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

by Roberts, Paul Craig

  Senator Grassley is rightly concerned that recession layoffs will shield increased jobs offshoring and use of H-1B workers. On February 13, the Russian newspaper Pravda reported that “America has begun the initial steps to final outsourcing of its last dominant industry”—oil/gas and oil/gas services. Pravda reports that “as with other formerly dominant industries, such as light manufacturing, IT, textiles,” recession is “used as the knife to finally do in the workers.”

  According to Pravda:

  It is a prime example. The companies used the bust to lay off hundreds of thousands of tech workers around the U.S. and Britain, citing low profits or debt. The public as a whole accepted this, as part of the economic landscape and protests were few, especially with a prospect of the situation turning around. However, shortly after the turn around in the economy, it became very clear that there would be no turn around in the IT employment industry. Not only were companies outsourcing everything they could, under the cover of the recession, they had shipped in tens of thousands of H-1B work visaed workers who were paid on the cheap.

  It is rare to find U.S. representatives and senators, such as Grassley, who will take a stand against powerful special interests. Some do so inadvertently, forgetting that patriotism is no longer a characteristic of the American business elite. Hoping to stimulate American rather than foreign businesses, the House version of the economic stimulus bill, the American Recovery and Reinvestment Act of 2009, required that funds provided by the bill cannot be used to purchase foreign-made iron, steel, and textiles.

  The Senate provision was more sweeping, mandating that all manufactured goods purchased with stimulus money be American-made.

  The U.S. Chamber of Commerce, the National Association of Manufacturers, Caterpillar, General Electric, other transnational corporations, and editorial writers whose newspapers are dependent on corporate advertising set out to defeat the buy American requirement. As far as these anti-American organizations are concerned, the stimulus bill has nothing to do with American jobs or the American economy. It only has to do with the special interest appetites that have the political power to rip off the American taxpayers (see Manufacturing & Technology News, February 4, 2009).

  Senator John McCain is their man. “Protectionism” exclaimed the man the Republicans wanted as president. McCain said the buy American provision would cause a second Great Depression. U.S. Chamber of Commerce President Thomas Donohue said that buying abroad was “economic patriotism.”

  The American economic elite are hiding their treason to the American people behind “free trade.”

  I want to say this as clearly as it can be said. The offshoring of American jobs is the antithesis of free trade. Free trade is based on comparative advantage. Jobs offshoring is an activity in pursuit of lowest factor cost—an activity that David Ricardo, the originator of the free trade theory, described as the betrayal of one’s own country in pursuit of “absolute advantage.”

  The “free market” shills on the payroll of the U.S. Chamber, N.A.M., and in economics departments and think tanks that are recipients of grants from transnational corporations are whores aligned with elites who are destroying the American work force.

  Obama has appointed to his National Economic Council blatant apologists for the offshoring of American jobs.

  Possibly Obama loves the country that elevated him to its highest office. But his administration is populated with people whose loyalty is limited to elites.

  February 18, 2009

  Chapter 35: Driving Over the Cliff With the Washington Morons

  Is there intelligent life in Washington, D.C.? Not a speck of it.

  The U.S. economy is imploding, and Obama is being led into a quagmire in Afghanistan that could bring the U.S. into confrontation with Russia and China, American’s largest creditor.

  The January, 2009 payroll job figures reveal that last month 20,000 Americans lost their jobs every day.

  In addition, December’s job losses were revised up by 53,000 jobs from 524,000 to 577,000. The revision brings the two-month job loss to 1,175,000. If this keeps up, Obama’s promised 3 million new jobs will be wiped out by job losses.

  Statistician John Williams reports that this huge number is an understatement. Williams notes that built-in biases in seasonal adjustment factors caused a 118,000 understatement of January job losses, bringing the actual January job loss to 716,000 jobs.

  The payroll survey counts the number of jobs, not the number of employed as some people have more than one job. The Household Survey counts the number of people who have jobs. The Household Survey shows that 832,000 people lost their jobs in January and 806,000 in December, for a two month reduction of Americans with jobs of 1,638,000.

  The unemployment rate reported in the U.S. media is a fabrication. Williams reports that since the Clinton era, “‘discouraged workers’—those who had given up looking for a job because there were no jobs to be had—were redefined so as to be counted only if they had been ‘discouraged’ for less than a year. This time qualification defined away the bulk of the discouraged workers. Adding them back into the total unemployed, actual unemployment, (according to the unemployment rate methodology used in 1980) rose to 18 percent in January, from 17.5 percent in December.”

  In other words, without all the manipulations of the data, the U.S. unemployment rate in January 2009 is already at depression levels.

  How could it be otherwise given the enormous job loss from offshored jobs? It is impossible for a country to create jobs when its corporations are moving production for the American consumer market offshore. When they move the production offshore, they shift U.S. GDP to other countries. The U.S. trade deficit over the past decade has reduced U.S. GDP by $1.5 trillion. That is a lot of jobs.

