|Paul Craig Roberts: What economy? There's nothing left|
Submitted by cpowell on 09:38PM ET Thursday, July 16, 2009.
Section: Daily Dispatches
By Paul Craig Roberts
Thursday, July 16, 2009http://www.counterpunch.org/roberts07162009.html
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
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 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 U.S. 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
The US 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 U.S.
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
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
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 diminishing 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 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
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.
----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.
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