From: glevy@PRATT.EDU
Date: Tue Jun 19 2007 - 17:10:32 EDT
??? / In solidarity, Jerry
---------------------------- Original Message ----------------------------
Subject: It's Official: The Crash of the U.S. Economy has begun
From: "Antonio Pagliarone" <antonio.pagliarone@fastwebnet.it>
Date: Sun, June 17, 2007 10:39 am
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Saturday, 16 June 2007
It's Official: The Crash of the U.S. Economy has begun
Written by Richard C. Cook
It's official. Mark your calendars. The crash of the U.S. economy
has begun. It was announced the morning of Wednesday, June 13, 2007,
by economic writers Steven Pearlstein and Robert Samuelson in the
pages of the Washington Post, one of the foremost house organs of
the U.S. monetary elite.
Pearlstein's column was titled, "The Takeover Boom, About to Go
Bust" and concerned the extraordinary amount of debt vs. operating
profits of companies currently subject to leveraged buyouts.
In language remarkably alarmist for the usually ultra-bland pages of
the Post, Pearlstein wrote, "It is impossible to predict when the
magic moment will be reached and everyone finally realizes that the
prices being paid for these companies, and the debt taken on to
support the acquisitions, are unsustainable. When that happens, it
won't be pretty. Across the board, stock prices and company
valuations will fall. Banks will announce painful write-offs, some
hedge funds will close their doors, and private-equity funds will
report disappointing returns. Some companies will be forced into
bankruptcy or restructuring."
Further, "Falling stock prices will cause companies to reduce their
hiring and capital spending while governments will be forced to
raise taxes or reduce services, as revenue from capital gains taxes
declines. And the combination of reduced wealth and higher interest
rates will finally cause consumers to pull back on their
debt-financed consumption. It happened after the junk-bond and
savings-and-loan collapses of the late 1980s. It happened after the
tech and telecom bust of the late '90s. And it will happen this
time."
Samuelson's column, "The End of Cheap Credit," left the door
slightly ajar in case the collapse is not quite so severe. He wrote
of rising interest rates, "As the price of money increases,
borrowing and the economy might weaken. The deep slump in housing
could worsen. We could also discover that the long period of cheap
credit has left a nasty residue."
Other writers with less prestigious platforms than the Post have
been talking about an approaching financial bust for a couple of
years. Among them has been economist Michael Hudson, author of an
article on the housing bubble titled, "The New Road to Serdom" in
the May 2006 issue of Harper's. Hudson has been speaking in
interviews of a "break in the chain" of debt payments leading to a
"long, slow economic crash," with "asset deflation," "mass defaults
on mortgages," and a "huge asset grab" by the rich who are able to
protect their cash through money laundering and hedging with foreign
currency bonds.
Among those poised to profit from the crash is the Carlyle Group,
the equity fund that includes the Bush family and other high-profile
investors with insider government connections. A January 2007
memorandum to company managers from founding partner William E.
Conway, Jr., recently appeared which stated that, when the current
"liquidity environment"-i.e., cheap credit-ends, "the buying
opportunity will be a once in a lifetime chance."
The fact that the crash is now being announced by the Post shows
that it is a done deal. The Bilderbergers, or whomever it is that
the Post reports to, have decided. It lets everyone know loud and
clear that it's time to batten down the hatches, run for cover, lay
in two years of canned food, shield your assets, whatever.
Those left holding the bag will be the ordinary people whose assets
are loaded with debt, such as tens of millions of mortgagees,
millions of young people with student loans that can never be
written off due to the "reformed" 2005 bankruptcy law, or vast
numbers of workers with 401(k)s or other pension plans that are
locked into the stock market.
In other words, it sounds eerily like 2000-2002 except maybe on a
much larger scale. Then it was "only" the tenth worse bear market in
history, but over a trillion dollars in wealth simply vanished. What
makes today's instance seem particularly unfair is that the
preceding recovery that is now ending-the "jobless" one-was so
anemic.
Neither Perlstein nor Samuelson gets to the bottom of the crisis,
though they, like Conway of the Carlyle Group, point to the end of
cheap credit. But interest rates are set by people who run central
banks and financial institutions. They may be influenced by "the
market," but the market is controlled by people with money who want
to maximize their profits.
