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No Escape from War and Unemployment
By Paul Craig Roberts
10/01/08
"ICH"
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New
Hampshire voters have chosen warmonger clones of Bush/Cheney for
their party’s presidential candidates. The only candidates not
in Israel’s pocket are Kucinich, Paul, and Gravel, who have no
chance for their party’s nomination.
Obama, who provided some hope for change, undercut his support
on the eve of the New Hampshire primary by declaring that he
would invade Pakistan in order to protect America. It is a
mystery why Obama thought this message would motivate those
inclined to support his candidacy.
This means change is unlikely. Neocon think tanks, media,
evangelical preachers, President Bush, Vice President Cheney,
and many other members of the government have succeeded in
turning a majority of Americans into scared Islamophobes and in
denying Americans any reliable information about the cause of
the conflict.
Unfolding economic events during 2008 are likely to increase
fear among the US population--the fear that comes from recession
and indebtedness.
As the German National Socialists said, a fearful population
welcomes a savior. The Bush Regime has put into place all the
necessary pieces for rule by the executive.
The Greenspan Fed created money and low interest rates to hide
the effect on the US economy of job loss from offshoring. The
low prices, achieved by substituting low-cost Asian labor for
American labor, masked the inflationary impact of the Fed’s
monetary policy.
The low interest rates created artificial increases in home
prices by reducing the carrying costs of mortgages. Most people
buy according to monthly payment, not purchase price of the
home.
Many homeowners refinanced to capture and spend the rise in home
equity produced by the low interest rates. This spending and
the construction boom misled people about the strength of the
economy.
So did US productivity and GDP statistics. As Susan Houseman
has shown, US statistics have not been adjusted for offshoring
and include in US productivity and GDP growth both the lower
labor costs and the real output of offshored goods that are in
fact part of Asian GDP.
Performance-driven executives at financial institutions were
suckered into purchasing subprime derivatives, which have
crashed, leaving the financial system with serious problems.
Bailouts require yet more liquidity, but the exchange value of
the US dollar has been reeling from US budget and trade
deficits. Creating more dollars makes holding existing dollar
assets even less attractive to the foreigners who finance US
deficits.
The dollar has retained its reserve currency role despite its
loss of value, because there is no clear alternative. The euro
is a currency without a country, and might be adversely affected
by differential interest rates arising within the EU
membership. The UK economy is comparatively small and faces
similar problems to the US. The rising Asian economies are not
ready to assume the role.
As I have documented repeatedly, job growth in the US has been
confined to domestic nontradeable services. The US is now far
more dependent on imported manufactured goods than it is on
imported energy. Offshoring makes it impossible for the US to
balance its trade as offshoring turns US GDP into imports.
Offshoring is now reaching beyond manufacturing into high-end
service jobs. Princeton University economist Alan Blinder, a
former vice chairman of the Federal Reserve, estimates that
there are as many as 30 million US service jobs filled by
college graduates that are susceptible to offshoring.
As long as China continues its currency peg to the dollar, lower
prices from a continuation of offshoring can hide the new round
of Fed money creation. But can a new round of money creation
create enough new consumer spending by over-indebted consumers
to mask the jobs lost to offshoring with more employment for
waitresses and bartenders, or will the new liquidity be used up
in saving the troubled financial institutions? Access to more
credit does not help people who are maxed out and cannot pay
their bills, especially when they are losing their jobs.
Studies by economists with the Economics Policy Institute report
that as of 2006, the most recent data, the typical American
family’s income remained $1,000 below its peak in 2000. Six
years of “economic recovery” were unable to put the real median
family income back to its previous peak. The combination of
massive indebtedness, offshoring job loss, and recession is
likely to produce further decline in US living standards.
Last month (December 2007) the Congressional Budget Office
released its report on household incomes. The CBO data show
that 80% of Americans have experienced a falling share of US
income, and that the top 1% of the income distribution has
received almost the entire income gain of the top 20% of
Americans. Keep in mind that some of this measured income gain
is in reality phantom income according to the research of Susan
Houseman.
An economy that concentrates its income gains at the very top
while wiping out high value-added jobs by sending them abroad,
thus dismantling the ladders of upward mobility, is an economy
headed for serious troubles even without subprime derivative and
currency problems.
All of the presidential candidates currently in the running have
authoritarian personalities. America’s next president is likely
to seize upon rising domestic economic hardship and growing
resistance abroad to US hegemony to complete the dismantling of
America’s constitutional system.
Dr. Roberts was Assistant Secretary of the US Treasury for
Economic Policy in the Reagan administration. He is credited
with curing stagflation and eliminating “Phillips curve”
trade-offs between employment and inflation, an achievement now
on the verge of being lost by the worst economic mismanagement
in US history.
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