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Fletcher On Free Trade—But Not, Alas, Immigration

November 21, 2010 Leave a comment

A North American Free Trade Agreement (NAFTA) ...

A North American Free Trade Agreement (NAFTA) Logo.

VDARE.COM – http://www.vdare.com/rubenstein/101910_nd.htm

November 19, 2010

National Data, By Edwin S. Rubenstein

Ian Fletcher (email him) is an Adjunct Fellow at the San Francisco office of U.S. Business and Industry Council, a Washington think tank. An economist with impeccable academic and private sector pedigrees—Columbia, University of Chicago, hedge funds, private equity groups—he is refreshingly, perhaps uniquely, skeptical of his profession.We can’t trust the economists”, he writes, adding that while the public holds the economics profession in highest regard, “What economists say to the public is often very different from what they say to one another”

Fletcher has written an elegant, easy-to-read critique of one of the most cherished myths in economic theory—the supremacy of free trade. (Free Trade Doesn’t Work: What Should Replace It and Why, by Ian Fletcher, U.S. Business and Industry Council, 2010. 323 pages.)

Fletcher believes that our chronic trade crisis stems from bad policies that mainstream economists told us were OK.

He is hardly the first to say this. Debunking free trade dogma has become a cottage industry in America, employing journalists, retired CEOs, and even a few economists whose paycheck does not come from a corporate beneficiary of free trade. But few bring Fletcher’s historical, psychological, and economic insights to this undertaking. (One hopes he will follow the free trade book with one on immigration or sub-prime mortgages.)

The theory of free trade originated with David Ricardo, a British economist of the early nineteenth century. He believed in two interrelated concepts: specialization and comparative advantage. According to Ricardo, each country should produce only those goods in which it excels—i.e. can make with comparatively less labor and capital than its trading partners—and import everything else. The theory implies that an advanced economy, say the United States, should import some goods from lower cost producers, say China, in order to free up our workforce to produce more valuable goods instead.

Advocates claim free trade is the natural state of affairs: Left to their own devices capitalists will achieve this international reallocation of production automatically. Their natural drive for profit steers them to the most valuable industry. Any policy other than free trade just saddles them with higher costs and fewer profits than they would otherwise incur.

But the public is blissfully unaware of the degree to which this theory full of holes. Enter Fletcher. He shines a laser beam on the unrealistic assumptions, dubious conclusions, and changing circumstances which, taken together, undermine the received free trade dogma.

In several chapters Fletcher lists and explains the fallacies underlying free trade. My selective, slightly modified version:

  1. Immobile Capital: In Ricardo’s world countries exported goods for which they best suited based on their “natural endowments” of land, climate, capital, and expertise. For eighteenth century Britain, with its superior human and physical capital, this meant exporting manufactured goods and textiles. Portugal, with a warm climate and an abundance of unskilled labor, had a comparative advantage in wine and agricultural products.

But back then a country’s natural endowments were immutable; neither capital nor labor moved internationally. Not today: U.S. corporations have invested about $3.2 trillion in China alone, and added another $340 billion in 2009, while hundreds of thousands of Chinese workers have been educated in U.S. colleges and universities.

  1. Absolute advantage. The offshoring of U.S. capital to low-wage countries has nothing to do with comparative advantage. U.S. companies are not seeking comparative advantage at home in order to compete abroad. They are seeking absolute advantage in cheap foreign labor, with which to dominate markets at home and abroad. With U.S. capital, foreign workers are now as productive as Americans, the difference being that the large excess supply of labor that overhangs labor markets in China and India keeps wages low. Labor that is equally productive but paid a fraction of the wage is a magnet for Western capital and technology. Meanwhile, capital exports have destroyed entire industries, occupations, and communities in the U.S.
  2. Winners and losers. Ricardo and his acolytes assume workers displaced by cheap imports can easily move to expanding industries. Don’t have the requisite skills? More education and on the job training will take care of that. In the long run Ricardo believed a free economy has a natural self correcting tendency to return to full employment.

Fletcher agrees—up to a point:

“Sometimes the difficulty of reallocating workers shows up as unemployment…But in the U.S., because of our low minimum wage and hire-and-fire labor laws, this problem tends to take the form of underemployment. This is a decline in the quality rather than the quantity of jobs. So $28 an hour ex-autoworkers go work at the video rental store for eight dollars an hour. Or they are forced into part time unemployment: it is no accident that, as of September 2009, the average private sector work week had fallen to 33 hours, the lowest since records began in 1964.”

Bottom line: the “tendency” to full employment under free trade is enforced by permanently lower income.

  1. Misreading economic history. Before Adam Smith and Ricardo there was mercantilism—which Fletcher calls a “misguided” regime of gold accumulation through exports. Only after Britain embraced free trade in the 19th century did she become an industrial superpower. At least that is the free trade party line.

Reality check: British industrialization was underway for three centuries prior to 1776, the result of a primitive industrial policy that included import taxes and prohibiting the export of raw materials to foreign producers. Even as late as the early 19th century trade was not as free as the free traders would have us think: Britain’s average tariff on manufactured goods was about 50%—the highest of any major European country, according to Fletcher.

Free trade began in earnest with the repeal of the Corn Laws in 1846. A disaster ensued: “Competition with the prairies of North America eventually devastated Britain’s old rural economy and the aristocracy that had lived off its agricultural rents, but so committed was Britain to free trade that this price was accepted as in no other nation.”

Meanwhile, on the other side of the pond, American industry flourished behind a wall of protective tariffs. Around 1880 Britain was surpassed economically by the U.S.

  1. Ideologues and mathematicians – Fletcher contends that many free trade supporters are simply Ayn Rand cultists (think Alan Greenspan) or libertarian ideologues like Milton Friedman, whose reflexive aversion to Social Security, Medicare, the postal service, public education, and welfare are often mistaken for economics.

As for non-political economists, the theoretical models they use to describe comparative advantage do not admit the possibility of unemployment. It’s not that they do not think unemployment is possible. Rather, no one has figured out how to allow for it in the confines of a simple mathematical model.

Significantly, Fletcher notes that economists who specialize in trade issues are much less sanguine about the benefits of free trade than“…their brethren in other subspecialties who cling to what they remember from their grad-student days.”

  1. Trade deficits self-correct – For decades trade deficits have lowered U.S. GDP and reduced the value of the dollar abroad. Both of these trends should, in theory, reduce America’s ability to buy foreign goods. Yet the deficit persists.

The problem, of course, is that mercantilism is alive and well in China, Japan. They are our enablers—happy to sustain our spending binge by buying dollar-denominated assets, keeping our interest rates low, and reducing costs for U.S. companies who locate within their borders.

