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Can The Economy Recover?

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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.

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http://www.paulcraigroberts.org/

Dr. Roberts was Assistant Secretary of the US Treasury for Economic Policy in the Reagan Administration. He was associate editor and columnist with the Wall Street Journal, columnist for Business Week and the Scripps Howard News Service. He is a contributing editor to Gerald Celente's Trends Journal. He has had numerous university appointments. His book, The Failure of Laissez Faire Capitalism and Economic Dissolution of the West is available here. His latest book,  How America Was Lost, has just been released and can be ordered here.

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Oh yes how right you are.  What a wonderfully ref... by Jeffrey Rock on Wednesday, Jul 15, 2009 at 10:21:44 PM
So now what is to be done? The obvious answer is n... by David Chester on Thursday, Jul 16, 2009 at 11:28:00 AM
You are so wrong. The price of land is not the ca... by Jeffrey Rock on Thursday, Jul 16, 2009 at 6:33:24 PM
Although you are correct you are missing the post'... by Samual Francisco on Friday, Jul 17, 2009 at 4:05:52 AM
It is amzing how many people are now saying what i... by liberalsrock on Thursday, Jul 16, 2009 at 1:25:49 PM
You too, eh? I agree with your points, all of them... by Jeffrey Rock on Thursday, Jul 16, 2009 at 6:38:38 PM
A Bond is a debt instrument issued for a period o... by Nemo on Thursday, Jul 16, 2009 at 4:24:33 PM
Anyone can sell bonds. Its just a loan that you p... by Jeffrey Rock on Thursday, Jul 16, 2009 at 6:41:18 PM
Maybe there's a connection between today's sorry e... by Larry McCombs on Thursday, Jul 16, 2009 at 5:36:59 PM
...there is a connection. Its called oligopoly an... by Jeffrey Rock on Thursday, Jul 16, 2009 at 6:40:24 PM
July 15, 2009Can The Economy Recover?By Paul Craig... by liecatcher on Thursday, Jul 16, 2009 at 7:09:20 PM
Yes, I've been a fan of Paul Craig Roberts for yea... by Samual Francisco on Friday, Jul 17, 2009 at 4:14:57 AM
Companies issue bonds to finance operations. Mo... by Nemo on Thursday, Jul 16, 2009 at 8:47:22 PM