Globalisation: House of Cards

[IMPERIUM]

This is an interesting article about the impending economic collapse, worldwide. This is inevitable as the emerging countries like India and China outproduce, underprice the Whites.

Only an Imperium Europa, with sealed borders can protect our race from being elbowed out by our racial enemies. Enemies that are using our technology, gracefully granted to them, in order to undermine us and finally bring us to our knees.

The world economy is a House of Cards, with countries like Japan in an extremely vulnerable position. The USA deficit is some 12 trillion! Anything can happen, anytime.

Imperium
0504

La caduta di tutte le Borse asiatiche - a cominciare da Tokio - e di tutte le Borse europee annuncia l'apocalisse del capitalismo finanziario?
Certo è che la fuga dalle azioni denuncia una improvvisa "avversione al rischio", per non dire panico, fra speculatori e investitori. Tale fuga ha provocato persino un incredibile (e temporaneo) rialzo del dollaro rispetto alle valute asiatiche, perché la speculazione ha svenduto azioni in Asia e ha
comprato in massa Buoni del Tesoro americani: nell'illusione che siano più sicuri. Illusione a tutti nota, perché nessuno ignora che gli Usa sono il Paese più indebitato della storia, e virtualmente insolvente.
Ma dove mettere al sicuro il denaro rovente della speculazione? Non nell'euro: difatti la domanda di euro è caduta con le Borse asiatiche e non è strano, viste le previsioni di crescita zero per l'Europa, esangue e anemica. Almeno, i Bot del superdebitore mondiale, gli Usa, sono comparativamente più alti dei tisici interessi europei. Ma un indebitato che offre interessi alti rivela che il denaro altrui ormai gli necessita come una droga, e che la sua reputazione è scossa.
La grande finanza globale si trova di colpo a barcollare senza appigli, senza punti fermi. Il fatto che si rifugi nei dollari è solo l'indice paradossale del suo terrore.
E non è il solo paradosso, in questa imminente resa dei conti.
A Tokio, sono cadute tragicamente proprio le azioni di tutte le imprese di navigazione, acciaio, trasporti e viaggi che stanno avvantaggiandosi dell'impetuoso boom economico della Cina. Nippon Steel è caduta del 3,9%, Toyota del 2,8 %, Sony del 5%; Kinki Nippon Tourist (grande agenzia di viaggi) è scesa del 6.3 %, la Taiyo Yuden Co. (componenti elettronici) del 5,2%, e via precipitando.
Ma perché se queste imprese vanno bene, e se il loro cliente, la Cina, chiede sempre più materie prime, componenti semilavorati, trasporti, servizi, merci finite?
Il fatto è che la Cina prospera, perché vende soprattutto le sue carabattole agli Stati Uniti. E finché riuscirà a rifilargliele. Ma il deficit commerciale americano, ormai al ritmo di 60 miliardi di dollari al mese, ha toccato record mai visti.
Gli Usa comprano a credito, perché gli americani non hanno soldi da parte. E chi glieli presta? La Cina, acquistando Bot americani col suo surplus di dollari. La Cina ha un avanzo commerciale verso gli Usa che tocca 167 miliardi di dollari.
L'America un deficit commerciale che tocca ormai i 720 miliardi di dollari.
"La più ineguale relazione commerciale della storia umana", dice un esperto di commercio estero, Charles McMillion. Non può durare.
E infatti, è bastato un rallentamento dei consumi americani a scatenare il panico, la fuga folle dalle azioni di aziende di successo. Perché ormai, nella patologica economia Usa, sono i consumi delle famiglie americane a contare per i due terzi del prodotto interno lordo. Non la produzione di merci e servizi, non l'esportazione, la vendita, la manifattura: il puro e semplice consumo. L'America non fabbrica nulla e importa tutto, persino le scarpe dei soldati che spedisce nelle sue guerre nel mondo sono Made in Cina. A credito, per di più.
E' il capolinea dell'ideologia del libero mercato planetario, delle frontiere aperte a capitali e merci, dell'abolizione dei dazi in tutto il mondo, del calcolo dei profitti in termini puramente monetari, la "finanziarizzazione" dell'economia.