Key to what is going on is that the Federal Reserve is refusing to
follow the pattern set during the long reign of Fed Chairman Alan
Greenspan in responding to shaky economic trends with lengthy
infusions of credit as he did during the dot.com bubble of the 1990s
and the housing bubble of 2001-2005.
This time around, Greenspan's successor, Ben Bernanke, is sitting
tight. With the economy teetering on the brink, the Fed is allowing
rates to remain steady. The Fed claims their policy is due to the
danger of rising "core inflation." But this cannot be true. The
biggest consumer item, houses and real estate, is tanking.
Officially, unemployment is low, but mainly due to low-paying
service jobs. Commodities have edged up, including food and
gasoline, but that's no reason to allow the entire national economy
to be submerged.
So what is really happening? Actually, it's simple. The difference
today is that China and other large investors from abroad, including
Middle Eastern oil magnates, are telling the U.S. that if interest
rates come down, thereby devaluing their already-sliding dollar
portfolios further, they will no longer support with their
investments the bloated U.S. trade and fiscal deficits.
Of course we got ourselves into this quandary by shipping our
manufacturing to China and other cheap-labor markets over the last
generation. "Dollar hegemony" is backfiring. In fact China is using
its American dollars to replace the International Monetary Fund as a
lender to developing nations in Africa and elsewhere. As an
additional insult, China now may be dictating a new generation of
economic decline for the American people who are forced to buy their
products at Wal-Mart by maxing out what is left of our available
credit card debt.
About a year ago, a former Reagan Treasury official, now a
well-known cable TV commentator, said that China had become
"America's bank" and commented approvingly that "it's cheaper to
print money than make cars anymore." Ha ha.
It is truly staggering that none of the "mainstream" political
candidates from either party has attacked this subject on the
campaign trail. All are heavily funded by the financier elite who
will profit no matter how bad the U.S. economy suffers. Every
candidate except Ron Paul and Dennis Kucinich treats the Federal
Reserve like the fifth graven image on Mount Rushmore. And even the
so-called progressives are silent. The weekend before the Perlstein/
Samuelson articles came out, there was a huge progressive conference
in Washington, D.C., called "Taming the Corporate Giant." Not a
single session was devoted to financial issues.
What is likely to happen? I'd suggest four possible scenarios:
1.. Acceptance by the U.S. population of diminished prosperity and
a declining role in the world. Grin and bear it. Live with your
parents into your 40s instead of your 30s. Work two or three
part-time jobs on the side, if you can find them. Die young if you
lose your health care. Declare bankruptcy if you can, or just walk
away from your debts until they bring back debtor's prison like
they've done in Dubai. Meanwhile, China buys more and more U.S.
properties, homes, and businesses, as economists close to the
Federal Reserve have suggested. If you're an enterprising illegal
immigrant, have fun continuing to jack up the underground economy,
avoid business licenses and taxes, and rent out group houses to
your friends.
2.. Times of economic crisis produce international tension and
politicians tend to go to war rather than face the economic music.
The classic example is the worldwide depression of the 1930s
leading to World War II. Conditions in the coming years could be
as bad as they were then. We could have a really big war if the
U.S. decides once and for all to haul off and let China, or
whomever, have it in the chops. If they don't want our dollars or
our debt any more, how about a few nukes?
3.. Maybe we'll finally have a revolution either from the right or
the center involving martial law, suspension of the Bill of
Rights, etc., combined with some kind of military or forced-labor
dictatorship. We're halfway there anyway. Forget about a
revolution from the left. They wouldn't want to make anyone mad at
them for being too radical.
4.. Could there ever be a real try at reform, maybe even an
attempt just to get back to the New Deal? Since the causes of the
crisis are monetary, so would be the solutions. The first step
would be for the Federal Reserve System to be abolished as a bank
of issue and a transformation of the nation's credit system into a
genuine public utility by the federal government. This way we
could rebuild our manufacturing and public infrastructure and
develop an income assurance policy that would benefit everyone.
The latter is the only sensible solution. There are monetary
reformers who know how to do it if anyone gave them half a chance.
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