The U.S. Economy is being Marched to the Gallows

"Well in our country," said Alice, still panting a little, "you'd generally got to somewhere else - if you ran very fast for a long time, as we've been doing." "A slow sort of country!" said the Queen. "Now, here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!" "If I wasn't real," Alice said - half laughing through her tears, it all seemed too ridiculous - "I shouldn't be able to cry." "I hope you don't suppose those are real tears?" Tweedledum interrupted in a tone of great contempt. - Alice Through the Looking Glass

Picture, if you will, sometime back in history a gathering of middle-aged men almost whispering to each other in solemn tones: "First we shell shock them. Then we shell shock them again. And again . . . and again . . . and again . . . ." "By the time we've plucked them clean, and are well packed for more golden shores, we'll bring out the dancing clown as our final coup de grace to keep them guessing (and make them feel a little bit sorry for his plight) as we board our quickly departing planes, and if history's any guide at all, they'll be tenderly waving goodbye, hoping to see us again real soon." Well, maybe not that soon. Even John Boehner, as he continues to grind out the Rethuglican chant of "We did it, and we're not even gonna make an attempt to help you clean it up!" sounds like he's getting a little bit tired of defending the last eight years with the standard sorry political verbiage. It was a shrill and very effective gambit - and one that looked for a while like a sure long-term winner. "Smoke and mirrors" - a phrase that always comes to mind when speaking in polite political circles of the last eight years - usually signifies a condition that directs the audience's attention in one direction while pulling off a fast number on them in the other. Sad to say, this hardly needed to be very sophisticated with this crowd, who had been terrorized in a few minutes into losing their grasp of reality for over eight years; the most revealing part being that they never even complained much as their savings disappeared during the warmaking, and the underpinnings to their society were gradually shown to be a fantasy of political salesmanship. We watch the coverage of those clever guys slowly walking away, smiling faintly at the bumfuzzled audience with their money and secure retirement firmly ensconced in their back pockets, as the easily bamboozled let them glide away, and some even applaud politely. And almost simultaneously (once again) a "major" news story (plane mysteriously crashes into the Hudson in sub-freezing weather with all passengers gingerly disembarking amazingly enough on camera without serious injuries) erupts ferociously and captures the short attention spans. What is it with colorful plane crashes and the linkage to those "I had other priorities instead of military service during wartime" dissembling "leaders?"

Judging by his actions so far, Obama has done absolutely nothing but continue the transfer of wealth from the American taxpayer to his Wall St. campaign contributors.

In the middle of the celebration, we might pause to consider this warning: The U.S. Economy is being Marched to the Gallows - predictions of hyperinflation, dollar decline and civil unrest. (Emphasis marks were added and some editing was necessary - Ed.)

The upcoming Financial Stimulus package courtesy of the new Economic Dream Team has left numerous economists and analysts quaking in their boots. We are seeing predictions of hyperinflation, the destruction of the dollar, the flight of U.S. creditors, the prospect of widespread civil unrest and a descent into a Greater Depression. Small business owners have stood up and discredited the tax incentives that were meant to convince them to ignore market reality and open the door to new employees. The measures that supposedly address the enormous foreclosure problem seem to change from day to day and only work to the advantage of the banks. Obama and Bush have just signed off on an additional $20 billion in cash and $118 billion in asset guarantees for Bank of America which already received $25 billion last year and is now choking on Merrill Lynch's losses. The President-Elect and his new Stimulus Czars are not paying attention and are proceeding to continue the same destructive formula adopted by Paulson. The media bombardment is in overdrive to convince the public that herein lies the path to salvation. First we had the guarantee that three million jobs would be created out of thin air only to be bumped up to four million. These are nice round media-friendly numbers which have no basis in reality. With each passing day the sands are shifting on exactly how the money will be spent. Ben Bernanke's speech at the London School of Economics on January 13, confirmed that the emphasis has now shifted to bailing out the banks one more time by buying more toxic assets to clean up their collapsing balance sheets. After seeing $8.2 trillion vanish to Insurance, Banking and a moribund auto industry with absolutely no concrete result except for the tightening of credit, the increasing losses of Big Banking and the GM chairman having to queue for his airline ticket, the Fed, backed by Obama, continues to beat the dead horse. The scariest aspect of this is the speed at which this 18-wheeler disaster is being driven toward the rabbits in the headlights. We haven't yet seen any senators or reps being threatened with the imposition of martial law, but we have seen Obama threaten to veto his own fellow Democrats if they do not rubber stamp the proposals he has been instructed to deliver. Nobody has even taken a vote yet and already the gloves are off. Bailout Bill One and the Patriot Act were pushed just as hard. The only legislation that gets the hard sell seems to involve either stealing the taxpayer's money or their rights. There has been absolutely zero positive impact on the real economy as the increasingly horrific indicators continue to mount and the prospect of an unprecedented Depression continues to rise over the horizon. Economic reality was left on the back burner and the capital that could have paid for Obama's fantastical "stimulus" plan 5 times over has been wasted on the imploding financial sector, who no doubt will be back for more.

