The truth about America's economic situation
Ted
The Chief Instigator
Looks like 1929 will have been a Sunday picnic in the park, compared
to what the Land of the Formerly Free is about to go through...
--
Patrick "The Chief Instigator" Humphrey (pat...@io.com) Houston, Texas
chiefinstigator.us.tt/aeros.php (TCI's 2007-08 Houston Aeros) AA#2273
LAST GAME: Houston 2, Lake Erie 0 (April 2)
NEXT GAME: Friday, April 4 at Grand Rapids, 6:05
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Paul Craig Roberts Archive
Paul Craig Robert's appeal on behalf of VDARE.COM
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March 18, 2008
The Collapse of American Power
By Paul Craig Roberts
In his famous book, The Collapse of British Power (1972), Correlli
Barnett reports that in the opening days of World War II Great Britain
only had enough gold and foreign exchange to finance war expenditures
for a few months. The British turned to the Americans to finance their
ability to wage war. Barnett writes that this dependency signaled the
end of British power.
From their inception, America's 21st century wars against Afghanistan
and Iraq have been red ink wars financed by foreigners, principally
the Chinese and Japanese, who purchase the US Treasury bonds that the
US government issues to finance its red ink budgets.
The Bush administration forecasts a $410 billion federal budget
deficit for this year, an indication that, as the US saving rate is
approximately zero, the US is not only dependent on foreigners to
finance its wars but also dependent on foreigners to finance part of
the US government's domestic expenditures. Foreign borrowing is paying
US government salaries--perhaps that of the President himself--or
funding the expenditures of the various cabinet departments.
Financially, the US is not an independent country.
The Bush administration's $410 billion deficit forecast is based on
the unrealistic assumption of 2.7% GDP growth in 2008, whereas in
actual fact the US economy has fallen into a recession that could be
severe. There will be no 2.7% growth, and the actual deficit will be
substantially larger than $410 billion.
Just as the government's budget is in disarray, so is the US dollar
which continues to decline in value in relation to other currencies.
The dollar is under pressure not only from budget deficits, but also
from very large trade deficits and from inflation expectations
resulting from the Federal Reserve's effort to stabilize the very
troubled financial system with large injections of liquidity.
A troubled currency and financial system and large budget and trade
deficits do not present an attractive face to creditors. Yet
Washington in its hubris seems to believe that the US can forever rely
on the Chinese, Japanese and Saudis to finance America's life beyond
its means. Imagine the shock when the day arrives that a US Treasury
auction of new debt instruments is not fully subscribed.
The US has squandered $500 billion dollars on a war that serves no
American purpose. Moreover, the $500 billion is only the out-of-pocket
costs. It does not include the replacement cost of the destroyed
equipment, the future costs of care for veterans, the cost of the
interests on the loans that have financed the war, or the lost US GDP
from diverting scarce resources to war. Experts who are not part of
the government's spin machine estimate the cost of the Iraq war to be
as much as $3 trillion.
The Republican candidate for President said he would be content to
continue the war for 100 years. With what resources? When America's
creditors consider our behavior they see total fiscal
irresponsibility. They see a deluded country that acts as if it is a
privilege for foreigners to lend to it, and a deluded country that
believes that foreigners will continue to accumulate US debt until the
end of time.
The fact of the matter is that the US is bankrupt. David M. Walker,
Comptroller General of the US and head of the Government
Accountability Office, in his December 17, 2007, report to the US
Congress on the financial statements of the US government noted that
"the federal government did not maintain effective internal control
over financial reporting (including safeguarding assets) and
compliance with significant laws and regulations as of September 30,
2007." In everyday language, the US government cannot pass an audit.
Moreover, the GAO report pointed out that the accrued liabilities of
the federal government "totaled approximately $53 trillion as of
September 30, 2007." No funds have been set aside against this mind
boggling liability.
Just so the reader understands, $53 trillion is $53,000 billion.
Frustrated by speaking to deaf ears, Walker recently resigned as head
of the Government Accountability Office.
As of March 17, 2008, one Swiss franc is worth more than $1 dollar. In
1970, the exchange rate was 4.2 Swiss francs to the dollar. In 1970,
$1 purchased 360 Japanese yen. Today $1 dollar purchases less than 100
yen.
If you were a creditor, would you want to hold debt in a currency that
has such a poor record against the currency of a small island country
that was nuked and defeated in WW II, or against a small landlocked
European country that clings to its independence and is not a member
of the EU?
Would you want to hold the debt of a country whose imports exceed its
industrial production? According to the latest US statistics as
reported in the February 28 issue of Manufacturing and Technology
News, in 2007 imports were 14 percent of US GDP and US manufacturing
comprised 12% of US GDP. A country whose imports exceed its industrial
production cannot close its trade deficit by exporting more.
The dollar has even collapsed in value against the euro, the currency
of a make-believe country that does not exist: the European Union.
France, Germany, Italy, England and the other members of the EU still
exist as sovereign nations. England even retains its own currency. Yet
the euro hits new highs daily against the dollar.
Noam Chomsky recently wrote that America thinks that it owns the
world. That is definitely the view of the neoconized Bush
administration. But the fact of the matter is that the US owes the
world. The US "superpower" cannot even finance its own domestic
operations, much less its gratuitous wars except via the kindness of
foreigners to lend it money that cannot be repaid.
The US will never repay the loans. The American economy has been
devastated by offshoring, by foreign competition, and by the
importation of foreigners on work visas, while it holds to a free
trade ideology that benefits corporate fat cats and shareholders at
the expense of American labor. The dollar is failing in its role as
reserve currency and will soon be abandoned.
When the dollar ceases to be the reserve currency, the US will no
longer be able to pay its bills by borrowing more from foreigners.
I sometimes wonder if the bankrupt "superpower" will be able to scrape
together the resources to bring home the troops stationed in its
hundreds of bases overseas, or whether they will just be abandoned.
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury
during President Reagan's first term. He was Associate Editor of the
Wall Street Journal. He has held numerous academic appointments,
including the William E. Simon Chair, Center for Strategic and
International Studies, Georgetown University, and Senior Research
Fellow, Hoover Institution, Stanford University. He was awarded the
Legion of Honor by French President Francois Mitterrand. He is the
author of Supply-Side Revolution : An Insider's Account of
Policymaking in Washington; Alienation and the Soviet Economy and
Meltdown: Inside the Soviet Economy, and is the co-author with
Lawrence M. Stratton of The Tyranny of Good Intentions : How
Prosecutors and Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click here for Peter Brimelow's Forbes Magazine interview
with Roberts about the recent epidemic of prosecutorial misconduct.
Vid...@tcq.net
> The people are beginning to know it. The government won't admit it.
roberts echoes my thoughts in his last paragraph. if i was stationed
overseas i would acquire some gold or silver, or diamonds, something
on that order to ensure i got home. you know rush, the con party, and
the wall street gang will not give a hoot over them.
Texan 2112
In the words of the immortal spongioplast, 'Good luck with that'.
Clave
news:47f5ccfb$0$1098$4c36...@roadrunner.com...
>
> Like Obamessiah, you completely misrepresent McCain's position on Iraq.
What *is* his position this week?
Jim
Jeff
> Like Obamessiah, you completely misrepresent McCain's position on Iraq.
> In the words of the immortal spongioplast, 'Good luck with that'.
Must be a republican.
Completely ignores and snips the context to push some divisive issue.
Good luck with that record of accomplishments you guys have to run on.
Jeff