Paul Craig Roberts / Counter Punch & Mike Whitney / Alternate Press Review – 2006-01-18 23:48:35
http://www.counterpunch.org/roberts01102006.html
Bush’s Con Jobs
Will the US Need an IMF Bail Out?
Paul Craig Roberts / Counter Punch
(January 10, 2006) โ President George W. Bush has destroyed America’s economy along with America’s reputation as a truthful, compassionate, peace-loving nation that values civil liberties and human rights.
Nobel prize-winning economist Joseph Stiglitz and Harvard University budget expert Linda Bilmes have calculated the cost to Americans of Bush’s Iraq war to be between one and two trillion dollars. This figure is 5 to 10 times higher than the $200 billion that Bush’s economic adviser, Larry Lindsey, estimated. Lindsey was fired by Bush, because Lindsey’s estimate was three times higher than the $70 billion figure that the Bush administration used to mislead Congress and the American voters about the burden of the war. You can’t work in the Bush administration unless you are willing to lie for dub-ya.
Americans need to ask themselves if the White House is in competent hands when a $70 billion war becomes a $2 trillion war. Bush sold his war by understating its cost by a factor of 28.57. Any financial officer any where in the world whose project was 2,857 percent over budget would instantly be fired for utter incompetence.
Bush’s war cost almost 30 times more than he said it would because the moronic neoconservatives that he stupidly appointed to policy positions told him the invasion would be a cakewalk. Neocons promised minimal US casualties. Iraq already has cost 2,200 dead Americans and 16,000 seriously wounded โ and Bush’s war is not over yet. The cost of lifetime care and disability payments for the thousands of US troops who have suffered brain and spinal damage was not part of the unrealistic rosy picture that Bush painted.
Dr. Stiglitz’s $2 trillion estimate is OK as far as it goes. But it doesn’t go far enough. My own estimate is a multiple of Stiglitz’s.
Stiglitz correctly includes the cost of lifetime care of the wounded, the economic value of destroyed and lost lives, and the opportunity cost of the resources diverted to war destruction. What he leaves out is the war’s diversion of the nation’s attention away from the ongoing erosion of the US economy. War and the accompanying domestic police state have filled the attention span of Americans and their government. Meanwhile, the US economy has been rapidly deteriorating into third world status.
In 2005 for the first time on record consumer, business, and government spending exceeded the total income of the country. Net national savings actually fell.
America can consume more than it produces only if foreigners supply the difference. China recently announced that it intends to diversify its foreign exchange holdings away from the US dollar. If this is not merely a threat in order to extort even more concessions from Bush, Americans’ ability to consume will be brought up short by a fall in the dollar’s value as China ceases to be a sponge that is absorbing an excessive outpouring of dollars. Oil producing countries might follow China’s lead.
Now that Americans are dependent on imports for their clothing, manufactured goods, and even high technology products, a decline in the dollar’s value will make all these products much more expensive. American living standards, which have been treading water, will sink.
A decline in living standards is an enormous cost and will make existing debt burdens unbearable. Stiglitz did not include this cost in his estimate.
Even more serious is the war’s diversion of attention from the disappearance of middle class jobs for university graduates. The ladders of upward mobility are being rapidly dismantled by offshore production for US markets, job outsourcing and importation of foreign professionals on work visas. In almost every US corporation, US employees are being dismissed and replaced by foreigners who work for lower pay. Even American public school teachers and hospital nurses are being replaced by foreigners imported on work visas.
The American Dream has become a nightmare for college graduates who cannot find meaningful work.
This fact is made abundantly clear from the payroll jobs data over the past five years. December’s numbers, released on January 6, show the same pattern that I have reported each month for years. Under pressure from offshore outsourcing, the US economy only creates low productivity jobs in low-pay domestic services.
Only a paltry number of private sector jobs were created–94,000. Of these 94,000 jobs, 35,800 or 38% are for waitresses and bartenders. Health care and social assistance account for 28% of the new jobs and temporary workers account for 10%. These three categories of low tech, nontradable domestic services account for 76% of the new jobs. This is the jobs pattern of a poor third world economy that consumes more than it produces.
America’s so-called first world superpower economy was only able to create in December a measly 12,000 jobs in goods producing industries, of which 77% are accounted for by wood products and fabricated metal products–the furniture and roofing metal of the housing boom that has now come to an end. US employment declined in machinery, electronic instruments, and motor vehicles and parts.
2,600 jobs were created in computer systems design and related services, depressing news for the several hundred thousand unemployed American computer and software engineers.
When manufacturing leaves a country, engineering, R&D, and innovation rapidly follow. Now that outsourcing has killed employment opportunities for US citizens and even General Motors and Ford are failing, US economic growth depends on how much longer the rest of the world will absorb our debt and finance our consumption.