According to the latest figures, the cost of the Bush era: $11.5 trillion (which now must be paid for during the Obama years).

Because the median U.S. household income is about $50,000, readers may have trouble grasping the concept of spending trillions. For context, let's compare two cases of extraordinary spending under Bush. After the Sept. 11 attacks, Washington pledged $22 billion to help rebuild in lower Manhattan. At the time, that sum sounded enormous. It was more than one-fourth of the $80 billion budget that New York state had adopted a month before. Though some called for even more aid, the country at large was satisfied that this response was adequate to cope with calamity on a colossal scale. Oh, how far we've come. In early October of 2008, Congress appropriated $700 billion to rescue Wall Street's financial institutions. Once that was done, the sky was the limit, and the numbers became dizzying. . . . The new administration is already expected to inherit a $1.2 trillion deficit from Bush. The stimulus package would add to that record-breaking number. . . . Where has all the money gone? Here are five areas where Bush has approved massive outlays of taxpayer money. Wall Street bailouts: $6 trillion When the real-estate bubble burst, Wall Street collapsed too. Starting with Bear Stearns in March, investment banks fell like dominoes, done in by overexposure to mortgage-backed securities. We're still sifting through the damage. But we know U.S. taxpayers are among the biggest losers. In hopes of stanching the bleeding, the federal government has spent or put at risk approximately $6 trillion. True, a big part of that number reflects the government's purchase of securities that may actually yield a profit one day. Critics of this enormous commitment will point out that it has yet to produce any solid evidence of a turnaround in the economy's slide, while the Bush administration's apologists argue that, without such a commitment, the news would have been much worse. The best-known aspect of this epic spending spree is the U.S. Treasury's $700 billion Troubled Assets Relief Program, whose remit has included purchasing so-called toxic securities, giving banks cash and helping Detroit automakers avoid bankruptcy. But TARP, as the program is known, is just the tip of the iceberg. The Treasury also gave $300 billion in guarantees for struggling Citigroup, poured $200 billion into Fannie Mae and Freddie Mac when officials seized the mortgage giants to prevent their bankruptcy, and granted an additional $50 billion in temporary guarantees to keep investors from pulling out of money market funds. Again, a guarantee doesn't necessarily mean the Treasury will actually spend the money. But that money is at risk, and that's taxpayer money. The Federal Reserve has also been busy. Central bankers have said they could purchase as much as $1.3 trillion of commercial paper from nonfinancial companies to make sure businesses have the working capital they need in an environment where banks are hesitant to lend. The Fed has committed an additional $1 trillion to a variety of credit facilities designed to encourage banks to loosen up - from outright loans to banks, to purchases of securities backed by consumer credit, to $600 billion to buy securities backed by prime mortgages - a move that knocked standard home loan rates down to 5%. . . . Among other federal rescue measures we have the Federal Deposit Insurance Corp.'s decision to guarantee as much as $1.4 trillion in interbank loans, $300 billion for the Federal Housing Administration to insure mortgages in danger of foreclosure and a $150 billion aid package for insurance giant American International Group. A lot of the guarantees that have been made will never come into play; just making a guarantee usually does the trick, if it's the Federal Reserve speaking. Here is some more good news: Some of the government's crisis-related investments may actually prove profitable. Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities in Washington, believes the government could see a profit of $500 billion from stock dividends and the appreciation of stocks. Just remember, that's peanuts in this game. There are other variables that complicate the picture on a similar scale. The federal government is on the hook for $5 trillion of debt that Fannie Mae and Freddie Mac underwrote. The two companies themselves hold only a third of that debt, Kogan said, so it's unclear what the taxpayer's ultimate liability will be there. Also unclear is how the Wall Street bailout money is being spent. The Treasury has been reluctant to monitor how banks are using TARP funds, and the Fed has refused to name the recipients of its loans, arguing that naming names would undermine the health of the companies in question. "It's a lot of money going out the door, with basically no public knowledge of it whatsoever," said Dean Baker, a co-director of the Center for Economic and Policy Research in Washington. About $600 billion of the Fed's $1.3 trillion plan