Before we discuss what’s left of the economy, a few words about one brave man.
The shoes Iraqi journalist Muntader al-Zaidi threw at George Bush in Baghdad had more courage and truth in them than all the honeyed, sycophantic words of America’s fawning media.
Zaidi reminded the world that George Bush, Dick Cheney and their Iraqi Quislings have the blood of hundreds of thousands of Iraqis on their hands – perhaps as many as one million – and the blame for creating four million refugees.
While al-Zaidi was being beaten in prison for his courageous act, off in New York, the fabled financial guru, Bernie Madoff, was accused of bilking clients of an astounding $50 billion while well-fed watchdogs of the Securities and Exchange Commission slept.
Thanks to Madoff and other Wall Street bandits, tens of millions of Americans have lost their life savings and retirement funds, and the word financial system is on the rocks. The storm they created has blown as far east as the Gulf and South Asia.
Ironically, while Bush and Cheney were obsessed by al-Qaida, searching under every rock in Afghanistan for Osama bin Laden, the real danger to America was at home – on Wall Street. The same bin Laden who pointed out a decade ago that America’s economy, its Achilles Heel, would one day collapse.
Wall Street’s financial con men, hedge fund nabobs, and casino capitalists took home a staggering US $33.3 billion of bonuses in 2007 alone thanks to shady financial engineering and peddling fraudulent securities. So far, they have escaped prosecution and get to keep their millions and $30 million South Hampton beach houses. That these fraudsters go unpunished, and get to keep their swag, is unconscionable.
Worse is coming. Chrysler and Ford will shut plants in January. GM is next. In spite of the $ 13.4 billion auto industry bailout announced by President Bush last week, many plants may never reopen. Even the mighty Toyota just announced its first-ever loss.
The staggering US auto industry closely resembles the old Soviet Union: economically declining, bereft of new ideas, producing unwanted products, run by dimwitted careerist bureaucrats.
America produces the wrong cars, and far too many. The bloated auto industry must downsize. It has been selling cars only thanks to the steroid of cheap, easy credit – in effect, almost giving them away. Now that the drug is largely cut off, sales have nosedived.
The US economy has been running almost entirely on credit for a decade.
The US national debt is twice America’s net worth.
Government and business encouraged a reckless credit binge to which the nation became addicted. Manufacturing fell to only 12% of GDP. Finance – the shuffling of paper – became America’s leading industry, at almost 25% of GDP. Americans saved nothing and had to borrow $1.2 trillion from China and Japan to keep their orgy of consumerism going.
Washington’s response to the financial crisis was panic, then flooding the economy with freshly-printed money in hope something positive would happen. Japan made precisely the same gamble when its bubble economy collapsed in the early 1990’s. Today, Japan has one of the world’s highest deficits and its economy remains stagnant.
The US economy must be weaned off credit addiction. Pumping endless billions into the economy is like injecting more addictive drugs to a sick addict. The economy needs a period of austerity in which remaining credit bubbles, bad debt, and financial distortions are purged. This is called recession, and it’s an essential part of the capitalist free market cycle. Without a period of pain, we can’t restore economic health or sanity.
But panicky American politicians plan to spend $8.5 trillion to try to combat this necessary, beneficial recession. Their misguided efforts risk igniting a future firestorm of inflation that will be far more dangerous and painful than any recession.
That is why the European Central Bank, with vivid memories of the terrifying 1920’s hyperinflation in Germany when a loaf of bread went from pennies to 80 million marks, has resisted deep interest rate cuts and printing money.
The Fed’s recent slashing of US interest rates to zero is a sign of utter desperation and an act of folly. Once investors realize that Europe, Canada and Asia are far safer investments than the US, watch for the US dollar to nosedive – as it should.
The United States needs serious rehab from the stimulating drug of cheap credit. The remedy for America’s economic ills is not more money but patience, saving, and endurance.
Americans must relearn the old verity that one must save for purchases and rainy days; that gambling with your home is idiotic; that there is no substitute for hard work or manufacturing; and that it’s always very risky to trust politicians or financial `professionals’ with your money.
The United States has shot itself in both feet. Now, it staggers and stumbles forward into a frightening 2009. No wonder Sheik Osama is smiling.
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copyright Eric S. Margolis 2008
