US Economy 2.0 – The People Who Lost their Country

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I maintain that it is entirely possible to destroy, beyond repair, the economy of a centuries-old nation in just eight years of criminal mismanagement. Certainly the nation was fragile at the end of the Twentieth Century, for it had never recovered from the mortal wound it was dealt forty years earlier by our terrible defeat in Vietnam.

It was an insidious defeat, because the United States was physically untouched by the deadly conflict. At the same time, the ugly events of that war broke the American people.

They never recovered. Never again could they control their government. Never again would they trust it. Their hope for the future — their sons — had been taken away and murdered by the US government. As a result, families and communities, Republicans and Democrats, lost their way and lost their country. To this day, they cannot find it again.

If you ask the folks who were around then, they’ll tell you that after Vietnam, the government became the adversary of the people. They won’t be able to tell you exactly what the war was about. They were told communism was on the rise and it was necessary to bomb rural farmers and villagers, a half a world away. As the war went on, our soldiers were ordered to burn the “gooks” alive, and it was assumed that they were probably better off dead, lest they become communists. John McCain flew these cowardly killing raids until he was finally shot down. Americans call that being a “hero.”

The American Spectacle — A Nation of International and Domestic Aggression

What we did in Vietnam is pretty much what we do everyday in Afghanistan and Iraq, for pretty much the same reason. Americans accept this without question because we are broken, ignorant, uninformed, and frightened. Even among many progressives, our grotesque and obscene presence in Afghanistan is cheered. That is how far we have fallen as a people.

We cry out publicly for God to help us kill these swarthy people. We use the Bible to justify unspeakable acts against humanity. We invite God into our congress, and pray to him before every session, like stone-age primitives and their witch doctors. Other nations avert their eyes from us; they are so ashamed for the hypocritical way we debase ourselves and our humanity. Meanwhile, the Neocon sociopaths who continue to run both  our visible and shadow government (along with the oil and defense companies they come from), profit massively from our campaign of global terror.

Is it any wonder that the nations of the world are closing ranks and marginalizing America? We kill and enslave our own people, allow them to be preyed upon by unregulated corporations and banks, imprison record numbers of them, and deny them mental and physical health care. Then we liberally arm them, and tell them they have the right to kill each other, which they do with great abandon. America is an obvious danger to itself and others.

The Destruction of America’s Middle Class and the Loss of the Dollar’s Reserve Currency Status

Yes, it is possible to destroy a nation in just eight years. Less, actually. By 2006 the US economy was finally broken beyond all repair and, for the first time since 1913, the Federal Reserved stopped telling the world how much money they were printing. Then Bush and Greenspan proceeded to rip all wealth out of the hands of the middle class through interest rate manipulation and easy schemes of mortgage equity withdrawal, which fueled consumer spending and hid the robbery of our national treasures.

The most depraved economic position the US took, however, was to allow the real estate asset class to collapse in value, dragging down with it all other US asset classes, which decimated pension funds. This, in turn, bankrupted the banks and brokerage houses, who were trading globally and misrepresenting themselves as regulated, when they were not. This is fraud and it is an international crime for which we are paying dearly by passing money from the TARP program to foreign banks.

The lack of transparency and the impoverishment of the middle class put the US into third-world status and pretty much killed the future of the Dollar as the world’s reserve currency. For several years now, the rest of the world has scrambled to find alternative currencies for international trade. Countries like China are now doing currency swaps with their trading partners to eliminate the US Dollar from transactions. The Arab nations have announced that they will no longer accept the Dollar for oil after January 2010.

Understanding the Post-2006 Economic Rules

We now exist and operate in a new economic reality that is being imposed on us by larger global forces. This was described recently in Global Europe Anticipation Bulletin [GEAB], a European think tank publication to which I subscribe. GEAB is widely considered to be the most accurate forecaster of its kind, and I’ve found that to be the case, with a few exceptions. Their focus, since 2006, has been on the global systemic crisis, brought on by the Bush economic policy of tax cutting and war spending.

This month’s bulletin looks at certain historical milestones that have occurred in 2009, singular economic events, and uses those singularities to explain why economics can no longer be analyzed the way it has been in the past.

