Friday, January 23, 2009

Inside(r) Information Highlights Solutions Before the Final "New Pearl Harbor"

I believe that Paul Krugman speaks for those of us on the progressive side of the current economic divide when critiquing President Obama's Inaugural address. (Emphasis marks were added and some editing was necessary - Ed.) Krugman reported that he "ended Tuesday less confident about the direction of economic policy than" he had been when he started out that "morning."

. . . one wishes that the speechwriters had come up with something more inspiring than a call for an “era of responsibility” — which, not to put too fine a point on it, was the same thing former President George W. Bush called for eight years ago. But my real problem with the speech, on matters economic, was its conventionality. In response to an unprecedented economic crisis — or, more accurately, a crisis whose only real precedent is the Great Depression — Mr. Obama did what people in Washington do when they want to sound serious: he spoke, more or less in the abstract, of the need to make hard choices and stand up to special interests. That’s not enough. In fact, it’s not even right. Thus, in his speech Mr. Obama attributed the economic crisis in part to “our collective failure to make hard choices and prepare the nation for a new age” — but I have no idea what he meant. This is, first and foremost, a crisis brought on by a runaway financial industry. And if we failed to rein in that industry, it wasn’t because Americans “collectively” refused to make hard choices; the American public had no idea what was going on, and the people who did know what was going on mostly thought deregulation was a great idea. . . . On the other hand, Mr. Obama is, as his predecessor put it, the decider. And he’s going to have to make some big decisions very soon. In particular, he’s going to have to decide how bold to be in his moves to sustain the financial system, where the outlook has deteriorated so drastically that a surprising number of economists, not all of them especially liberal, now argue that resolving the crisis will require the temporary nationalization of some major banks. So is Mr. Obama ready for that? Or were the platitudes in his Inaugural Address a sign that he’ll wait for the conventional wisdom to catch up with events? If so, his administration will find itself dangerously behind the curve.
Warren Buffett, the Chairman and CEO of Berkshire Hathaway Inc., said on January 18, 2009, on Dateline NBC that the "US is engaged in an economic Pearl Harbor." And as "there was hardly any comment by any of our national . . . or . . . leading financial dailies," one observer was left thinking that although the phrase may be open to interpretation, "Whatever it may be, it cannot be good."
. . . recently, this reference to Pearl Harbor by the Neo-cons gave rise to the Global War of Terror in 2001, which postponed the day of financial reckoning by seven years, when President George Bush pumped over US$3 trillion into the war economy. Recall what the Neo-con think tank, Project for the New American Century foretold: “the process of transforming the US into tomorrow’s dominant force was likely to be a long one, in the absence of some catastrophic and catalyzing event like a new Pearl Harbor.” September 11 was the catalyzing event, the New Pearl Harbor which enabled the Neo-cons to put into action their plan for global domination. And like the events leading to the original Pearl Harbor, President Bush and his regime were warned by 11 countries and were supplied with specific intelligence in the months before 9/11 but no actions were taken. It was another day of infamy and the United States was led once again by the nose to embark on a military misadventure in Afghanistan and Iraq. The Global War on Terror was unleashed! This is the third time that a catastrophic event is invoked to justify a certain course of action. Why? That it is Warren Buffett who is making this reference is most telling, for he is the hidden economic and financial adviser to President Obama. Warren Buffett has in fact said that Obama is the best man for the job! Warren Buffett is not the affable businessman that the mass media make him out to be. He is an insider in every sense of the word. I have said repeatedly for over two years that there is an ongoing global currency warfare and what is at stake is the hegemony of the US dollar. Warren Buffet knows that if the dollar ends up officially as toilet paper, his fortune and that of his global partnership – the hidden manipulators - would be finished. This message that the US is in an economic Pearl Harbor is meant for the enemy, as yet to be disclosed to the American public. It is a warning no less. President Obama has echoed the sentiments in the course of his inauguration speech.
Paul Craig Roberts elucidates our current dilemma and urges us to pay close attention to who is doing what to whom and why (I should mention that I've agreed with this logic from the beginning of the sham bailout).
The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces. The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse. The unexamined question is: Who is going to finance the next wave of debt? The US budget deficit for fiscal year 2009 already appears to be on a path to $2 trillion, and that is before Obama’s stimulus program. What we are looking at is a $3 trillion budget deficit if Obama’s program is enacted in time to impact the economy this year. Foreign countries can finance a $500 billion US budget deficit out of their trade surpluses with the US. But foreigners do not have the funds to finance a US budget deficit in the trillions of dollars, and they would not finance such a deficit even if they had the funds. Foreigners are over-weighted in dollar holdings and prefer to lighten their holding than to add to them. America’s economic prospects are dim as are the dollar’s prospects as reserve currency. An annual budget deficit in the trillions of dollars makes the dollar’s prospects appear even dimmer. The federal government’s likely solution to the debt problem will be to monetize the debt, that is, the government will finance its deficit by printing money. Debt will be inflated away. But for those Americans without jobs or whose incomes do not rise with inflation, life will be cruel. Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. Interest rates are so low that debt instruments produce no income, and there are scant capital gains in the stock market. Retirees are living by consuming their capital. A compassionate government would handle the crisis in this way: The trillions of dollars in credit default swaps (CDS) should be declared null and void. These “swaps” are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers. The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices. The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout. Interest rates have to be raised in order to encourage saving and to provide incomes to retirees. To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony. The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates. This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls. This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.
Finally, someone has addressed the most serious issue of our time. What say you, President Obama? Suzan ________________________

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