This article is from the Summer 2011 issue of the Trends Journal, a publication of Gerald Celente's Trends Research Institute. It is republished below with Mr. Celente's permission.
As the second decade of
the 21st century began, the US economy had not recovered from the Great
Recession that began in December 2007.
The economy's failure to recover was despite the
largest fiscal and monetary stimulus in the country's history. There was a $700
billion bank bailout, a $700 billion stimulus program, a couple of trillion in
"quantitative easing," that is, in debt monetization or the printing of money to
finance the government's expenditures. In addition the Federal Reserve's balance
sheet had expanded by trillions of dollars as the Fed purchased troubled
mortgage bonds and derivatives in its effort to keep the financial system
solvent and functioning. According to the Government
Accountability Office's audit of the Federal Reserve released by Senator Bernie Sanders, the Federal
Reserve provided secret loans to US and foreign banks totaling $16.1 trillion, a
sum larger than US Gross Domestic Product (GDP).
Despite the enormous fiscal and
monetary stimulus, the economy remained dead in the water.
In 2011 the deficit in the
federal government's annual expenditures was 43 percent of the budget. In other
words, the US government had to borrow, or the Fed had to monetize, 43 percent
of federal expenditures during fiscal year 2011. Despite this unprecedented
fiscal and monetary stimulus, the economy did not recover.
At the end of the first decade of
the 21st century, the economy's decline was temporarily halted by federal
subsidies for car and home purchases. The $8,000 housing subsidy helped
newlyweds purchase starter homes as the subsidy was a big chunk of the down
payment in a depressed housing market. The car purchase subsidy moved future
demand into the present. When these subsidies expired, the economy's life
support was turned off.
Problems with the statistical
reporting of unemployment, inflation, and GDP disguised the worsening economy.
Seasonal adjustments used to smooth the data over the course of the year were
not designed for prolonged recession. Neither was the "birth-death" model used
by the US Bureau of Labor Statistics (BLS) to estimate non-reported jobs from
new start-up companies and losses from companies that have gone out of business.
The birth-death model was designed for a growing economy and during downturns
overestimates the number of new jobs created.
The "substitution effect" used in
the consumer price index (CPI) underestimates
inflation by assuming that consumers substitute cheaper foods for those that
rise in price. For example, if the price of New York strip steak rises, this
does not show up in the CPI, because of the assumption that people shift their
purchases to a less expensive cut such as round steak.
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Cooking the Books
The widely used "core inflation"
measure does not include food or energy. Core inflation is a useful measure for
those who want to put an optimistic spin on the outlook.
By underestimating inflation, the
government can overestimate real GDP growth, thus creating a fictional rosy
outlook. Similarly, by using the employment measure known as U.3, the government
The "headline" unemployment rate,
the one emphasized by the media and the financial press, stood at 9.2 percent in
June, 2011. But this rate does not include any discouraged workers. A
discouraged worker is a person who has ceased looking for a job, because there
are no jobs to be found. A discouraged worker is not considered to be in the
work force and is not counted among the U.3 unemployed. The federal government knows that
this is phony and has a U.6 measure of unemployment that counts the short-term
discouraged. This measure, seldom reported by the media, stood at 16.2 percent
in June, 2011.
Statistician John Williams (shadowstats.com
) continues to count also the long-term discouraged
workers according to the way it was officially done in 1980. In June, 2011, this
full measure of the US unemployment rate was 22.7 percent.
In other words, by 2011 between
one-fifth and one-fourth of the US work force were without
As 2011 progressed, the United
States faced three simultaneous economic crises. One crisis arose from the loss
of US jobs, GDP, consumer income, and tax base caused by corporations off-shoring
their production for the US market. Instead of making their products at home
with American labor and providing Americans with jobs and states and localities
with tax revenues, US corporations provided countries such as China, India, and
Indonesia with GDP, jobs, consumer income and a tax base. This practice meant
that economic stimulus was unable to revive the US economy as Americans cannot
be called back to work jobs that have been moved abroad.
Another crisis was the financial
crisis resulting from deregulation, fraud, and greed. Securitization of
mortgages meant that issuers of mortgages no longer had any incentive to
ascertain the credit worthiness of the borrower, because the issuers sold the
mortgages to third parties who combined the mortgages with others and sold them
As mortgages were issued for
fees, the more mortgages issued, the higher the income from fees. In order to
collect fee income, some issuers faked credit reports for borrowers. With the
housing market booming, many people took mortgages in order to make money on the
resale of the properties. With housing prices rising rapidly, down payments and
credit worthiness became concerns of the past. The financial crisis was made
worse by the ability of investment banks to get around capital requirements and,
thereby, leverage their equity by incurring enormous debt. When all the bubbles
burst, the house of cards collapsed.
The third crisis was the $1.5+
trillion annual federal budget deficits, which were too large to be financed
without the Federal Reserve buying the Treasury's new debt issues. Known as
monetizing debt, the Federal Reserve purchased the Treasury's bills, notes, and
bonds by creating a checking account, which the Treasury would then draw upon to
pay the government's bills. The outpouring of Treasury debt raised concerns
about the dollar's exchange value and role as reserve currency, and it raised
fears of inflation. Gold and silver prices rose as the dollar declined in
foreign exchange markets.
Any one of these crises was
serious. All together, they implied economic Armageddon.
There was no obvious way out, but
even if one could be found, the government was focused elsewhere -- on
In addition to ongoing military
operations in Iraq, Afghanistan, Pakistan, Yemen and Somalia, the US and NATO
began military operations against Libya on March 19, 2011. As with the existing
wars, the real purpose of the aggression against Libya was not acknowledged,
but it became clear that the war's
purpose was to evict China from its oil investments in eastern Libya. Unlike the
previous Arab protests, the Libyan rebellion was an armed uprising in which some
saw the CIA's hand.
The Libyan war upped the risk,
because although hiding behind the veil of Arab protest, the US was actually
confronting China. Similarly, in the US-supported armed rebellion in Syria,
Washington's target was the Russian naval base at Tartus. Overthrowing the Assad
government in Syria and installing a US friendly regime would put paid to
Russia's naval presence in the Mediterranean.
By hiding its purposes behind
Arab protests in Libya and Syria that it might have initiated, Washington
avoided face-to-face conflicts with China and Russia,
but nevertheless the two powers understood that Washington was striking at their
interests. This elevated the recklessness of Washington's aggressive policies by
initiating confrontation with two nuclear powers, one of which held financial
power over the US as America's largest foreign creditor.
China's oil investments in Angola
and Nigeria were another target. To counter China's economic penetration of
Africa, the US created the American African Command in the closing years of the
first decade of the 21st century. Disturbed by China's rise, the US undertook to
prevent China from having independent sources of energy. The great game that in
the past has always led to war is being played out once
September 11, 2001, provided
Washington with a new "threat" to replace the Soviet threat, which had expired
in 1991. Despite the absence of the Soviet threat, the military/security budget
had been kept alive for a decade. September 11, 2001, injected rapid growth into
the military/security budget. A decade later the budget stood at approximately
$1.1 trillion annually, or approximately 70 percent of the federal deficit which
was crippling the dollar and threatening the US Treasury's credit
Focused on Middle Eastern wars,
Washington was losing the war for the US economy.
As the expectation of economic recovery evaporated
over the course of 2011, the need for war became more imperative.
, "Sen. Graham 'Very Close' to