The financial surrealism which has been at the heart of stock market trends, financial indicators, and political commentaries in the past two months, is in fact now over forever.

In practical terms, this means that the indicators that everyone is accustomed to use for investment decisions, profitability, location, partnership, etc … have become obsolete and that it is now necessary to find new relevant indicators to avoid making disastrous decisions.

The referential framework the world has lived since 1945, is no longer operative — which is why American economists don’t seem to know what they are talking about. They are using old fashioned charts and indicators from a world that no longer exists. That’s why they cannot forecast when the depression will end. They don’t even know where the bottom is. They are all faking it, as is the Obama administration.

Ask yourself this:  

“Am I to believe that those who could not anticipate this obvious fundamental crisis — born of tax cuts and war profiteering — are now able to gauge its intensity and predict when it will end?

“Who could have foreseen?” they cried to Congress last Fall!

Foresight, indeed.

A Reality-Based View of the Economic Situation in the US

We are not near the bottom of the economic collapse in the US because we steadfastly refuse to put a floor under real estate prices. Instead, the folks who caused this collapse are madly devaluing the dollar (by printing money and monetizing debt) in order to inflate our way out of this economic free-fall.

Private sector unemployment has not really even begun yet. Millions upon millions of jobs will be lost this year and the next. Cities and states have experienced a catastrophic loss of revenue (due to the deliberate avoidance of price stabilization in real estate) and are functionally bankrupt. By the end of summer 2009, social and emergency services and institutions will remain certain, but other services will be minimized or eliminated.

That is the case throughout California, as of today, as one after another, city and state services and programs are shut down due to lack of money. The one possible funding source, state and municipal bonds, have been yanked away and rated as “junk.” Federal emergency funds are earmarked for health, human services, emergency services, unemployment extensions, and a trickle toward education. That’s it.

The administration’s economic “team” is simply treading water — and they know it. They inject astronomical amounts of liquidity (debt-based or thin-air money) into the global financial system to try to buy up all the fraudulent investments that were sold by Wall Street to the world’s central banks and sovereign wealth funds. This massive and covert transfer of funds affects the markets in artificial and bizarre ways — which is why the economic indicators no longer work. The investors and politicians in the US have lost all touch with reality.

Indeed, at this stage, they all seem to suffer from a syndrome of diver’s nitrogen narcosis — impairing those affected and leading them to dive deeper instead of surfacing.

Over the past few months, GEAB has answered thirteen economic questions posed by think tank participants. The questions and answers are predictive in nature and will reveal, to the attentive individual who values reality, a secure way forward from the perspective of the global economy.

I will present three of these questions, below, and follow up with the remainder in parts II and III of my series:  “The US Economy 2.0.”

Do you think that deflation is right now the biggest threat to economies worldwide?

GEAB:  No. We are seeing a transitory deflation of asset prices which skyrocketed for speculative reasons. But the amazing money creation, especially in the US which is printing money like never before, or the major use of debt to pay their way out of the crisis, again in the USA but also in UK, will result in a major inflation in these countries. The fall of both currencies (Dollar and Pound) will also trigger an imported inflation. The collapse of industrial output in the USA, correlated with an increase of import costs and a flooding of the US consumer by direct loans coming from the Fed, will fuel what could really become a first hyperinflation episode in US history.

Is there a ‘US Treasury Bonds Bubble” about to burst?

GEAB:  Definitely. When people start investing money knowing that they will lose money, there is something suspicious going on. As announced by GEAB last month, this situation is now clearly established. Last week US 3 months Treasury Bonds had a negative yield. It means that one pays the US Treasury to accept its money! Looking at the situation of US deficits ballooning to historic records, the situation is more than surprising. GEAB has indeed repeatedly explained that in times of crisis one should try to limit losses rather than increase gains but, in that case, diversification is a key component of any relevant strategy. Here we are seeing something like a ‘lemming behavior’ where everybody seems to buy US short term Treasury Bonds. It sounds very much like oil five months ago! And today, the major holders of Fannie Mae and Freddie Mac bonds are just dumping them in exchange of US T-Bonds (somehow at any cost because of their fears regarding Fannie and Freddie’s future). This last trend is going to end up soon. We therefore think that this bubble will not last.

