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America is but one Katrina, one serious terrorist attack, one large earthquake, one more war away from an economic depression that will send tens of millions of Americans into the streets homeless, jobless, and waiting in line at charitable organization and government soup kitchen doors for meals.
Sen. John McCain says the economic fundamentals are strong. He could not be more wrong. The foundation of our economy is banking and lending. Want a car, home, small business, to expand a medium business, or buy out a failing competitor? Lending and borrowing is what makes these transactions happen. And our lending and borrowing system is broken in some very basic ways, referred to these days as "the credit crunch".
Finding money to borrow is getting harder and harder. Even credit card companies are pulling back on who they will lend to, and raising interest rates to 30% on millions of card holders, making the less well off, even poorer and driving them to the brink of bankruptcy.
Millions of Americans can no longer get an equity loan on their home. Financing a new home has a 4 out 5 chance of going through Freddie Mac or Fannie Mae. These two corporations handle 80% of the mortgage business. They are in serious jeopardy, as government insiders debate over whether the government should take them over to save investors from losing everything, or bail them out in other ways.
When the consumer can't borrow, the consumer can't spend. And if the consumer can't spend, the economy falters, since consumer activity accounts for the majority of all economic activity. It becomes a vicious cycle as drops in spending cause layoffs and unemployment to rise, which in turn reduces consumer spending even more, and so on. The only bright spot so far is that unemployment figures don't reflect steep rises, yet. (But, there are growing concerns over the validity of those employment / unemployment figures.)
The Federal Reserve Banking System was created to prevent another Great Depression in America. And with sound fiscal policy by Congress and the White House, the idea of another Great Depression has been laughable for decades. But, over the last 7 years, those in government have taken to burying their heads in the sand and promoting debt as if it was the fountain of youth, instead of the economic grave that it really is, sucking the life out of the economy's future.
Last year, our government and Wall Street were telling us that the economic slump may rebound by the Summer of '08. Then, despite Fed Chairman Bernanke's warnings in Jan. of 2008, some economists still held out hope of recovery by the end of 2008. But at the end of July, the White House was forced to cut its estimates for GDP growth nearly in half, yet again to 1.6%, after having done so previously in Nov. 2007 from over 4%. The White House now concedes recovery won't be found until late 2009. But, its track record of optimizing its projections belies the potential for things getting a whole lot worse before they get better.
Our economy is so fragile at this time, that one more major shock to it could pull the rug out from under it. Sen. McCain hasn't a clue about this. But, our adversaries know this, and they are taking advantage. Russia's invasion of Georgia at this time was not a spontaneous lark. It came on the heels of the world's recognition that America's economy is stretched tight as a drum and unlikely to stretch any further without ripping.
Russia's Prime Minister Vladimir Putin, a KGB agent during the Cold War, has no doubt considered that the Soviet Union's loss of the Cold War due to the undermining of its economic capacity by the Kremlin, is a shoe that is now on the other foot. It is now the U.S. economy which cannot afford to escalate a new Cold War arms race, while Russia harvests enormous financial resources from its oil production activities, confiscated by the State from private companies. Time to test the waters. And that is precisely what the invasion of Georgia is doing, testing America's the Western World's response capability, given its soft economic underbelly being exposed.
America now owes more than 1/5 of all the external debt in the world and is the world's number 1 debtor nation.
World external debt $54,260,000,000,000
United States external debt $12,250,000,000,000
China last year had an inside scoop on this situation, holding as they do, a massive amount of our debt. Thus, China recognized that it has little to fear from America as it grows its own military capability and refuses to budge on its currency valuation, human rights, and claims to Taiwan and Tibet.
In a little covered story last year, Pres. Bush had been trying for years to push China's hand on controlling its currency, the Yuan, which increasingly contributed to the U.S. trade deficit of 780 billion dollars last year with China's portion being over $230 billion dollars. Pres. Bush was forced to back off as evidenced by one economic journal which said this Summer:
The most notable development of this round of talks might be that the issue of the value of China's currency has moved to the back-burner for the first time in the Bush presidency.
But its not likely for the reasons many like Carl Weinberg, chief economist at High Frequency Economics think:
From our point of view, the yuan issue is pretty much a dead duck" because the explosive growth of exports from China to the U.S. "has stopped,
China not so subtly pondered out loud late last year what might happen if China put over 1 trillion dollars of U.S. currency and debt on the open market for sale.
Meanwhile, Xia Bin, finance chief at China's Development Research Center, was suggesting that China could use its foreign reserves as "a bargaining chip" to prevent a few "silly senators" from setting U.S.-Chinese economic policy.
