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November 17, 2008 at 17:12:51

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Promoted to Headline (H3) on 11/17/08:
The no-think nation - The Crisis Has Hardly Begun

by Paul Craig Roberts Page 1 of 1 page(s)

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"The prospects of a government rescue for the foundering American automakers dwindled Thursday as Democratic Congressional leaders conceded that they would face potentially insurmountable Republican opposition," reported the NY Times last Friday.

Wow! The entire country is steamed up over the Republicans bailing out a bunch of financial crooks who have paid themselves fortunes in bonuses for destroying America's pensions. Why do Democrats want to protect Republicans from further ignominy by not giving them the opportunity to vote down a bailout for workers? Quick, someone enroll the Democratic Party in Politics 101.

GM's divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn't.

Conservative talking heads are saying GM is a "failed business model" unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model.

The head of the FDIC is trying to get $25 billion--a measly 3.5 percent of the $700 billion for the banksters--with which to refinance the mortgages of 2 million of the banksters' victims, and Bush's Secretary of the Treasury Paulson says no. Why aren't the Democrats all over this, too?

Apparently, the Democrats still think they are the minority party or else their aim is to supplant the Republicans as the party of the rich.

Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America's manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance.

A country that doesn't make anything doesn't need a financial sector as there is nothing to finance.

The financial crisis has had one good effect. It has cured Democratic economists like Robert Reich and Paul Krugman of their fear of budget deficits. During the Reagan years these two economists saw doom in the "Reagan deficits" despite the fact that OECD data showed that the US at that time had one of the lowest ratios of general government debt to GDP in the industrialized world.

Today Reich and Krugman are unfazed by their recommendations of budget deficits that are many multiples of Reagan's. Moreover, neither economist has given the slightest thought as to how the massive budget deficit that they recommend can be financed.

Both recommend large public spending programs. Krugman puts a price tag of $600 billion on his program. If it takes $700 billion to save the banks and only $600 billion to save the economy, it sounds like a good deal. But this $600 billion is on top of the $700 billion for the banks, the $200 billion for Fannie Mae and Freddie Mac, and the $85 billion for AIG. These figures add to one trillion five hundred eighty-five billion dollars, a sum that must be added to the budget deficit due to war and recession (or worse).

What we are talking about here is a minimum budget deficit of $2 trillion. The US has never had to finance a deficit of this magnitude. Where is the money coming from?

The US Treasury doesn't have any money, and neither do Americans, who have lost up to half of their savings and retirement funds and are up to their eyeballs in mortgage and consumer debt. And unemployment is rising.

There are only two sources of financing: foreign creditors and the printing press.

I doubt that foreigners have $2 trillion to lend to the US. Thanks to the toxic US financial instruments, they have their own bailouts to finance and economies to stimulate. Moreover, I doubt that foreigners think the US can service a public debt that suddenly jumps by $2 trillion. At 5 percent interest, the additional debt would add $100 billion to the annual budget deficit. In order to pay interest to creditors, the US would have to borrow more money from them.

Economists and policy-makers are not thinking. This enormous financing need comes not to a well-managed economy that can take the additional debt in its stride. Instead, it comes to an economy so badly managed that there are no reserves.

Massive US trade deficits have been financed by giving up US assets to foreigners, who now own the income flows as well. Budget deficits from 6 years of pointless wars and from unsustainable levels of military spending have helped to flood the world with dollars and to drive down the dollar's exchange value. Consumers themselves are drowning in debt and can provide no lift to the economy. Millions of the best jobs have been moved offshore, and research, design, and innovation have followed them. Considering America's dependency on imports, part of any stimulus package that reaches the consumer will bleed off to foreign countries.

Generally, when countries acquire more debt than they can service, they inflate away the debt. If foreign creditors do not save the Obama administration, the Treasury will print bonds and give them to the Federal Reserve, which will issue money.

The inflation will be severe, particularly as Americans will not be able to pay for the imports of manufactured goods from abroad on which they have become dependent. The exchange value of the dollar will decline with the domestic inflation. Once inflation is off and running, the printing press dollars will only have goods made in America to chase after. The real crisis has not yet begun.

Paulson should rethink the automakers' and FDIC's proposals. A bank produces nothing but paper. Automakers produce real things that can be sold. Occupied homes are worth more then empty ones.

Paulson's inability to see this is the logical outcome of Wall Street thinking that highly values deals made over pieces of paper at the expense of the real economy.

Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has held numerous academic appointments. He has been reporting shocking cases of prosecutorial abuse for two decades. A new (more...)

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9 comments

wagelaborer

How many cars can we buy?

I agree that when the world stops supplying us with goods and trinkets, we're screwed, since we make only bombs and cars. And let's face it, we don't make many cars.

But, what's the difference if we have a depression and we can only buy cars, or if we have a depression and we can't buy anything?

