How the Economy Was Lost: The War of the Worlds (Counterpunch)

by Roberts, Paul Craig

  This resentment, combined with the harm done to America’s reputation by the financial crisis, has led to numerous calls for a new financial order in which the U.S. plays a substantially lesser role. “Overcoming the financial crisis” are code words for the rest of the world’s intent to overthrow U.S. financial hegemony.

  Brazil, Russia, India, and China have formed a new group (BRIC) to coordinate their interests.

  On October 28, 2008, RIA Novosti reported that Russian prime minister Vladimir Putin suggested to China that the two countries use their own currencies in their bilateral trade, thus avoiding the use of the dollar. China’s Prime Minister Wen Jiabao replied that strengthening bilateral relations is strategic.

  Europe has also served notice that it intends to exert a new leadership role. Four members of the Group of Seven industrial nations—France, Britain, Germany, and Italy—used the financial crisis to call for sweeping reforms of the world financial system. Jose Manual Barroso, president of the European Commission, said that a new world financial system is possible only “if Europe has a leadership role.”

  Russian president Dmitry Medvedev said that the “economic egoism” of America’s “unipolar vision of the world” is a ”dead-end policy.”

  China’s massive foreign exchange reserves and its strong position in manufacturing have given China the leadership role in Asia. The deputy prime minister of Thailand recently designated the Chinese yuan as “the rightful and anointed convertible currency of the world.”

  Normally, the Chinese are very circumspect in what they say, but on October 24 Reuters reported that the People’s Daily, the official government newspaper, in a front-page commentary accused the U.S. of plundering “global wealth by exploiting the dollar’s dominance.” To correct this unacceptable situation, the commentary called for Asian and European countries to “banish the U.S. dollar from their direct trade relations, relying only on their own currencies.” And this step, said the commentary, is merely a starting step in overthrowing dollar dominance.

  The Chinese are expressing other thoughts that would get the attention of a less deluded and arrogant American government. Zhou Jiangong, editor of the online publication, Chinastates.com, recently asked: “Why should China help the U.S. to issue debt without end in the belief that the national credit of the U.S. can expand without limit?”

  Zhou Jiangong’s solution to American excesses is for China to take over Wall Street.

  China has the money to do it, and the prudent Chinese would do a better job than the crowd of thieves who have destroyed America’s financial reputation while exploiting the world in pursuit of multi-million dollar bonuses.

  October 30, 2008

  Chapter 24: Supermodel Spurns the Dollar

  The U.S. dollar is still officially the world’s reserve currency, but it cannot purchase the services of Brazilian super model Gisele Bündchen. According to media reports, Gisele required the $30 million she earned during the first half of this year to be paid in euros.

  Gisele is not alone in her forecast of the dollar’s fate. The First Post (U.K.) reports that Jim Rogers, a former partner of billionaire George Soros, is selling his home and all possessions in order to convert all his wealth into Chinese yuan.

  Meanwhile, American economists continue to preach that offshoring is good for the U.S. economy and that Bush’s war spending is keeping the economy going. The practitioners of supply and demand have yet to figure out that the dollar’s supply is sinking the dollar’s price and along with it American power.

  The macho super patriots who support the Bush regime still haven’t caught on that U.S. superpower status rests on the dollar being the reserve currency, not on a military unable to occupy Baghdad. If the dollar were not the world currency, the U.S. would have to earn enough foreign currencies to pay for its 737 oversees bases, an impossibility considering America’s $800 billion trade deficit.

  When the dollar ceases to be the reserve currency, foreigners will cease to finance the U.S. trade and budget deficits, and the American Empire along with its wars will disappear overnight. Perhaps Bush will be able to get a World Bank loan, or maybe one from the “Chavez bank,” to bring the troops home from Iraq and Afghanistan.

  Foreign leaders, observing that offshoring and war are accelerating America’s relative economic decline, no longer treat the U.S. with the deference to which Washington is accustomed. Ecuador’s president, Rafael Correa, recently refused Washington’s demand to renew the lease on the Manta Air Base in Ecuador. He told Washington that the U.S. could have a base in Ecuador if Ecuador could have a military base in the U.S.

  When Venezuelan president Hugo Chavez addressed the UN, he crossed himself as he stood at the podium. Referring to President Bush, Chavez said, “Yesterday the devil came here, and it smells of sulfur still today.” Bush, said Chavez, was standing “right here, talking as if he owned the world.”

  In his state of The Nation message last year, Russian president Vladimir Putin said that Bush’s blathering about democracy was nothing but a cloak for the pursuit of American self-interests at the expense of other peoples. “We are aware what is going on in the world. Comrade wolf knows whom to eat, and he eats without listening, and he’s clearly not going to listen to anyone.” In May 2007, Putin criticized the neocon regime in Washington for “disrespect for human life” and “claims to global exclusiveness, just as it was in the time of the Third Reich.”

  Even America’s British allies regard President Bush as a threat to world peace and the second most dangerous man alive. Bush is edged out in polls by Osama bin Laden, but is regarded as more dangerous than Iran’s demonized president and North Korea’s Kim Jong-il.