Bur eventually the party will end. The dollar will lose its status and U.S. offshorers will return home. Had a tariff been in place from the outset, those job losses would have never occurred.

Fletcher would like to see free trade replaced with across-the-board 30% tariffs for all goods and services. He sees this as working selectively to help retain “infant industries” employing considerable capital and likely to benefit from considerable scale economies, but not enough to bring back the apparel industry which employs large numbers of unskilled workers.

But Fletcher does not discuss how tariffs would work if exchange rates are not fixed, as they were (to gold) in the golden age of American protectionism in the nineteenth century—a question that VDARE.COM editor Peter Brimelow raised in his American Spectator review of Pat Buchanan’s The Great Betrayal, in many ways a precursor of Fletcher’s critique. Nor does Fletcher deal with the question of what would happen if the Chinese, whose mercantilism has taken the form of a systematically undervalued currency rather than tariffs, simply countered U.S. tariffs with further devaluation. Yet it is the specter of competitive devaluation that is haunting the world of trade diplomacy as I write.

Additionally, and certainly to the disappointment of VDARE.COM readers, Fletcher says almost nothing about immigration. Yet both give corporate America access to cheap foreign labor; both harm native-born workers.

Fletcher notes that “withdrawing from free trade (to an as yet undefined extent) is emerging as the consensus Democratic response, even if the party’s leadership doesn’t yet realize how deep are the forces driving this or how far it is likely to go” whereas “the emerging Republican response seems to be keeping free trade while opposing immigration—which does not enlarge America’s shrinking economic pie, but does cut it into fewer slices per voter and is therefore politically salable.”

But while there may prove to be some truth in this analysis, the fact is that no Republican in Congress has yet signed on to an anti-unemployment immigration moratorium.

Still, perhaps against my professional interest as an economist, I have to say I respect Fletcher’s book. At the end of the day, he is merely proposing that American’s economy be run for the benefit of the American people.

This is a radical, and definitely interesting, idea.

Edwin S. Rubenstein (email him) is President of ESR Research Economic Consultants in Indianapolis.

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The Fed and the Debased “Imperial Dollar”

November 10, 2010 Leave a comment

Official portrait of Federal Reserve Chairman ...

Official portrait of Federal Reserve Chairman Ben Bernanke.

Tuesday, November 9, 2010

Future Inflation,

Timid Economic Growth and

Higher Interest Rates Ahead

by Rodrigue Tremblay


“Under a paper money system, a determined government can always generate higher spending and hence positive inflation.”

Ben Bernanke, future Fed Chairman (in 2002)

“My thesis here is that cooperation between the monetary and fiscal authorities in Japan could help solve the problems that each policymaker faces on its own. Consider for example a tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt – so that the tax cut is in effect financed by money creation. Moreover, assume that the Bank of Japan has made a commitment, by announcing a price-level target, to reflate the economy, so that much or all of the increase in the money stock is viewed as permanent.”

Ben Bernanke, future Fed Chairman (in 2002)

“The Fed, in effect, is telling the markets not to worry about our fiscal deficits, it will be the buyer of first and perhaps last resort. There is no need – as with Charles Ponzi – to find an increasing amount of future gullibles, they will just write the check themselves. I ask you: Has there ever been a Ponzi scheme so brazen? There has not.”

Bill Gross, PIMCO’s managing director

On Wednesday, November 3rd, the Bernanke Fed announced that it stands ready to resume money printing to stimulate the economy through quantitative money easing, an euphemism for printing more dollars. Indeed, it intends to buy $600-billion of longer-term Treasury securities until the end of the second quarter of 2011, plus some $300 billion of reinvestments, on top of the some $1.75 trillion of various types of securities, many of which were mortgage backed securities, that it has added in 2009 to its balance sheet, currently standing at a total of $2.3 trillion. There could even be additional increases in newly printed money as the Fed intends to “regularly review and adjust the program as needed to best foster maximum employment and price stability.”

After the election of fiscal conservatives on November 2nd, it seems that printing money is the only instrument left for the Obama administration to stimulate the economy. I fail to see, however, what is “conservative” about that. Actively debasing a currency to stimulate an economy used to be a Third-World economic recipe, —A recipe for disaster. Now, the United States government feels that is the only way to get out of the economic doldrums.

But U.S. economic problems are essentially structural in nature, and are due to a bad housing mortgage policy, a bad industrial policy, a bad financial policy, a bad fiscal policy, a bad foreign investment policy, too much entitlement debt, severe demographic problems related to the aging baby-boomers, and to very costly hegemonic wars abroad. Relying exclusively on monetary quick fixes to correct them misses the mark and may have serious unintended negative consequences down the road.

In fact, it is likely that in the long run, this extreme monetary policy risks exacerbating rather than correcting the problems. Economic structural problems cannot be corrected with monetary means. They rather require real economic solutions. That means correcting the housing mortgage mess and devising an industrial strategy, a fiscal strategy, and an investment strategy that can put the economy back on its tracks of economic growth.

But, for better or worse, the Federal Reserve Board (Fed) seems to be the only branch of the U.S. government left that can still function properly, i.e. that is not caught in a permanent political gridlock. As a consequence, for the time being at least, bankers are in charge of the U.S. economy. Since they are the ones who created many of the current problems, this is not very reassuring.

Let’s remind ourselves that the Fed is a semi-public, semi-private organization that has a long history of creating financial asset price bubbles in the U.S and around the world, essentially because the U.S. dollar is an international key-currency widely used around the world and is an important part of other central banks’ official reserves.

Thus, the real danger is that the Fed will again overdo it and create unmanageable financial and monetary bubbles in the coming years. —It did it in the past. It did it in the late 1960’s and early ’70s, and we witnessed the same scenario unfolding with the Greenspan Fed in the late 1990s, when excessive easy money helped inflate the Internet and tech stock market bubble. We saw this again in the early 2000s, when easy Fed money helped inflate the housing bubble. And now, we’re seeing it again with the Bernanke Fed. As a general rule, a central bank should not push the monetary gas pedal to the floor and be obliged to slam on the monetary brakes later, thus placing the real economy on a roller-coaster of booms and busts. That is not the way to run a large economy.

But because of the circumstances, the Fed may be at it again. This time it is busy creating a massive bond bubble, some important currency misalignments and a massive gold and commodity price bubble. We should also not forget that abnormally low interest rates and lower bond yields increase the present value of pension liabilities of most defined benefit pension plans.

