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FATTENING WALL STREET — Mike Whitney reports on the rapid metamorphosis of new Fed Chair Janet Yallin into a lackey for the bankers, bond traders and brokers. The New Religious Wars Over the Environment: Joyce Nelson charts the looming confrontation between the Catholic Church and fundamentalists over climate change, extinction and GMOs; A People’s History of Mexican Constitutions: Andrew Smolski on the 200 year-long struggle of Mexico’s peasants, indigenous people and workers to secure legal rights and liberties; Spying on Black Writers: Ron Jacobs uncovers the FBI’s 50 year-long obsession with black poets, novelists and essayists; O Elephant! JoAnn Wypijewski on the grim history of circus elephants; PLUS: Jeffrey St. Clair on birds and climate change; Chris Floyd on the US as nuclear bully; Seth Sandronsky on Van Jones’s blind spot; Lee Ballinger on musicians and the State Department; and Kim Nicolini on the films of JC Chandor.
The Chop Shop Economy Other People's Money

Other People’s Money

by ALAN FARAGO

The air is escaping from the little multi-hundred billion dollar balloon Bush administration floated to resolve sunken credit markets. Meanwhile, news on the economy, in the past week especially, has been massaged within an inch of its news cycle life. We’re not getting the whole story, by half.

Lifting the housing industry from its sharpest contraction seems to be the primary political focus of both Democrats and Republicans. The news media appears to be having difficulty parsing the differences.

Let’s start with a simple explanation. The first step of the free-market acolytes within the Bush administration involves nationalization.

That is what Federal Reserve chief Ben Bernanke did, authorizing the use of derivative debt tied to mortgages as collateral for loans to banks. US Treasury Secretary Paulson has said, the unprecedented step is "temporary", an "emergency response" to avert a financial meltdown, but journalists need to measure the two hundred billion against the ocean of toxic derivatives whose owners now have reason to come calling for charity. It is on the order of trillions.

Taken as a whole, the US financial system was turned into a chop shop where stolen property is taken to be dismantled and sold off piecemeal. That Republicans, the party of fiscal conservatism and limited government, presided over the unravelling of fiscal common sense is astounding.

Today, the Bush administration is engaged in a highly risky gamble through monetary policy: that the consumer can withstand more inflation so long as housing markets are jump started in the process.

A more cynical view is that allowing inflation to rise while home values decline will establish some sort of lower order, miserable equilibrium that will allow Republicans to hold onto political power. In response, we get more fictions– like the weak American dollar will lift exports and the fortunres of the economy.

Paul Craig Roberts wrote recently, "According to the latest US statistics as reported in the February 28 issue of Manufacturing and Technology News, in 2007 imports were 14 percent of US GDP and US manufacturing comprised 12% of US GDP. A country whose imports exceed its industrial production cannot close its trade deficit by exporting more."

Here is the point: even if we could export more, the sad truth is that after 20 years of globalization the manufacturing supply chain in the United States has rusted out. Except for airplanes and guns, every basic, wage-intensive industry that links raw commodities to end products has been shipped to low cost labor nations, either in whole or part.

The US economy spent the past decade balancing on one leg: housing. For a time, foreign investors in US debt were fine with arrangements that allowed them to charitably view this performance.

Roberts observes: "Noam Chomsky recently wrote that America thinks that it owns the world. That is definitely the view of the neoconized Bush administration. But the fact of the matter is that the US owes the world. The US "superpower" cannot even finance its own domestic operations, much less its gratuitous wars except via the kindness of foreigners to lend it money that cannot be repaid."

Using other people’s money only works when other people have confidence that you can deliver predictable repayment of your debts. There is nothing predictable about what is happening in the US economy, as skeins of markets unravel. Unprecedented, is the better word.

ALAN FARAGO of Coral Gables, who writes about the environment and the politics of South Florida, can be reached at alanfarago@yahoo.com.