  President Bush has achieved his dismal world standing despite spending $1.6 billion of hard-pressed Americans’ tax money on public relations between 2003 and 2006.

  Clearly, America’s leader and America’s currency are poorly regarded. Is there a solution?

  Perhaps the answer lies in those 737 overseas bases. If those bases were brought home and shared among the 50 states, each state would gain 15 new military bases. Imagine what this would mean: The end of the housing slump. A reduction in the trade deficit.

  And the end of the war on terror.

  Who would dare attack a country with 15 new military bases in every state in addition to the existing ones? Wherever a terrorist turned, he would find himself surrounded by soldiers.

  All of the dollars currently spent abroad to support 737 overseas bases would be spent at home. Income for foreigners would become income for Americans, and the trade deficit would shrink. The impact of the 737 military base payrolls on the U.S. economy would end the housing crisis and bring back the 140,000 highly paid financial services jobs, the loss of which this year has cost the U.S. $42 billion in consumer income. Foreclosures and bankruptcies would plummet.

  If this isn’t enough to turn the dollar around, President Bush’s pledge not to appoint an Attorney General if Michael Mukasey is not confirmed offers more promise. If the Democrats will defeat Mukasey’s nomination, there are other superfluous cabinet departments that can be closed down in addition to the U.S. Department of Torture and Indefinite Detention.

  The American empire is being unwound on the battlefields of Iraq and Afghanistan. The year is two months from being over, but already in 2007, despite the touted “surge,” deaths of U.S. soldiers are the highest of any year of the war.

  The Taliban are the ones who are surging. They have taken control of a third district in western Afghanistan. Turkey and the Kurds are on the verge of turning northern Iraq into a new war zone, another demonstration of American impotence.

  Bush’s wars have endangered America’s puppet regimes. Bush’s Pakistani puppet, Musharraf, is fighting for his life. By resorting to “emergency rule” and oppressive measures, Musharraf has intensified his opposition. When Musharraf falls, thanks to Bush, t
he Islamists will be a step closer to nuclear weapons.

  American generals used to say that the wars Bush started in the Middle East would take 10 years to win. On October 31, 2007, General John Abizaid, former commander of U.S. forces in the Middle East, put paid to that optimistic forecast. Speaking at Carnegie Mellon University, Gen. Abizaid said it would be 50 years before U.S. troops can leave the Middle East.

  There is no possibility of the U.S. remaining in the Middle East for a half century. The dollar and U.S. power are already on their last legs, unbeknownst to Democratic leaders Pelosi and Reid who are preparing yet another blank check for Bush’s latest request for $200 billion in supplementary war funding.

  There isn’t any money with which to fund Bush’s lost war. It will have to be borrowed from China.

  The Romans brought on their own demise, but it took them centuries. Bush has finished America in a mere seven years.

  Even as Gisele throws off the dollar’s hegemony, Brazil, Venezuela, Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Colombia are declaring independence of the IMF and World Bank, instruments of U.S. financial hegemony, by creating their own development bank, thus bringing to an end U.S. suzerainty over South America.

  An empire that has lost its backyard is finished.

  November 7, 2007

  Chapter 25: Farewell to Old Economic Nostrums - They Can’t Save Us Now

  With his tax rebate policy, President Bush has put economic policy back on a Keynesian basis. Will it work?

  During the two decades it was in effect, supply-side economics had restorative effects on the American economy. Its predecessor, Keynesian demand management, stimulated demand more than supply. Consequently, over time the trade-offs between employment and inflation worsened, and for a while it appeared that inflation and unemployment would rise together. The breakdown of the Keynesian policy opened the door for the Reagan administration’s supply-side approach.

  By following Nobel economist Robert Mundell’s advice to “reverse the policy mix,” the supply-side policy allowed the U.S. economy to grow without paying for the growth with rising rates of inflation. However, the new macroeconomic policy was not a cure-all, and its success in banishing worsening “Philips curve” trade-offs between inflation and employment masked the appearance of new problems, such as the loss of jobs and GDP growth to offshoring, problems from deregulation, and the growing concentration of income in fewer hands.

  The Bush administration is turning to tax rebates, because problems in the financial system and the amount of consumer debt hinder the Federal Reserve’s ability to pump money to consumers through the banking system. Like an easy credit, low interest rate policy, the purpose of a tax rebate is to put money in consumers’ hands in order to boost consumer demand.

  Will consumers spend the rebate, or will they use it to pay down their debts? If they spend the rebate on consumer goods, will it provide much boost to the economy?

  Many Americans are overloaded with debt and will have to use the rebate to pay down credit card debt. The gift of $600 per means-tested taxpayer is really just a partial bailout of heavily indebted consumers and credit card companies.

  The percentage of the rebate that survives debt reduction will be further drained of effect by Americans’ dependency on imports. According to reports, 70 percent of the goods on Wal-Mart shelves are made in China. During 2006, Americans spent $1,861,380,000,000 on imported goods, that is, 23 percent of total personal consumption expenditures were spent on imports (including offshored goods). This means that between one-fifth and one-fourth of new consumption expenditures will stimulate foreign economies.