Therefore, I would not be surprised to see a pension crisis developing in the coming years under the current Fed monetary policy. Of course, all of these bubbles are interrelated but when they come crashing down, four or five years down the road, maybe sooner, the economy may then be in worse shape than it is today. My most likely scenario is for the Fed to keep the monetary gas pedal way down until the 2012 election, and then slam on the monetary brakes thereafter to salvage what will be left of the imperial dollar.

If so, this could be a partial repeat of Japan’s experience in mismanaging its economy in the early 1990’s until 2000, a period known as the lost decade.

The current Fed’s monetary policy is to flood financial markets with liquidity, i.e. newly created dollars, and, in the process, devalue the U.S. dollar, spur American exports and prevent deflationary expectations from taking hold and from making already high debt loads even heavier. For this, the Fed has been engaged since 2009 in round after round of money creation and interest rate reductions to the point of pushing short-term monetary rates close to zero and keeping short-term real rates negative. But if the economy is in a liquidity trap, as it is fair to assume it is, although a central bank can print all the money it wants, this is unlikely to stimulate the real economy for very long. —This is like pushing on a string. Printing money, if it is an emergency temporary measure, can help mitigate the effect of having too much debt and debt-service costs relative to income, as is the case today with many debtors in a debt liquidation mode. However, if this becomes a feature of monetary policy for too long, it can have disastrous consequences.

In general, it can be said that the Fed can manipulate short term interest rates by artificially increasing demand for short term securities, but inflation expectations are a big component of long term interest rates and are much less influenced by the Fed. Therefore, if the Fed’s intention of printing large amounts of new money raises fears of future inflation, long term interest rates may rise rather than fall, and this is bound to hurt long-term productive investments.

Moreover, make no mistake, with globalized financial markets, a large chunk of the newly created dollars is flowing out of the United States and is invested in higher interest rate countries, pushing the dollar further down and these countries’ currencies further up. Of course, some of the newly created money will immediately find its way in the stock market, but there is no certainty that this will induce already stretched banks to increase their banking loans to businesses.

Another consequence is this: The current outflow of U.S. dollars helps keep the dollar exchange rate low, but when the Fed is forced to aggressively raise interest rates, as it will inevitably be forced to do later on, the reverse will happen and the U.S. dollar will likely overshoot and then become overvalued. This is the case today with the Japanese yen which became unduly strong when the Japanese carry trade (too much cheap money invested abroad returns home) collapsed.

What counts for most people, however, is that the Fed’s zero-interest rate policy has not cured the structural housing mortgage crisis, since home foreclosures are still very high. The Fed now places most of its hopes on a currency devaluation, which is the old trick of the “beggar thy neighbor” policy, i.e. trying to export one country’s unemployment to its trading partners by devaluating the currency. This was a form of protectionism much relied upon during the 1929-39 Great Depression. This may work for a while, at least as long as other countries can absorb American exports without launching their own money printing process in order to prevent an appreciation of their currencies.

Indeed, is it likely that countries which see their currencies being revalued by the Fed will remain passive? The Fed is implicitly making the bet that these countries will not retaliate, and that the international dollar-based currency system will remain intact. But for how long? Sooner or later, some central banks around the world will have no choice but to impose capital controls in order to slow down the inflow of unwanted outside money and the onslaught of imported inflation, and prevent their exchanges rates from rising too high too fast. If they do, the entire process of economic globalization may begin to unravel.

Meanwhile, foreign central banks, for example, could accelerate their rush to dump the U.S dollar and to accumulate gold and other more stable currencies such as the euro, the Swiss franc, the British pound, the Canadian dollar and the Australian dollar. China has already begun to do just that. The share of dollar official reserves would then decline from about 60 percent presently to perhaps less than 50 percent. That may signal the beginning of the end for the “imperial dollar” which has dominated the international monetary system since the Bretton Woods conference of 1944.

This is to be followed closely.

_____________________________________

Rodrigue Tremblay

is professor emeritus of economics at the University of Montreal

and can be reached at rodrigue.tremblay@yahoo.com. He is the author of the book “The Code for Global Ethics” at: www.TheCodeForGlobalEthics.com/

The book “The Code for Global Ethics, Ten Humanist Principles”, by Dr. Rodrigue Tremblay, prefaced by Dr. Paul Kurtz, has just been released by Prometheus Books.

Please visit the book site at:

www.TheCodeForGlobalEthics.com/

See it on Amazon USA:

See it on Amazon Canada:

See it on Amazon UK:

or, in Australia at:

Please ask your favorite bookstore and your local library to order

the book: The Code for Global Ethics, Ten Humanist Principles,

by Dr. Rodrigue Tremblay, prefaced by Dr. Paul Kurtz, Prometheus Books, 2010, 300 p. ISBN: 978-1616141721.

*****The French version of the book is also now available. See:

www.lecodepouruneethiqueglobale.com/

or on Amazon Canada

_____________________________________

Posted, Tuesday, November 9, 2010, at 5:30 am

Email to a friend:

http://www.TheNewAmericanEmpire.com/tremblay=1129.htm

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The Global Monetary System in Crisis

November 1, 2010 Leave a comment

"View in Wall Street from Corner of Broad...

"View in Wall Street from Corner of Broadway", New York. Engraving from Thirty Years' Progress of th...

By Bob ChapmanInternational Forecaster

The recognition of currency war, which has been going on for years, reflects the failure of international cooperation and the failure the G-20 to find a solution of the beggar-thy-neighbor policies of almost every nation. The result has been growing geopolitical dislocation, which G-20 has yet to find a solution for. These efforts, until recently, were turned upside down by the failure of the Copenhagen Summit in the summer of 2009, when it was discovered that global warming was a giant scam. This was proof positive that global leadership was nothing less than a group of common criminals. Economic and financial failure has brought about global austerity measures, and bickering over trade and currencies as well. As this transpired the economies of the US, UK and Europe slid downward in socio-economic, crisis, which in some cases has degenerated into violent demonstrations.


The US and UK are in economic paralysis due to the major changes anticipated in next week’s elections of House and Senate delegates. The President isn’t even going to be in Washington to witness the massacre of the Democrats. He just refuses to deal with it, as a long line of bureaucratic appointees head back to Harvard, foundations, think tanks, the Council on Foreign Relations and the Trilateral Commission. This as the Chairman of the Fed unveils plan two of quantitative easing, the creation of money and credit out of thin air, which in reality has been going on in the bond market since early June. Another bit of subterfuge dreamed up on Wall Street.

