Can the Economy Recover?
There is no economy left to recover. The U.S. 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 percent of gross domestic product, 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 U.S. government's budget deficit has jumped from $455 billion in 2008 to $1 trillion this year, with another $2 trillion 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 U.S. government's budget is 50 percent 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 U.S. 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 U.S. dollars by acquiring gold and stocks of raw materials and energy.
The price of 1 ounce gold coins is $1,000 despite efforts of the U.S. 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 oversupplied U.S. dollar loses the reserve currency role, the United States 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 U.S. 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 whom "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 affecting 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 Neiman 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 U.S. 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, relentlessly 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.
COPYRIGHT 2009 CREATORS SYNDICATE INC.
Entries(RSS)
First: God doesnt lie.
Psalms 9:18
The wicked shall be turned into hell, all the nations that forget God.
Second: These people will be brought to justice one way or another.
2 Kings 4:11
How much more now when wicked men have slain an innocent man in his own house, upon his bed, shall I not require his blood at your hand, and take you away from the earth?
This is an excellent analysis of our coming doom. There is NOTHING Obama is doing that is right on economics. Some other really bad policies Roberts didn't mention: Obamacare Socialized medicine, "paid" for with a hefty new tax on the wealthy, who will stop producing. And Obama's attack on the General Motors bondholders, who by contract were supposed to own the company if it went bust; instead, Obama gave GM to the U.S. government itself, to the Canadian government, and to the UAW. This assault on business contracts will destroy the bond markets and business in general.
But Roberts is wrong on a couple of points. It isn't free trade that wrecked American industry and the middle class, but wild defense spending and inflation. When Nixon took us off gold in 1971, inflation jammed the middle class up into high-income tax brackets. Reagan indexed taxes to inflation, but unfortunately didn't make that retroactive, so the middle-class is still paying rich folks' tax rates.
And the manufacturing base has been diverted -- even since the Cold War ended in 1989 -- into wasteful defense spending, with the waste only increasing due to the Bush-Obama wars of conquest. Instead of our top engineers developing cars and computer hardware, they're developing bombs, planes, tanks, aircraft carriers, etc.
Defense scholar Seymour Melman wrote that, as long ago as November 1968, a five-year inventory disclosed “that 64% of the metalworking machine tools used in US industry were 10 years old or older. The age of this industrial equipment (drills, lathes, etc.) marks the United States’ machine tool stock as the oldest among all major industrial nations, and it marks the continuation of a deterioration process that began with the end of the second world war. This deterioration at the base of the industrial system certifies to the continuous debilitating and depleting effect that the military use of capital and research and development talent has had on American industry.”
It's not free trade, but Empire, and the taxes and welfare and war waste to support it, that destroyed the American economy.
A very sobering piece.
"It’s not free trade, but Empire, and the taxes and welfare and war waste to support it, that destroyed the American economy."
I am not an economist but making things and adding value to raw materials is a differnt activity than the options open to middle America today. The manufacturing base was gutted by what is called free trade and is not coming back anytime soon. The first manufacturing plants from the US moved to Mexico for the cheaper labor than unions had negotiated for at home. Then they moved to China for even cheaper labor costs. In my own hometown the tire manufacturing equipment for building B. F. Goodrich tires was sold directly to Mexico and China. There is of course more to the story, but I for one am sick and tired of free traders arguing that it wasn't their fault that jobs left. Free traders won the debate on free trade, the needless wars in Iraq, Afghanistan, and now Pakistan, and Free Traders finally are the ones who opened the Southern boarder for any Tom, Dick and Harry that wanted to move North.
I tend to think in terms of small local markets as free markets and large international firms lobbying in Washington for
a fair advantage,as managed trade. Again, this may be a very ignorant and simplistic view of things but if one keeps winning
the policy debates, getting exactly what they want in terms of NAFTA, GATT, immigration etc.,all as the economy keeps getting worse and worse, there comes a time to say that what folks are calling free trade, a nation of immigrants,stimulus packages
and expanding freedoms abroad, is nothing but a bunch of smoke and mirrors covering disasterous policies. Pat Buchanan and Ron Paul must have been right about a few of their suggestions, because all the things they predicted have come true and all the good things the duopoly predicted have come to naught.
Amen, Justitia. All the nations that forget God shall indeed be turned into hell.
The second quote, however, doesn't quite fit. Ishbosheth was a decent man assassinated by two scuzzballs who thought King David would reward them for doing so. They must have been shocked to hear what he thought of assassins. As a result, David's throne was firmly established. It's too bad US Presidents didn't follow his precedent.
Robert @4:
NAFTA and GATT aren't free trade, but managed trade -- complicated, unconstitutional schemes to help big business at the expense of small business. Ron Paul favors free trade (and opposed NAFTA and GATT). Free trade means just lowering or eliminating tariffs, not multi-thousand-page documents. Yes, immigration should be curbed.
