The ecstasy of
The United States is
running out of time to get its budget and trade deficits under control. Despite
the urgency of the situation, 2010 has been wasted in hype about a non-existent
recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned
a New York Times Column, "Welcome to the Recovery."
As John Williams has made clear on
many occasions, an appearance of recovery was created by over-counting
employment and under-counting inflation. Warnings by Williams, Gerald Celente,
and myself have gone unheeded, but our warnings recently had echos from Boston
University professor Laurence Kotlikoff and from David Stockman, who excoriated
the Republican Party for becoming big spending Democrats.
It is encouraging to see a
bit of realization that, this time, Washington cannot spend the economy out of
recession. The deficits are already too large for the dollar to survive as
reserve currency, and deficit spending cannot put Americans back to work in jobs
that have been moved offshore.
However, the solutions
offered by those who are beginning to recognize that there is a problem are
discouraging. Kotlikoff thinks the solution is massive Social Security and
Medicare cuts or massive tax increases or hyperinflation to destroy the massive
Perhaps economists lack
imagination, or perhaps they don't want to be cut off from Wall Street and
corporate subsidies, but Social Security and Medicare are insufficient at their
present levels, especially considering the erosion of private pensions by the
dot com, derivative and real estate bubbles. Cuts in Social Security and
Medicare, for which people have paid 15% of their earnings all their life, would
result in starvation and deaths from curable diseases.
Tax increases make even
less sense. It is widely acknowledged that the majority of households cannot
survive on one job. Both husband and wife work and often one of the partners has
two jobs in order to make ends meet. Raising taxes makes it harder to make ends
meet -- thus more foreclosures, more food stamps, more homelessness. What kind of
economist or humane person thinks this is a solution?
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Ah, but we will tax the
rich. The usual idiocy. The rich have enough money. They will simply stop
Let's get real. Here is
what the government is likely to do. Once the Washington idiots realize that
the dollar is at risk and that they can no longer finance their wars by
borrowing abroad, the government will either levy a tax on private pensions on
the grounds that the pensions have accumulated tax-deferred, or the government
will require pension fund managers to purchase Treasury debt with our pensions.
This will buy the government a bit more time while pension accounts are loaded
up with worthless paper.
The last Bush budget
deficit (2008) was in the $400-500 billion range, about the size of the Chinese,
Japanese, and OPEC trade surpluses with the US. Traditionally, these trade
surpluses have been recycled to the US and finance the federal budget deficit.
In 2009 and 2010, the federal deficit jumped to $1,400 billion, a back-to-back
trillion-dollar increase. There are not sufficient trade surpluses to finance a
deficit this large. From where comes the money?
The answer is from
individuals fleeing the stock market into "safe" Treasury bonds and from the
bankster bailout, not so much the TARP money as the Federal Reserve's exchange
of bank reserves for questionable financial paper such as sub-prime derivatives.
The banks used their excess reserves to purchase Treasury
These financing maneuvers
are one-time tricks. Once people have fled stocks, that movement into Treasuries
is over. The opposition to the bankster bailout likely precludes another. So
where does the money come from the next time?
The Treasury was able to
unload a lot of debt thanks to "the Greek crisis," which the New York banksters
and hedge funds multiplied into "the euro crisis." The financial press served as
a financing arm for the US Treasury by creating panic about European debt and
the euro. Central banks and individuals who had taken refuge from the dollar in
euros were panicked out of their euros, and they rushed into dollars by
purchasing US Treasury debt.
This movement from euros
to dollars weakened the alternative reserve currency to the dollar, halted the
dollar's decline, and financed the massive US budget deficit a while
Possibly the game can be
replayed with Spanish debt, Irish debt, and whatever unlucky country swept in by
the thoughtless expansion of the European Union.
But when no countries
remain that can be destabilized by Wall Street investment banksters and hedge
funds, what then finances the US budget deficit?
The only remaining
financier is the Federal Reserve. When Treasury bonds brought to auction do not
sell, the Federal Reserve must purchase them. The Federal Reserve purchases the
bonds by creating new demand deposits, or checking accounts, for the Treasury.
As the Treasury spends the proceeds of the new debt sales, the US money supply
expands by the amount of the Federal Reserve's purchase of Treasury
Do goods and services
expand by the same amount? Imports will increase as US jobs have been offshored
and given to foreigners, thus worsening the trade deficit. When the Federal
Reserve purchases the Treasury's new debt issues, the money supply will increase
by more than the supply of domestically produced goods and services. Prices are
likely to rise.
How high will they rise?
The longer money is created in order that government can pay its bills, the more
likely hyperinflation will be the result.
The economy has not
recovered. By the end of this year it will be obvious that the collapsing
economy means a larger than $1.4 trillion budget deficit to finance. Will it be
$2 trillion? Higher?
Whatever the size, the
rest of the world will see that the dollar is being printed in such quantities
that it cannot serve as reserve currency. At that point wholesale dumping of
dollars will result as foreign central banks try to unload a worthless
The collapse of the dollar
will drive up the prices of imports and offshored goods on which Americans are
dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman
Domestic prices will also
explode as a growing money supply chases the supply of goods and services still
made in America by Americans.
The dollar as reserve
currency cannot survive the conflagration. When the dollar goes the US cannot
finance its trade deficit. Therefore, imports will fall sharply, thus adding to
domestic inflation and, as the US is energy import-dependent, there will be
transportation disruptions that will disrupt work and grocery store
Panic will be the order of
Will farms will be raided?
Will those trapped in cities resort to riots and looting?
Is this the likely future
that "our" government and "our patriotic" corporations have created for
To borrow from Lenin,
"What can be done?"
Here is what can be done.
The wars, which benefit no one but the military-security complex and Israel's
territorial expansion, can be immediately ended. This would reduce the US budget
deficit by hundreds of billions of dollars per year. More hundreds of billions
of dollars could be saved by cutting the rest of the military budget, which in
its present size, exceeds the budgets of all the serious military powers on
US military spending
reflects the unaffordable and unattainable crazed neoconservative goal of US
Empire and world hegemony. What fool in Washington thinks that China is going to
finance US hegemony over China?
The only way that the US
will again have an economy is by bringing back the off-shored jobs. The loss of
these jobs impoverished Americans while producing over-sized gains for Wall
Street, shareholders, and corporate executives. These jobs can be brought home
where they belong by taxing corporations according to where value is added to
their product. If value is added to their goods and services in China,
corporations would have a high tax rate. If value is added to their goods and
services in the US, corporations would have a low tax rate.
This change in corporate
taxation would offset the cheap foreign labor that has sucked jobs out of
America, and it would rebuild the ladders of upward mobility that made America
an opportunity society.
If the wars are not
immediately stopped and the jobs brought back to America, the US is relegated to
the trash bin of history.
corporations and Wall Street would use their financial power and campaign
contributions to block any legislation that would reduce short-term earnings and
bonuses by bringing jobs back to Americans. Americans have no greater enemies
than Wall Street and the corporations and their prostitutes in Congress and the
The neocons allied with
Israel, who control both parties and much of the media, are strung out on the
ecstasy of Empire.
The United States and the
welfare of its 300 million people cannot be restored unless the neocons, Wall
Street, the corporations, and their servile slaves in Congress and the White
House can be defeated.
Without a revolution,
Americans are history.