That pondering coincides with the Bush Administration's rethink about pushing China on decoupling its Yuan from the U.S. Dollar. The fact is, if holder's of American debt begin to auction off that debt in amounts this large, confidence in U.S. investments and currency would tailspin, and the U.S. economy would be further undermined.
In other words, our adversaries like China and Russia recognize our economic vulnerabilities and view them as openings for asserting themselves on the world stage in ways they would not have considered before the evidence of the mortgage and credit debacle began to surface in late 2006 and early 2007. I wrote about this in March of 2007. This is the cost of America's fighting two wars, stretching its military too thin, and nearly doubling its national debt in course of Pres. Bush's two terms as president.
It is impossible to imagine, given his campaign rhetoric, that Sen. John McCain could even comprehend what is happening here, and why. He doesn't understand the economics of the situation, and insists that our economic fundamentals are strong. Sen. McCain's ignorance and lack of economic understanding therefore, would jeopardize America's already weakened position in dealing with the likes of Russia and China, as McCain's solutions to foreign affairs all center on using our military might to resolve issues without regard for economic considerations.
Which raises the last issue of this article. The Draft. Sen. McCain has been recorded on several occasions alluding to a reinstatement of the draft in the event of WWIII and that we are now engaged in a World War against terrorism. This is creating quite a stir in the blogosphere.
Given America's struggle to put forth the manpower to efficiently meet goals and expectations in Iraq and Afghanistan, does anyone doubt that McCain has to be considering the Draft as a potential solution to this problem? Sen. McCain criticizes Bush for not having placed sufficient manpower in Iraq from the beginning. But, that critique reveals in McCain's thinking that we would have needed far greater manpower than was available, while maintaining our global military footprint around the globe. And the Draft was the only way he could have delivered that manpower.
Sen. McCain is smart enough to recognize that his election would be torpedoed by revealing a policy of reinstating the Draft. But, the Draft would have been the only means to create the strength he thought would be required for the invasion of Iraq. It is difficult to imagine Sen. McCain not contemplating the Draft as a means of achieving the manpower his campaign rhetoric alludes to being required to remain in Iraq for more years, double our efforts in Afghanistan, and take on other military missions that could arise during his presidency.
What was true of military history's lesson regarding dividing one's forces between two fronts, is just as true today regarding dividing one's economic resources between two or more fronts of war. It is a lesson which completely escapes Sen. McCain's understanding. And that makes Sen. McCain, regardless of what one thinks of Obama, the most dangerous candidate in this race for president of the United States.
Sen. Obama knows what he doesn't know and will seek more learned and experienced counsel like that of Sen. Joe Biden. Sen. McCain thinks there is nothing about being Commander In Chief that he doesn't already know. And that makes him dangerous for America. What he doesn't know, as he has already demonstrated, could destroy America economically. Age does not guarantee wisdom, and experience does not guarantee knowledge. One has to pursue both actively in their lifetime, and work at it. Sen. McCain has not had to work for anything since coming home from Viet Nam as a POW war hero.
Roy Ellis said at :
11:31 AM, 08 24 2008 | Permalink
Well……yes, yes, yes, yes, and no. Re the no part, here we go again. Trying to scare the public with ‘the Russians are coming, the Russians are coming! A great way to take our minds off the real problems of today. $65T of debt is at the top. Over 200 hundred years to pay that off, if it is even possible to do so. Took 30 years of the government squandering the wealth of this country built up since WWII. As I understand it McCain and Obama are working for the same lobbyist. I think Excel is giving a few million to host the Dem and GOP convention. Taxpayers are contributing too, but they can’t come. Amazing that congress has been looking for the longest to find out why oil prices are going up only to find the answer in this weeks Wash Post. Gist of the article:
Said one Swiss based conglomerate, Vitol, had in July purchased contracts for 11% of all the oil on the NY-MEX. By June 6th Vitol had acquired contracts equal to 57.7M barrels of oil or about three times the amount the U.S. consumes daily. That day the price of oil spike up $11. Vitol may have been required to put down as little as $1B to finance the trades. Investment funds in the commodities market went from $13B in 03 to $260B. Financial firms account for 81% of all oil contracts on the NY-MEX. Swap dealers don’t take control of the commodity, just a paper/money swap. Used to be only operations such as farms, airlines, manufacturers, and their middle-men were allowed to buy nearly unlimited quantities to limit the effect of price swings. Beginning in 1991 the regulatory framework began to change. With the help of congress in 2002 (commodity futures modernization act) the Commodities Future Trading Commission also saw to it that ENRON got their loophole for energy trading.