The Fed is monetizing a stimulus plan that the administration is no longer capable of assisting, due to an enraged public. On the other hand, large dollar holders are loudly complaining that the Fed’s policies will cause major inflation and a falling US dollar. Of course, the flip side is if the Fed doesn’t act in this manner the US economy will collapse and with it the world economy. The dumb Chinese, Japanese and oil producers should have long ago accumulated gold and gotten rid of dollars. That was not to be as they in fact enslaved to US leadership by yields and exports. The expenditure of $5 trillion over the next two years by the Fed will only take the US economy sideways at best, and in turn take the dollar to new lower levels. All the insiders know the plan won’t work, but it will buy time, perhaps so they can have another war as a distraction, as they have done many times before in history. Even the public knows it won’t work having been alerted by information pouring out of talk radio and the Internet. The US is already in austerity. Just look at real unemployment of 22-3/4%. This is getting worse not better and that means a change in control in the House and Senate could well bring about a constraining of fiscal and monetary policy.


The US is on a path to socio-political chaos as the dollar falls and the world monetary system comes unglued. Those countries in decent monetary and fiscal condition will pull away from dealing with the US and that has already occurred with Brazil that doesn’t want inflationary dollar investments entering their country, thus, they have implemented a dollar investment tax. The US cannot return to the past. Its leadership lost that opportunity in June of 2003 when they decided to go ahead and take down the economies of the US, UK and Europe in order to force the inhabitants of these countries to accept world government. A main cog in this plan was the implementation of free trade, globalization, offshoring and outsourcing, which has cost the US in just ten years 8.5 million jobs.


There is no chance now of return as countries pull away from US and UK financial markets. These moves will protect these countries for a time, but eventually they will feel the sting of economic failure and instability as trade wars and tariffs become the norm. Washington will cease to be the world leader. The currency and trade wars have only just begun. They could not be avoided by either side. There is about to be a convergence of problems. Things that previously were not connected that will burst forth without warning. That will eventually lead to the implosion of the system.


These factors will be accompanied by social unrest, which we have just seen the beginnings of in Europe. This time of social, monetary and fiscal turmoil will last at least into 2014 before any solutions are put on the table. An easy solution is multilateral revaluation, devaluation and default. This would be very painful, but would stop the power by today’s elites in the US, UK and Europe and the unmasking of their treachery.


Throughout Europe and the US there has and will continue to be a rise in patriotic movements, which those who control governments already have labeled terrorists. These are people like us who bring truth and exposure of facts to the attention of the public.


We are currently facing a new crisis in the US in the mortgage markets and in their securities, which has been aided and abetted by a disintegrating legal system. This comes to real estate at a time when it is on life support. The states cannot be of much assistance because most of them are broke, which is another distinct problem.


The US has already abdicated its role of world leader. Even leadership from Wall Street and banking is dreadful. Worse yet there is no one to take its place, as the world lies adrift in a sea of trouble. The atmosphere is explosive because no one wants to give up anything. The financial markets will all eventually fall and the flight to gold and silver as the only real money will gain acceptance, as we predicted long ago. Americans and others have failed to see the future and they’ll pay dearly for not paying attention.


One of the interesting developments of the new currency wars is a concept that, the nations that will be the most successful, are the nations that devalue the fastest. One of the things nations miss is that the cheap currency that propels exports; also raises the costs of imports. Another fallout is others won’t want to own your currency and if you devalue a currency enough it becomes worthless, or nearly so. A good example of that was in the 1930s where only tariffs were successful. As a rule those tariffs were not steep. The threat, of course, is that nations get mad at one another and war follows.


What these nations have been doing is similar to quantitative easing, or simple fiat creation of money and credit. These actions are the antithesis of sound money.


The Forex, foreign exchange market, trades $4 trillion a day and its projected to trade $10 trillion daily in the next couple of years. Money flows are already wild to say the least. Many foreign currencies have been rising versus the dollar. Some nations such as Brazil have already instituted capital controls by putting taxes on foreign purchases of local sovereign debt. Those not into the foreign game are buying US Treasuries, gold, silver and commodities.


The FOMC and the Fed, even though they know it won’t work, are becoming more and more accommodative. You will get some idea of their plan next week. The result will be a falling dollar, which is not really monetary policy, but grasping at straws in the wind. You will find nothing of sound money here and as a result markets will ultimately not survive. Remember, we could return to the circulation of gold and silver. 76 years ago gold coins were widely circulated and silver was in everyone’s pocket just 47 years ago. It is not impossible. It could happen again over the next few years.


It was just two weeks ago that the dollar revisited 76.54 on the USDX. It had rallied over the past four months from 76.88. It is currently about 77.28. Every time it tries to rally it gets knocked down again. That is a long way from 89 where it was seven months ago. One thing is for sure, as long as we have ill-fated policies such as QE2 the dollar will continue to fall.


We also found it of interest that Bill Gross of PIMCO found the Fed has taken Charles Ponzi one-step further. He says, “Has there ever been a Ponzi scheme so brazen?” No, there has not, said Bill. When the Fed meets next Wednesday it could signify the end of a great 30-year bull market in bonds.


What should be noted is that the Fed is intent on generating another asset bubble to accommodate the sale of Treasury and Agency bonds and to give Wall Street and banking more funds to speculate with. This will renew the elitist wealth effect and in the process send the dollar lower, which in turn will increase inflation, which is already sapping consumer buying. The Wall Street gang plan to use Fed funds to jack up the market, which is already overpriced by 20%, is an act of pyromania. In addition, the average increase in 15 commodities yoy to October is 35%. Food costs are up 48% and energy 23%. Real inflation is up 7%, not the 1.6% the Fed lies about.


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THE NEXT GLOBAL ECONOMIC CRISIS

October 31, 2010 1 comment

Will the world experience a new economic crisis that will be even more serious that the one that we have just been through or enter a period of sustained economic growth?

It is now becoming clear that the Anglo-Saxon and some European nations have not recovered from the recent economic crisis as was expected a year ago, and will slide back into a double-dip recession.   What has gone wrong? Why has not the economic stimulus packages worked?  Many economists had expected that by now that the USA would be in economic recovery, not facing high unemployment and a faltering economy.  Now, out of desperation the USA and UK are planning to print even more money in an effort to revive their faltering economies.

Meanwhile many other economies have recovered strongly from the recent recession.  In Europe the Germany economy is recovering strongly, as have most of the Asian economies.  Why have the Anglo-Saxon and some European nations not been able to do likewise?

The reasons are simple.  It does not require an economist with a PhD to figure out that if a country spends more than it earns year after year, eventually they will be in trouble.  While often economists disagree with one another on the causes and solutions, the fundamental problem why the English speaking nations are in the mess they are today is because for years they have lived beyond their means on borrowed money.  Sadly, nothing has been done to correct this, which was the cause of the recent recession; rather the current economic policies of the Anglo-Saxon nations are only made the situation worse.