La dottrina di Adam Smith ( "Anziché produrre le proprie merci, acquistatele dai paesi che le producono a prezzo inferiore") rivela la sua faccia feroce: la rovina globale dietro l'angolo, l'alluvione di merci destinate a Paesi il cui potere d'acquisto cala, per cui finiranno per restare invendute.
Che l'assenza di dazi crei prosperità si sta rivelando il grande falso del secolo.
L'America crebbe del 4% l'anno per 50 anni continui quando, sotto le presidenze da Lincoln a Teddy Roosevelt, imponeva dazi medi del 40% sulle merci importate dall'estero; oggi l'America declina in regime di commercio ultralibero.
La Germania dal 1870 al 1914 è cresciuta sana e forte in regime protezionista, così come il Giappone dal 1950 al 1990.
Non a torto, oggi Hillary Clinton propone dazi del 27 % sulle merci cinesi. L'ortodossia ideologica liberista sta per essere rovesciata. Come accade nella grandi rovinose crisi, si cambia binario: ma dopo aver pagato il prezzo del disastro.
Chi e come lo pagherà?
In teoria, ciò che ci attende dovrebbe essere la deflazione: prezzi in calo di tutto, perché le merci cinesi sono troppo abbondanti per il nostro potere d'acquisto di occidentali, in calo epocale.
Ma in questi anni e ancor più negli ultimi mesi e giorni, la Banca Centrale Usa ha stampato trilioni di dollari per pagare i debiti americani: carta svalutata, la gigantesca molla di una inflazione esplosiva.
Da una parte, il rischio di un oceano di merci invendute. Dall'altra, il pericolo di un'alluvione di dollari, oggi in mano a cinesi e paesi petroliferi, che possono - al minimo accenno di calo - proiettarsi in Usa per fare man bassa, a qualsiasi prezzo, di qualsiasi merce disponibile, perché ogni merce è più sicura di pacchi di dollari-carta senza valore.
Rischio di deflazione estrema, o di estrema inflazione. Impossibile dire quale prevarrà, perché è la prima volta che una simile patologia si presenta nella storia, grazie al "libero mercato globale" e alla sottrazione di ogni aggancio reale (oro) alle valute. I due fenomeni, concettualmente opposti, potrebbero persino sommarsi e presentarsi assieme. In fondo è già quello che avviene: la benzina e il cibo rincarano, i telefonini e computer calano di prezzo.
La sola cosa certa è che il punto di rottura è imminente.
In Italia, l'occhio esercitato coglie già le prime fratture.
Solo due dati: gli ingenui neoricchi brianzoli e del nord-est, che sono corsi a comprarsi i SUV ("sport utility vehicle") - tipicamente la Porsche Cayenne da 110 mila euro - stanno rivendendoli al concessionario Bepi Koelliker, perché non ce la fanno a mantenerli (bollo, benzina, assicurazione).
Koelliker ricompra le Porsche Cayenne a 35 mila euro e non ci fa un affare, perché è dubbio che troverà altri fessi cui rivenderla. Secondo dato: un numero enorme di mutui-casa, si dice il 60% di quelli accesi in Italia, è in ritardo di pagamenti. In teoria, le banche possono rivalersi reclamando la proprietà della
casa del debitore insolvente, ipotecata dal mutuo.
Esitano a farlo, perché dovrebbero poi mettere in vendita quelle case - decine di migliaia - facendo crollare il mercato immobiliare oggi fantasticamente inflazionato. Così, prolungano il credito ai poveri insolventi, sperando che rientrino.
Ma molti non rientreranno: stiamo tutti sperimentando il calo di potere d'acquisto. Fra poco, molte case pignorate saranno messe in vendita, a prezzi più che convenienti. Troveranno compratori?
Sono segni premonitori di deflazione. Sono segni di apocalisse imminente.
di Maurizio Blondet

[Cristoforo]

Interesting article. One wonders how the US, with all their military power and economic experts, ended up like this. I guess it's time to buy gold!

[Freedom]

Interesting article. One wonders how the US, with all their military power and economic experts, ended up like this.

All the economic wealth from other thirld world countries ends up in the hands of the few capitalists and not redistributed and circulated in the american state.
Ferocious capitalism is suicidal.

I guess it's time to buy gold!
..which will only increase inflation.