As to the problems with B.F. Goodrich, maybe it could have survived as an independent company (instead of part of Michelin) if more men in America's chemistry industry had been employed making tires for cars, instead of tires for F-16s, napalm, bombs, etc.
The old Soviet Union employed its top engineers making some of the world's best armaments for its huge military, while producing junky cars for its own people, and exporting only raw materials, Stoli, and matrushka dolls. Sound familiar?
Wasn't that all obvious 30 years ago?
I remember being a laughing stock then, talking about EXACTLY THIS OUTCOME.
Good luck.
(submit before wipe-off)
30 years ago there was a joke circulating around Washington that the National Institute of Health was going to stop using lab rats in their research. Instead they would use lawyers. There were 3 reasons for doing so. 1)There is no shortage of lawyers around here. 2) Lab rats are sort of cute and the workers feel sorry for them when they develop tumors and such. And 3) There are some things that rats just won't do.
And so it is with our goofy economy. In the mid 80s colleges were churning out no end of finance majors with no real work skills, and who, within 5 years were back at home again with mom and dad having lost their $80K jobs. However, they had no trouble sneering at Operations Management majors who today are still working businesses they founded 25 years ago, albeit at more modest incomes, and who provide gainful employment (often to Mexicans since hard work is beneath ignorant, college-educated paper pushers), and pay taxes to their communities.
@6 John
The Stoli joke is far worse than you can imagine. The Smith Bowman distillery in Spotsylvania would have gone belly-up years ago had it not been for the fact that 90% of their product is poured into 55 gallon drums and exported to Russia. My guess is that fancy flavors are added and American-made booze is sent back here as a fancy import, and at highly inflated prices. Face it, the best vodka is Tito's, and that's made in Texas.
As I write this, the price of local (Columbus OH) gasoline approaches $2.30/gallon because people are driving less and supplies have not yet adjusted downward. People are driving less because, even at the reduced price, it is not worth it for them to drive more. This is true whether the decision to drive less is borne of dire necessity or arbitrary choice.
The good news implicit here is that people are finding out that they can get along with less driving. And less money. And, in general, less stuff.
Not long ago, it was an "axiom" that no US household with children could survive on only one income. But how much of our current, growing, "unemployment" rate is inflated by women who opted out of the outside workforce because a) they wanted to work full-time making their homes and rearing their children, and b) they found out that it's actually possible to do this on one income without draconian sacrifice, and/or c) they found out that it actually cost more, in many ways, to be "employed" outside the home than to stay home?
My brother Kirt, who posts often on this site, has time and again opined that doing OK with less stuff--particularly the kind that enervates and corrupts us--may be the greatest blessing of our stubborn and expanding economic "depression." If he's right--and if we can all learn and benefit from this life lesson without starving or freezing to death--what's to be depressed about?
John Seiler,
I will defer to you in these matters as I am in way over my head, but please assure me you will be as thoughtful and honest in these matters of free trade as you are in everything else you post. I think free trade aggreements are a charade and a legal excuse for mutlti-national corporations to steal. I loved it when Pat Buchanan would assure these ass--holes that when he took the oath of office his first act would be to read Bill Clinton his Miranda rights and his second act would be to assure middle class Americans that when his right hand went up, the new world order would come crashing down. God Bless him. rr
#11, Robert: I agree with what you said. That was one of Pat's great lines. I voted for him 4 times, 3 primaries and the 2000 general election. There's a place for him, and all of us, in these years as our Republic, or what's left of it, collapses.
#9 Etienne: I'll check out the Tito's. But I'm mostly a bourbon man. So far the government hasn't banned it again, probably because it brings in too much in taxes. God bless Kentucky.
"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."
Millions of American consumers, living beyond their means, bear a part of the responsibility. Most American workers saved nothing. Of course, the prospect of an endless binge of borrowing led them on. Business and government depended on people doing this because it looked like economic growth on the corporate ledgers. Banks loved it. They were getting money at about three percent and were charging credit card debt at about twenty percent. This went on for decades.
@12 John
God bless Kentucky indeed! Even Virginia Gentleman is distilled there these days. The only legal stills left in the Old Dominion are Wasmund's in Sperryville, and Belmont in Culpeper, which makes Virginia Lightning -- a clear liquor far superior either to Stolichnaya or to Ketel One, and Copper Fox now available only at the still since the ABC stores have ceased stocking it.
"Millions of American consumers, living beyond their means, bear a part of the responsibility."
How many only started doing that since last September? Point being what did the two massive bailouts do but save some bankers' bonuses?