The reasons for the economic crisis were:

1. Large trade deficits – the Anglo-Saxon nations have been importing far more than they export.

2. To finance their imports they have borrowed money from creditor nations with trade surpluses, which they now need to repay along with the interest.

3. Much of the GNP growth up to 2007 in these nations was in consummation of imported goods, housing and the service sector, while manufacturing declined.

4. The cost of servicing this debt has escalated while government revenues have declined.

5. Over generous welfare programs which have drained financial resources from the productive sectors of the economy.

6. A break-down on the moral fabric of society and poor work ethics

7. Costly wars and expensive defense budgets.

In an effort to revive their economies from the recession governments have operated large deficits by creating stimulus packages with borrowed and printed money.  They have continued to borrow off their creditor nations, increasing their international debt which is making long-term recovery even more difficult.

The UK and some European Governments have recently slashed Government expenditure, acknowledging they can no continue to borrow to finance their deficits.  The UK is now insolvent, struggling to pay the interest on their enormous national debt, while still incurring further debt.  The cut-backs have been so drastic that the UK economy will remain economically depressed for years.

Rather than accept responsibility for the financial mess many countries are now in, politicians have blamed bankers and speculators, instead of admitting it was their own fiscal policies that created the crisis in the first place.  Bankers make their money by lending – if loose monetary policies create too much money in circulation then bankers will find new customers to lend money – the result being the prime-housing bubble and banking crisis.  Existing loose monetary policies have continued, putting more fuel on the flames, with this time the governments themselves taking the risk, not the bankers.

Governments are like any business or household – if they spend more than earn they will eventually face bankruptcy. We now have a situation where some governments face the prospect of not being able to repay their debts, much in the same way many corporations failed during the recent recession.  To add to their woes, to prop up the failing banking systems, governments have printed money to either lend to these insolvent institutions, invested in them, or have provided loan guarantees.  As the US and UK economy continues to weaken, many of the institutions that their governments have propped up will fail, dragging down the governments themselves.

The next economic crisis will be bought about when nations default on their loans, rather than a banking crisis as was bought about with the last crisis..  Governments around the world have recklessly borrowed excessively to prop up their collapsing financial institutions; transferring much of the debt from these failed institutions to governments own balance sheets.  While some of this debt has been financed by printing money, a considerable amount has also been financed through borrowing on international money markets.  Governments around the world now owe over 57 trillion dollars in debt, not including local government and pension debt.  Managing this debt will soon become unsustainable – governments will simply not have the money to repay the interest let alone repaying the loans.  There will be a chain-reaction of sovereign bankruptcy.

Many nations outside the Eurozone have resorted to printing money to inflate their economies, injecting funds into propping up their banking systems and spending on infrastructure projects.  The USA, Japan and the UK have been among the countries less able to afford such increased spending because of the level of their national debt, but other nations have also resorted to the same practice, including India and China.  The consequence of this global printing of money will result in debasing the value of most currencies – we are already seeing a flight to gold by canny investors.

Already in Europe Portugal, Greece, Spain and Ireland their Governments face the possibility of defaulting.  Other EU countries are being forced to live within their incomes, creating depressed domestic economic conditions. The Eurozone countries have not been able to print money and have had to slash government expenditure in an effort to balance their budgets.  Such dramatic cut-backs in government expenditure has resulted in the contraction in their economies, rising unemployment, and the growing danger of political instability.

What will now unfold?

Many may not realise that the world is now awash with money.   The increase in the money supply as a part of the economic stimulus package has resulted a weakening of the US dollar and now threatening to destabilize global trade. Other nations are now printing money to buy dollars in an attempt to prevent their currencies rising against the dollar.  Eventually this will fail as printing money will not help in achieving sustainable economic growth, and will only cause a lack of confidence in the value of currencies, leading to inflation and financial collapse.  Those nations that have linked their currencies to the dollar, especially the Asian currencies, will see the dollar reserves wiped out, and massive devaluation of their own currencies.  This will create a new global economic crisis, much worse than what was experienced in 2008.

The collapse of the US dollar will bring on a period of considerable political of social unrest around the world, with many governments collapsing. With the collapse of government there will be wide-spread political unrest, as people demand a return to prosperity, even if it means giving up individual freedoms.  People will look for a strong leader who can restore world peace and prosperity.  Already in Western Europe civil unrest is spreading, as their populations refuse to accept the reforms required to enable countries to restore their economies.

The reshaping of Europe.

The European Central Bank which has adopted a more conservative fiscal policy than other Central Banks, as a part of their mandate to maintain a stable Euro; requiring its member states in the Eurozone to live within their incomes.  This will eventually see the Euro replace the US dollar as the world’s reserve currency, because of sounder fiscal policies.  It is also being dominated by Germany, leading the Eurozone becoming the dominant monetary power to restore a new world economic order.

The EU now consists of one group of European nations showing strong economic growth under-pinned by a re-emergent German economy, and another other group weighed down with debt, experiencing economic stagnation.   There is a growing unwillingness by those Eurozone countries that have recovered from the economic crisis to continue supporting those nations struggling with unsustainable debt levels.  Rather than the wealthier nations continuing to prop up those EU nations facing insolvency, the Eurozone is expected to restructure, with the German-led coalition dictating the monetary and political policies for the Eurozone, something that will be difficult under the existing structure. Those nations that cannot get their economies back into balance could be either forced out of the Eurozone, or have their economies controlled by the ECB or similar body, in return to being bailed out.

There has been a shift of power in the EU towards Germany, which is the largest and strongest growing economy (3.5% growth) and the leading exporter.  The German economy has gone through several years of economic readjustment to where it is now one of the most competitive in the world, is the world’s second largest exporter, and has benefited from adopting more conservative fiscal policies than other nations.  Germany is experiencing a growing self-confidence and becoming much more assertive in reshaping Europe into a cohesive political and economic union.  With the support of France, Germany is pushing for further amendments to the EU constitution to bring this about a more cohesive European Union

Ireland, Spain, Portugal and Greece are being forced to restructure their economies in effort to recover.  One option is to leave the Eurozone to allow their currencies to devalue and make the adjustments to their economies to enable them to recover.  Other heavily indebted Eurozone nations such as Italy, Netherlands and even France could be threatened with expulsion unless they can get their budget deficits in order.

Even those Eurozone countries that have recovering economies have large national debts, which they need to reduce.  They are not in a position or willing to support those Eurozone member countries facing insolvency.

Meanwhile a number of the EU countries outside the Eurozone are being forced to make painful adjustments to their economies.  In particular the UK and the Eastern European nations (with the exception of Poland) have to learn to live with falling taxation revenue, high unemployment, and stagnant economic growth. The UK is unlikely to recover.