  Americans worry about their dependency on imported energy, but the $145,368,000,000 paid to OPEC in 2006 is a small part of the total import bill. Americans imported $602,539,000,000 in industrial supplies and materials; $418,271,000,000 in capital goods; $256,660,000,000 in automotive vehicles, parts, and engines; $423,973,000,000 in manufactured consumer goods; and $74,937,000,000 in foods, feeds, and beverages.

  The Keynesian policy of driving the economy through consumer demand was applied to a different economy than the one we have today. In those days the goods Americans purchased, such as cars and appliances, were mainly made in America. Construction workers were not illegals sending their wages back to Mexico. The U.S. had a robust manufacturing workforce. When consumer demand weakened, companies would reduce their output and lay off workers. Government policymakers would respond to the decline in employment and output with monetary and fiscal policies that boosted consumer demand. As consumer spending picked up, companies would call back the laid off workers in order to increase output to meet the rising demand.

  Today Americans are losing jobs for reasons that have nothing to do with recession. They are losing their jobs to offshoring and to foreigners brought in on work visas. Today many American brands are produced offshore in whole or part with foreign labor and imported to the U.S. for sale in the American market. In 2007, prior to the onset of the 2008 recession, 217,000 manufacturing jobs were lost. The U.S. now has fewer manufacturing jobs than it had in 1950 when the population was half the current size.

  U.S. job growth in the 21st century has been confined to low-pay domestic services. During 2007, waitresses and bartenders, health care and social assistance, and wholesale and retail trade, transportation, and utilities accounted for 91 percent of new private sector jobs.

  When a population drowning in debt is hit with unemployment from recession on top of unemployment from offshoring, will the people spend their rebates in eating places and bars, thus boosting employment among waitresses and bartenders? Will they spend their rebates in shopping malls, thus boosting employment for retail clerks? If they become ill, the lack of medical insurance will direct their rebates to doctors’ bills.

  Economists and other shills for globalism told Americans not to worry about the loss of manufacturing jobs. Good riddance, they said, to these “old economy” jobs. The “new economy” would bring better and higher paying jobs in technical and professional services that would free Americans from the drudgery of factory work. So far, these jobs haven’t shown up, and if they do, most will be susceptible to offshoring, just like the manufacturing jobs.

  The Bush administration has in mind a total rebate of $150,000,000,000. As the government’s budget is already in deficit, the money will have to be borrowed. As the U.S. saving rate is about zero, the money will have to be borrowed abroad.

  Foreigners are already concerned about the U.S. government’s indebtedness, and foreigners are bailing out some of our most important banks and Wall Street firms that foolishly invested in subprime derivatives.

  Under pressure from budget and trade deficits, the U.S. dollar has been losing value against other traded currencies. Having to borrow another $150 billion abroad will further erode the dollar’s value.

  Meanwhile, Congress passed a $700 billion “defense” bill so that the Bush administration can continue its wars in the Middle East.

  Our leaders in Washington are out to lunch. They have no idea of the real challenges our country faces and America’s dependence on foreign creditors.

  The rebate will help Americans reduce their credit card debt. However, adding $150 billion to an existing federal budget deficit that will be worsened by recession could further alarm America’s foreign creditors, traders in currency markets, and OPEC oil producers. If the rebate loses its punch to consumer debt reduction, imports, and pressure on the dollar, what will the government do next?

  As long as offshoring continues, the U.S. cannot close its trade deficit. Offshoring increases imports and reduces the supply of potential exports. With Washington’s Middle East wars, with private companies ceasing to provide health coverage and pensions, with political spending promises in an election year, and with recession, the outlook for the federal budget deficit is dismal as well.

  The U.
S. is moving into a situation in which the government could find it impossible to close the twin deficits without massive tariffs to curtail imports and offshoring and without pursuing peace instead of war. The outlook for the United States will continue to worsen as long as hegemonic superpower and free trade delusions prevail in Washington.

  January 22, 2008

  Chapter 26: War Abroad, Poverty at Home

  The U.S. Senate has voted $165 billion to fund Bush’s wars of aggression against Afghanistan and Iraq through next spring.

  As the U.S. is broke and deep in debt, every one of the $165 billion dollars will have to be borrowed. American consumers are also broke and deep in debt. Their zero saving rate means every one of the $165 billion dollars will have to be borrowed from foreigners.

  The “world’s only superpower” is so broke it can’t even finance its own wars.

  Each additional dollar that the irresponsible Bush Regime has to solicit from foreigners puts more downward pressure on the dollar’s value. During the eight wasted and extravagant years of the Bush Regime, the once mighty U.S. dollar has lost about 40 percent of its value against the euro.

  The dollar has lost even more of its value against gold and oil.

  Before Bush began his wars of aggression, oil was $25 a barrel. Today it is $130 a barrel. Some of this rise may result from run-away speculation in the futures market. However, the main cause is the eroding value of the dollar. Oil is real, and unlike paper dollars is limited in supply. With massive U.S. trade and budget deficits, the outpouring of dollar obligations mounts, thus driving down the value of the dollar.