[Neverwinter]

Source (http://news.independent.co.uk/business/news/article2871517.ece)
Summer meltdown: stock market suffers biggest fall in four years

Shares plummet around the world; FTSE's worst day nin four years; Value of UK PLC falls £60bn; Market slumps 13% since June; Pensions surplus wiped out; Fears for housing market; Growing threat to economy

By Sean O'Grady, Economics Editor
Published: 17 August 2007

"Crash" is a dangerous word. No one has managed to define it precisely but, like a juggernaut that careers off the highway, slams into your house and parks itself in your lounge, you certainly know when you've been hit by one, even when you can't quite believe it or explain how it happened.

It feels a little like that now on the world's stock markets, though the rumble of approaching catastrophe could be detected for some months. When even the United States Treasury Secretary, Henry Paulson, admits the turmoil will "exact a penalty" on the US economy's growth rate, then things are bad.

Until yesterday, it was possible to believe the markets were experiencing a "correction". That term now looks ludicrously euphemistic. Yesterday alone saw a collapse of 250 points in the FTSE 100 index, wiping 4.1 per cent from its value as it slumped to 5,859.9, well below the 6,000 mark, a psychological barrier. It is the biggest fall since March 2003. The loss since Wednesday stands at well over £100bn.

No market and hardly a stock escaped the carnage; in Tokyo the Nikkei closed down 2 per cent, Singapore lost 3.7 per cent, Korea down 7 per cent, France 2.6 per cent and Germany 1.7 per cent. Most crucially, because of the lead it offers the rest of the world, in New York shares pulled off a late-trading rally to end just 0.12 per cent down on the day - despite losses of about 2 per cent in early trading. But traders there remain nervous. The scale of the losses early in the day and the images of panicky dealers staring at screens a sea of red were reminiscent of the crashes of 1998 and 1987. Indeed then, as now, the abrupt end of a bull market followed a period of unusually easy credit, with excesses and scandals all about.

The comparison with 1987 is frightful. Then the Dow fell by 3.8 per cent and 4.6 per cent on the Thursday and Friday before Black Monday, at which point it lost 22.6 per cent of its value in one day. Even if it is not as bad as that, the party seems to be over.

Like a tiny bacillus laying low a vastly larger and, otherwise healthy organism, a crisis in one, relatively small, sector of the US mortgage market - "sub-prime" lending - has multiplied and spread to almost every corner of the global economy.

Sub-prime lending has been defined by the US Treasury Department as granting funds to those who "have weakened credit histories that include payment delinquencies, and possibly more severe problems such as charge-offs, judgments, and bankruptcies". In other words, people who probably should not be borrowing money at all.

Losses in the sub-prime sector are thought to run to about £50bn. Compare that with the hundreds of billions wiped off the value of shares in the past few days alone, and whatever sums it will cost central banks, taxpayers and shareholders to prop up ailing companies. This infection has done harm quite out of proportion to its origins.

The reason for that is the growing liberalisation, sophistication and globalisation of financial markets. The American banks that undertook this sub-prime lending were able to package up the debts and sell them on to banks, hedge funds and other investors from Zurich to Shanghai. This "securitisation" of the debt was designed to spread the risk, or exposure, around, with investors attracted by the unusually high returns on these funds.

Fine; except the US housing slump has activated the sub-prime virus and no one has much idea where this flaky debt is now sitting. Hence the panic, the gossip, and the rapid intervention by the Federal Reserve, the European Central Bank and the Bank of Japan to lend huge sums of money to prevent the financial system seizing up ("an injection of liquidity" to the cognoscenti).

Over the past week, the Fed has injected $88bn (£44.3bn), while the ECB has put up €211bn (£142.6bn). So will the virus spread out of the City and into the "real economy" of jobs, pensions and housing? Yes, because the value of pension funds and savings has already been slashed. When companies find it harder to raise capital - because of the "credit crunch" and the collapse in shares, they find it trickier to fund investment.

When that vital commodity - "confidence" - goes into short supply, consumers tend to take fright too. We might not get all that goes on in the City, but maybe now is not the moment to splash out on that new car or, indeed, gear up for a bigger house.