Because the flow of oil will stop, also.

by wagelaborer (6 articles, 1 quicklinks, 9 diaries, 307 comments [34 recommended, 0 rejected]) on Monday, Nov 17, 2008 at 5:20:12 PM

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JOHN LORENZ

Trillions for waste at the top, but not one cent to help

The oligarchy that controls government policy has no limits to the waste it is williing to engage in for bailing out top plutocrats' financial interests, but not one cent to help the American people. It is the principle of the thing that is evident here and it IS appalling that the Democrats didn't let the Republicans stick out like a sore thumb..let them shoot down the Detroit bailout while they hand trillions to big bankers. They will let one business model (main street ,manufacturing) to fail, but can't allow another business model (Wall Street privilege) to fail.

Meanwhile the right wingers are gearing up to throw everything they've got at obama even before he comes into office. He will get a lesson he won't forget in their skullduggery.

by JOHN LORENZ (23 articles, 117 quicklinks, 118 diaries, 313 comments [25 recommended, 0 rejected]) on Monday, Nov 17, 2008 at 6:05:35 PM

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Jason Paz

Thinking to Prosecute Offenders May Lessen their Zeal

A few years ago the Administration obtained 432,000 pages of FBI reports that detailed official wrong doing. If an Eliot Spitzer was getting too close in his Wall Street investigation, the fat cats could pull the FBI file on him. Ending his political career warned other potential do-gooders to desist.

Fearing disclosure, the Democratic majorities have ceased working for the public. The new Administration could open these files to the citizenry, which would dampen their use for blackmail.

by Jason Paz (68 articles, 88 quicklinks, 112 diaries, 1385 comments [97 recommended, 1 rejected]) on Tuesday, Nov 18, 2008 at 3:01:44 AM

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Daniel Geery

Reply: Damn good point, Rich!

Your list could go on and on, and I intend to help it before long myself...

But meanwhile, Paul, let's not for one nanosecond lose sight that these "clowns" are indisputably mass-murdering, genocidal, sociopathical, sick mf'in freaks of nature who need to be locked up, pronto!

P.S. Please throw Hanninity and Savage in there too, just to humor me.

by Daniel Geery (26 articles, 95 quicklinks, 126 diaries, 912 comments [27 recommended, 0 rejected]) on Tuesday, Nov 18, 2008 at 9:15:59 AM

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sommers

I think

the democrats do not want to vote on this Detroit bailout for other reasons, such as allowing some of their own to avoid voting. This could hurt some of them back home. What else are they afraid of, a Bush veto?

The financial bailout should not have been done either, yet Dems were more gung-ho for this bailout than the Republicans. Ever wonder why? Ever heard of CRA, NACA, ACORN? Those may be some graveyard realities they'd just as soon whistle when passing by.

by sommers (0 articles, 0 quicklinks, 0 diaries, 174 comments [38 recommended, 2 rejected]) on Tuesday, Nov 18, 2008 at 11:29:14 AM

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B York

questions

The Democrats have been complicit in the skullduggery of the Bush cabal from the get go. Why would they change now that they are in power? As to the Republicans, why would they want to see the auto industry go under? Well, why were they so enthusiastic about de-industrializing the U.S. in the first place? So allowing the last major American industrial sector to die is par for the course, and it has the added bonus of driving the final nail into the coffin of Big Labor. The Democrats have been on board with the planned destruction of the U.S. for quite a while now. Why would anyone think that this particular "election" would change anything?

by B York (0 articles, 0 quicklinks, 0 diaries, 119 comments [12 recommended, 0 rejected]) on Tuesday, Nov 18, 2008 at 1:40:22 PM

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William Whitten

Reply: Yes York

Yes York you are right, the destruction of America was planned a long time ago--as a matter of fact, as soon as the Declaration of Independence hit the continent across the Atlantic.

This actual economic, and physical (infrastructure et al.) is only the fruition of a ruination that began in earnest in 1913.

The so-called Anglophiles have had their way with us, now they are kicking us out of bed.

by William Whitten (0 articles, 0 quicklinks, 0 diaries, 4880 comments [1686 recommended, 28 rejected]) on Tuesday, Nov 18, 2008 at 4:08:53 PM

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Stanimal

How you critize

those that were once your work associates. Sort of disingenious don't you think?

If the Felons of the Reagan regime were behind bars for the Iran-Contra weapons for cocaine scandle, then there would be no Bu$h II self appointed administration today.

Part of the financial "Crisis" the USA finds itself in are the budget busting deficits caused by the Reagan administration, which "Financial Wizard's" like yourself were a part of and refuse to acknowledge as fact.

by Stanimal (2 articles, 226 quicklinks, 38 diaries, 1254 comments [233 recommended, 2 rejected]) on Tuesday, Nov 18, 2008 at 6:09:14 PM

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John Hanks

Television divided, separated, and conquered.

Maybe the worst thing about television is that it has destroyed the talking, reading, writing, and thinking that is necessary to develop common sense.

by John Hanks (1 articles, 0 quicklinks, 0 diaries, 1760 comments [39 recommended, 0 rejected]) on Tuesday, Nov 18, 2008 at 7:49:33 PM

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