Excerpt from a Time magazine article, Are Oil prices Rigged, by Ari J Officer and Garrett J. Hayes.
“Why would these individuals or their companies risk their own money and reputations, should they be discovered? They don't need to. There's an anonymous investment vehicle — the hedge fund — with which they can even risk other investors' money for futures speculation. Although we're all affected by oil prices, we as oil consumers don't set the prices. Herein lies the problem. The futures market that serves as a price discovery mechanism for the physical oil market is open only to the elite. We trust these elite’s to determine the prices, but who are they? Who are the so-called experts? Hedge funds, oil companies, OPEC — the very people who profit from massive, consistent increases in prices. Notice a conflict of interest?”
“All an oil supplier would have to do to raise prices is buy up futures contracts.
Prices in the futures market — and, indeed, any real-life market on a standardized good — do not form where actual supply meets actual demand; they form where perceived supply meets perceived demand. Participants in the futures market merely represent the world around them. A veil has been placed over the public's eyes, and they accept this illusion of a fair price.”
Doesn’t pay to take your eyes off the politicians these days. After retiring from presidency I would expect Bush to aspire to become the ‘unofficial’ mayor or the North American Union. Biden likes to come off as a change agent. Well, he’s had over 30 some years to change something and I don’t see it. Haven’t seen him walking the halls of congress with little signs complaining about immigration, debt, ethics and the like. I like Andrew Jackson’s approach. If you are against something or want to change something make some waves. Congresspersons will give lip service to change, which is acceptable to the oligarchy, while trying to keep their jobs. Fail to vote in lockstep with the oligarchy and your job could be in jeopardy.
Would like to see the draft returned. Serving in the military offers some perspective to young people regarding national pride and purpose. Three years should be adequate. Then maybe we won’t find ourselves short in a situation like we are now experiencing. Maybe Rumsfield wouldn’t have felt reluctant to run in 500,000 troops and git er dun. Run your calculator on that one.
McCain might destroy the economy??? That one is over reaching David. Maybe I am too. I’ll postulate on that one and wait a couple of years. Still, $65T has 12 zeros after it.
Instead of giving the duopoly another free swing at the taxpayers consider stopping this nonsense and start thinking about serious government reform. First, consider voting for a 3rd party candidate such as Nader. Second, consider voting from office incumbents like Biden and McCain (visit www.voidnow.com). Can you believe they had nothing to do with this $65T of debt or sticking in the 2002 loopholes for the speculators and Enron? Third, consider supporting a 3rd party targeted at the middle class with an agenda to reform government. This party would be different in that it would provide for citizen oversight of elected officials, thereby putting accountability into the political equation. Check it out at www.demreps.com.
Otherwise, we have the government we deserve.
Roy Ellis | August 24, 2008 11:31 AM
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David R. Remer replied to Roy Ellis at :
1:43 PM, 08 24 2008 | Permalink
Roy, the voter majority is not ready to make a 3rd Party candidate a viable option. You know it, I know it, everyone knows it.
We need a person with Nader's agenda, JFK's charisma, T.Boone Picken's wealth, Obama's guts, and McCain's hero stature, to lead the country's voters to a true reform candidacy and platform. And that person has not stepped forward, yet.
In other words, Christ has not returned yet :-) Till then, we have to make the most pragmatic choices available to us.
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d.a.n said at :
3:21 PM, 08 25 2008 | Permalink
We don't need another catastrophe.
But, you know the saying: "When it rains, it pours".
And there's Murphy's Law: "If anything can go wrong, it will".
Yet, as you write, there are still some anti-anything-NOT-rosy die-hards calling you an alarmist, Chicken-Little, Sky-Is-Falling, Doom's Day, pessimist.
Also, these 10 abuses (which did not all come about by mere coincidence), so much nation-wide debt (e.g. $53.2 Trillion), and too many voters repeatedly rewarding too many irresponsible incumbent politicians in do-nothing Congress with 85%-to-90% re-election rates is largely why the following have never been worse ever and/or since the Great Depression:
(1) Total $22 Trillion of federal government debt has never been larger, both in size and as a percentage (over 160%) of the $13.86 Trillion GDP (year 2007), when including the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching (that's 13,175 new recipients per day!).
(2) Total personal household debt nation-wide ($13.88 Trillion) has never been larger, both in size and as a percentage (over 100%) of the $13.86 Trillion GDP.