So there is a chance that house prices, already weakening, will start to stagnate, as is happening in the commercial property market. That would be no bad thing - especially for first-time buyers - provided unemployment does not creep up. If that happens then repossessions and a fire sale of buy-to-let property could follow, and we would have our own sub-prime-style crisis. The authorities are haunted by such a turn of events. True, we have a more benign global background of high global growth (about 5 per cent), more broadly based (with China and India) and still low inflation and unemployment. But the Bank of England and the Government will have to do a good deal - cutting the base rate, increasing public spending - to restore confidence.

A Treasury spokesman said: "The UK economy remains strong, against a background of a strong world economy. There will always be periods of uncertainty in the markets, but the long-term decisions the Government has taken - giving independence to the Bank of England, the fiscal rules and low and stable borrowing - have created a strong platform.

"The UK economy is experiencing its longest unbroken expansion since records began... Our openness and flexibility continue to position the UK to benefit from the opportunities of globalisation and absorb shocks."

The impact on financial sectors

Pensions

UK pension funds will have had their value fall in tandem with the exchanges. Those funds that have benefited from putting money into hedge funds and private equity ventures may see some or all of those investments in jeopardy. However, post-Maxwell, new protections should have made abuses less likely.

Housing Market

The big danger. If growth slows appreciably and joblessness rises then we could see some panicky selling. A welcome slow down in house price inflation could turn into a slump, with a "rush to the door" by marginal buy-to-let investors and other speculators. Negative-equity misery could re-emerge.

The Economy

Much depends on the reaction of the authorities. A loss of confidence in financial markets can easily affect consumer behaviour (spending less, saving more) and companies (who usually hold back on large investment plans). A reduction in interest rates and, in time, a boost from the Budget would help calm nerves.

Politics

Can cut both ways. Voters tend to "cling to nanny" in turbulent times, especially if they're not confident in the Opposition. On the other hand if electors blame Mr Brown for the crisis then things look better for the Tories. In any case, the Prime Minister doesn't have to go the country until 2010.

[Neverwinter]

Source (http://blogs.telegraph.co.uk/business/ambrosevanspritchard/august07/marketmayhem.htm)
Brace yourself for the insolvency crunch
Posted by Ambrose Evans-Pritchard on 23 Aug 2007

The liquidity crunch is not yet over: the insolvency crunch has hardly begun. Yes, investors are jumping back into the stock markets, hoping this is just another routine shake-out - much like February 2007, or May 2006 - before the rally resumes. The `buy-on-dips’ orthodoxy dies hard.

And yes, speculators have renewed their leveraged bets on the yen and Swiss franc carry trades, borrowing cheap in Tokyo and Zurich to play global assets. The core belief is that nothing has really changed, that the world economy is still in rude good health.

Be very careful. Interest rates in Europe and Asia are that much higher now, with delayed effects starting to bite hard. Japan’s economy has stalled to 0.1pc growth in Q2; the euro-zone has slowed to 0.3pc; and China’s refusal to import (by currency manipulation) makes it a drain on world demand. Above all, the credit bubble that perpetuated the rally of the last eighteen months beyond its natural life has definitively burst.

Credit spreads on the iTraxx Crossover (a good barometer of corporate bonds) have ballooned 180 basis points since February. The cost of borrowing for most firms in Europe and North America has jumped from circa 6.5pc to 8.3pc, if they can get it.

Many cannot. Germany’s Chamber of Industry told me yesterday that it had been flooded with distress calls from family Mittlestand firms unable to roll over credit lines. In Canada and Australia, junior mining finance has dried up almost entirely.

Global junk bond issuance has been frozen for two months. Fresh sales of collateralized debt obligations – the CDOs of subprime notoriety: a $1 trillion sold last year - have all but stopped. Banks have yet to off-load $300bn of debt from leveraged buy-out deals, forcing them to keep the liabilities on their books. They are all snake-bitten now.

The private equity buy-out premium – which pushed up the price/earnings ratio on the MSCI-600 of “median” stocks to a record high of 20 in May - has vanished. The P/E ratios on the DOW 30 big stocks are much lower – because they are too big even for the big cat predators, KKR and Carlysle – but they are not low, given the late stage of the cycle. In reality, an earnings bubble and ultra-cheap credit have flattered profits.

So no, the world has changed, dramatically. Whether this means a protracted global downturn and a “profits recession” depends on how quickly the central banks choose to respond, and how far they are willing to go.

