Uniontown Pennsylvania Message Forums - WWW.UNIONTOWN.COM

Former Asst Secretary of the Treasury wrote this...and without a manufacturing and Industrial base anymore, this pretty much sums up the condition in this country

Can The Economy Recover?

Paul Craig Roberts

July 16, 2009

There is no economy left to recover. The US manufacturing economy was lost to offshoring and free trade ideology. It was replaced by a mythical “New Economy.”

The “New Economy” was based on services. Its artificial life was fed by the Federal Reserve’s artificially low interest rates, which produced a real estate bubble, and by “free market” financial deregulation, which unleashed financial gangsters to new heights of debt leverage and fraudulent financial products.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government’s bills and from the dollar’s loss of exchange value.


The real economy was traded away for a make-believe economy. When the make-believe economy collapsed, Americans’ wealth in their real estate, pensions, and savings collapsed dramatically while their jobs disappeared.

The debt economy caused Americans to leverage their assets. They refinanced their homes and spent the equity. They maxed out numerous credit cards. They worked as many jobs as they could find. Debt expansion and multiple family incomes kept the economy going.

And now suddenly Americans can’t borrow in order to spend. They are over their heads in debt. Jobs are disappearing. America’s consumer economy, approximately 70% of GDP, is dead. Those Americans who still have jobs are saving against the prospect of job loss. Millions are homeless. Some have moved in with family and friends; others are living in tent cities.

Meanwhile the US government’s budget deficit has jumped from $455 billion in 2008 to $2,000 billion this year, with another $2,000 billion on the books for
2010. And President Obama has intensified America’s expensive war of aggression in Afghanistan and initiated a new war in Pakistan.

There is no way for these deficits to be financed except by printing money or by further collapse in stock markets that would drive people out of equity into bonds.

The US government’s budget is 50% in the red. That means half of every dollar the federal government spends must be borrowed or printed. Because of the worldwide debacle caused by Wall Street’s financial gangsterism, the world needs its own money and hasn’t $2 trillion annually to lend to Washington.

As dollars are printed, the growing supply adds to the pressure on the dollar’s role as reserve currency. Already America’s largest creditor, China, is admonishing Washington to protect China’s investment in US debt and lobbying for a new reserve currency to replace the dollar before it collapses. According to various reports, China is spending down its holdings of US dollars by acquiring g0ld and stocks of raw materials and energy.

The price of one ounce g0ld coins is $1,000 despite efforts of the US government to hold down the g0ld price. How high will this price jump when the rest of the world decides that the bankruptcy of “the world’s only superpower” is at hand?

And what will happen to America’s ability to import not only oil, but also the manufactured goods on which it is import-dependent?

When the over-supplied US dollar loses the reserve currency role, the US will no longer be able to pay for its massive imports of real goods and services with pieces of paper. Overnight, shortages will appear and Americans will be poorer.

Nothing in Presidents Bush and Obama’s economic policy addresses the real issues. Instead, Goldman Sachs was bailed out, more than once. As Eliot Spitzer said, the banks made a “bloody fortune” with US aid.

It was not the millions of now homeless homeowners who were bailed out. It was not the scant remains of American manufacturing–General Motors and Chrysler–that were bailed out. It was the Wall Street Banks.

According to Bloomberg.com, Goldman Sachs’ current record earnings from their free or low cost capital supplied by broke American taxpayers has led the firm to decide to boost compensation and benefits by 33 percent. On an annual basis, this comes to compensation of $773,000 per employee.

This should tell even the most dimwitted patriot who “their” government represents.

The worst of the economic crisis has not yet hit. I don’t mean the rest of the real estate crisis that is waiting in the wings. Home prices will fall further when the foreclosed properties currently held off the market are dumped. Store and office closings are adversely impacting the ability of owners of shopping malls and office buildings to make their m0rtgage payments. Commercial real estate loans were also securitized and turned into derivatives.

The real crisis awaits us. It is the crisis of high unemployment, of stagnant and declining real wages confronted with rising prices from the printing of money to pay the government’s bills and from the dollar’s loss of exchange value. Suddenly, Wal-Mart prices will look like Nieman Marcus prices.