  I have been reporting for years that university graduates have had to take jobs as waitresses and bartenders. As over-indebted consumers lose their jobs, they will visit restaurants and bars less frequently. Consequently, those with university degrees will not even have jobs waiting on tables and mixing drinks.

  U.S. policymakers have ignored the fact that consumer demand in the 21st century has been driven, not by increases in real income, but by increased consumer indebtedness. This fact makes it pointless to try to stimulate the economy by bailing out banks so that they can lend more to consumers. The American consumers have no more capacity to borrow.

  With the decline in the values of their principal assets—their homes—with the destruction of half of their pension assets, and with joblessness facing them, Americans cannot and will not spend.

  Why bail out GM, Citibank, and the rest when the firms are worsening U.S. unemployment by moving as many operations offshore as they possibly can?

  Much of U.S. infrastructure is in poor shape and needs renewing. However, infrastructure jobs do not produce goods and services that can be sold abroad. Obama’s stimulus commitment to infrastructure does nothing to help the U.S. reduce its huge trade deficit, the financing of which is becoming a major problem. Moreover, when the infrastructure projects are completed, so are the jobs.

  At best, assuming Mexican immigrants do not get most of the construction jobs, all Obama’s stimulus program can do is to reduce the number of unemployed temporarily.

  Unless U.S. corporations can be required to use American labor to produce the goods and services that they sell in American markets, there is no hope for the U.S. economy. No one in the Obama administration has the wits to address this problem. Thus, the economy will continue to implode.

  Adding to the brewing disaster, Obama has been deceived by his military and neoconservative advisers into expanding the war in Afghanistan. Obama intends to use the draw-down of U.S. soldiers in Iraq to send 30,000 more American troops to Afghanistan. This would bring the U.S. forces to 60,000—600,000 fewer than U.S. Marine Corps and U.S. Army counterinsurgency guidelines define as the minimum number o
f soldiers necessary to bring success in Afghanistan.

  In Iraq, the Iranian government had to bail out the Bush regime by restraining its Shi’ite allies and encouraging them to use the ballot box to attain power and push out the Americans. In Iraq the U.S. troops only had to fight a small Sunni insurgency drawn from a minority of the population. Even so, the U.S. “prevailed” by putting the insurgents on the U.S. payroll and paying them not to fight. The withdrawal agreement was dictated by the Shi’ites. It was not what the Bush regime wanted.

  One would think that the experience with the “cakewalk” in Iraq would make the U.S. hesitant to attempt to occupy Afghanistan, an undertaking that would require the U.S. to occupy parts of Pakistan. The U.S. was hard pressed to maintain 150,000 troops in Iraq. Where is Obama going to get another half million soldiers to add to the 150,000 to pacify Afghanistan?

  One answer is the rapidly growing massive U.S. unemployment. Americans will sign up to go kill abroad rather than be homeless and hungry at home.

  But this solves only half of the problem. Where does the money come from to support an army in the field of 650,000, an army 4.3 times larger than U.S. forces in Iraq, a war that has cost us $3 trillion in out-of-pocket and already-incurred future costs. This money would have to be raised in addition to the $2 trillion U.S. budget deficit that is the result of Bush’s financial sector bailout, Obama’s stimulus package, and the rapidly failing economy. When economies tank, as the American one is doing, tax revenues collapse. The millions of unemployed Americans are not paying Social Security, Medicare, and income taxes. The stores and businesses that are closing are not paying federal and state income taxes. Consumers with no money or credit to spend are not paying sales taxes.

  The Washington Morons, and morons they are, have given no thought as to how they are going to finance fiscal year 2009 and fiscal year 2010 budget deficits, each of which is four times larger than the 2008 deficit.

  The practically nonexistent U.S. saving rate cannot finance it.

  The trade surpluses of our trading partners, such as China, Japan, and Saudi Arabia, cannot finance it.

  The U.S. government really has only two possibilities for financing such stupendous budget deficits. One is a second collapse in the stock market, which would drive the surviving investors with what they have left into “safe” U.S. Treasury bonds. The other is for the Federal Reserve to monetize the Treasury debt.

  Monetizing the debt means that when no one is willing or able to purchase the Treasury’s bonds, the Federal Reserve buys them by creating bank deposits for the Treasury’s account.

  In other words, the Fed “prints money” with which to buy the Treasury’s bonds. The Treasury pays the U.S. government’s bills by writing checks against the printed money.

  Once this happens, the U.S. dollar will cease to be the reserve currency.

  China, Japan, and Saudi Arabia, countries that hold enormous quantities of U.S. Treasury debt in addition to other U.S. dollar assets, will sell, hoping to get out before others.

