← Autodidact Archive · Original Dissent · Kevin_O'Keeffe
Thread ID: 17048 | Posts: 12 | Started: 2005-03-01
2005-03-01 19:14 | User Profile
[url]http://counterpunch.org/roberts03012005.html[/url]
The Last Waltz: The Coming End of the American Superpower
By PAUL CRAIG ROBERTS
March 1, 2005
The US economy is headed toward crisis, and the political leadership of the country--if it can be called leadership--is preoccupied with nonexistent weapons of mass destruction in the Middle East.
The US economy is failing. The afflictions are serious. They could be fatal even if diagnosed and treated. America is losing the purchasing power of its currency and its ability to create middle class jobs.
The dollar's sharp decline and projections of continuing trade and budgetary red ink are undermining the dollar's role as reserve currency. A number of central banks have announced that they will be diversifying their currency holdings and will not be buying dollars at the same rate as in the past.
This will put more pressure on the dollar. At some point the flight will begin. Instead of buying fewer dollars, central banks will sell dollars hoping to get out before the dollar hits bottom.
Suddenly, the advantage of being the reserve currency becomes a nightmare as the world's accumulations of dollars are brought to market. An enormous supply and weak demand mean a very low exchange rate for the once almighty US dollar.
Overnight those cheap goods in Wal-Mart, which are the no-think economist's facile justification for Wal-Mart's decimation of communities, small businesses and employment, shoot up in price.
Interest rates will escalate as the government struggles to finance its endless red ink. Heavily indebted Americans with adjustable rate mortgages will attempt to sell homes just as rising mortgage rates reduce buyers. Real estate assets, the rising value of which have been keeping the economy going, will give back gains.
The US has lost its ability to create middle class jobs or for that matter any jobs. During the last four years the US has experienced a net loss of 760,000 private sector jobs (January 2001 - January 2005). Think what this means for graduating classes and people coming of age to enter the work force.
Moreover, the composition of jobs has changed away from high-value-added, high-productivity jobs in tradable goods and services toward lower productivity domestic service jobs that cannot be outsourced.
Even here in this last remaining area of employment for Americans, the US work force is losing job opportunities to foreign nurses and school teachers brought in on H-1b work visas as a result of budgetary pressures on local school budgets and hospitals.
No-think economists and politicians continue to propose unemployment insurance and education as remedies for the jobs problem. These proposals are mindless to say the least. The same incentive to outsource holds for all tradable skills. If truth be known, job outsourcing and offshore production sound the death bell for US higher education.
Americans unable to find jobs in export and import-competitive sectors find themselves searching for jobs in nontradable domestic services, where their inflow into those labor markets is augmented by illegal immigrants and foreigners on H-1b visas. Obviously, the pressure on wages is downward.
No-think economists explain away the difficulties as a "globalization adjustment" that will require Americans to curtail their consumption of imported goods. These economists are ignorant of American's dependence on imported manufactured goods. Even American brand name goods are made abroad in whole or in part. Tightening the belt will mean much more than cutting out foreign made luxuries.
The dollars' decline will drive up the price of all inputs except US labor which is being substituted out of production functions and replaced with foreign labor.
Oblivious to reality, the Bush administration has proposed a Social Security privatization that will cost $4.5 trillion in borrowing over the next 10 years alone! America has no domestic savings to absorb this debt, and foreigners will not lend such enormous sums to a country with a collapsing currency--especially a country mired in a Middle East war running up hundreds of billions of dollars in war debt.
A venal and self-important Washington establishment combined with a globalized corporate mentality have brought an end to America's rising living standards. America's days as a superpower are rapidly coming to an end. Isolated by the nationalistic unilateralism of the neoconservatives who control the Bush administration, the US can expect no sympathy or help from former allies and rising new powers.
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.He can be reached at: [email]pcroberts@postmark.net[/email]
2005-03-01 21:24 | User Profile
The people of the US are getting screw by Wall Street and by the US government.
The real lost of the money belonging to the people of the US by those in Wall Street no one really knows about and when "we the people" learns about it then it will be worse than 1929.
My little female cat purrs up a storm when ever I rub her kneck and it is the same way that I see the people in the US are doing while the US government rub their kneck.
I am one of the lucky ones who is ready, in many ways, for what is to come and when it gets here it will be hell to pay.
As I see it the enemys of the people, besides our own government, are Wall Street, outside countrys, illegals in the US, Jews in the US, Arabs in the US ( I don't blame them) and many more.
We will be attacked from many directions in different ways and I can see the US government filling those "secret" detentions camps really fast.
Even those of us who haven't done anything but to be outspoken will be a guest in those detention camps.
It is the right, and the duty, of the people to take over the government when the best interest of the people is not in the mind of the government for "we the people" are the government.
2005-03-02 07:00 | User Profile
This piece is positively horrifying. I think many of us paleos grasp, perhaps intuitively, the seriousness of the situation coming down the road, but to have it spelled out by someone with PCR's economic erudition gives it an extra dimension of reality. I'd be curious to get the opinion of Walter Yannis and Quantrill on this.
2005-03-02 10:09 | User Profile
[QUOTE=Jack Cassidy]This piece is positively horrifying. I think many of us paleos grasp, perhaps intuitively, the seriousness of the situation coming down the road, but to have it spelled out by someone with PCR's economic erudition gives it an extra dimension of reality. I'd be curious to get the opinion of Walter Yannis and Quantrill on this.[/QUOTE]
I gather Walter's take is a somewhat more pessimistic view than that of Mr. Roberts....
2005-03-02 11:31 | User Profile
[QUOTE=Kevin_O'Keeffe]I gather Walter's take is a somewhat more pessimistic view than that of Mr. Roberts....[/QUOTE]
Jack, Kevin: I'm flattered that you value my opinion on this.