However it will not be till the collapse of the US dollar that the world will be thrown into the next economic crisis that will force the reshaping of the reshaping of a new economic and political landscape of the world.  The dollar is expected to weaken significantly next year as the increase in the US money supply will stimulate consumer spending, creating inflationary pressures and widen the current account deficit.  This will trigger off another global economic crisis.

A new economic order will replace the failed Anglo-Saxon capitalistic model.  A German-dominated Europe will install a new economic order upon the world, with the Euro becoming the world’s only reserve currency.  It is only from such crises will the Europeans be willing to accept a strong leader and provide the political support for such a leader to impose unity and reforms upon a politically fragmented EU.

This new global economic order under a German-led EU will impose upon the world reforms to create a new regulated world economy to manage international trade, enforce social, environmental and religious standards upon the world under the pretense of maintaining world peace, protecting the environment, and maintaining prosperity.  Many individual freedoms will be suppressed for the sake of the State in bringing about a new world order.  Germany will be the one nation that can lead the world to economic recovery, but will only do so on its terms.

Meanwhile the Anglo-Saxon nations will be forced to repay their debts, their assets sold off, and their people forced to live in poverty.  There will be little sympathy for the plight of the bankrupt English-speaking world from their creditors, who will have lost much of their wealth because of Anglo-Saxon extravagance. The people of the UK, USA, Canada, Australia and New Zealand will be enslaved to their creditor nations, and will enter a time of great suffering and hardship.

History is unfolding right before our eyes, as a new economic order is forced upon the world to replace the old failed model.  It will be a regulated system in an attempt to avoid the distortions in the market that has happened over the last few years.  While this new economic system will bring in a period of global prosperity for a short time, it will also fail.  It will only be when a new world government is installed upon the earth based on the Law of God, under the rulership of Jesus Christ, that the world will experience peace and prosperity.

Bruce Porteous

31 October, 2010

bruceport@xtra.co.nz


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Jobless America threatens to bring us all down with it

October 12, 2010 Leave a comment

Experiences from bank runs during the Great De...

Experiences from bank runs during the Great Depression led to the introduction of deposit insurance ...

My Comment:

“Former KGB General Primakov has a plan for America’s unemployed. He is Jewish and worked as a consultant to the US Dept of Homeland Security.

He noted that America sent tens of millions of jobs overseas. He said you could put tens of millions of Americans into concentration camps, but you could only throw cans of spam over the fence at them for just so long until you would have to start shooting them”.
by dan fey
——————————————————-

Jobless America threatens to bring us all down with it

http://www.telegraph.co.uk/finance/comment/jeremy-warner/8057069/Jobless-America-threatens-to-bring-us-all-down-with-it.html

A depression may have been averted, but nothing has been fixed. This is the depressingly downbeat message that came across loud and clear from last weekend’s annual meeting of the International Monetary Fund.

The destructive trade and capital imbalances of the pre-crisis era are back, banking reform appears stuck in paralyzing discord, public debt in many advanced economies remains firmly set on the road to ruin, and the spirit of international co-operation that saw nations come together to fight the crisis has largely disappeared.

This was not where we were meant to be in tackling the underlying causes of the crisis and returning the world to sustainable growth. Yet beneath this sense of frustration at lack of progress – and at international organizations such as the IMF and the G20 to bring it about – there is an underlying truth that’s often left unspoken; many of the problems in the world economy right now are not international at all, but US specific and can only really be solved by America itself.

I don’t want to belittle the difficulties faced by some of the peripheral eurozone nations, but in the scale of things they are a sideshow alongside the malaise which has settled on the world’s largest economy.

Ignoring the troubled fringe, Europe as a whole is to almost universal surprise starting to look in reasonable shape again, and for reasons that I will come to, Europeans are in any case not nearly as fixated by high unemployment as their American peers.

What applies to the eurozone is also true of the UK. As in Europe, the dominant issue in UK policy is not joblessness, but unsustainable public debt. There’s a real, and growing, trans-Atlantic divide in perceptions and rhetoric. And with good reason.

Europe had a much deeper economic contraction than the US – oddly, perhaps, given that the crisis originated in the US – but joblessness didn’t climb nearly as steeply, and in the main eurozone economies is now falling again. In Germany, unemployment is already below pre-crisis levels.

Even in the UK, this has so far been a relatively jobs rich recovery, backed by a reasonably robust pick up in manufacturing and investment. For us, things are not as bad as the doomsayers of America suggest.

Heathrow experienced record levels of cargo and passenger traffic last month, according to new figures from BAA, and in a key marker of returning business confidence, premium traffic is also well up again. This chimes with what UK bankers were saying on the fringes of the IMF meeting in Washington last week.

A year ago at the same event, they were still trying to convince each other that they were still solvent. This year, new mandates are being thrown around like confetti, and many of the inter-bank disputes of the crisis period are now being resolved.

Why America has failed to respond as positively is still not entirely clear, though continued deep recession in house building and other forms of private construction is obviously some part of it. These sectors have historically been a larger proportion of employment than in Britain and Europe, and won’t begin to recover until prices stabilize and unsold stock is cleared.

The house price collapse means people can’t sell and move to economically stronger parts of the country, as they’ve tended to in past downturns. High US unemployment – already at 9.7pc and getting on for double that on some wider measures – is becoming entrenched.

If there is one thing the crisis has reminded politicians of it is that they really must be running surpluses during the good times. Going into the downturn, Germany was better prepared than the US, and has therefore proved more resilient.

Whatever the explanation, realization that there may be a structural problem of unemployment in the US on top of the cyclical one has come as a rude awakening for a country raised on the merits of hard work and enterprise.

US Treasury forecasts, both for growth and the public finances, continue to be based on delusionally optimistic use of “the Zarnowitz rule”, which posits that deep recessions are followed by steep recoveries. Regrettably, it’s not happening this time around.

These harsh economic realities have combined with the relentlessness of the US political cycle to produce a tsunami of demands for job creative policy. It’s not just experience of the Great Depression which instructs American terror of unemployment. Very limited jobless entitlements make the pain of mass and prolonged unemployment very real indeed, another key difference with Europe.

Serious losses for the Democrats in the mid-terms are already pre-cooked. If there aren’t solutions over the next year, the Administration may in desperation turn to more populist measures.

Retaliatory action against China and other “currency manipulators” is unlikely to help US employment much, but that’s not going to deter a president who sees his chances of a second term going down the pan. It would on the other hand create chaos in China by depriving millions of their jobs.

The Chinese economy is only a fifth of the size of the US, and its consumption less than an eighth. Even assuming other Asian exporters are punished equally, currency devaluation and import tariffs are not going to solve the problem of US joblessness.