Mark @10: "Not long ago, it was an “axiom” that no US household with children could survive on only one income. But how much of our current, growing, “unemployment” rate is inflated by women who opted out of the outside workforce because a) they wanted to work full-time making their homes and rearing their children, and b) they found out that it’s actually possible to do this on one income without draconian sacrifice, and/or c) they found out that it actually cost more, in many ways, to be “employed” outside the home than to stay home?"
Too many women have been led astray and too many men deceived and chose to abandon their God given responsibility to be the provider and defender of the home and children. (This, I think, is a natural law.)It's understandable of course with the withering propaganda coming from the media and the education system steering, young and older, women in only one direction, "career!" What a shame it is to see marriage and family suffer for the sake of a little extra money, and, as you said, it's questionable at how much extra that may actually be considering the additional costs involved in working outside the home. Actually, married women staying at home do a tremendous amount of productive work, but unfortunately it's not recognized today.
It may be that women are currently inflating the unemployment numbers, but I suspect it is actually men, and this is a very bad development as George Gilder warned in "Men and Marriage". We really need to be more concerned with keeping men employed.
Perhaps this developing economic calamity will again bring some balance and sense into some of these matters but I am not very hopeful. This is indeed a very sobering piece by Paul Craig Roberts and I fear he is all too correct in his analysis.
Oh well, Larry Kudlow of MSNBC seems to be pretty excited these days about the economic recovery. Whether it is mustard seeds or green shoots appearing we shall have to wait and see. Personally I think PCR is right and if more women choose to stay at home and do that productive work then I say all the better, we need to keep the men working.
Keep up the good work Mr. P. C. Roberts.
Although America would appear to be in a slow-motion economic implosion which will radically alter social, political and economic landscape, I expect that the management of the economy by the Federal Reserve Board will provide Barack Obama something resembling a recovery in 2012 so that the King of Telepromter can fend off Mitt Romney. So much the better. The current ruling class must be exposed, humiliated and retired so that America might be revived.
@10, 16. Your points are insightful and accurate. I would only add a technicality, that unemployment numbers are only for those people who do not have a job but are actively looking for one, are available to work and can't find one. Women transitioning from work force to home force wouldn't be included in that statistic. They are no longer counted as part of the labor force. This makes the unemployment numbers far more frightening.
@13, 15. "Millions of American consumers, living beyond their means, bear a part of the responsibility."
I don't think it's our job to worry about parceling out blame. There are far too many to blame for sure. The question to me is who acted maliciously and selfishly, and who was merely gullible? Furthermore, who faced the honest consequences of their actions, and who was dishonestly protected? These millions of consumers have been handed a mountain of debt or have been rendered homeless, while the others have been handed a mountain of money and possibly a book deal.
Robert@4 wrote: "I tend to think in terms of small local markets as free markets and large international firms lobbying in Washington for
a fair advantage,as managed trade. Again, this may be a very ignorant and simplistic view of things but if one keeps winning the policy debates, getting exactly what they want in terms of NAFTA, GATT, immigration etc.,all as the economy keeps getting worse and worse, there comes a time to say that what folks are calling free trade, a nation of immigrants,stimulus packages and expanding freedoms abroad, is nothing but a bunch of smoke and mirrors covering disasterous policies."
Bearing in mind what Conan-Doyle wrote, "Once you eliminate the impossible, what remains, no matter how improbable, must be the truth", one can only conclude that our nation's "leaders" know they're selling us, our children and grandchildren into slavery, hoping that they and their own will escape they're committing us to.
Increasingly, I understand why a nation's citizens in time resort to guillotines and firing squads. I never imagined I would ever understand the use of such violence, but at the ripe old age of 50 I have.
It's interesting how people who rail against free trade and jobs going overseas always skip over the role that labor unions had in driving up labor costs to the point where management began to look elsewhere.
But the unions' short-term, narrow perspective is mirrored by that of investors, who never seem to look beyond the next quarterly earnings statement. Or that of CEO's and other managers who are just want to cash in and retire before the company goes bankrupt. Or that of term-limited politicians who are incented to grab what they can before their time in office ends.
Very few people are thinking in terms of long-range sustainability. Almost all of the things that have come to pass were predictable, and they were predicted, by Dr Paul and many others. But no one wanted to listen to the predictions. Very few are listening even now.
Nobody could be more critical of American materialism than I am, but I think it is a little unfair to blame so much on consumer spending. Of course, the politicians and state capitalists and their clients have lived very high on the hog, but in my observation the middle and working classes have spent beyond their means largely out of necessity. One source indicates that real wages for skilled workers have not increased in ten years. Because the elite have made neighbourhoods unsafe, schools vile, and two incomes necessary, many good people have had to spend beyond their means just to keep a decent life for their children. These are the people we need---who are actually raising children, unlike the Yuppies.