to buy commercial paper has been spent, Baker said. But the Fed won't say who has received that cash. "People are making and losing fortunes depending on whether the Fed will buy their commercial paper," Baker said. "We should know what they're doing." . . . The searches for Osama bin Laden in Afghanistan and for weapons of mass destruction in Iraq have morphed into occupations. So far, the U.S. has spent around $860 billion on both, according to the Congressional Budget Office. But Harvard University professor Linda Bilmes and Nobel laureate Joseph Stiglitz of Columbia University say the agency is underestimating the tab. In their book, "The Three Trillion Dollar War" they claim Iraq will be far costlier. Modern technology and medicine have kept U.S. deaths in these conflicts low, compared with previous wars, but tens of thousands of wounded soldiers will require taxpayer-supplied health care for years, said Bilmes, who served as an assistant secretary of commerce in the Clinton administration. Factoring in those benefits, replacement of worn-out hardware and other hidden bills, Bilmes and Stiglitz believe the real price for Iraq is $3 trillion. That money hasn't been reinvested in the U.S. economy as mush as possibly expected, partly because of outsourcing by U.S. companies, Bilmes said. One example is construction company KBR, which used shell companies in the Cayman Islands to avoid payroll taxes. "A dollar that is spent on a road is a dollar which has a multiplier," Bilmes said. "You have better roads. Whereas a dollar spent on a Malaysian contractor to do laundry doesn't help the U.S." . . . In 2001 and 2003, Bush signed legislation that cut taxes, much to the benefit of the affluent. The first cut was designed to help the economy after the Internet bubble collapsed. The second was to boost growth after the 2001 recession ended. Kogan estimated the tax cuts have cost the Treasury $1.7 trillion in revenue to date. Of course, that may not be one bit disturbing to the taxpayers who've watched their tax bills go down. The only problem is, the cuts have been critical in opening up the gargantuan budget gap that Obama will face. Because Bush did not reduce spending, Washington has paid about $265 billion in interest on loans to cover the lost revenue. So the $1.7 trillion in tax cuts really cost around $2 trillion. Meanwhile, Bush increased deficit spending, incurring more debt service. Bush's expansion of Medicare drug benefits for the elderly, for example, cost around $130 billion, of which $10 billion was debt service between 2006 and 2008, said Kogan, of the Center on Budget and Policy Priorities. "If some of this spending had been paid for by tax increases, then there wouldn't have been interest costs," he said. "But none of it was. We had tax cuts and spending increases." . . . When Hurricane Katrina hit the Gulf Coast in 2005, New Orleans' levees gave way, and the city was inundated. Stories of survivors trapped in the Superdome and incompetence at the Federal Emergency Management Agency transformed the natural disaster into a national disgrace. Katrina, along with Hurricane Rita soon after, cost about $270 billion, by some estimates. In Louisiana alone, officials said the hurricane destroyed $100 billion in property, shrank the state's economy by $80 billion and required $20 billion in local emergency relief. Those figures don't include damages in other states, including communities that absorbed refugees fleeing the city. They also don't count the continuing costs of rebuilding the Big Easy. FEMA has given $50 billion to Gulf Coast states, a spokesman said. The Army Corps of Engineers is spending $14 billion to upgrade levees, according to the agency's Web site. Meantime, the Louisiana Recovery Authority is spending $10 billion in recovery efforts that include homeowners retrofitting their houses, for example. . . . New York City lost about $95 billion because of the Sept. 11 attacks, according to a 2002 report by City Comptroller William Thompson Jr. That price tag includes costs associated only with New York: $22 billion to replace the World Trade Center, $65 billion in lost economic activity in the three years after the attacks and $9 billion in the human potential that disappeared when the hijackers killed 2,819 people in Manhattan - a calculation that illustrates why economics is called the dismal science. It does not include Washington's $22 billion in aid. Outside New York, the tragedy cost plenty. Kogan estimated that Bush spent about $140 billion on related nonmilitary measures, such as the creation of the Department of Homeland Security. The approximate total of $260 billion does not include the damage wrought and lives lost on 9/11 at the Pentagon or in Pennsylvania, or money spent on preparedness by state and local governments and private industry. It also doesn't include the continuing losses associated with the vacant World Trade Center site, which housed as much office space as downtown Atlanta. In other words, we're still paying for 9/11.