How much longer will it be before “the world’s only remaining superpower” is universally acknowledged as a debt-ridden, hollowed-out economy desperately in need of IMF bailout?
Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions. He can be reached at: paulcraigroberts@yahoo.com
China’s Stranglehold on the Dollar
Mike Whitney / Alternate Press Review
(January 9, 2006) โ On Thursday, The People’s Republic of China fired off the first volley in what could turn out to be economic Armageddon. China announced that it would begin to diversify its foreign-exchange reserves away from US dollar.
Gulp!
The only thing keeping the dollar atop its fragile perch is the fact that other countries have been willing to lap up the $600 billion of American red ink every year via the trade deficit. That amounts to roughly $2 billion per day or nearly 7% GDP.
Currently, China is holding $769 billion, the vast majority of its foreign exchange reserves. This is a humongous sum by any measurement and represents approximately 30% of China’s gross domestic product. Regrettably, the Bush administration’s wasteful spending makes the dollar look like a bad long term investment, so China will either have to change its strategy or face a huge loss on its reserves. It’s a thorny predicament and one that China needs to handle delicately. If they move too aggressively it could trigger a sell-off and send the dollar plummeting.
It is unlikely that China will act recklessly, but even the mere suggestion of change has put the markets on edge.
Gold futures already jumped 4% in one week as large institutional buyers are voting with their feet that the dollar is headed for the dumpster. In fact, since Bush took office, gold has gone from the $200 range to $540 on Friday; a sure sign that investors have lost confidence in Washington’s ability to curb spending.
Even if China does not begin to cash in its greenbacks, we can expect to see considerable market volatility on Monday.
The Federal Reserve had anticipated China’s action for some time. That’s why the Board of Governors of the Federal Reserve announced earlier this year that they would cease to publish the M3 monetary aggregate (including the following components: large-denomination time deposits, repurchase agreements, and Eurodollars.) That way the Fed can print enough money to absorb the shock waves of a massive sell-off without the nosy public knowing what’s going on. It’s a clever ruse, and an effective way of bilking the American people out of their hard-earned savings while the dollar continues to burrow into its earthen grave.
Greenspan knew this day was coming, that’s probably why he chose to take an early retirement; splashing around in the Barbados while the dog-dung hits the fan. Here’s what he said in April before the Senate Budget Committee:
“The federal budget is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years. Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse.”
“Unsustainable path”?!?
It was Greenspan and Bush who engineered that “unsustainable path”. He enthusiastically supported the president’s $450 billion per year tax cuts that redistributed America’s wealth to the 1% of the people that he represents. The tax cuts alone set the country on the road to catastrophe. The national debt has increased an unbelievable $3 trillion under the Bush-Greenspan cabal. He also endorsed the shaky lending practices (ARMs; adjustable rate mortgages, interest-only loans; $0 down payments) that inflated the housing bubble and caused an unprecedented wave of speculative buying. As the Fed continues to raise rates and tighten loan-requirements, the bubble is slowly limping towards the abyss carrying America’s economic future with it.
Greenspan anesthetized the country with low-interest rates while Bush and Co. maxed out the national credit card and loaded the boats with everything in the public till. Meanwhile, the economy kept sputtering along while Greenspan concealed the long-range effects of massive deficits behind a mountain of cheap money. Now, the well is running dry, and Americans will be facing rising interest rates, a stagnant economy, and a falling dollar.
China’s action signals that we are entering a period of economic instability, where America’s future is largely in the hands of its creditors. Economic policy in China will now determine the interest rates on mortgages in America.
Welcome to the new world order, comrade.
The Fed believes it can finesse the problem by manipulating the money supply beyond the public view.
We’ll see.
The last time Greenspan tried that trick he ended up dropping rates 12 times in a year and a half as the steam whooshed from the stock market bubble leaving the economy on life support.
Greenspan knows that low interest rates (“cheap money”) cannot always forestall disaster. If China starts a sell-off, its doomsday for the greenback. Japan would be forced to sell, with Germany close behind. The smaller nations would join the feeding frenzy, followed by the hedge and pension funds. It would be like a stroll through the Weimar Republic in the early 1930s.
So, what’s next?
On Monday, the Fed will “preemptively” sluice zillions into the system to increase liquidity and stave off a possible run on the dollar. That way they can maintain the appearance of normalcy while what little is left of American middle class wealth is shifted into the flannel pockets of the central bankers via inflation. This will put the American economy on a long downward trajectory to third-world penury.
America is on the road towards hyperinflation; designed to savage the middle class, undermine popular social programs, crush organized labor, privatize all areas of the federal government, and “flatten” the workplace (to use the language of globalization guru, Tom Friedman) so that Americans will be forced to compete with the poorest paid workers in the world.
The effects of massive deficits are entirely understood. Eventually, the chickens come home to roost and the poor and middle class suffer horribly. It won’t be any different this time.