Retirees dependent on state pension systems, which cannot print money, might not be paid, or might be paid with IOUs. They will not even have depreciating money with which to try to pay their bills. Desperate tax authorities will squeeze the remaining life out of the middle class.

Nothing in Obama’s economic policy is directed at saving the US dollar as reserve currency or the livelihoods of the American people. Obama’s policy, like Bush’s before him, is keyed to the enrichment of Goldman Sachs and the armament industries.

Matt Taibbi describes Goldman Sachs as “a great vampire squid wrapped around the face of humanity, relentless jamming its blood funnel into anything that smells like money.” Look at the Goldman Sachs representatives in the Clinton, Bush and Obama administrations. This bankster firm controls the economic policy of the United States.

Little wonder that Goldman Sachs has record earnings while the rest of us grow poorer by the day.
___________________________

Ideas anyone?

The article sure paints a dismal future for the USA or probably the world economy. I for one can't see a better future until these large financial companies are broken up or fail. I would say the same for government unions who have a tight grip on state government.

One can only carry on by doing whats right and come home with pride of a good days work. The old story of lead by example !

Wow, I am disappointed it took me so long to check my own message board.

However, this post is right on the money.

I have been saying for a long time that we sold out our manufacturing base. Once I finish typing this message I'll try a quick search to see if I can find the message here where I said that quite a while ago.

But, how can an economy survive just on "consumerism"? Our economy is described as just that: a consumerist society. We no longer "make" anything here.

My opinion is that we won't recover until it makes sense to make things in this country again. The sad thing is that we are a long way from that. The main issue is wages. I hate to say it, but we won't recover until our wages are at a comparable level to the places we have been outsourcing to. Luckily (or not), China's wages are rising fast, and will assist in this wage equalization. But as long as we make nothing, fundamentally we really have nothing but vapor money and a vapor economy.

I also have said the worst is ahead of us.

Thank you for the GREAT POST. Your quoted text gives me some ammo for when I discuss with friends, I am not the only one who reads the economy this way. Sorry it took so long for me to find it here!!!

EDIT: Here is the thread of where I was making the same point that you quoted from the Former Asst Secretary of the Treasury:

http://www.uniontown.com/viewtopic.php?f=5&t=150

"...my belief is that the greedy sold our foundation and lifeblood to overseas countries. Fat cats here in the US made some serious coin by offloading labor overseas. China, Mexico, others are now making everything. So, that left the United States as being a "consumer society". A society that only "consumes" and never makes anything can't survive for long. In our case, the money was feeding on itself cyclically, and it took 20 years for this self-feeding bubble to pop.

It's my belief that a depression is on the way. We won't be whole again until we start making things like Cars, Televisions, Steel, or whatever. And, that won't happen until the offshore wages increase to make it less worthwhile to offload our labor, or our wages decrease enough to where offloading overseas isn't financially worth it. That's nowhere near happening yet, although China is making great strides."

I know this is 20/20 hindsight, but there should have never been a company of any sort that's so large that it "can't be allowed to fail".

From this point on, if there is any company that gets that large, it should be split just like the baby bells.

If the company makes horrendous mistakes that cause it to fail, then it fails. Only with true horror and disaster will the others learn.

It's just like nature, propping up the weak greatly dilutes the strength of the whole. And yes, you can quote me on that!!!

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So, is being a consumer society any better than being a producer society? The fact is, China, like Japan, made a royal mistake in putting all their eggs in one basket with the US. If the US does not buy their goods, then their economy crumbles, even worse than ours. This is especially scary for China, which does not have the wealth to consume the goods that they are producing. China is so insane that they are purposely buying our debt and proping up the dollar in hopes that our economy will rebound and buy their crap, therefore keeping their people employing and eating. If you think it's bad here, this is a battle for life and death in China. They're still a dictatorship and they can't hold elections to "change" things. If things go south there, heads will roll...literally. That's the way things happen in these places, without elections the only alternative is riots and revolution. The chinese gov't is very scared by our spending and a lot of the craziness coming out of North Korea is a subtle warning from the Chinese, believe that.

