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Our Collapsing Economy

According to the Bureau of Labor Statistics, nonfarm payroll employment declined by 3,445,000 from December 2007 through December 2008.

The collapse in employment is across the board.

Construction lost 520,000 jobs.  Manufacturing lost 806,000 jobs. Trade, transportation and utilities lost 1,495,000 jobs (retail trade accounted for 1,120,000 of this loss).  Financial activities lost 145,000 jobs.  Professional and business services lost 713,000 jobs.  Even government lost 188,000 jobs.

Only in health care and social assistance has the economy been able to eke out a few new jobs.

Many analysts believe the job losses will be as great or greater during 2009.

Moreover, the reported job losses are likely understated.  Noted statistician John Williams (shadowstats.com) reports that biases in measurement have understated the job loss over the last 12 months by 1,150,000 jobs.  Williams reports the unemployment rate as it was measured prior to “reforms” designed to minimize the measured rate of unemployment.  According to the methodology used in 1980, the US unemployment rate in December 2008 reached 17.5 percent.

Yes, “our” government lies to us about economic statistics, just as it lies to us about “terrorists,” “weapons of mass destruction,” “building freedom and democracy in the Middle East,” and the Israeli-Palestinian conflict.

An objective person would be hard pressed to find any statement made by the US government that is reliable.

The collapse of the job market means even harder times for last year’s and this year’s crops of college graduates.  The offshoring of professional jobs and the widespread use by US corporations of H-1b, L-1, and other work visa programs for foreigners have left many recent American university graduates without careers.

Recently, Bill Gates of Microsoft was pleading with Congress to allow even more foreigners in on work visas. According to Gates, there is a shortage of American workers despite a 17.5 percent unemployment rate.  I personally know American computer engineers, both seasoned and recent graduates, who cannot find jobs.

What Gates and American corporations want is cheap labor, in effect indentured servants, unprotected people who don’t demand an American standard of living and who have no student loans to repay.

If Congress expands the work visas as US unemployment mounts, we will have one more piece of evidence that “our” representatives have no sympathy for the American people.

Where were America’s leaders while the economy slipped over the precipice?

Our leaders were telling us lies in behalf of special interests into whose pockets Washington was pouring the taxpayers’ money.  Our leaders engineered wars that put billions of dollars into such disreputable pockets as Halliburton’s, the firm of the American outlaw, Dick Cheney, and into Blackwater, supplier of the overpaid mercenaries that the Bush Regime uses to beef up its military force in Iraq.  Some of the taxpayers’ billions, of course, recycled into “our” representatives reelection campaign funds.

Our leaders were too busy making trips to Israel to reaffirm their support for Israel’s ongoing theft of Palestine and for wars that enable this theft.

Our leaders were too busy serving financial interests by dismantling regulatory barriers to over-leveraged greed.  The extraordinary level of leveraged debt and the fraudulent financial instruments resulted in annual compensation for hedge fund managers and investment bankers larger than a king’s ransom.

When the leveraged mortgages went bust, the banksters declared a “crisis” and Congress responded by ripping off the American taxpayers for another trillion dollars.

More is to come.  Credit card debt, car loans, and commercial real estate mortgages have been securitized, too.  There is little doubt there are derivatives based on this enormous pile of debt.  As each “crisis” unfolds, it will mean more bailout rewards for the crooks who deep-sixed the US economy.

It is not implausible that by the end of this year the unemployment rate, honestly measured, will be as high as during the Great Depression.

Few in Washington think there is any cause for alarm.  Obama is calling the situation “serious” not because he believes it is but in order to get another trillion dollar “stimulus” package on the taxpayers’ books.  Stimulus will do the trick, economists say, and, moreover, the Federal Reserve has already extended $2 trillion in loans, but won’t say to whom the money has been lent.

This massive expansion of new debt, economists think, is going to fix the economy and put people back to work.  They think the solution to excessive debt is more debt.

The federal government budget deficit for the 2009 fiscal year will be $2 trillion at a minimum.  That is five times larger than the 2008 budget deficit.

How can the Treasury finance such a huge deficit?

There are three sources of financing.  Possibly people will flee from stocks, bank deposits, and money market funds into Treasury “securities.”  This would require a form of “money illusion” on the part of people.  People would have to believe that investments can be printed, and that printing so many new Treasury bonds would not dilute the value of existing bonds or reduce their chance of redemption.  They would have to believe that the bonds would be repaid with honest money, not by running the printing presses.

A second source of financing might be America’s foreign creditors.  So far in our descent into massive debt foreigners have footed the bill.  Our foreign creditors now hold very large amounts of US debt and other dollar-denominated “securities.”  They are likely to develop a case of cold feet when they see a $2 trillion expansion in US debt in one year.  Their most likely response will be to start selling their existing holdings.

Who would purchase them?  The only way the Treasury can redeem the bonds that come due each year is by selling new bonds.  Not only must the Treasury find purchasers for $2 trillion in new debt this year but also must find buyers for the bonds that must be sold in order to redeem old bonds that come due.

If foreigners cease buying and instead start selling from their existing holdings–China alone holds $500 billion in Treasury debt–a deluge will fall on an already flooded market.

The third source of financing is for the Federal Reserve to monetize the debt.  In other words, the Treasury prints bonds and the Fed purchases them by printing money.  The supply of money thus expands dramatically in relation to goods and services, and high inflation, possibly hyperinflation, would engulf America.

At that point the US dollar, if still on its feet, collapses.  The import-dependent American population, dependent on imports for their mobility, their clothes, shoes, manufactured goods, and advanced technology products, no longer will be able to afford these imports.

A scary scenario?  Yes.  Overdrawn?  Perhaps, but perhaps not. The United States has spent the last 7 years in pointless wars that benefited only the military-security complex and Israel’s aggression against Palestinians and Lebanon.  According to prominent experts, the out-of-pocket cost and already incurred future liabilities of Bush’s wars comes to $3 trillion.

The cost of the Bush Regime’s wars, together with the 2009 budget deficit that Bush has bequeathed to Obama, equals half of the accumulated national debt of the United States.

Several years ago United States Comptroller General David Walker informed Congress and the White House that the accrued liabilities of the US government exceeded the ability to pay. Yet, “our” leaders ignored the Comptroller General and rushed headlong to add more trillions of dollars to federal liabilities.  In effect, the United States is bankrupt at this present moment.  According to generally accepted accounting principles, the federal government has a negative net worth of $59.3 trillion.

Who is going to lend to a bankrupt government that is ruled by financial crooks, the military-security complex, and the Israel Lobby?  How long will the world finance US aggression that disrupts energy prices, keeps the world on edge, and makes America’s creditors complicit in war crimes?

PAUL CRAIG ROBERTS was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.He can be reached at: PaulCraigRoberts@yahoo.com

 

 

 

 

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Paul Craig Roberts is a former Assistant Secretary of the US Treasury and Associate Editor of the Wall Street Journal. Roberts’ How the Economy Was Lost is now available from CounterPunch in electronic format. His latest book is The Neoconservative Threat to World Order.

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