A Bail-Out for Wall Street or a Bail-Out of Globalization?

September 30, 2008

In his address to the nation this morning, President Bush made the following statement: “I assure our citizens and citizens of the world that this is not the end of the legislative process.”  “Citizens of the world??”  When did they become stake-holders in this process?  When we sold them American assets to finance a $9 trillion trade deficit (since 1975).  Now we finally have a blatant admission from the president that he is at least as concerned about foreigners, if not more so, than our own citizens.  We’ve been sold out.

My post yesterday predicted passage of the bail-out plan, thanks to our elected officials catering to our foreign owners instead of heeding the overwhelming opposition of the American people. Thankfully, there appear to be a few congressmen left who haven’t gotten the word about who’s really in charge. They still cling to the belief that their job is to do what’s right for America. Or do they? Most of the “no” votes came from those who are facing reelection just a month from now. Are they just kicking the can down the road a month so that they can vote in favor of the plan after the election?

As I write this, it is being reported that European leaders are urging passage of a bail-out plan. And the president’s own words this morning make it clear that he is paying attention to our foreign owners when he addresses his comments to “… citizens of the world.” Many who oppose this plan complain that it’s a bail-out for Wall Street. I see it as something even bigger:  a bail-out of globalization. The parasitic economies of the world who have been draining the life blood from our economy through our trade deficit now find that the supply of blood is drying up. They’re demanding a transfusion from American taxpayers (actually the future generations of taxpayers, our children and grandchildren) to keep the blood flowing.

Proponents of this bail-out tell you not to worry; taxpayers will probably get all their money back when these foreclosed properties are sold back into the market at a profit. Don’t believe it! Take a look around at the properties in your neighborhood that have been foreclosed and are getting more run-down by the day. Do you seriously think that these will ever be sold again for more than a fraction of the value of the mortgage that was defaulted? Don’t be ridiculous!

Readers, let’s celebrate this victory over this taxpayer ripoff, but don’t be lulled into thinking it’s over. They’ll tweak the plan and put it up for another vote soon. So keep up the pressure on your congressmen. Keep bombarding them with E-mails and phone calls expressing your outrage. There are much better ways to restore the economy. A key component of any rescue plan has to be an acknowledgement of the role of the trade deficit and the fact that we can’t have a healthy economy that is predicated on binging on debt. A plan that includes elimination of the trade deficit will be a plan that we can support. Without that element, tell your congressman not just no, but “hell no!”


The United States Corporation

September 29, 2008

“I pledge allegiance to the flag of the United States Corporation …”

What? Yes, I understand that it’s supposed to read “America” but, in light of Congress’ approval of the Wall Street Bail-Out Plan (known officially as the Emergency Economic Stabilization Act), I think this new wording is more appropriate.

I have warned over and over of the consequences of selling off the assets of America to finance the trade deficit. With ownership comes control. Now we see, too late, what that really means. For many years, as budget deficits and the national debt mounted, we complained that we needed to elect national leaders with business experience, so that our country would be run more like a business, thinking that meant that it would be run with some semblance of fiscal responsibility.

So, if we didn’t have business leaders to choose from, we elected their proxies – politicians who espoused the “ideals” of big business, free markets and capitalism. The end result has been that our nation is now run exactly like a corporation – one that responds to the will of its shareholders. Fiscal responsiblity? Hah! Our nation is now managed exactly like an investment banking corporation – like Lehman Brothers or Merrill Lynch – where the cost of reckless mismanagement is simply funded by selling more shares to foreign investors.

The United States Corporation was once an employee-owned company, when U.S. treasuries were sold primarily to U.S. citizens. But all that changed with the signing of GATT (the Global Agreement on Tariffs and Trade) in 1947, ushering in the age of “free” trade. The only way to finance the resulting trade deficit was to sell “stock” (government bonds and corporate stocks and bonds) to “outsiders” – foreign investors. Now those foreign investors have a majority stake. What this means is that despite overwhelming opposition by Americans, our elected officials do the bidding of our foreign owners and prop up the value of their shares with American taxpayer money, like a corporation cutting salaries to enhance profits. Sure it angers the employees, but who cares? What can they do about it? Nothing.

You may think that, with the power of the ballot box, we can vote these traitors out of office. It won’t make a bit of difference. It’s like voting for new directors of a corporation. They will still do the bidding of the shareholders. So, pony up taxpayers. The shareholders want more of your money. Don’t like it? Go find someplace else to work.


