterism, the world needs its own money and hasn’t $2 trillion
annually to lend to Washington.
As dollars are printed, the growing supply adds to the pressure on the
dollar’s role as reserve currency. Already America’s largest creditor,
China, is admonishing Washington to protect China’s investment in US
debt and lobbying for a new reserve currency to replace the dollar
before it collapses. According to various reports, China is spending
down its holdings of US dollars by acquiring gold and stocks of raw
materials and energy.
The price of one ounce gold coins is $1,000 despite efforts of the US
government to hold down the gold price. How high will this price jump
when the rest of the world decides that the bankruptcy of “the world’s
only superpower” is at hand?
And what will happen to America’s ability to import not only oil, but
also the manufactured goods on which it is import-dependent?
When the over-supplied US dollar loses the reserve currency role, the US
will no longer be able to pay for its massive imports of real goods and
services with pieces of paper. Overnight, shortages will appear and
Americans will be poorer.
Nothing in Presidents Bush and Obama’s economic policy addresses the
real issues. Instead, Goldman Sachs was bailed out, more than once. As
Eliot Spitzer said, the banks made a “bloody fortune” with US aid.
It was not the millions of now homeless homeowners who were bailed out.
It was not the scant remains of American manufacturing--General Motors
and Chrysler--that were bailed out. It was the Wall Street Banks.
According to Bloomberg.com, Goldman Sachs’ current record earnings from
their free or low cost capital supplied by broke American taxpayers has
led the firm to decide to boost compensation and benefits by 33 percent.
On an annual basis, this comes to compensation of $773,000 per employee.
This should tell even the most dimwitted patriot who “their” government
represents.
The worst of the economic crisis has not yet hit. I don’t mean the rest
of the real estate crisis that is waiting in the wings. Home prices will
fall further when the foreclosed properties currently held off the
market are dumped. Store and office closings are adversely impacting the
ability of owners of shopping malls and office buildings to make their
mortgage payments. Commercial real estate loans were also securitized
and turned into derivatives.
The real crisis awaits us. It is the crisis of high unemployment, of
stagnant and declining real wages confronted with rising prices from the
printing of money to pay the government’s bills and from the dollar’s
loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman
Marcus prices.
Retirees dependent on state pension systems, which cannot print money,
might not be paid, or might be paid with IOUs. They will not even have
depreciating money with which to try to pay their bills. Desperate tax
authorities will squeeze the remaining life out of the middle class.
Nothing in Obama’s economic policy is directed at saving the US dollar
as reserve currency or the livelihoods of the American people. Obama’s
policy, like Bush’s before him, is keyed to the enrichment of Goldman
Sachs and the armament industries.
Matt Taibbi describes Goldman Sachs as “a great vampire squid wrapped
around the face of humanity, relentless jamming its blood funnel into
anything that smells like money.” Look at the Goldman Sachs
representatives in the Clinton, Bush and Obama administrations. This
bankster firm controls the economic policy of the United States.
Little wonder that Goldman Sachs has record earnings while the rest of
us grow poorer by the day.
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan
administration. He is coauthor of The Tyranny of Good Intentions.He can
be reached at: PaulCraigRoberts@yahoo.com
June 03, 2009
Economic Policymakers Have Created A Perfect Storm
By Paul Craig Roberts (Former Assistant Secretary of the Treasury)
Economic news remains focused on banks and housing, while the threat
mounts to the US dollar from massive federal budget deficits in fiscal
years 2009 and 2010.
Earlier this year, the dollar?s exchange value rose against currencies
such as the Euro, UK pound, and Swiss franc, against which the dollar
had been steadily falling. The dollar?s rise made US policymakers
complacent, even though the rise was due to flight from over-leveraged
financial instruments and falling stock markets into "safe" Treasuries.
Since April, however, the dollar has steadily declined as investors and
foreign central banks realize that the massive federal budget deficits
are likely to be monetized.
What happens to the dollar will be the key driver of what lies ahead.
The likely scenario could be nasty.
America?s trading partners do not have large enough trade surpluses to
finance a federal budget deficit swollen to $2 trillion by gratuitous
wars, recession, bailouts, and stimulus programs. Moreover, concern
over the dollar?s future is causing America?s foreign creditors to seek
alternatives to US debt in which to hold their foreign reserves.
