Tuesday, November 18, 2008

The Crisis Has Hardly Begun

"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."

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."
Paul Craig Roberts, former Assistant Secretary of the Treasury in the Reagan administration, once known as the "Father of Reaganomics," currently a well-versed critiquer of the 9/11 Commission Report, and known Cheney/Bush Impeachment backer has been racing through the streets on his high horse for the past several years trying to alert the citizenry of this "No-Think Nation" that the Neo-Con banshees are coming! Now that they are here, he's "on the money" as to why and what should be done about it. I'm particularly glad that he's addressing (so to speak) the issue of how the original Reagan financial criminals in the 80's abandoned all pretense of protecting workers when they replaced guaranteed pensions with self-directed 401(k)'s that were ready targets for criminal companies like Enron, Worldcom, etc., to easily loot a few years later. (I wish he had also mentioned that Alan Greenspan spearheaded the original "spurious" movement to "save" Social Security back then by increasing FICA taxes solely on the lower-classes (that's economics-speak for people like you and me who have payroll taxes deducted in each paycheck), thereby relieving them of their savings, thus leading to the extra money in the government accounts (after Clinton's terms) that mesmerized the Baker/Bush team into distributing that pile of gold as necessary and virtuous "tax cuts" for the wealthy - but he's got a soft spot for the Rayguns and will probably save that bombshell for later.) You've also gotta give him props for some questionable analogies about how the deficits during the Reagan/Bush I years (and remember how much fun it was paying those off in the 90's?) don't begin to match what economists Krugman and Reich have proposed for this economic earthquake - like those two occasions arise from comparable events (sheesh! - do they?). Arrrggghhh!!! Oh yes, I almost forgot, some sources are estimating that Paulson's fairies have distributed or promised somewhere in the neighborhood of $4 Trillion dollars already (over twice Roberts' figure). (Emphasis marks are mine - Ed.)
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. . . . 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. . . . 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? . . . 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.
Makes sense to me, but maybe we'd like more of what brought us to this fine mess. After all, if you don't know how to produce anything except deals, why should it occur to you to actually desire for your country to produce anything but? Suzan One last thought on who is currently doing what to whom: (from the Comments to PCR's essay we read the following)
. . . the New York Times had a story on it called: "In Transition, Tangle of Ties to Lobbying" and wrote about the old clan of robbers, who lobbied and now share the profit of their misdeeds. And John O. Brennan is tapped by president-elect Barack Obama to work on the Central Intelligence Agency transition team... He is at present "president and chief executive of the intelligence contractor Analysis Corporation." - President-elect Barack Obama has imposed stricter conflict-of-interest restrictions on his White House transition team than any president before him. But a list of transition team members that his office made public on Friday includes a complicated tangle of ties to private influence-seekers. Among the full roster of about 150 staff members being assigned to government agencies between now and Inauguration Day are dozens of former lobbyists and some who were registered as recently as this year. Many more are executives and partners at firms that pay lobbyists, and former government officials who work as consultants or advisers to those seeking influence.

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