by Paul Craig Roberts
July 16, 2009
Paul Craig Roberts
Hon. Paul Craig Roberts was educated at the Georgia Institute of
Technology, the University of Virginia, the University of
California, Berkeley, and Oxford University where he was a member of
Dr. Roberts has held numerous academic
appointments, including Senior Research Fellow, Hoover Institution,
Stanford University, and William E. Simon Chair, Center for
Strategic and International Studies, Georgetown University.
Dr. Roberts served in the
Congressional Staff in the House and Senate and was appointed
Assistant Secretary of the Treasury by President Ronald Reagan. He
was awarded the French Legion of Honor in 1987.
Dr. Roberts is author of 'Alienation
and the Soviet Economy' and 'The Supply-Side Revolution'. He is
coauthor with Matthew Stephenson of 'Marx’s Theory of Exchange,
Alienation, and Crisis'.
He is coauthor with Karen LaFollette
Araujo of 'Meltdown: Inside the Soviet Economy and The Capitalist
Revolution in Latin America'. He is coauthor with Lawrence Stratton
of 'The New Color Line and The Tyranny of Good Intentions'.
His latest book, 'How The Economy Was
Lost', will be published by CounterPunch in October 2009. Dr.
Roberts is a columnist for Creators Syndicate in Los Angeles.
The headquarters of
the Federal Reserve in Washington, D.C. (AP)
There is no economy left to recover.
The U.S. manufacturing economy was lost to
off-shoring and free trade ideology. It was replaced by a mythical “New
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
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
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 U.S. 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
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 U.S. 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 U.S. dollars by acquiring gold and stocks of raw materials
The price of one ounce gold coins is $1,000 despite efforts of the U.S.
government to hold down the gold 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 U.S. dollar loses the reserve currency role, the U.S.
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 U.S. 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
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 mortgage
payments. Commercial real estate loans were also securitized and turned into
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 U.S. 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.