Ben Bernanke is looking hawkish to me, given the shock of what happened on Monday when yields on 3-month US Treasury notes plunged at the fastest pace ever recorded, a panic flight to safety that no living trader had ever seen before.

Why? Because trust had collapsed to such a degree that players with a lot of cash no longer believed it safe to leave wealth in bank accounts, or the money market funds of brokerage companies - (exposed as they are to short-term commercial paper and subprime CDOs). This did not occur after 9/11, or in the heat of the October 1987 crash. Nor did was there such a banking panic in October 1929. (it hit in August 1931). If you think this is of no importance, or that this will pass swiftly, you have a strong nerve.

“When you have a run on the money markets like this, it is bound to spill over into the real economy,” said Albert Edwards, global strategist at Dresdner Kleinwort.

“We already thought there was a 40pc chance of a US recession before all this happened, but the risks are now much higher and don’t forget that rates on adjustable mortgages will keep rising until a peak next March, so the maximum pain will be in the second and third quarters of 2008,” he said

“There will be large bankruptcies, and liquidity is not going to help because too many people bet the farm at the top of the cycle, and they’re now insolvent. A lot more bodies are going to be floating to the surface before this is over,” he said.

The belief that Europe would somehow be insulated has been tested over the last two weeks. Two German banks have required bail-outs on subprime bets – Sachsen LB for Eu 17.3bn, IKB for Eu 8.1bn.

Alexander Stuhlmann, boss of WestLB, confessed that the German banking system was in a "not uncritical situation". Jochen Sanio, head of the German regulator BaFin, said a few days earlier that the country faced the worst banking crisis 1931.

Hence the continued actions of the European Central Bank, which has quietly injected 85bn euros in extra liquidity so far this week, almost as much as it did on the first day of emergency stimulus in early August.

“Banks are still thirsty for credit, and the spreads have been amazing. This is not business as usual at all,” said Julian Callow, chief Eurozone economist for Barclays Capital and an expert in the arcane field of central bank operations. (He used to work for the Bank of England.)

To clarify: the ECB allotted an extra Eu 45bn extra through a `weekly refi’ on Tuesday; and then Eu 40bn in a 3-month offer on Wednesday to stop the short-term commercial paper market seizing up.

What we know is that 146 banks bid for loans on Wednesday, some clearly in such distress that they were willing to pay up to 5pc interest – a full 1pc above the ECB’s benchmark rate.

Just like the dotcom bust: when the US sneezes, Europe catches… you know the rest.

In a warped sense, one has to admire the cool way that Americans – who save nothing, in aggregate – tapped into the vast savings pool of thrifty Germans to finance their speculative excesses, and then left the creditors holding a chunk of the subprime losses.

Was it sharp practice, in the same way that foreigners were recruited by Lloyds of London in 1986 and 1987 – before the impending asbestos losses were known – and place like cannon fodder on “spiral syndicates” to absorb crippling losses? (Lloyds denies this occurred).

I am endebted to Randall W.Forsyth from Barron’s for this delicious quote from a hedge-fund operator, recounting with disgust what happened this time in a letter to clients.

'Real money' (U.S. insurance companies, pension funds, etc.) accounts had stopped purchasing mezzanine tranches of U.S. subprime debt in late 2003 and [Wall Street] needed a mechanism that could enable them to 'mark up' these loans, package them opaquely, and EXPORT THE NEWLY PACKAGED RISK TO UNWITTING BUYERS IN ASIA AND CENTRAL EUROPE!!!!

"These CDOs were the only way to get rid of the riskiest tranches of subprime debt. Interestingly enough, these buyers (mainland Chinese banks, the Chinese Government, Taiwanese banks, Korean banks, German banks, French banks, U.K. banks) possess the 'excess' pools of liquidity around the globe. These pools are basically derived from two sources: 1) massive trade surpluses with the U.S. in U.S. dollars, 2) petrodollar recyclers. These two pools of excess capital are U.S. dollar-denominated and have had a virtually insatiable demand for U.S. dollar-denominated debt . . . until now."

[IMPERIUM]

COMMENTARY

American Economy: R.I.P.

By PAUL CRAIG ROBERTS

12 September, 2007

The US economy continues its slow death before our eyes, but economists,
policymakers, and most of the public are blind to the tottering fabled land
of opportunity.

