Re: What Economy? By PAUL CRAIG ROBERTS

On Jul 17, 6:51�am, Tom Davos <tda...@gmail.com> wrote:

http://www.counterpunch.org/roberts07162009.html

What Economy? By PAUL CRAIG ROBERTS

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 bNew Economy.b

The bNew Economyb was based on services. Its artificial life was fed
by the Federal Reservebs artificially low interest rates, which
produced a real estate bubble, and by bfree marketb 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, Americansb 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 canbt borrow in order to spend. They are
over their heads in debt. Jobs are disappearing. Americabs 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 governmentbs 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
Americabs 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 governmentbs 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 Streetbs financial
gangsterism, the world needs its own money and hasnbt $2 trillion
annually to lend to Washington.

As dollars are printed, the growing supply adds to the pressure on the
dollarbs role as reserve currency. Already Americabs largest creditor,
China, is admonishing Washington to protect Chinabs 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 bthe worldbs
only superpowerb is at hand?

And what will happen to Americabs 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 Obamabs economic policy addresses the
real issues. Instead, Goldman Sachs was bailed out, more than once. As
Eliot Spitzer said, the banks made a bbloody fortuneb 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 Sachsb 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 btheirb
government represents.

The worst of the economic crisis has not yet hit. I donbt 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 governmentbs bills and from the
dollarbs 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 Obamabs economic policy is directed at saving the US dollar
as reserve currency or the livelihoods of the American people. Obamabs
policy, like Bushbs before him, is keyed to the enrichment of Goldman
Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as ba great vampire squid wrapped
around the face of humanity, relentless jamming its blood funnel into
anything that smells like money.b 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: PaulCraigRobe...@yahoo.com