(3) Total nation-wide debt of $53 Trillion has never been larger, both in size and as a percentage of the $13.86 Trillion GDP:
And there's still this one simple question which no one can (or dares to try to) answer:
QUESTION: Where will the money come from to pay the interest on the $53.2 Trillion of nation-wide debt, much less the money to reduce the principal debt of $53.2 Trillion, when that money does not yet exist?
(4) Real median household incomes have fallen since year 1999, and have actually never been lower since year 1978 when also including the fact that:
(5) Illegal immigration has never been worse and more costly, costing American citizens an estimated $70 Billion to $338 Billion annually in net losses. The problem has quadrupled since the amnesty of year 1986. Hundreds of overrun hospitals have closed (60-to-84 in California alone), California is now laying off 20,000 teachers in the public school system. 29% of all people incarcerated in Federal prisons are illegal aliens. The politicians (despicably) capitalize on it in 3 ways:
(6) The wealth disparity gap has never been larger since year 1930. The gap started growing larger, and has not stopped growing larger since year 1976.
(7) Taxation has been regressive since year 2000 (or before). We have never had so many different kinds of taxes; many of which are regressive sales taxes. The current tax code is ridiculously complex (by design) with a myriad of tax loop-holes that mostly benefit the wealthy.
(8) Home equities have never been lower (below 50%) since year 1945.
(9) Home ownership has fallen since year 2006 for low-income and middle-income groups. A study shows that only 59.6% of working class families owned their homes in 2003, lower than the 62.5% in year 1978. That is, home ownership is rising among the wealthy, while falling for most Americans that are losing wealth, losing equity, losing income, and losing their homes at record levels. Currently, home ownership is in a record plunge, and the 4th quarter of 2007 had the biggest one-year drop (1.1%) since tracking began in year 1965.
(10) Foreclosures are at record levels:
(11) Average personal savings rates are negative (since year 2005), and have never been worse since 1933.
(12) Energy vulnerability: oil and energy prices have never been higher (both in nominal price and adjusted for inflation; worse than the spike in year 1981.)
(13) Federal government bloat has never been worse, and continues to grow to nightmare proportions. There are now more jobs in government than all manufacturing nation-wide.
(14) Global competition has never been stronger. It's a race to the bottom. Trade deficits have never been larger (see China). Transnational corporations want cheap labor (WageStagnation + CheapLabor = BigProfits). Jobs are leaving the nation in droves; a trend that started in the early 1970s, and also helps to explain why real median household incomes have actually been falling since year 1978. Also, while 5.5% unemployment doesn't sound bad, the jump from 5.0% to 5.5% (from April-2008 to May-2008) is the largest one-month increase in 22 years (source: U.S. Labor Dept.). Also, one should remember that the population is growing by 5 million per year too. So the number of unemployed is growing larger, even if the percentage isn't.
(15) Medicare has hundreds of billions of unfunded liabilities per year, which are being funded by more borrowing and debt. It is not sustainable; especially with the approaching 77 million baby-boomer bubble. In year 2007, Medicare (16%) and Medicaid (7%) combined were 23% of the $2.7 Trillion federal budget:
(16) Inflation was higher in the mid-to-late 1970s and early 1980s, but we have had positive inflation since year 1956. 3% to 5% inflation doesn't sound bad, but when it is every year, it becomes exponential (i.e. 3% this year is really more than 3% of last year, which is more than 3% the year before, etc., etc., etc.). Thus, a 1950 U.S. Dollar is now worth less than 10 cents. As of 16-JUL-2008, consumer prices have rose at a rate that has never been faster in the last 26 years. Energy prices have a great deal to do with this.
(17) Other exacerbating problems:
Voters are culpable too.
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt, jobless, homeless, and hungry ?
At any rate, the voters have the government that the voters elect.
d.a.n | August 25, 2008 3:21 PM
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David R. Remer replied to d.a.n at :
3:56 PM, 08 25 2008 | Permalink
Reminds me of an aging grandpa or grandma who gets a cold. Their immune system is not what it once was, and a cold, left to its own devices, could result in pneumonia and kill them.
We have rough times ahead, but, we need not let the cold develop into a lethal pneumonia. If voters hold their representatives accountable THIS ELECTION for the sickly conditions we now suffer, we can get a new batch of politicians in office who will arrive with a mandate to innoculate this nation against an otherwise preventable untimely end, or themselves be removed from office one term later.
An ounce of prevention is worth a pound of cure. It is time America's voters took their medicine like the Founding Father's intended, in order to keep our democracy alive and fit for our children and theirs.
It is time we let go of our party loyalties, and voted for America and her future, instead.
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