Impending Destruction of the US Economy (PCRoberts)

[katty]

more: http://www.informationclearinghouse.info/article18787.h...

Impending Destruction of the US Economy

By Paul Craig Roberts

11/28/07 "ICH" -- --- Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the US economy. If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis. But if the dollar’s plight is half as bad as predicted, high US interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.

Which will Washington sacrifice, the domestic financial system and over-extended homeowners or its ability to finance deficits?

The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without the ability to borrow abroad, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces.

A few years ago the euro was worth 85 cents. Today it is worth $1.48. This is an enormous decline in the exchange value of the US dollar. Foreigners who finance the US budget and trade deficits have experienced a huge drop in the value of their dollar holdings. The interest rate on US Treasury bonds does not come close to compensating foreigners for the decline in the value of the dollar against other traded currencies. Investment returns from real estate and equities do not offset the losses from the decline in the dollar’s value.

[indepat]

1. Gee, does that mean Amurikans who have earned one to four percent on their bank CDs over the past

several years really had negative returns when factoring in the dollar's loss of purchasing power? Who would've thunk it since everything is supposed to be coming up roses during junior's reign?

[Strelnikov_]

2. False GDP measurement

Recent work by Susan Houseman concludes that US statistical data systems, which were set in place prior to the development of offshoring, are counting some foreign production as part of US productivity and GDP growth, thus overstating the actual performance of the US economy.

[necso]

3. I'm not convinced that lowering interest rates

will do much for the housing market. Some people bought properties that they just couldn't afford, even with low interest rates (some probably couldn't afford paying the principle alone). And many people (including speculators; a much bigger problem than some concede, I believe) bought properties in anticipation of (turnaround) gains that didn't come. Moreover, many people may now owe more on their houses than these can be sold for, and lower interest rates seem unlikely to turn around the falling market quickly enough to make much difference. (Nor am I convinced that lower rates will do much for the wider credit problems.)

Furthermore, the loan instruments themselves are part of the problem; for example, in the form of prepayment penalties, which can be onerous for cash-strapped "owners", who are only looking to refinance -- or are facing this burden when selling.

However, many speculators are howling for lower interest rates, as they're looking for the government to prop-up the stock-market (and looking to profit from a falling dollar).

And while I agree that many Americans are hard-pressed and not in a position to pay more taxes, the elite can afford to pay much more; and corporations too.

But let's face it, as a nation we've allowed the industrial economy to be gutted, huge debts to be run up, bubbles to grow beyond all reason, the dollar to be devalued, inflation to run hot, crooks of all sorts to play their thieving games unchecked, etc -- as though there'd never be any price to pay for it. Well, there is a price to pay, and it should be paid in proportion to the ability to pay. (Moreover, we have infrastructure, R&D, energy, etc, needs that the government must play a role in. )

[Baby Snooks]

5. It's not meant to...

People really don't understand the purpose of the Federal Reserve. It is there for one purpose. To serve the individual banks which in many cases are owned by governors of the Federal Reserve.

The banks borrow money. The banks do not have to loan the money they borrow. In this case, the banks apparently are borrowing the money simply in order to stay solvent. Or at least give the impression that they are solvent. If a bank collapses, the Federal Reserve doesn't step in. The government does. And the Federal Reserve, unlike you and me, gets back every penny they loaned. Which may be why you and I only get back a maximum of $100,000. It offsets the enormous amount the Federal Reserve gets back.

Why anyone believed this ongoing infusion of money would help the average person is beyond me.

Did people think the banks would give it away to help people pay their mortgages?

The sale of 11% interest in Citibank should have been a final warning. No one has heeded the warning. Every man for himself at this point.

The insiders on Wall Street are going to make what it can before the bottom falls out. The rich are getting richer. And they are probably putting their profits in euros. Much safer.

[rAVES]

4. make an America tax to every country on earth!

they can pay for the pleasure of sharing the same planet!!!11

well.. they already do "pay" but in MONEYS TOO!

[dantyrant]

6. Is this not what inflation does?

For the first time in history, in the twentieth century, America was able to tax the world indirectly, through inflation. It did not enforce the direct payment of taxes like all of its predecessor empires did, but distributed instead its own fiat currency, the U.S. Dollar, to other nations in exchange for goods with the intended consequence of inflating and devaluing those dollars and paying back later each dollar with less economic goods—the difference capturing the U.S. imperial tax.(link)

[Danascot]

7. Good point

& thanks for the link.

Do you have other sites/links you like for economic commentary?

Since your post count isn't high, I want to be sure you know about DU's daily Stock Market Watch, an excellent source of financial and economic information - todays edition:

http://www.democraticunderground.com/discuss/duboard.ph...

[dantyrant]

9. Danascot - thanks for the link!

Sorry, just saw your reply now... I've caught a few of the early morning Stock Market Updates, and there's good info in there!

I tend to try to scour news from all over. For economic(and even political) commentary, I think Mike Whitney's excellent. http://www.smirkingchimp.com/author/mike_whitney

Paul Craig Roberts is good too... He's a conservative, but I think his analyses usually measure up pretty well. http://www.vdare.com/roberts/all_columns.htm

Beyond that, I just tend to read whatever pops up on the news sites that I frequent. This site in particular, Crimes and Corruption of the New World Order News does an excellent job of scouring the net for reliable independent news and commentary on politics and economics. http://mparent7777-2.blogspot.com /

Asia Times... http://atimes.com

Nouriel Roubini's blog - http://www.rgemonitor.com/blog/roubini /

Market Oracle - http://marketoracle.co.uk

And Report on Business - http://www.reportonbusiness.ca - for Canadian content

[rAVES]

8. I knew it was to good an idea not to have been thought of already :)

[Voltaire99]

10. Another fine analysis by PCR, a former Reaganite (!)

Truly one of the very few lights on the American right, and certainly brighter than the Bush-facilitating sell outs in the American center.

[L0oniX]

11. Toys R Us has only 2 stock items that are NOT made in China.

I have to wonder how many are tainted with some poison of some kind. Speaking of that have you seen info on all the pets dieing because of tainted food from China? Now, even the Mexicans are complaining about jobs going to China.