The Economy is a Lie, too
Americans cannot get any truth out of their government
about anything, the economy included. Americans are
being driven into the ground economically, with
million school children now homeless,
while Federal Reserve chairman Ben Bernanke announces
the recession is over.
spin that masquerades as news is becoming more
delusional. Consumer spending is 70% of the US economy.
It is the driving force, and it has been shut down.
Except for the super rich, there has been no growth in
consumer incomes in the 21st century. Statistician John
shadowstats.com reports that
never recovered its pre-2001 peak.
US economy has been kept going by substituting growth in
consumer debt for growth in consumer income. Federal
Reserve chairman Alan Greenspan encouraged consumer debt
with low interest rates. The low interest rates pushed
up home prices, enabling Americans to refinance their
homes and spend the equity. Credit cards were maxed out
in expectations of rising real estate and equity values
to pay the accumulated debt. The binge was halted when
the real estate and equity bubbles burst.
consumers no longer can expand their indebtedness and
their incomes are not rising, there is no basis for a
growing consumer economy. Indeed, statistics indicate
that consumers are paying down debt in their efforts to
survive financially. In an economy in which the consumer
is the driving force, that is bad news.
banks, now investment banks thanks to greed-driven
deregulation that repealed the learned lessons of the
past, were even more reckless than consumers and took
speculative leverage to new heights. At the urging of
Larry Summers and
CEO Henry Paulson, the Securities and Exchange Commission and the Bush
administration went along with removing restrictions on
the bubble burst, the extraordinary leverage threatened
the financial system with collapse. The US Treasury and
the Federal Reserve stepped forward with no one knows
how many trillions of dollars to
financial system," which, of course, meant to save
the greed-driven financial institutions that had caused
the economic crisis that dispossessed ordinary Americans
of half of their life savings.
consumer has been chastened, but not the banks.
Refreshed with the TARP $700 billion and the Federal
Reserve`s expanded balance sheet, banks are again
behaving like hedge funds. Leveraged speculation is
producing another bubble with the current stock market
rally, which is not a sign of economic recovery but is
the final savaging of Americans` wealth by a few
investment banks and their Washington friends. Goldman
Sachs, rolling in profits, announced six figure bonuses
rest of America is suffering terribly.
unemployment rate, as reported, is a fiction and has
been since the Clinton administration. The unemployment
rate does not include jobless Americans who have been
unemployed for more than a year and have given up on
finding work. The reported 10% unemployment rate is
understated by the millions of Americans who are
suffering long-term unemployment and are no longer
counted as unemployed. As each month passes, unemployed
Americans drop off the unemployment role due to nothing
except the passing of time.
inflation rate, especially
is another fiction.
does not include food and energy, two of Americans`
biggest budget items. The Consumer Price Index (CPI)
assumes, ever since the
that if prices of items go up consumers substitute
cheaper items. This is certainly the case, but this way
of measuring inflation means that the CPI is no longer
comparable to past years, because the basket of goods in
the index is variable.
Boskin Commission`s CPI, by lowering the measured rate
of inflation, raises the real GDP growth rate. The
result of the statistical manipulation is an understated
inflation rate, thus eroding the real value of Social
Security income, and an overstated growth rate.
Statistical manipulation cloaks a declining standard of
bygone days of American prosperity, American incomes
rose with productivity. It was the real growth in
American incomes that propelled the US economy.
today`s America, the only incomes that rise are in the
financial sector that risks the country`s future on
excessive leverage and in the corporate world that
substitutes foreign for American labor. Under the
compensation rules and emphasis on shareholder earnings
that hold sway in the US today, corporate executives
maximize earnings and their compensation by minimizing
the employment of Americans.
to find some acknowledgement of this in the
media," or among economists, who suck up to the
offshoring corporations for grants.
worst part of the decline is yet to come. Bank failures
and home foreclosures are yet to peak. The commercial
real estate bust is yet to hit. The dollar crisis is
it hits, interest rates will rise dramatically as the US
struggles to finance its massive budget and trade
deficits while the rest of the world tries to escape a
the spring of this year, the value of the US dollar has
collapsed against every currency except those pegged to
it. The Swiss franc has risen 14% against the dollar.
Every hard currency from the Canadian dollar to the Euro
and UK pound has risen at least 13 % against the US
dollar since April 2009. The Japanese yen is not far
behind, and the Brazilian real has risen 25% against the
almighty US dollar. Even the Russian ruble has risen 13%
against the US dollar.
sort of recovery is it when the safest investment is to
bet against the US dollar?
American household of my day, in which the husband
worked and the wife provided household services and
raised the children, scarcely exists today. Most, if not
all, members of a household have to work in order to pay
the bills. However, the jobs are disappearing, even the
measured according to the methodology used when I was
Assistant Secretary of the Treasury, the unemployment
rate today in the US is above 20%. Moreover, there is no
obvious way of reducing it. There are no factories, with
work forces temporarily laid off by high interest rates,
waiting for a lower interest rate policy to call their
workforces back into production.
work has been moved abroad. In the bygone days of
American prosperity, CEOs were inculcated with the view
that they had equal responsibilities to customers,
employees, and shareholders. This view has been
exterminated. Pushed by Wall Street and the threat of
"enhanced shareholder value," and incentivized by
pay," CEOs use every means to substitute cheaper
foreign employees for Americans [How Well-Educated, Hard-Working Americans are Treated in America,
By Rennie Sawade,
WashTech News, September 14, 2009 ]. Despite 20%
engineering graduates who cannot find jobs or even job
interviews, Congress continues to support 65,000 annual H-1B work visas for
the midst of the highest unemployment since the Great
Depression what kind of a fool do you need to be to
think that there is a shortage of qualified US workers?
Paul Craig Roberts [email
him] was Assistant
Secretary of the Treasury during President Reagan`s
first term. He was Associate Editor of the Wall
Street Journal. He has held numerous academic
appointments, including the William E. Simon Chair,
Center for Strategic and International Studies,
Georgetown University, and Senior Research Fellow,
Hoover Institution, Stanford University. He was awarded
the Legion of Honor by French President Francois
Mitterrand. He is the author of
Supply-Side Revolution : An Insider`s Account of
Policymaking in Washington;
and the Soviet Economy and
Meltdown: Inside the Soviet Economy,
and is the co-author
with Lawrence M. Stratton of
The Tyranny of Good Intentions : How Prosecutors and
Bureaucrats Are Trampling the Constitution in the Name
of Justice. Click
here for Peter
Brimelow`s Forbes Magazine interview with Roberts
about the recent epidemic of prosecutorial misconduct.