So what’s left? The Fed can act, by pouring more money into the economy (QE2), but the Hill is paralyzed. A second fiscal stimulus of any size is blocked by political division. More monetary stimulus is all very well, but it’s a blunt instrument which struggles to get through to the job creative bit of the economy – small and medium sized enterprises – and threatens new bubbles in emerging markets as abundant liquidity chases yield.

There’s no political appetite or will in the US for the long term entitlement reform and tax increases necessary to bring the deficit under control. Nobody believes US Treasury forecasts that public debt will be stabilized by 2014. Much more believable are IMF estimates which see gross US debt rising to well in excess of 110pc of GDP by 2015.

The US has no strategy for the jobless and no strategy for rolling back debt. Little wonder that a renewed sense of gloom has settled on international policy

http://vidrebel.wordpress.com/

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America’s Third World Economy

October 9, 2010 Leave a comment

 

Paul Craig Roberts

Paul Craig Roberts

 

The Great Transformation

By PAUL CRAIG ROBERTS

For a number of years I reported on the monthly nonfarm payroll jobs data. The data did not support the praises economists were singing to the “New Economy.” The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.

This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.

Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing. The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.

The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future.

The millions of unemployed today are blamed on the popped real estate bubble and the subprime derivative financial crisis. However, the US economy has been losing jobs for a decade. As manufacturing, information technology, software engineering, research, development, and tradable professional services have been moved offshore, the American middle class has shriveled. The ladders of upward mobility that made American an “opportunity society” have been dismantled.

The wage and salary cost savings obtained by giving Americans’ jobs to Chinese and Indians have enriched corporate CEOs, shareholders, and Wall Street at the expense of the middle class and America’s consumer economy.

The loss of middle class jobs and incomes was covered up for years by the expansion of consumer debt to substitute for the lack of income growth. Americans refinanced their homes and spent the equity, and they maxed out their credit cards.

Consumer debt expansion has run its course, and there is no possibility of continuing to drive the economy with additions to consumer debt.

Economists and policymakers continue to ignore the fact that all employment in tradable goods and services can be moved offshore (or filled by foreigners brought in on H-1b and L-1 visas). The only replacement jobs are in nontradable domestic services, that is, those jobs that require “hands-on” activity, such as ambulatory health services, barbers, cleaning services, waitresses and bartenders–jobs that describe the labor force of a third world country. Even many of these jobs are now filed with foreigners brought in on R-1 type visas from Russia, Ukraine, Thailand, Romania, and elsewhere.

The loss of American jobs and the compression of consumer income by low wages has removed consumer demand as the driving force of the economy. This is the reason expansionary monetary and fiscal policies are having no effect.

The latest jobs report issued today shows that America’s transformation into a third world economy continues. The economy lost 95,000 jobs in September, mainly due to cuts in local education and federal employment. Part of the loss of 159,000 government jobs was offset by 64,000 new private sector jobs.

Where are the new jobs? They are in nontradable lowly paid domestic services: 32,000 were in health care and social services, and 33,900 were in food services and drinking places.

There you have it. That is America’s “New Economy.”

Paul Craig Roberts was an editor of the Wall Street Journal and an Assistant Secretary of the U.S. Treasury.  His latest book, HOW THE ECONOMY WAS LOST, has just been published by CounterPunch/AK Press. He can be reached at: PaulCraigRoberts@yahoo.com

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Wrecking the American Dream

October 8, 2010 Leave a comment

A new day, a non-existent government, an unfam...

A new day, a non-existent government, an unfamiliar sight for millions.

by Stephen Lendman

Long planned, the current economic storm erupted violently in late 2007. It wasn’t by accident. It was engineered years back, so financial racketeers could profit from wrecking global economies and destroying their middle class, including America’s.

On February 1, 2009, former high-level Wall Street and government insider, Catherine Austin Fitts, explained it an article headlined, “Financial Coup d’Etat,” saying:

A global financial cabal “engineered a fraudulent housing and debt bubble; illegally shifted vast amounts of capital out of the US; and used ‘privatization’ as a form of piracy – a pretext to move government assets to private investors at below-market prices and then shift private liabilities back to government at no cost to the private liability holder….Clearly, there was a global financial coup d’etat underway,” its magnitude overwhelming and incomprehensible to most people, as planned.

Many trillions of dollars have been stolen, shifted from public to elitist private hands – by far, the greatest ever wealth transfer in history, a global heist, sucking capital out of one country after another, including America. It’s an ongoing “de-moderniz(ation)” process, transforming Western countries into third world ones – in real time, in plain sight, yet few people understand.

In stark terms, Fitts says it’s more than just “a process designed to wipe out the middle class. This is genocide (by other means) – a much more subtle and lethal version than ever before perpetrated by the scoundrels of our history texts.”

It’s a government-business cabal for enormous profits through “legislation, contracts, regulation (or lack of it), financing, subsidies,” and massive handouts to Wall Street favorites. Carefully rigged for powerful elitists, the public is so cleverly harmed that few understand what’s happening – literally that their livelihoods, welfare and lives are being destroyed in real time. The America older generations knew no longer exists, the dream of millions wiped out, and it’s also happening throughout Europe.

In his September 30 article titled, “The Neoliberal Experiment and Europe’s anti-Austerity Strikes,” Michael Hudson explained sinister plans “to drastically change the laws and structure of how European society will function for the next generation. If (successful, they’ll) break up Europe, destroy the internal market, and render that continent a backwater. This is how serious the financial coup d’etat has become. And it is going to get much worse – quickly….The bankers are demanding that (governments) rebuild their loan reserves at labor’s expense.” It’s also Obama’s scheme, shifting greater wealth to the rich, impoverishing the rest.

Throughout the West, neoliberals are in control. “From Brussels to Latvia, (they) aim to shrink their economies to roll back wage levels by 30 percent or more – depression-style levels – (for) ‘more surplus’….to pay in debt service,” tribute to global bankers, turning Europe “into a banana republic.” It’s also planned for America.

“This requires dictatorship.” Labor is targeted for destruction. “Europe (like America) is entering an era of totalitarian neoliberal rule.” So-called “free markets” aren’t possible without it. But wait – “This is economic suicide, taxing labor, not the rich, and at the same time “slash(ing) wages and pensions, cut(ting) back public spending and employment, and shrink(ing) the economy,” turning Western societies into dystopian backwaters, a dark future unfolding in real time.

