The economy is a lie, too
By Paul Craig Roberts
Online Journal Contributing Writer
Sep 23, 2009, 00:16
cannot get any truth out of their government about anything, the economy
included. Americans are being driven into the ground economically, with one million school children now
Federal Reserve Chairman Ben Bernanke announces that the recession is over.
that masquerades as news is becoming more delusional. Consumer spending is 70
percent of the US economy. It is the driving force, and it has been shut down.
Except for the super rich, there has been no growth in consumer incomes in the
21st century. Statistician John Williams of shadowstats.com reports that real household income has never recovered its pre-2001
economy has been kept going by substituting growth in consumer debt for growth
in consumer income. Federal Reserve Chairman Alan Greenspan encouraged consumer
debt with low interest rates. The low interest rates pushed up home prices,
enabling Americans to refinance their homes and spend the equity. Credit cards
were maxed out in expectations of rising real estate and equity values to pay
the accumulated debt. The binge was halted when the real estate and equity
consumers no longer can expand their indebtedness and their incomes are not
rising, there is no basis for a growing consumer economy. Indeed, statistics
indicate that consumers are paying down debt in their efforts to survive
financially. In an economy in which the consumer is the driving force, that is
now investment banks thanks to greed-driven deregulation that repealed the
learned lessons of the past, were even more reckless than consumers and took
speculative leverage to new heights. At the urging of Larry Summers and Goldman Sachs� CEO Henry Paulson, the Securities and Exchange Commission and the Bush
administration went along with removing restrictions on debt leverage.
bubble burst, the extraordinary leverage threatened the financial system with
collapse. The US Treasury and the Federal Reserve stepped forward with no one
knows how many trillions of dollars to �save
the financial system,� which, of course, meant to save the
greed-driven financial institutions that had caused the economic crisis that divested
ordinary Americans of half of their life savings.
consumer has been chastened, but not the banks. Refreshed with the TARP $700
billion and the Federal Reserve�s expanded balance sheet, banks are again
behaving like hedge funds. Leveraged speculation is producing another bubble
with the current stock market rally, which is not a sign of economic recovery
but is the final savaging of Americans� wealth by a few investment banks and
their Washington friends. Goldman Sachs, rolling in profits, announced six
figure bonuses to employees.
The rest of
America is suffering terribly.
unemployment rate, as reported, is a fiction and has been since the Clinton
administration. The unemployment rate does not include jobless Americans who
have been unemployed for more than a year and have given up on finding work.
The reported 10 percent unemployment rate is understated by the millions of
Americans who are suffering long-term unemployment and are no longer counted as
unemployed. As each month passes, unemployed Americans drop off the
unemployment roll due to nothing except the passing of time.
inflation rate, especially �core
inflation,� is another fiction. �Core
inflation� does not include food and energy, two of Americans� biggest
budget items. The Consumer Price Index (CPI) assumes, ever since the Boskin Commission during the Clinton administration, that if prices of items go up
consumers substitute cheaper items. This is certainly the case, but this way of
measuring inflation means that the CPI is no longer comparable to past years,
because the basket of goods in the index is variable.
Commission�s CPI, by lowering the measured rate of inflation, raises the real
GDP growth rate. The result of the statistical manipulation is an understated
inflation rate, thus eroding the real value of Social Security income, and an
overstated growth rate. Statistical manipulation cloaks a declining standard of
days of American prosperity, American incomes rose with productivity. It was
the real growth in American incomes that propelled the US economy.
America, the only incomes that rise are in the financial sector that risks the
country�s future on excessive leverage and in the corporate world that
substitutes foreign for American labor. Under the compensation rules and
emphasis on shareholder earnings that hold sway in the US today, corporate
executives maximize earnings and their compensation by minimizing the
employment of Americans.
Try to find
some acknowledgement of this in the �mainstream
media,� or among economists, who suck up to the offshoring corporations for grants.
part of the decline is yet to come. Bank failures and home foreclosures are yet
to peak. The commercial real estate bust is yet to hit. The dollar crisis is
hits, interest rates will rise dramatically as the US struggles to finance its
massive budget and trade deficits while the rest of the world tries to escape a
spring of this year, the value of the US dollar has collapsed against every
currency except those pegged to it. The Swiss franc has risen 14 percent
against the dollar. Every hard currency from the Canadian dollar to the Euro
and UK pound has risen at least 13 percent against the US dollar since April
2009. The Japanese yen is not far behind, and the Brazilian real has risen 25
percent against the almighty US dollar. Even the Russian ruble has risen 13 percent
against the US dollar.
of recovery is it when the safest investment is to bet against the US dollar?
American household of my day, in which the husband worked and the wife provided
household services and raised the children, scarcely exists today. Most, if not
all, members of a household have to work in order to pay the bills. However,
the jobs are disappearing, even the part-time ones.
according to the methodology used when I was assistant secretary of the
Treasury, the unemployment rate today in the US is above 20 percent. Moreover,
there is no obvious way of reducing it. There are no factories, with work
forces temporarily laid off by high interest rates, waiting for a lower
interest rate policy to call their workforces back into production.
has been moved abroad. In the bygone days of American prosperity, CEOs were
inculcated with the view that they had equal responsibilities to customers,
employees, and shareholders. This view has been exterminated. Pushed by Wall
Street and the threat of takeovers promising �enhanced shareholder value,� and incentivized by �performance pay,� CEOs use every
means to substitute cheaper foreign employees for Americans [How Well-Educated, Hard-Working
Americans are Treated in America, By Rennie Sawade, WashTech News,
September 14, 2009 ]. Despite 20 percent unemployment and cum laude engineering graduates who cannot
find jobs or even job interviews, Congress continues to support 65,000 annual H-1B work visas for
midst of the highest unemployment since the Great Depression what kind of a
fool do you need to be to think that there is a shortage of qualified US
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.
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