As to your comments about selling out our manufacturing base, that's bs. What were we supposed to do? This isn't the 1930s anymore. Technology has made it extremely easy and quick to open factories in 3rd world countries, make stuff very cheap, and have it shipped here within days of it being produced. Do you think you'd be able to find $15 t-shirts at old navy if they were made in the US by American (most likely union) workers? Of course not. Do you have any idea how much ipods, computers, and every other hunk of junk that we buy would cost if it were made here? American labor costs and taxes would easily drive the price up 30%-50% on these goods. Besides, why don't you talk about all the jobs that we've received from foreign companies due to globalization? Until the recession, a lot of people were making plasma tvs right down the road at the Sony factory. If you buy a Honda, most likely it is made in Alabama, not Japan. If you buy a Toyota, it is probably made in Indiana or Texas. These car companies are more profitable than the American ones because they are non-union and in "right to work" states with cheaper labor costs.

We've also given American companies tons of tax breaks and grants to keep them in America, but you can't force companies to stay here. What else can you do? If it's not profitable to stay here, then that's business. Would you put tariffs on goods coming from China and Mexico? 1) They would simply return the tarrifs making out few goods that we still make here harder to sell, and 2) these companies selling foreign junk here would simply pass the tariff costs onto the consumer, again making things more expensive.

If we want to make things again, then we need to play by the new rules and give our companies a chance to compete with the 3rd world countries. First, eliminate federal minimum wage laws. Let the states make their own min. wage laws. It's stupid that Uniontown and Los Angeles have the same min. wage laws. Things are cheaper here and we are more desperate for the work. With our unemployment rate, it would be great to have factories paying people $5 an hour rather than the $7.50 or whatever the min wage is now. It would create competition between the poorer areas of America and places like Mexico and China. Second, we need to get rid of these crazy environmental laws that have ruined our coal and steel industries. This isn't 1920. We have the technology to make coal and steel much cleaner than we did back then. Third, get rid of the damn unions. We might never get to where we once was with manufacturing, but we'd get a lot of jobs back, and especially in depressed areas like Fayette County. That is all. Be sure to vote for me in 2012.

Apparently being a producer society isn't working out too poorly for China, this statistic is for 1st half of 2009:

http://www.businessinsider.com/china-has-a-bigger-auto-market-than-the-us-2009-7

"China Has A Bigger Auto Market Than The U.S. (GM, F)
Looks like China's stimulus is working. It just dethroned the United States as the world's largest auto market. In the first half of 2009, sales are up 17.7% year over year, with 6.1 million units sold in China versus 4.8 million sold in the U.S."

The Chinese highway system will rival the US highway system near 2020.

China is BLOOMING.

Yes, China does have a high "dollar investment" in the US, and they are pushing to convert that "dollar investment" to be more materialistic. That's why they are converting the dollars to material resources, which explains why they are hoarding Copper and Oil and other natural resources. Even they think the dollar is going down in value, and they are our biggest investor.


I think if there was a little more loyalty for our country and less greed, American companies would have kept making the widgets here at higher cost. YOU ARE ABSOLUTELY RIGHT that we would not have $15 shirts at Walmart, and you are right that we would not have had such a huge tremendous growth spurt over the last 20 years, but look at the end result. Now we are headed for a depression the likes of which the US has never seen IMO.

It's the same thing as a pyramid scheme. A society that is 70% consumer can't work, at least not forever. It will work long enough at the beginning because it's fed by the huge initial profits of the offloading of the manufacturing. Then, this money runs cyclically through the economy for 20 years or so creating a bubble, which then bursts. Silly people think the worst is over, and they are just now starting to put money back in the markets and are trying to jumpstart this invalid business model, but when that doesn't work, watch this next plummet. It will be epic.


Agreed. Pretty much all you've said I agree with, except your premise of "what else were we supposed to do?" I disagree with your premise that we had to take this path. We did not have to take this path, and it was a mistake, and we will pay dearly.