Time to Amend the Constitution

September 28, 2008

I’ve been pondering this post for many months, but events of the past week associated with the financial melt-down, the economic collapse that it threatens and the half-baked “solutions” that have been served up have convinced me that the underlying forces driving these events must be addressed by institutionalizing some fundamental principles for guiding our nation in the future. These issues are too big and too complicated to be left to the whims of elected officials, lacking the background to comprehend the scope of these challenges and subject to the constant pressure of those who don’t have the nation’s best interests at heart.

The first of these is the subject of trade. While it may be in the best interest of global corporations to pursue unfettered free trade, regardless of the consequences for any one nation, including the United States, it is clearly not in the best interest of our nation to run enormous trade deficits year-in and year-out. Events of the past week should be clear proof. But, thanks to the influence of the executives of global corporations, that’s exactly the policy we continue to pursue.

So I offer the following as a proposed amendment to the Constitution of the United States. I thought about building into this proposed amendment the solution I proposed in Five Short Blasts – a tariff structure only on manufactured goods that is indexed to the population density of our trading partners. But this is the kind of detail that is better left to legislation. (For more discussion of the rationale of the wording for this amendment, click on the link which will take you to a page devoted to a detailed explanation.)

28th Amendment to the Constitution of the United States

The United States shall not maintain a trade deficit with the rest of the world. The Congress shall enact trade policy utilizing import quotas and tariffs as necessary to assure that the cumulative effect of trade over the years, as measured in current dollars, is to maintain a positive balance. The Congress shall review and adjust as necessary such import quotas and tariffs annually to maintain an overall, cumulative balance of trade. The United States shall not be a member to any international organization that does not recognize the United States’ fundamental right to manage international trade in its best interest.

Secondly, while the relationship to the past week’s events aren’t quite as obvious, I propose the following amendment as necessary to prevent the steady erosion of the standard of living, quality of life and social fabric of the nation by the effects of overpopulation.

29th Amendment to the Constitution of the United States

The Congress shall establish a target population for the United States for the purpose of assuring a high standard of living and quality of life for its citizens. The target population shall not be higher than can be continuously sustained by domestically-produced natural resources, or by trading such excess resources for others not available domestically. Also, the target population of the United States shall be below the level that, if applied globally, is determined by science to pose no threat to the global environment. The Congress shall establish immigration quotas consistent with achieving the target population. The Congress shall also enact policies that, while leaving people free to choose the size of their families, encourage the population to move toward and stabilize at the established target level. The target population shall be reviewed by Congress annually and shall be retained or adjusted as necessary.

These amendments force our government to confront two issues which, if left unchecked, threaten the continued viability of our nation. Until now, we have placed blind faith in our lawmakers and in our economic model of capitalism to always move our nation forward in the right direction. Just as in the past, when we found it necessary to establish certain boundaries within which capitalism must operate, we have now found that additional boundaries are required. In the first half of the 20th century, we established labor laws to prevent the exploitation of workers. In the latter half of the 20th century, we established boundaries to protect the environment. The need for those boundaries was so obvious that constitutional amendments weren’t required to force the Congress to act.

But this doesn’t seem to be the case with the issues I’ve addressed here. The opposing forces have grown so powerful as to prevent any meaningful discussion of the issues and the issues are too complex to lend themselves to obvious solutions. So new boundaries or guiding principles – these amendments – are necessary. The first of these prevents any entity from placing its economic self-interest ahead of the interest of the common good of the citizens of the United States. The second prevents the erosion of our standard of living and quality of life by uncontrolled population growth and the effects of overpopulation.

The purpose of these amendments is to function as guiding principles and not as legislation, so they are intentionally broad in scope but light on detail. It is up to the Congress to craft legislation that would comply with these principles, and it is up to the judiciary to pass judgment on the constitutionality of such legislation. With that in mind, I acknowledge that these proposed amendments may have room for improvement and welcome any suggestions. Please feel free to comment. Let me know what you think.

Beyond that, please don’t look upon this as merely an interesting post, perhaps worthy of a comment, to be forgotten when you move on with your web browsing. Take it to heart. Promote it among your family, friends and associates. Write your senators and congressmen and encourage them to consider these proposals. Challenge them to make history by championing these sorely needed amendments to our guiding set of principles. Our nation cannot afford to be steered off course much longer by those motivated by self-interest instead of the common good.