I think that the USD's loss as a reserve currency would cause enormous problems for US and the entire world. There would be huge financial dislocations that are very difficult to foresee, but I can only imagine that they're too big to imagine, so to speak. For example, if we attack Iran and Russia and Iran in retaliation start denominating petroleum contracts in Euro instead of dollars, the dollar will take a major nosedive.
I think it's a very big deal. If central banks decide they need to dump dollars and buy Euro in order to clear big contracts, then lots of dollars will hit the exchanges and prices will drop precipitiously, perhaps even spiraling into a panic.
Get out of dollars, I did. At least mostly.
Buy Euro and gold.
Walter
2005-03-02 12:44 | User Profile
Jack, Unfortunately, (or maybe fortunately?) I think PCB's and Walter's analysis is spot-on. The dollar has a tremendous amount of inertia that was painstakingly built over the last 60 years or so -- meaning people and foreign governments still view it as the world's reserve currency, because it has served that function well for so many years. However, our government's economic policies of the last two decades have been slowly, but surely, eating away at the economic fundamentals that actually provide the basis for that world currency status. We have exported our manufacturing base, transferred advanced technology to China and Israel for present gain, pinched our lower- and middle-class wage-earners by flooding our labor market with Mexican labor, and run up deficits so huge as to be almost unfathomable. So, the dollar will definitely crash, and probably crash hard. The question is when? I don't think it will be very soon, but it will likely be within the next 5 years, and it will almost certainly be within the next decade. The X factor here is US foreign policy, since (as Walter points out) further military actions by the US could speed this timetable up considerably. I have used this metaphor before, but I will repeat it, because I think it's a good one. The situation with the US dollar is akin to those old Road Runner cartoons, where Wile E. Coyote runs off a cliff, but he has not yet looked down, so he just keeps running in the air. Once we look down, things could get real, real ugly.
I would second Walter's suggestion to buy euros and gold. Another possibility is Chinese yuan. Currently, the yuan is undervalued, because it is pegged to the dollar. If the dollar sinks low enough, however, the Chinese will eventually have to let the yuan 'float,' which would mean its value would appreciate markedly.
2005-03-02 23:40 | User Profile
[QUOTE]Buy Euro and gold.[/QUOTE] And silver. And productive land.
2005-03-02 23:43 | User Profile
[QUOTE]So, the dollar will definitely crash, and probably crash hard. The question is when? I don't think it will be very soon, but it will likely be within the next 5 years, and it will almost certainly be within the next decade. The X factor here is US foreign policy, since (as Walter points out) further military actions by the US could speed this timetable up considerably. [/QUOTE] Time for [I]The Collapse of Complex Societies, Vol. II[/I].
2005-03-03 00:22 | User Profile
[QUOTE=mwdallas]And silver. And productive land.[/QUOTE] Excellent point. In the final analysis, there is no better guarantee of survival than a piece of productive land and the will to defend it, if necessary.
2005-03-03 06:54 | User Profile
[QUOTE=Quantrill]Excellent point. In the final analysis, there is no better guarantee of survival than a piece of productive land and the will to defend it, if necessary.[/QUOTE]
Mwdallas, Q, as to productive land and indeed American real estate generally, be careful of timing.
Here are my two cents on that, as we've discussed previously. Interest rates are going up, and a weak dollar adds to the pressure driving them up, or so it seems to me. After all, if the dollar is weak added incentives are needed to keep foreign capital flowing into the US economy.
Anyway, Americans are very heavily leveraged. We're in hock up to our ears. This was abetted by the Fed's artificially low interest rate policy, but also by our insane tax system that penalizes savings and encourages consumption. Take as just one example the fact that you can write off the interest of a second mortgage loan that you spent on Chinese trinkets. It's nuts.
So, if interest rates go up much more, I would think we'll see a rash of bankruptcies, as folks with ARMs can't make their monthly payments. Lots of homes might wind up in liquidation sales. If the economy generally goes south, then add to these high interest rates high unemployment, and we get a bankruptcy bonanza (mwdallas may be in the right business!)
Real estate prices will go down as all those homes hit the market in short sales and consumer demand for new housing dries up. All of that drives real estate prices down. I'm hoping (and there is an element of wishful thinking in this, I freely admit) that a moment will come when I'm sitting with a bunch of highly appreciated Euro in my foreign bank account looking to buy a nice estate in the States at firesale prices.
Timing is everything.
That's why I'd say that right now, it's best to get liquid, get out of dollars and get into Euro. Real estate is overpriced, IMHO, driven up by historically low interest rates over the past 10 years and by our insanely pro-consumerist tax policies. The dollar is overpriced, that seems clear. All that taken together would seem to mean that the best thing to do is to get into Euro and wait, and then make your move to buy American real estate when the time seems right. I think that will be in the next couple of years, but it could happen anytime.
On the other hand, I could be completely full of sh*t!
All I can say is that's the way I have it sized up, and that's what I'm doing.
2005-03-03 13:23 | User Profile
Walter,
Everything about this economy is overvalued. It has been that way since the early '90s. I think you are correct. People in the know took fortunes during the Great Depression and turned them into mega fortunes by buying up manufactures for next to nothing.
2005-03-03 18:06 | User Profile
Another way to go would be to buy apartments buildings, I say this because in the future between 20% and 30% of "home owners" will loose them and they all will need a place to live in..........However, it they cannot afford $850.00 in house payment then how will they be able to afford a $850.00 apartment rental payment?
Don't be gready, sell everything like I did and take off for the hills and be happy.
Remember that you can only need X ammount of money the same way that you can eat only x ammount of food.
If you are there right now then stop and think about it or it will be like the straw that broke the camels back.