Do you think that the Obama administration will be able to prevent the USA from sinking into what you called the ‘Very Great US Depression’?

GEAB:  The new US administration is facing a task of historic proportion, but we are very afraid that Barak Obama and his team still belong to the ‘old political class’. When looking at his team of economic advisers or officials, you can only observe that they all come from yesterday.

People like Laurence Summers (head of the president’s economic advisers committee) or Robert Rubin (head of the president’s economic crisis advising committee) have been directly responsible for the big Wall Street mess of the past decade. In 1999, they orchestrated the suppression of the Glass-Steagall act passed during the Great Depression in 1933, which prevented banks from mixing all kinds of activities (commercial banking, investment banking, insurances…). And it is precisely this situation which one more time generated the big financial crisis we are into.

Timothy Geithner, Secretary of the Treasury and former head of the Federal Reserve Bank of New York and, the most important of all US Federal Reserve banks, is one of the three major decision-makers (together with Paulson and Bernanke) of the failed US financial interventions of the past year (Bear Stearns, Fannie and Freddie, Lehman Brothers, AIG, TARP, …). It seems that Barak Obama finds it wise to recruit people who have destroyed a house in order to rebuild it. Maybe he is right but, as far as GEAB is concerned, we think that it is a perfect recipe for failure because these ‘new’ officials belong to an America which already failed.

Meanwhile, and that is crucial, as we explained in a the previous GEABs, because it is impossible to change a complex system without at least 20% of brand-new leaders, Obama and his team obviously only discovered the crisis at the same time as every single American citizen did, when it exploded mid-September 2008. The Obama team’s program is a classical ‘democratic’ one, to which they just intend to put more money to fight the crisis. Just think that Obama explained that his stimulus plan will create or preserve 2.5 million jobs (if it works)… with unemployment growing up at a pace of at least 500,000 jobs lost per month, it will not even be sufficient to compensate for job losses in the next 6 months. One is clearly far away from the required measures.

And when Barak Obama adds that in such a period of crisis, ‘deficits don’t matter’, he just seems to ignore that those deficits are a key factor which triggered the current crisis. In a way, Obama seems to have the perfect solutions for a US which does not exist anymore.

Last but not least, GEAB thinks that the clear indication that a US political leader will start dealing efficiently with the crisis in the USA will come when somebody will put clearly in the US public debate that without diminishing by 50% the US military spending in the next two years, there is no way out of the ‘Very Great US Depression’. Not that the US military budget is the only problem to solve in this country, but it is a kind of strategic ‘Gordian knot’. Without slicing it, there is no way for the US to elaborate its required new vision to get out of the depression.

My Final Comment on President Obama’s Economic Policy

The European view presented above, is focused entirely on US economic policy at the global level and does not address any of the unprecedented issues that are impacting the nation domestically as a result of the profound criminal damage done by the Bush administration.

I, along with the world, marvel at how fortunate America is to have a leader of Barack Obama’s caliber at this time in our history. Had the nation’s economy not been damaged beyond all hope in 2006, I believe Obama would have fulfilled the expressed hopes and dreams of the people, and made America into a country to be proud of, once again. He would have closed the door on the darkest and most incompetent and demoralizing presidency in US history.

The reality, however, is that there is nothing that Obama can do to change the trajectory of the nation toward economic collapse — beyond what he is doing. Most importantly, he is keeping all of us afloat during a time when the nation has staggering obligations, a thin trickle of revenue, and no liquid assets or reserves whatsoever. At the same time, he did not see this economic crisis coming, and thus he made promises to the people which are difficult to achieve, even in the best of times.

I give him a pass for both his economic myopia (on par with John McCain) and for the promises he made that cannot be kept, health care for all being one of them. Many times in the year leading up to the election I pointed out that there was no money for this. We do not even have the money (revenue) to pay interest on our national debt. Barack Obama deserves a pass on this, at this time. Your dreams, and his, were destroyed by the careless and criminal war profiteering of the Bush administration, and that’s where the blame and rage belong.