There is no economy left to recover. The US manufacturing
economy was lost to offshoring and free trade ideology. It was replaced by a
mythical �New Economy.�
The �New Economy� was based on services. Its artificial life
was fed by the Federal Reserve�s artificially low interest rates, which
produced a real estate bubble, and by �free market� financial deregulation,
which unleashed financial gangsters to new heights of debt leverage and
fraudulent financial products.
The real economy was traded away for a make-believe economy.
When the make-believe economy collapsed, Americans� wealth in their real
estate, pensions, and savings collapsed dramatically while their jobs
The debt economy caused Americans to leverage their assets.
They refinanced their homes and spent the equity. They maxed out numerous
credit cards. They worked as many jobs as they could find. Debt expansion and
multiple family incomes kept the economy going.
And now suddenly Americans can�t borrow in order to spend.
They are over their heads in debt. Jobs are disappearing. America�s consumer
economy, approximately 70 percent of GDP, is dead. Those Americans who still
have jobs are saving against the prospect of job loss. Millions are homeless.
Some have moved in with family and friends; others are living in tent cities.
Meanwhile the US government�s budget deficit has jumped from
$455 billion in 2008 to $2,000 billion this year, with another $2,000 billion
on the books for 2010. And President Obama has intensified America�s expensive
war of aggression in Afghanistan and initiated a new war in Pakistan.
There is no way for these deficits to be financed except by
printing money or by further collapse in stock markets that would drive people
out of equity into bonds.
The US government�s budget is 50 percent in the red. That
means half of every dollar the federal government spends must be borrowed or
printed. Because of the worldwide debacle caused by Wall Street�s financial
gangsterism, the world needs its own money and hasn�t $2 trillion annually to
lend to Washington.
As dollars are printed, the growing supply adds to the
pressure on the dollar�s role as reserve currency. Already America�s largest
creditor, China, is admonishing Washington to protect China�s investment in US
debt and is lobbying for a new reserve currency to replace the dollar before it
collapses. According to various reports, China is spending down its holdings of
US dollars by acquiring gold and stocks of raw materials and energy.
The price of one-ounce gold coins is $1,000 despite efforts
of the US government to hold down the gold price. How high will this price jump
when the rest of the world decides that the bankruptcy of �the world�s only
superpower� is at hand?
And what will happen to America�s ability to import not only
oil, but also the manufactured goods on which it is import-dependent?
When the oversupplied US dollar loses the reserve currency
role, the US will no longer be able to pay for its massive imports of real
goods and services with pieces of paper. Overnight, shortages will appear and
Americans will be poorer.
Nothing in Presidents Bush and Obama�s economic policy
addresses the real issues. Instead, Goldman Sachs was bailed out, more than
once. As Eliot Spitzer said, the banks made a �bloody fortune� with US aid.
It was not the millions of now homeless homeowners who were
bailed out. It was not the scant remains of American manufacturing -- General
Motors and Chrysler -- that were bailed out. It was the Wall Street banks.
According to Bloomberg.com, Goldman Sachs� current record
earnings from their free or low cost capital supplied by broke American
taxpayers has led the firm to decide to boost compensation and benefits by 33
percent. On an annual basis, this comes to compensation of $773,000 per
This should tell even the most dimwitted patriot who �their�
The worst of the economic crisis has not yet hit. I don�t
mean the rest of the real estate crisis that is waiting in the wings. Home
prices will fall further when the foreclosed properties currently held off the
market are dumped. Store and office closings are adversely impacting the
ability of owners of shopping malls and office buildings to make their mortgage
payments. Commercial real estate loans were also securitized and turned into
The real crisis awaits us. It is the crisis of high
unemployment, of stagnant and declining real wages confronted with rising
prices from the printing of money to pay the government�s bills and from the
dollar�s loss of exchange value. Suddenly, Wal-Mart prices will look like
Nieman Marcus prices.
Retirees dependent on state pension systems, which cannot
print money, might not be paid, or might be paid with IOUs. They will not even
have depreciating money with which to try to pay their bills. Desperate tax
authorities will squeeze the remaining life out of the middle class.
Nothing in Obama�s economic policy is directed at saving the
US dollar as reserve currency or the livelihoods of the American people.
Obama�s policy, like Bush�s before him, is keyed to the enrichment of Goldman
Sachs and the armament industries.
Matt Taibbi describes Goldman Sachs as �a great vampire
squid wrapped around the face of humanity, relentless jamming its blood funnel
into anything that smells like money.� Look at the Goldman Sachs
representatives in the Clinton, Bush and Obama administrations. This bankster
firm controls the economic policy of the United States.
Little wonder that Goldman Sachs has record earnings while
the rest of us grow poorer by the day.
Craig Roberts [email
him] was Assistant Secretary of the Treasury during President
Reagan�s first term. He was Associate Editor of the Wall Street Journal. He has
held numerous academic appointments, including the William E. Simon Chair,
Center for Strategic and International Studies, Georgetown University,
and Senior Research Fellow, Hoover Institution, Stanford University. He was
awarded the Legion of Honor by French President Francois Mitterrand. He is the
author of Supply-Side
Revolution : An Insider�s Account of Policymaking in Washington; Alienation
and the Soviet Economy and Meltdown:
Inside the Soviet Economy, and is the co-author with Lawrence M.
Stratton of The
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the
Constitution in the Name of Justice. Click here for
Peter Brimelow�s Forbes Magazine interview with Roberts about the recent
epidemic of prosecutorial misconduct.