[THS] Paul Craig Roberts: A Country of Serfs Ruled By Oligarchs

[Peter Webster]

http://www.informationclearinghouse.info/article24704.htm

A Country of Serfs Ruled By Oligarchs

By Paul Craig Roberts

February 16, 2010 "Information Clearing House" -- The media has headlined good
economic news: fourth quarter GDP growth of 5.7 percent ("the recession is over"),
Jan. retail sales up, productivity up in 4th quarter, the dollar is gaining strength. Is
any of it true? What does it mean?

The 5.7 percent growth figure is a guesstimate made in advance of the release of the
U.S. trade deficit statistic. It assumed that the U.S. trade deficit would show an
improvement. When the trade deficit was released a few days later, it showed a
deterioration, knocking the 5.7 percent growth figure down to 4.6 percent. Much of
the remaining GDP growth consists of inventory accumulation.

More than a fourth of the reported gain in Jan. retail sales is due to higher gasoline
and food prices. Questionable seasonal adjustments account for the rest.

Productivity was up, because labor costs fell 4.4 percent in the fourth quarter, the
fourth successive decline. Initial claims for jobless benefits rose. Productivity increases
that do not translate into wage gains cannot drive the consumer economy.

Housing is still under pressure, and commercial real estate is about to become a big
problem.

The dollar’s gains are not due to inherent strengths. The dollar is gaining because
government deficits in Greece and other EU countries are causing the dollar carry
trade to unwind. America’s low interest rates made it profitable for investors and
speculators to borrow dollars and use them to buy overseas bonds paying higher
interest, such as Greek, Spanish and Portuguese bonds denominated in euros. The
deficit troubles in these countries have caused investors and speculators to sell the
bonds and convert the euros back into dollars in order to pay off their dollar loans.
This unwinding temporarily raises the demand for dollars and boosts the dollar’s
exchange value.

The problems of the American economy are too great to be reached by traditional
policies. Large numbers of middle class American jobs have been moved offshore:
manufacturing, industrial and professional service jobs. When the jobs are moved
offshore, consumer incomes and U.S. GDP go with them. So many jobs have been
moved abroad that there has been no growth in U.S. real incomes in the 21st
century, except for the incomes of the super rich who collect multi-million dollar
bonuses for moving U.S. jobs offshore.

Without growth in consumer incomes, the economy can go nowhere. Washington
policymakers substituted debt growth for income growth. Instead of growing richer,
consumers grew more indebted. Federal Reserve chairman Alan Greenspan
accomplished this with his low interest rate policy, which drove up housing prices,
producing home equity that consumers could tap and spend by refinancing their
homes.

Unable to maintain their accustomed living standards with income alone, Americans
spent their equity in their homes and ran up credit card debts, maxing out credit
cards in anticipation that rising asset prices would cover the debts. When the bubble
burst, the debts strangled consumer demand, and the economy died.

As I write about the economic hardships created for Americans by Wall Street and
corporate greed and by indifferent and bribed political representatives, I get many
letters from former middle class families who are being driven into penury. Here is
one recently arrived:

"Thank you for your continued truthful commentary on the 'New Economy.' My
husband and I could be it's poster children. Nine years ago when we married, we
were both working good paying, secure jobs in the semiconductor manufacturing
sector. Our combined income topped $100,000 a year. We were living the dream.
Then the nightmare began. I lost my job in the great tech bubble of 2003, and
decided to leave the labor force to care for our infant son. Fine, we tightened the
belt. Then we started getting squeezed. Expenses rose, we downsized, yet my
husband's job stagnated. After several years of no pay raises, he finally lost his job a
year and a half ago. But he didn't just lose a job, he lost a career. The semiconductor
industry is virtually gone here in Arizona. Three months later, my husband, with a
technical degree and 20-plus years of solid work experience, received one job offer
for an entry level corrections officer. He had to take it, at an almost 40 percent
reduction in pay. Bankruptcy followed when our savings were depleted. We lost our
house, a car, and any assets we had left. His salary last year, less than $40,000, to
support a family of four. A year and a half later, we are still struggling to get by. I
can't find a job that would cover the cost of daycare. We are stuck. Every jump in
gas and food prices hits us hard. Without help from my family, we wouldn't have
made it. So, I could tell you just how that 'New Economy' has worked for us, but I'd
really rather not use that kind of language."

Policymakers who are banking on stimulus programs are thinking in terms of an
economy that no longer exists. Post-war U.S. recessions and recoveries followed
Federal Reserve policy. When the economy heated up and inflation became a
problem, the Federal Reserve would raise interest rates and reduce the growth of
money and credit. Sales would fall. Inventories would build up. Companies would lay
off workers.

Inflation cooled, and unemployment became the problem. Then the Federal Reserve
would reverse course. Interest rates would fall, and money and credit would expand.
As the jobs were still there, the work force would be called back, and the process
would continue.

It is a different situation today. Layoffs result from the jobs being moved offshore and
from corporations replacing their domestic work forces with foreigners brought in on
H-1B, L-1 and other work visas. The U.S. labor force is being separated from the
incomes associated with the goods and services that it consumes. With the rise of
offshoring, layoffs are not only due to restrictive monetary policy and inventory
buildup. They are also the result of the substitution of cheaper foreign labor for U.S.
labor by American corporations. Americans cannot be called back to work to jobs that
have been moved abroad. In the New Economy, layoffs can continue despite low
interest rates and government stimulus programs.

To the extent that monetary and fiscal policy can stimulate U.S. consumer demand,
much of the demand flows to the goods and services that are produced offshore for
U.S. markets. China, for example, benefits from the stimulation of U.S. consumer
demand. The rise in China’s GDP is financed by a rise in the U.S. public debt burden.

Another barrier to the success of stimulus programs is the high debt levels of
Americans. The banks are being criticized for a failure to lend, but much of the
problem is that there are no consumers to whom to lend. Most Americans already
have more debt than they can handle.

Hapless Americans, unrepresented and betrayed, are in store for a greater crisis to
come. President Bush’s war deficits were financed by America’s trade deficit. China,
Japan, and OPEC, with whom the U.S. runs trade deficits, used their trade surpluses
to purchase U.S. Treasury debt, thus financing the U.S. government budget deficit.

The problem now is that the U.S. budget deficits have suddenly grown immensely
from wars, bankster bailouts, jobs stimulus programs, and lower tax revenues as a
result of the serious recession. Budget deficits are now three times the size of the
trade deficit. Thus, the surpluses of China, Japan, and OPEC are insufficient to take
the newly issued U.S. government debt off the market.

If the Treasury’s bonds can’t be sold to investors, pension funds, banks, and foreign
governments, the Federal Reserve will have to purchase them by creating new
money. When the rest of the world realizes the inflationary implications, the US dollar
will lose its reserve currency role. When that happens Americans will experience a
large economic shock as their living standards take another big hit.

America is on its way to becoming a country of serfs ruled by oligarchs.