 


Wilbur Ross: Fed Plan Doesn’t Address Root Cause

September 23, 2008

http://www.reuters.com/article/ousivMolt/idUSN2233883620080922?sp=true

Here’s an article about “bankruptcy expert” and investor, Wilbur Ross, who says that the government’s Wall Steet bail-out doesn’t address the root cause of the problem.

“The reason I think it will take that long (to pull out of recession) is that none of these actions that have just been taken make it any easier for Middle America to meet their mortgage payments — it doesn’t address that whole problem, and that problem is what really caused this to begin with.”

Ross said that in some ways, the financial crisis could be blamed on the American consumer for wanting to improve their standard of living without having the wages and means to do so.

This is exactly right, except that Americans aren’t even able to sustain their standard of living, much less improve it.  And why don’t Americans have the wages and means to make mortgage payments?  Because incomes haven’t kept pace with inflation – real inflation, not the “Pollyanna Creep” numbers published by the government – for decades.  And why is this?  Because free trade with overpopulated nations has robbed us of five million of our best-paying manufacturing jobs, leaving us with a glut of labor that drives down wages.  That’s the root cause. 

If this plan is passed by Congress, the sense of relief will soon vanish as a steady stream of data on falling home values and rising foreclosures drives home the realization that new “toxic debt” is being piled on faster than the government can buy it up.  Then what?


Largest Citizenship Ceremony in St. Louis History

September 22, 2008

http://ap.google.com/article/ALeqM5ieSg49c8sRLlrW4lkUHV328ruxUgD93ACLGG0

It’s not often that I enter a post about legal immigration, probably because it doesn’t make the news much.  That doesn’t change the fact that it’s one of the biggest challenges we face in stabilizing our population.  Every year we admit over 1.1 million new immigrants.  This article describes just one citizenship ceremony in St. Louis at which citizenship was bestowed on 1,000 new immigrants.  That may sound like a big deal until you realize that, on average, there are three such ceremonies somewhere in the U.S. every day, day-in and day-out, year after year.  Every day we exacerbate our dependence on foreign oil by adding 3,000 more oil consumers.  Every day we add 3,000 more carbon emitters.  Every day we add about 1,500 more to our labor force, even as the number of jobs declines.  This makes absolutely no sense.  We have far too many serious problems to continue doing this kind of thing just because it makes us feel all warm and fuzzy to hear new citizens speak so highly of their adopted country. 

We can be proud of our immigrant roots and our history as a beacon of hope for the downtrodden.  But the mathematical reality is that we can’t keep doing this unless we ourselves want to be trampled by the effects of overpopulation.  Then we’ll be a beacon of hope for no one, not even our own citizens.  It’s time to hang a “no vacancy” sign on that statue in New York harbor.


Will Your Life Savings Be Enough to Buy a Postage Stamp?

September 22, 2008
 I couple of days ago I warned about the dangers of hyper-inflation as a result of the government Wall Street bail-out plan.  I think an example may help.  Take a good look at the following stamp:

German stamp
German stamp
This is a postage stamp issued in Germany, sometime around the onset of World War II. The cost of the stamp was five million marks, the cost to mail a letter in Germany at that time. How did it ever come to that? It began with the terms of the Versailles treaty at the end of World War I. Germany was forced to pay war reparations to the Allies as punishment and compensation. With its economy in ruins and no way to maintain any cash flow balance, it had no choice but to simply print more and more money. This drove inflation out of control, eventually reaching the point where a simple postage stamp cost five million marks. As inflation soared, so too did unemployment. The German people were ready for a leader that offered them hope, and the stage was set for Hitler’s rise to power.

This is what happens to any nation that, for whatever reason, finds it necessary to print money to meet its obligations.  In Germany’s case, it was war reparations.  Today, for the U.S., it’s the cost of financing a trade deficit that now totals a staggering $9 trillion since 1975, as is growing by $700 billion per year.  (Hmmm.  Is it mere coincidence that this is the exact figure that Treasury Secretary Paulson has demanded to fund his bail-out plan?  I wonder if the next Treasury Secretary will request another $700 billion next year?  Watch for my 2009 Predictions.) 

This isn’t a scare tactic.  This is for real.  The trade deficit has come home to roost and the only way left to deal with it is to begin printing money furiously, flooding the world with ever more worthless dollars.  Just look at what’s happening to oil prices.  Only a few days ago it was $91 a barrel.  It had fallen to that level because of the recession-driven decline in demand.  Friday, upon announcement of the enormous bail-out plan, it jumped over $10 a barrel – a one day record price rise.  Today, it soared over $16 a barrel, shattering the record set only one business day earlier.  Is this due to expectations of an economic rebound in America?  Of course not.  It’s due to the instantaneous decline in the dollar.  These kinds of price increases will continue and spread through the whole economy. 

