Our Collapsing Economy

Paul Craig Roberts
CounterPunch
January 12, 2009

According to the Bureau of Labor Statistics, nonfarm payroll employment
declined by 3,445,000 from December 2007 through December 2008.

The collapse in employment is across the board.

Construction lost 520,000 jobs. Manufacturing lost 806,000 jobs. Trade,
transportation and utilities lost 1,495,000 jobs (retail trade accounted for
1,120,000 of this loss). Financial activities lost 145,000 jobs. Professional and
business services lost 713,000 jobs. Even government lost 188,000 jobs.

Only in health care and social assistance has the economy been able to eke
out a few new jobs.

Many analysts believe the job losses will be as great or greater during 2009.

Moreover, the reported job losses are likely understated. Noted statistician
John Williams (shadowstats.com) reports that biases in measurement have
understated the job loss over the last 12 months by 1,150,000 jobs. Williams
reports the unemployment rate as it was measured prior to “reforms”
designed to minimize the measured rate of unemployment. According to the
methodology used in 1980, the US unemployment rate in December 2008
reached 17.5 percent.

Yes, “our” government lies to us about economic statistics, just as it lies
to us about “terrorists,” “weapons of mass destruction,” “building freedom
and democracy in the Middle East,” and the Israeli-Palestinian conflict.

An objective person would be hard pressed to find any statement made by
the US government that is reliable.

The collapse of the job market means even harder times for last year’s and
this year’s crops of college graduates. The offshoring of professional jobs
and the widespread use by US corporations of H-1b, L-1, and other work visa
programs for foreigners have left many recent American university graduates
without careers.

Recently, Bill Gates of Microsoft was pleading with Congress to allow even
more foreigners in on work visas. According to Gates, there is a shortage
of American workers despite a 17.5 percent unemployment rate. I personally
know American computer engineers, both seasoned and recent graduates,
who cannot find jobs.

What Gates and American corporations want is cheap labor, in effect
indentured servants, unprotected people who don’t demand an American
standard of living and who have no student loans to repay.

If Congress expands the work visas as US unemployment mounts, we will
have one more piece of evidence that “our” representatives have no sympathy
for the American people.

Where were America’s leaders while the economy slipped over the precipice?

Our leaders were telling us lies in behalf of special interests into whose
pockets Washington was pouring the taxpayers’ money. Our leaders
engineered wars that put billions of dollars into such disreputable pockets as
Halliburton’s, the firm of the American outlaw, Dick Cheney, and into
Blackwater, supplier of the overpaid mercenaries that the Bush Regime uses
to beef up its military force in Iraq. Some of the taxpayers’ billions, of
course, recycled into “our” representatives reelection campaign funds.

Our leaders were too busy making trips to Israel to reaffirm their support for
Israel’s ongoing theft of Palestine and for wars that enable this theft.

Our leaders were too busy serving financial interests by dismantling
regulatory barriers to over-leveraged greed. The extraordinary level of
leveraged debt and the fraudulent financial instruments resulted in annual
compensation for hedge fund managers and investment bankers larger than
a king’s ransom.

When the leveraged mortgages went bust, the banksters declared a “crisis”
and Congress responded by ripping off the American taxpayers for another
trillion dollars.

More is to come. Credit card debt, car loans, and commercial real estate
mortgages have been securitized, too. There is little doubt there are
derivatives based on this enormous pile of debt. As each “crisis” unfolds, it
will mean more bailout rewards for the crooks who deep-sixed the US
economy.

It is not implausible that by the end of this year the unemployment rate,
honestly measured, will be as high as during the Great Depression.

Few in Washington think there is any cause for alarm. Obama is calling the
situation “serious” not because he believes it is but in order to get another
trillion dollar “stimulus” package on the taxpayers’ books. Stimulus will do
the trick, economists say, and, moreover, the Federal Reserve has already
extended $2 trillion in loans, but won’t say to whom the money has been lent.

This massive expansion of new debt, economists think, is going to fix the
economy and put people back to work. They think the solution to excessive
debt is more debt.

The federal government budget deficit for the 2009 fiscal year will be $2
trillion at a minimum. That is five times larger than the 2008 budget deficit.

How can the Treasury finance such a huge deficit?

There are three sources of financing. Possibly people will flee from stocks,
bank deposits, and money market funds into Treasury “securities.” This
would require a form of “money illusion” on the part of people. People
would have to believe that investments can be printed, and that printing so
many new Treasury bonds would not dilute the value of existing bonds or
reduce their chance of redemption. They would have to believe that the
bonds would be repaid with honest money, not by running the printing
presses.

A second source of financing might be America’s foreign creditors. So far in
our descent into massive debt foreigners have footed the bill. Our foreign
creditors now hold very large amounts of US debt and other dollar-
denominated “securities.” They are likely to develop a case of cold feet when
they see a $2 trillion expansion in US debt in one year. Their most likely
response will be to start selling their existing holdings.

Who would purchase them? The only way the Treasury can redeem the
bonds that come due each year is by selling new bonds. Not only must the
Treasury find purchasers for $2 trillion in new debt this year but also must
find buyers for the bonds that must be sold in order to redeem old bonds that
come due.

If foreigners cease buying and instead start selling from their existing
holdings–China alone holds $500 billion in Treasury debt–a deluge will fall
on an already flooded market.

The third source of financing is for the Federal Reserve to monetize the
debt. In other words, the Treasury prints bonds and the Fed purchases them
by printing money. The supply of money thus expands dramatically in
relation to goods and services, and high inflation, possibly hyperinflation,
would engulf America.

At that point the US dollar, if still on its feet, collapses. The import-dependent
American population, dependent on imports for their mobility, their clothes,
shoes, manufactured goods, and advanced technology products, no longer
will be able to afford these imports.

A scary scenario? Yes. Overdrawn? Perhaps, but perhaps not. The United
States has spent the last 7 years in pointless wars that benefited only the
military-security complex and Israel’s aggression against Palestinians and
Lebanon. According to prominent experts, the out-of-pocket cost and already
incurred future liabilities of Bush’s wars comes to $3 trillion.

The cost of the Bush Regime’s* wars, together with the 2009 budget deficit
that Bush has bequeathed to Obama, equals half of the accumulated national
debt of the United States.

Several years ago United States Comptroller General David Walker informed
Congress and the White House that the accrued liabilities of the US
government exceeded the ability to pay. Yet, “our” leaders ignored the
Comptroller General and rushed headlong to add more trillions of dollars to
federal liabilities. In effect, the United States is bankrupt at this
present moment. According to generally accepted accounting principles, the
federal government has a negative net worth of $59.3 trillion.

Who is going to lend to a bankrupt government that is ruled by financial
crooks, the military-security complex, and the Israel Lobby? How long will
the world finance US aggression that disrupts energy prices, keeps the world
on edge, and makes America’s creditors complicit in war crimes?

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan
administration. He was Associate Editor of the Wall Street Journal editorial
page and Contributing Editor of National Review. He is coauthor of The
Tyranny of Good Intentions. He can be reached at:
[email protected]