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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:
- 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.
- 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?
- 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.
- 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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