In August jobs in goods-producing industries declined by 64,000. The US
economy lost 4,000 jobs overall. The private sector created a mere 24,000 jobs,
all of which could be attributed to the 24,100 new jobs for waitresses and
bartenders. The government sector lost 28,000 jobs.

In the 21st century the US economy has ceased to create jobs in export
industries and in industries that compete with imports. US job growth has
been confined to domestic services, principally to food services and drinking
places (waitresses and bartenders), private education and health services
(ambulatory health care and hospital orderlies), and construction (which
now has tanked). The lack of job growth in higher productivity, higher paid
occupations associated with the American middle and upper middle classes
will eventually kill the US consumer market.

The unemployment rate held steady, but that is because 340,000 Americans
unable to find jobs dropped out of the labor force in August. The US measures
unemployment only among the active work force, which includes those
seeking jobs. Those who are discouraged and have given up are not counted
as unemployed.

With goods producing industries in long term decline as more and more
production of US firms is moved offshore, the engineering professions are in
decline. Managerial jobs are primarily confined to retail trade and financial
services.

Franchises and chains have curtailed opportunities for independent family
businesses, and the US government’s open borders policy denies unskilled
jobs to the displaced members of the middle class.

When US companies offshore their production for US markets, the
consequences for the US economy are highly detrimental. One consequence
is that foreign labor is substituted for US labor, resulting in a shriveling of
career opportunities and income growth in the US.

Another is that US Gross Domestic Product is turned into imports. By
turning US brand names into imports, offshoring has a double whammy
on the US trade deficit. Simultaneously, imports rise by the amount of
offshored production, and the supply of exportable manufactured goods
declines by the same amount.

The US now has a trade deficit with every part of the world. In 2006
(the latest annual data), the US had a trade deficit totaling $838,271,000,000.

The US trade deficit with Europe was $142,538,000,000. With Canada the
deficit was $75,085,000,000. With Latin America it was $112,579,000,000
(of which $67,303,000,000 was with Mexico). The deficit with Asia and Pacific
was $409,765,000,000 (of which $233,087,000,000 was with China and
$90,966,000,000 was with Japan). With the Middle East the deficit was
$36,112,000,000, and with Africa the US trade deficit was $62,192,000,000.

Public worry for three decades about the US oil deficit has created a false
impression among Americans that a self-sufficient America is impaired only
by dependence on Middle East oil. The fact of the matter is that the total
US deficit with OPEC, an organization that includes as many countries
outside the Middle East as within it, is $106,260,000,000, or about one-eighth
of the annual US trade deficit.

Moreover, the US gets most of its oil from outside the Middle East, and the
US trade deficit reflects this fact. The US deficit with Nigeria, Mexico, and
Venezuela is 3.3 times larger than the US trade deficit with the Middle East
despite the fact that the US sells more to Venezuela and 18 times more to
Mexico than it does to Saudi Arabia.

What is striking about US dependency on imports is that it is practically
across the board. Americans are dependent on imports of foreign foods, feeds,
and beverages in the amount of $8,975,000,000.

Americans are dependent on imports of foreign Industrial supplies and
materials in the amount of $326,459,000,000 — more than three times US
dependency on OPEC. Americans can no longer provide their own
transportation. They are dependent on imports of automotive vehicles, parts,
and engines in the amount of $149,499,000,000, or 1.5 times greater than the
US dependency on OPEC.

In addition to the automobile dependency, Americans are 3.4 times more
dependent on imports of manufactured consumer durable and nondurable
goods than they are on OPEC. Americans no longer can produce their own
clothes, shoes, or household appliances and have a trade deficit in consumer
manufactured goods in the amount of $336,118,000,000.

The US “superpower” even has a deficit in capital goods, including
machinery, electric generating machinery, machine tools, computers,
and telecommunications equipment.

What does it mean that the US has a $800 billion trade deficit? It means that
Americans are consuming $800 billion more than they are producing.

How do Americans pay for it?

They pay for it by giving up ownership of existing assets — stocks, bonds,
companies, real estate, commodities. America used to be a creditor nation.
Now America is a debtor nation. Foreigners own $2.5 trillion more of American
assets than Americans own of foreign assets. When foreigners acquire ownership
of US assets, they also acquire ownership of the future income streams that
the assets produce. More income shifts away from Americans.