And in other news:

Investors dump $89B in U.S. securities in historic fire sale. The deep river of private money that helped knit together the global economy has abruptly dried up, new government figures show. As the global financial crisis grew more severe this summer, foreigners sold almost $90 billion of U.S. securities — the greatest quarterly fire sale by overseas investors since the government began keeping track in 1960. U.S. investors also are retrenching; they unloaded about $85 billion worth of foreign holdings in the quarter, says the Commerce Department's Bureau of Economic Analysis. "We've had a global panic. Everyone is pulling their money home," says economist Adam Posen of the Peterson Institute in Washington, D.C. That's bad for economic growth in the U.S. because it threatens to starve capital-hungry companies and entrepreneurs. But it's especially serious for emerging-market countries that rely heavily on outside financing. Capital flows into countries such as South Korea, Turkey and Brazil were evaporating even before the mid-September Lehman Bros. bankruptcy made things worse. The reversal of private capital flows signals an abrupt end to a nearly two-decades-long era of financial globalization, says economist Brad Setser of the Council on Foreign Relations. Private flows into and out of the U.S. for purchases of stocks, corporate bonds and federal agency bonds have dropped from around 18% of economic output to near zero "in a remarkably short period of time," Setser says. The past five quarters — roughly since the August 2007 onset of the financial crisis — private foreign investors have been net sellers of U.S. securities. The turnabout represents a dramatic change from the first half of 2007 when foreign purchases of U.S. securities other than Treasuries averaged about $250 billion per quarter. The past two quarters also have seen an about-face in cross-border bank flows as institutional investors found lenders unwilling to extend credit. In the first quarter of 2008, foreigners deposited more than $79 billion with U.S. banks. That flow reversed in the second quarter, as foreigners withdrew a staggering $256 billion, and the outflow continued in the third quarter with an additional $147 billion. Likewise, banks in the U.S. brought home more than $151 billion in the quarter, as overseas institutions repaid loans. "Institutional investors, including banks, across the board are pulling their capital back home," says economist Eswar Prasad of the Brookings Institution. One bright spot: Foreign central banks continue to spend heavily on U.S. government securities, allowing the U.S. to finance the gap between what it produces and consumes.

Suzan ___________________________