McCAIN IS FULL OF SHIT.
If we look realistically at the US economy, we see that what is not moved offshore is being bailed out. Last year, the US Department of Energy was authorized to make $25 billion in loans to auto manufacturing firms and suppliers of automotive parts. Last week the Secretary of the Treasury took $5 trillion dollars in Fannie Mae and Freddie Mac home mortgages under its wing.
The open question is: what do these new liabilities do to the Treasurys own credit standing?
For now, this question is submerged. The traditional practice of fleeing to the US dollar and US Treasury bonds during periods of financial stress and uncertainty has boosted the dollar and kept interest rates low. But sooner or later the large US budget deficit, worsened by recession and bailouts, and the large trade deficit, which requires constant recycling of dollars held by foreigners into US financial and real assets, will result in renewed effort on the part of foreigners to lighten their dollar holdings.
When this time arrives, US interest rates will have to rise in order for the government to be able to continue to rely on foreigners to recycle the dollars acquired in trade to finance the US governments annual budget deficit.
Goods and services for American markets that US corporations outsource offshore return as imports, which widen the US trade deficit. Moving production offshore reduces US GDP and employment and increases foreign GDP and employment. Moving production offshore reduces the export capacity of the US economy while raising the import bill.
How is the budget deficit to be closed when jobs are disappearing and GDP (tax base) is being relocated offshore?
Not by higher taxes. Higher taxes are problematic for a recessionary economy in which unemployment, properly measured, is already in double digits (www.shadowstats.com).
Some people have speculated that the budget deficit will be closed by dismantling entitlement programs such as Medicare. Considering the cost of medical insurance, this would be catastrophic for tens of millions of older Americans.
The more likely avenue will be a raid on private pensions. Clintons appointee, Alicia Munnell, argued that private pensions should face a capital levy to make up for the fact that their accumulation was tax free. I expect that the federal government, faced with its own bankruptcy, will resurrect this argument.
In the 21st century, the US economy has been kept going by debt expansion, not by real income growth. Economists have hyped US productivity growth, but increased productivity has NOT raised family incomes. With consumers overloaded with debt and the value of their most important asset--housing--falling, the American consumer will not be leading a recovery.
A country that had intelligent leaders would recognize its dire straits, stop its gratuitous wars, and slash its massive military budget, which exceeds that of the rest of the world combined. But a country whose foreign policy goal is world hegemony will continue on the path to destruction until the rest of the world ceases to finance its existence.
Most Americans, including the presidential candidates and the media, are unaware that the US government is unable to finance its day-to-day operations and must rely on foreigners to purchase its bonds. The government pays the interest to foreigners by selling more bonds, and when the bonds come due, the government redeems the bonds by selling new bonds. The day the foreigners do not buy is the day the American people and their government are brought to reality.
This is not the financial position of a superpower.
Will what happened to Lehman Brothers today be Americas fate tomorrow?
excerpted from Counterpunch, 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.