In his October 2 International Forecaster report, former insider and long-time financial expert Bob Chapman adds more about America, saying:

“There is no question that those who control our government from behind the scenes are bound and determined to take over the $6 trillion in private pension plans. Whether they’ll be successful remains to be seen. The Department of Labor wants to force all IRAs and 401ks into the arms of a corporate fascist government, that knows (best what’s) good for you.” They want public investments exchanged for “a guaranteed, government annuity that is not worth the paper it is written on.”

“Small amounts would go into” government retirement R-bonds, the larger portion earmarked for Wall Street – the usual suspects profiting, including Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, and other giants for even greater market control than already, and far more capital to manipulate for profit. Chapman calls it “monopoly control and subjugation of worldwide investments, a total hold on the control of all investments” to scam the public more than ever and head them deeper into poverty, exactly what Washington and Western governments propose.

On the pretext of reform, destroying Medicare and Social Security are also planned by privatizing them, earmarking them for Wall Street, the same way 401ks killed corporate pensions.

The House Republicans’ “Pledge to America” aims to wreck them by promising to save them, including by “reviewing Social Security and other entitlement programs” – meaning, let Wall Street bandits, not Washington run them.

A longtime GOP priority, congressional Republicans, Reps. Paul Ryan, Kevin McCarthy, and Eric Cantor explained it in their book, titled “Young Guns: A New Generation of Conservative Leaders,” proposing privatizing Social Security and replacing Medicare with a voucher system that amounts to the same thing. If enacted, of course, it will leave workers and seniors high and dry by providing Wall Street racketeers with a new opportunity for pillage.

Democrats have the same plan, to be unveiled in the lame duck session on the pretext of deficit reduction and fiscal austerity, ideas Obama endorses. On February 18, he signed an Executive Order, establishing a “bipartisan National Commission on Fiscal Responsibility and Reform” (a deficit reduction commission) to slash social spending, focusing heavily on Medicare and Social Security.

Stacked with neoliberal ideologues, Congress will get its recommendations during the lame duck session, and according to observers, then enact legislation before the 112th body’s first session in January. On the pretext of saving the economy, bipartisan chicanery plans to wreck it, leaving millions high and dry on their own.

Fiscal responsibility means class warfare, the agenda Professor Carroll Quigley explained in his 1966 book, titled “Tragedy and Hope,” saying:

“(T)he powers of financial capitalism (have a) far-reaching aim, nothing less than to create a world system of financial control in private hands to dominate the political system of each country and the (entire world economy). This system (would) be controlled in a feudalist fashion by (global, privately run central banks), acting in concert” secretly.

With bipartisan support, their plan is virtually complete. It will be advanced in the lame duck session, then further by the 112th Congress until all social programs end and finance capital has full control.

America’s Economic Landscape

On September 19, the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), “determined that a trough in business activity occurred in the US economy in June 2009. The trough marks the end of the recession that began in December 2007.”

Stacked with corporate economists (practicing what Michael Hudson calls “junk economics”), the types featured on business channels and in mainstream publications, the NBER is a Wall Street tool.

Non-member David Rosenberg has another view, saying “it is very difficult (getting) excited about (today’s) economic landscape.”

Unemployment is dangerously high. It’ll worsen, not improve, and there’s “absolutely no recovery in bank lending – especially to households.” In fact, consumer loans and real estate credit keep dropping, hardly a sign of recovery, besides disturbing consumer sentiment levels, a deep housing depression, and any number of other indicators showing a hugely troubled economy. It’s why independent observers like Hudson and Chapman expect worse to come, a tsunami of economic pain, hitting ordinary people hardest.

In 2008/09, the Fed’s near zero interest rate policy and quantitative easy money (QE1) failed. Sustainable economic growth, job creation, revived consumer spending, and normalized housing haven’t happened. No matter. Though already underway, on September 21, the Federal Open Market Committee (FOMC) announced QE2, saying:

“Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the long run, (and are) likely to remain subdued for some time….”

“The Committee will continue to monitor the economic outlook and financial developments and is prepared (read has already begun providing) additional accommodation (as) needed to support the economic recovery….”

In other words, money creation and asset buying will continue even though nearly two years of doing it failed. Key indicators show deep economic weakness. Gold is at record highs, and bond markets are signaling a depressed economic climate.

According to investment analyst Claus Vogt, the economic picture is “bleak….With the housing market in shambles, bank lending contracting, and consumers tapped out, there is no base for a sustainable recovery.”

“Will QE2 help? QE1’s failure showed even “the mighty Fed was not strong enough to” reverse the trend. “I can’t see a single reason” to think this time is different. “If anything, I expect the Fed’s efforts to prove even more ineffective this time around” because QE2 is its only remaining tool. QE1’s failure proved it ineffective.

Moreover, Bernanke knows it, having argued (with former Fed vice chairman Alan Blinder) against this type multiplier in 1988. In addition, bank reserves aren’t being loaned. They’re being stockpiling or held at the Fed for above-market rates. As a result, QE2 ad infinitum won’t work without lending, what’s not happening, nor will it under Bernanke’s scheme to prevent it. Further, under the fractional reserve system, banks don’t need credit to make loans. They do it by creating money out of thin air every time they issue one.

Thus, expect stagnation and more slowdown ahead, exacerbating existing problems, especially with bipartisan support for fiscal austerity at a time massive stimulus is needed. In addition, the Fed needs to put its money where our mouths are instead of handing it over to Wall Street.

Instead counterproductive policies are planned, Rosenberg saying, “It does not leave us with a very warm and fuzzy feeling.” In other commentaries, he’s expressed alarm, believing economic conditions describe depression, a conclusion he’s repeated several times.

A Final Comment

On September 28, the US Census Bureau provided more evidence of economic trouble, reporting America’s highest ever income gap. In 2009, median household income fell nearly 3% from $51,726 to $50,221, the second consecutive annual drop.

Moreover, among all developed nations, America has the highest income disparity, and it’s showing up in record numbers needing Medicaid, food stamps, and emergency food help. In addition, higher levels of poverty, homelessness and other worrying signs show economic weakness, not strength.

Yet, with growing human depravation, bipartisan indifference cares only about serving wealth and privilege. Expect that attitude to harden post-election, leaving growing millions on their own, out of luck, and if new legislation passes as expected, eventually without Social Security and Medicare, once Wall Street bandits gets their hands on them.

On September 18, Obama explained it when he told the Congressional Black Caucus, “You didn’t elect me to do what was popular. You elected me to do what was right,” his hidden message meaning populism will be sacrificed for privilege. As a result, expect lots tougher times ahead because political leaders plan it – wrecking the American dream for business at the public’s expense unless enough outrage erupts to stop it.

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog site at sjlendman.blogspot.com and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

 

:: Article nr. 70494 sent on 06-oct-2010 21:11 ECT
www.uruknet.info?p=70494

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