  The value of the U.S. dollar will collapse and become the currency of a banana republic.

  The U.S. will not be able to pay for its imports, a serious problem for a country dependent on imports for its energy, manufactured goods, and advanced technology products.

  Obama’s Keynesian advisers have learned with a vengeance Milton Friedman’s lesson that the Great Depression resulted from the Federal Reserve permitting a contraction of the supply of money and credit. In the Great Depression good debts were destroyed by monetary contraction. Today bad debts are being preserved by the expansion of bank reserves, and the U.S. Treasury is jeopardizing its credit standing and the dollar’s reserve currency status with enormous quarterly bond auctions as far as the eye can see.

  Meanwhile, the Russians, overflowing with energy and mineral resources, and not in debt, have learned that the U.S. government is not to be trusted. Russia has watched Reagan’s successors attempt to turn former constituent parts of the Soviet Union into U.S. puppet states with U.S. military bases. The U.S. is trying to ring Russia with missiles that neutralize Russia’s strategic deterrent.

  Putin has caught on to “comrade wolf.” To stop America’s meddling in Russia’s sphere of influence, the Russian government has created a collective security treaty organization comprised of Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan. Uzbekistan is a partial participant.

  To whose agenda is President Obama being hitched? Writing in the English language version of the Swiss newspaper, Zeit-Fragen, Stephen J. Sniegoski reports that leading figures of the neocon conspiracy—Richard Perle, Max Boot, David Brooks, and Mona Charen—are ecstatic over Obama’s appointments. They don’t see any difference between Obama and Bush/Cheney.

  Not only are Obama’s appointments moving him into an expanded war in Afghanistan, but the powerful Israel Lobby is pushing Obama toward a war with Iran.

  The unreality in which he U.S. government operates is beyond belief. A bankrupt government that cannot pay its bills without printing money is rushing headlong into wars in Afghanistan, Pakistan, and Iran. According to the Center for Strategic and Budgetary Analysis, the cost to the U.S. taxpayers of sending a single soldier to fight in Afghanistan or Iraq is $775,000 per year!

  Obama’s war in Afghanistan is the Mad Hatter’s Tea Party. After seven years of conflict, there is still no defined mission or endgame scenario for U.S. forces in Afghanistan. When asked about the mission, a U.S. military official told NBC News, “Frankly, we don’t have one.” NBC reports: “They’re working on it.”

  Speaking to House Democrats on February 5, President Obama admitted that the U.S. government does not know what its mission is in Afghanistan and that to avoid “mission creep without clear parameters,” the U.S. “needs a clear mission.”

  How would you like to be sent to a war, the point of which no one knows, including the commander-in-chief who sent you to kill or be killed? How, fellow taxpayers, do you like paying the enormous cost of sending soldiers on an undefined mission while the economy collapses and your job disappears?

  February 9, 2009

  Chapter 36: When Things Fall Apart

  On March 19, 2009, the New York Times reported: “The Fed said it would purchase an additional $750 billion worth of government-guaranteed mortgage-backed securities, on top of the $500 billion that it is currently in the process of buying. In addition, the Fed said it would buy up to $300 billion worth of longer-term Treasury securities over the next six months.”

  The Federal Reserve says that its additional purchase of more than $1 trillion in existing bonds is part of its plan to revive the economy. Another way to view the Fed’s announcement is to see it as a preemptive rescue. Is the Fed rescuing banks from their bond portfolios prior to the destruction of bond prices by inflation?

  The answer to this question lies in the answer to the question of how the unprecedented sizes of the FY 2009 and FY 2010 federal budget deficits will be financed. Neither the U.S. savings rate nor the trade surpluses of our major foreign lenders are sufficient.

  I know of only two ways of financing the looming monster deficits. One, courtesy of Pam Martens, is that the federal deficits could be financed by further flight from equities and other investments.

  This is a possibility. If the mortgage-backed security problem is real and not contrived, the next shock should arise from commercial real estate. Stores are closing in shopping centers, and vacancies are rising in office buildings. Without rents, the mortgages can’t be paid.

  Another scare and another big drop in the stock market will set off a second “flight to quality” and finance the budget deficits.

  The other way is to print money. John Williams (shadowstats.com) thinks that the budget deficits will be financed by monetizing debt. Debt monetization happens when the Federal Reserve buys newly issued U.S. Treasury bonds and pays for the
purchase by creating demand deposits for the Treasury. The money supply grows by the amount of Fed purchases of new Treasury debt, which is the same as printing money. Printing money to finance the government’s budget normally leads to high inflation and high interest rates.

  The initial impact of the announcement of the Fed’s plan to purchase existing debt was to drive up bond prices. However, if the reserves poured into the banking system by the bond purchases result in new money growth, and if the Fed purchases the new debt issues to finance the governments’ budget deficits, the outlook for bond prices and the dollar becomes poor.