How long can Americans consume more than they can produce?
American over-consumption can continue for as long as Americans can find
ways to go deeper in personal debt in order to finance their consumption and
for as long as the US dollar can remain the world reserve currency.

The 21st century has brought Americans (with the exception of CEOs, hedge
fund managers and investment bankers) no growth in real median household
income. Americans have increased their consumption by dropping their saving
rate to the depression level of 1933 when there was massive unemployment
and by spending their home equity and running up credit card bills. The ability
of a population, severely impacted by the loss of good jobs to foreigners as a
result of offshoring and H-1B work visas and by the bursting of the housing
bubble, to continue to accumulate more personal debt is limited to say the least.

Foreigners accept US dollars in exchange for their real goods and services,
because dollars can be used to settle every country’s international accounts.
By running a trade deficit, the US insures the financing of its government
budget deficit as the surplus dollars in foreign hands are invested in US
Treasuries and other dollar-denominated assets.

The ability of the US dollar to retain its reserve currency status is eroding due
to the continuous increases in US budget and trade deficits. Today the world is
literally flooded with dollars. In attempts to reduce the rate at which they are
accumulating dollars, foreign governments and investors are diversifying into
other traded currencies.

As a result, the dollar prices of the Euro, UK pound, Canadian dollar, Thai baht,
and other currencies have been bid up. In the 21st century, the US dollar has
declined about 33 percent against other currencies. The US dollar remains the
reserve currency primarily due to habit and the lack of a clear alternative.

The data used in this article is freely available. It can be found at two official
US government sites: http://www.bea.gov/international/
bp_web/simple.cfm?anon=71&table_id=20&area_id=3 (http://www.bea.gov/international/bp_web/simple.cfm?anon=71&table_id=20&area_id=3)
and http://www.bls.gov/news.release/empsit.t14.htm (http://www.bls.gov/news.release/empsit.t14.htm)

The jobs data and the absence of growth in real income for most of the population
are inconsistent with reports of US GDP and productivity growth. Economists
take for granted that the work force is paid in keeping with its productivity.
A rise in productivity thus translates into a rise in real incomes of workers.

Yet, we have had years of reported strong productivity growth but stagnant
or declining household incomes. And somehow the GDP is rising, but not the
incomes of the work force.

Something is wrong here. Either the data indicating productivity and GDP
growth are wrong or Karl Marx was right that capitalism works to concentrate
income in the hands of the few capitalists. A case can be made for both
explanations.

Recently an economist, Susan Houseman, discovered that the reliability of
some US economics statistics has been impaired by offshoring. Houseman
found that cost reductions achieved by US firms shifting production offshore
are being miscounted as GDP growth in the US and that productivity gains
achieved by US firms when they move design, research, and development
offshore are showing up as increases in US productivity. Obviously,
production and productivity that occur abroad are not part of the US
domestic economy.

Houseman’s discovery rated a Business Week cover story last June 18, but her
important discovery seems already to have gone down the memory hole.
The economics profession has over-committed itself to the “benefits” of offshoring,
globalism, and the non-existent “New Economy.” Houseman’s discovery is too
much of a threat to economists’ human capital, corporate research grants, and
free market ideology.

The media have likewise let the story go, because in the 1990s the Clinton
administration and Congress permitted a few mega-corporations to concentrate
in their hands the ownership of the US media, which reports in keeping with
corporate and government interests.

The case for Marx is that offshoring has boosted corporate earnings by lowering
labor costs, thereby concentrating income growth in the hands of the owners
and managers of capital.

According to Forbes magazine, the top 20 earners among private equity
and hedge fund managers are earning average yearly compensation of
$657,500,000, with four actually earning more than $1 billion annually.
The otherwise excessive $36,400,000 average annual pay of the 20 top earners
among CEOs of publicly-held companies looks paltry by comparison. The
careers and financial prospects of many Americans were destroyed to achieve
these lofty earnings for the few.

Hubris prevents realization that Americans are losing their economic future
along with their civil liberties and are on the verge of enserfment.




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.




http://www.countercurrents.org/roberts120907.htm (http://www.countercurrents.org/roberts120907.htm)



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