There's Nothing Left to Recover
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 “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

Exibições: 54

Comentário de Alexandre César Weber em 17 julho 2009 às 1:51
Shattering the Right vs. Left Prism Once Again: The Wall Street Journal Goes After Goldman and the Bank Bailout
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Read More: Andy Kessler, Bailout, Financial Crisis, Goldman Sachs, Goldman Sachs Profits, Larry Summers, Robert Reich, Timothy Geithner, Wall Street, Wall Street Bailout, Wall Street Journal, Wsj, Business News

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Yesterday's opinion section of the Wall Street Journal offered convincing proof that those who want a progressive financial policy and those who simply want to save capitalism are in agreement about the madness of the administration's Wall Street policies.

There, on the editorial page of the capitalist Bible, was a piece taking repeated shots at Wall Street darling Goldman Sachs. And, over on the opposite page, a two-fisted op-ed by former hedge-fund manager Andy Kessler in which he labels the government bailout of Wall Street "a dumb move" and "a bust."

I'm planning to shrink down today's Journal, laminate it, and hand it out anytime someone in the media starts analyzing the economy using the cobweb-covered, tried-and-untrue right vs. left framing.

You know that this way of looking at financial policy is dead and buried when Rupert Murdoch's pride and joy is publishing takes that I could happily have written myself.

Let's start with the editorial, "A Tale of Two Bailouts," which decries the fact that, thanks to the policies of Tim Geithner and Larry Summers, Goldman "enjoys the best of both worlds: outsize profits for its traders and shareholders and a taxpayer backstop should anything go wrong."

The piece is spiked with disdainful references to "the Goldmans of the world" and "the likes of Goldman, which apparently needs no help printing money," and takes issue with the way "we changed when we stepped in to save certain banks in the name of saving the system." It also dubs Goldman "Goldie Mac," saying: "Goldman will surely deny that its risk taking is subsidized by the taxpayer -- but then so did Fannie Mae and Freddie Mac, right up to the bitter end."

Compare that to the laudatory language and quotes used by AP business writer Stephen Bernard in his story yesterday on Goldman's "stunning" profit report. Bernard calls the company "the king of post-meltdown Wall Street" and repeatedly quotes a financial analyst who anoints Goldman as "the best of the best," "in a class by themselves," and "the golden child of the market."

The Journal's take -- "We like profits as much as the next capitalist. But when those profits are supported by government guarantees or insured deposits, taxpayers have a special interest in how the companies conduct their business" -- is actually more in keeping with that of Robert Reich, who says that "Goldman's resurgence should send shivers down the backs of every hardworking American who has lost a large chunk of retirement savings in this economic debacle, as well as the millions who have lost their jobs.... Goldman's high-risk business model hasn't changed one bit from what it was before the implosion of Wall Street."

Then there is Kessler's op-ed, which mirrors much of HuffPost's take on the serial missteps made by Obama's senior economic team.

"We took the easy way out," he writes, "and, with the help of Treasury Secretary Timothy Geithner's loose 'stress tests,' swept banking problems under the carpet. We waved off mark-to-market accounting and juiced bank stock prices to help them recapitalize, but all those toxic mortgage assets on bank balance sheets are still there as anchors on lending."

Kessler also refuses to buy into the "'green shoots' psychology" that has spread through much of the media -- and rejects the all-too-frequent conflation of the Wall Street economy and the real economy: "By not restructuring banks, by not getting bad loans off bank balance sheets, by not standing up to the massive increases in government debt crowding out private capital, the Fed and Treasury are holding back real economic growth."

There is much in the Wall Street Journal that I don't agree with but, when it comes to the failure of the administration to address and fundamentally reform what Kessler calls "the structural problems that got us into trouble in the first place," we are of the same mind. There is no daylight between a progressive position focused on the paramount need to get the real economy going and one based purely on what makes free markets work.

The editorial goes so far as to suggest imposing a tax (yes, the Wall Street Journal is proposing a tax!), an FDIC-style bailout tax to be precise, "for those in the too-big-to-fail camp."

We've reached the point where the only people defending the administration's Wall Street policies are the people benefiting from them -- or their good friends, Tim Geithner and Larry Summers.
Comentário de Haroldo Vilhena em 17 julho 2009 às 3:03
Prezado Alexandre,

Acredito que quando observada como economia tradicional, a Nova Economia quebra paradigmas.
Quando o artigo fala sobre desemprego e terceirização da manufatura esquece que o Emprego está condenado a escassez (não o trabalho), e que boa parte do lucro hoje obtido na nova economia sobre um produto não se dá na produção, mas sim na comercialização, e principalmente na parte financeira da venda (cartões, empréstimos – muitas lojas ou concessionárias de veículos preferem a venda a prazo para ganhar margem).
Imagina se o jornalista responsável por este Blog ficasse apenas reclamando da eliminação do pré-requisito do diploma de jornalismo para redações...
O mundo hoje é o da circulação, uma final de big brother pode gerar mais de 50 milhões de votos.
Quanto à questão dos Ativos Tóxicos, é questão de desintoxicá-los.
Se uma casa valia 100 e a bolha levou-a para 200, o 100 é um valor “real” e o resto, o outro “100” é especulação. Acredito que assim deveriam ser tratados estes financiamentos, com “duas moedas” uma que reflita o tangível e outra o intangível (como já é feito com a moeda “milhas aéreas” que já representa um pedaço da economia intangível).

Grande Abraço

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