According to a recent report in the online edition of Pravda, Russia?s
central bank now holds a larger proportion of its reserves in euros than
in US dollars. On May 18 the Financial Times reported that China and
Brazil are considering bypassing the dollar and conducting their mutual
trade in their own currencies. Other reports say that China has
increased its gold reserves by 75% in recent years.
China?s premier, Wen Jiabao, has publicly expressed his concern about
the future of the dollar. Arrogant, hubris-filled American officials
and their yes-men economists discount Chinese warnings, arguing that the
Chinese have no choice but to support the dollar by purchasing
Washington?s red ink. Otherwise, they say, China stands to lose the
value of its large dollar portfolio.
China sees it differently. It is obvious to Chinese officials that
neither China nor the entire world has enough spare money to purchase $4
trillion of US Treasuries over the next two years. According to the
London Telegraph on May 27, Dallas Federal Reserve Bank president
Richard Fisher was repeatedly grilled by senior officials of the Chinese
government during his recent visit about whether the Federal Reserve was
going to finance the US budget deficit by printing money. According to
Fisher, "I must have been asked about that a hundred times in China. I
was asked at every single meeting about our purchases of Treasuries.
That seemed to be the principal preoccupation of those that were
invested with their surpluses mostly in the United States."
US Treasury Secretary Timothy Geithner has gone to China to calm the
fears. However, even before he arrived, a Chinese central bank
spokesman gave Geithner the message that the US should not assume China
will continue to finance Washington?s extravagant budgets. The governor
of China?s central bank is calling for the abandonment of the dollar as
reserve currency, using the International Monetary Fund?s Special
Drawing Rights in its place.
President Lyndon Johnson?s "guns and butter" policy during the 1960s
forced president Richard Nixon to eliminate the gold backing that the
dollar had as world reserve currency, putting foreign central banks on
the same fiat money standard as the US economy. In its first four
months, the Obama administration has outdone President Johnson. Instead
of ending war, Obama has expanded America?s war of aggression in
Afghanistan and spread it into Pakistan. War, bailouts, and stimulus
plans have pushed the government?s annual operating budget 50% into the red.
Washington?s financial irresponsibility has brought pressure on the
dollar and the US bond market. Federal Reserve Chairman Bernanke
thought he could push down interest rates on Treasuries by purchasing
$300 billion of them. However, the result was to cause a sharp drop in
Treasury prices and a rise in interest rates.
As monetization of federal debt goes forward, US interest rates will
continue to rise, worsening the problems in the real estate sector. The
dollar will continue to lose value, making it harder for the US to
finance its budget and trade deficits. Domestic inflation will raise
its ugly head despite high unemployment.
The incompetents who manage US economic policy have created a perfect storm.
The Obama-Federal Reserve-Wall Street plan for the US to spend its way
out of its problems is coming unglued. The reckless spending is pushing
the dollar down and interest rates up.
Every sector of the US economy is in trouble. Former US manufacturing
firms have been turned into marketing companies trying to sell their
foreign-made goods to domestic consumers who have seen their jobs be
moved offshore. Much of what is left of US manufacturing--the auto
industry--is in bankruptcy. More decline awaits housing and commercial
real estate. The dollar is sliding, and interest rates are rising,
despite the Federal Reserve?s attempts to hold interest rates down.
When the Reagan administration cured stagflation, the result was a
secular bull-market in US Treasuries that lasted 28 years. That bull
market is over. Americans? living standards are headed down. The
American standard of living has been destroyed by wars, by offshoring of
jobs, by financial deregulation, by trillion dollar handouts to
financial gangsters who have, so far, destroyed half of Americans?
retirement savings, and by the monetization of debt.
The next shoe to drop will be the dollar?s loss of the reserve currency
role. Then the US, an import-dependent country, will no longer be able
to pay for its imports. Shortages will worsen price inflation and
disrupt deliveries.
Life for most Americans will become truly stressful.
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury
during President Reagan?s first term. He was Associate Editor of the
Wall Street Journal. He has held numerous academic appointments,
including the William E. Simon Chair, Center for Strategic and
International Studies, Georgetown University, and Senior Research
Fellow, Hoover Institution, Stanford University. He was awarded the
Legion of Honor by French President Francois Mitterrand. He is the
author of Supply-Side Revolution : An Insider's Account of Policymaking
in Washington; Alienation and the Soviet Economy and Meltdown: Inside
the Soviet Economy, and is the co-author with Lawrence M. Stratton of
The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are
Trampling the Constitution in the Name of Justice. Click here for Peter
Brimelow?s Forbes Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.