Tuesday, July 21, 2009

Traded Away

Greetings good citizen,

The trading day is far from over, that said the markets have, using their own parlance, ‘failed to retain earlier gains’. From the looks of the charts they haven’t fallen far, the Dow was down 5 points around noon and the down line looks pretty equal to the ‘up’ line, why so much drama over ten points? Who knows…

There is a multitude of issues clamoring for our attention today but I’d like to focus your attention on just two of them.

You may recall from last night’s post the, er, ‘upbeat’ tone used to describe what would normally be considered a turn for the worse.

When the dollar tanks and commodities rise it usually indicates a ‘run for the exits’, otherwise know as a ‘flight to safety’.

The anonymous writer of last night’s post (neither AP nor Reuters ‘attributes’ their sources) didn’t make this rather obvious connection for readers…but it is also absent from the rest of the MSM/blogosphere.

Well, it didn’t go completely ‘unnoticed’ as we an see at the bottom of this piece

Which begs the question as to whether or not the ‘smart money’ was indeed ‘headed for the exits’ yesterday?

There have been a lot of pixels spilled by the MSM in an attempt to convince the public that circumstances are far better than what they witness for themselves every day. The ‘recovery is all around you, you just can’t see it from where you are standing…’

Naturally, not everyone is on board this bandwagon and so we arrive at tonight’s offering

[Hat tip: Loose cannon]

Tonight’s commentator is not new to these pages…and I still have a hard time believing he’s a Republican!

Traded away for a make-believe economy, the real US economy is dead

By Paul Craig Roberts
Online Journal Contributing Writer

Jul 17, 2009, 00:16

There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical “New Economy.”

The “New Economy” was based on services. Its artificial life was fed by the Federal Reserve’s artificially low interest rates, which produced a real estate bubble, and by “free market” financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products. [Simply put, they created tons of money from existing ‘wealth’, effectively destroying both.]

The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans’ wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.

And now, suddenly, Americans can’t borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America’s consumer economy, approximately 70 percent of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.

Meanwhile the US government’s budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for 2010. And President Obama has intensified America’s expensive war of aggression in Afghanistan and initiated a new war in Pakistan. [Understand that Iraq is far from ‘over’.]

There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.

The US government’s budget is 50 percent in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street’s financial gangsterism, the world needs its own money and [doesn’t have]hasn’t $2 trillion annually to lend to Washington. [which means the funds will be ‘printed’ by us instead of them.]

As dollars are printed, the growing supply adds to the pressure on the dollar’s role as reserve currency. Already America’s largest creditor, China, is admonishing Washington to protect China’s investment in US debt and is lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring gold and stocks of raw materials and energy.

The price of one-ounce gold coins is $1,000 despite efforts of the US government to hold down the gold price. How high will this price jump when the rest of the world decides that the bankruptcy of “the world’s only superpower” is at hand?

And what will happen to America’s ability to import not only oil, but also the manufactured goods on which it is import-dependent?

When the oversupplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer. [Followed twenty minutes later by widespread rioting…]

Nothing in Presidents Bush and Obama’s economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a “bloody fortune” with US aid.

It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing -- General Motors and Chrysler -- that were bailed out. It was the Wall Street banks.

According to Bloomberg.com, Goldman Sachs’ current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.

This should tell even the most dimwitted patriot who “their” government represents.

The worst of the economic crisis has not yet hit. I don’t mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their mortgage payments. Commercial real estate loans were also securitized and turned into derivatives.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government’s bills and from the dollar’s loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.

Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.

Nothing in Obama’s economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama’s policy, like Bush’s before him, is keyed to the enrichment of Goldman Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money.” Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.

Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.

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.

Okay, he’s a Republican, even I’m not that gloomy.

That aside, it’s difficult to argue with the facts as they are laid out here. The US economy is indeed hollow, to the point where we no longer have an ‘engine’ to pull us out of the quagmire created for us by the ‘banksters’.

And if ‘financialization’ somehow makes a comeback, we’re really scroomed! (Worse, they’re already ‘re-securitizing’ toxic assets and the moronic ratings agencies are blessing them with AAA ratings, again!)

I’m sure you’re wondering who, given the current state of the financial markets, is STUPID enough to buy this crap? Sadly the answer is the same people who bought up this dreck the last time, ‘institutional investors’, will buy it.

Which means this toxic garbage is headed straight for your pension fund!

This begs the question of whether it would be more effective to make rating this crap AAA or buying it with ‘other people’s money’ a hanging offense?

Just to be safe, we probably need to do both.

I’d also beg to differ from Mr. Roberts on another point…nobody ‘has’ the funds needed to paper over this fiasco so suggesting we ‘borrow’ this money is yet more ‘misdirection’.

Not to accuse Mr. Roberts of making such a suggestion, this ludicrous idea can also be laid at the feet of the banking community.

Pretending to borrow non-existent money is just another way of collecting interest on what might best be described as counterfeit financial instruments. Neither the money nor the debt it represents is ‘real’. This is just an attempt by the banksters to make the massive amounts of funny money ‘real’.

Did I mention the government (or what passes for it these days) is being operated by criminals?

Combined, these two news items paint a fairly grim picture of the future, a future that is not nearly as bright as the image being projected by today’s corporate owned (and currently tanking) MSM.

Which begs another interesting question…when the corporate-owned media collapses due to lack of funds, will the government take it over?

Oh, and will the government advertise their products for free?

Thanks for letting me inside your head,


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