Paulson’s Big Give-Away to Wall Street Banks is doomed to failure.  There’s no way it can succeed because it does absolutely nothing to address the root cause of our ills – the trade deficit.  There’s lots of talk on Capitol Hill about modifying “The Plan” to include all sorts of things – more government oversight, help for homeowners, limits on executive pay and so on.  But without linking it to a requirement to balance trade by implementing stiff tariffs, it will all be for nought. 

So hang on to your 401k, your IRA and any other savings you may have.  You’ll need it to pay for the stamp you buy to mail in your bankruptcy papers. 

 


Examples of “Kooks” We Should Pay Heed

September 22, 2008

http://money.cnn.com/2008/09/19/news/economy/siklos_shadowstats.fortune/index.htm

 No sooner did I finish my previous post, suggesting that our next president needs to begin listening to economists who, until now, have been dismissed as “kooks” and “weirdos” by the now-discredited high rollers like Paulson, Greenspan and Bernanke, when along comes this Fortune article with a perfect example – economist John Williams of http://www.shadowstats.com/, who coined the term “Pollyanna Creep” to describe the phenomenom of revising economic data to make things appear rosier than they are. Williams contends that today’s economic melt-down has roots that go back much further than the mortgage crisis, that we’ve been deluding ourselves for many years that the economy is in much better shape than it really is.

No shortage of villains stand accused of igniting the brushfire raging across Wall Street: greedy lenders, gullible home buyers, negligent regulators, numbskull credit ratings agencies, and vicious short-sellers, for starters. Maybe they share the blame. But what if the underlying problem goes deeper? What if the reality is that the US economy has been a lot worse than was thought for a long time, and now the chickens are finally coming home to roost?

That’s the dark thinking beyond what is known as “Pollyanna creep,” a phrase coined by an economist named John Williams and supported by a cadre of other macroeconomic dissidents.

Williams, who lives in California, runs a Web site called Shadowstats.com that trades in the idea that key government statistics have become so optimistically misleading as to become essentially useless. Yes, this sounds a bit like the thinking of the black helicopter crowd, or the plotline of a Matrix movie. But given what’s gone on in the financial sector of late, it doesn’t sound quite so fringe.

The article singles out GDP (Gross Domestic Product) and CPI (the Consumer Price Index) as a couple of macroeconomic statistics that are especially worthy of scorn – overly optimistic to the point that they have been rendered useless, the very point I made in the first chapter of Five Short Blasts. If you’ve followed this blog for any length of time, you know that another favorite of mine is unemployment. To suggest that our unemployment rate is only 6.1% (the current “official” rate) is ludicrous when the annualized rate of weekly jobless claims is closer to 16%. In the past, while still chairman of the Federal Reserve, Alan Greenspan claimed that unemployment rates of 5% or less represented “full employment” and worried about the inflationary potential, all while weekly jobless claims still hovered above 300,000 and while thousands of people in manufacturing were losing their jobs ever week.

Another fringe economist cited in the article is Kevin Phillips, former Nixon advisor and author of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism.

In his recently-published and rather depressing book “Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism,” onetime Nixon White House adviser Kevin Phillips discusses Pollyanna creep as part of an era of “Bullnomics: the pied-piping of America toward a misleading financial ideology (the efficiency and reliability of markets), buttressed by a spectrum of dubious thinkers, doctrines and enablers.”
Phillips contends that some of the biggest changes to CPI calculation took place between 1997 and 1999, “while the public and the politicians were preoccupied by bull market euphoria and the actions in Congress to impeach Bill Clinton.”
In their effort to reduce Social Security outlays – and buttressed by a belief that CPI overstated inflation – government economists with backing by Federal Reserve Chairman Alan Greenspan implemented controversial modifications to CPI that, among other things, tried to measure increased satisfaction from goods.

 

This Fortune article may be a good sign that, already, the Paulsons and Bernankes of the world are being pushed aside while we begin to look to the “fringe” economists, the “macroeconomic dissidents,” for real answers.

The Pollyanna creep crowd ….  may have some currency. Amid the talk of hundreds of billions in financial market clean-ups, a debate over the accuracy of economic bellwethers may be a can of worms worth opening.