Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on May 11, 2014
The US Economy Is A House Of Cards
The US economy is a house of cards. Every aspect of it is fraudulent, and the illusion of recovery is created with fraudulent statistics.
American capitalism itself is an illusion. All financial markets are rigged. Massive liquidity poured into financial markets by the Federal Reserve’s Quantitative Easing inflates stock and bond prices and drives interest rates, which are supposed to be a measure of the cost of capital, to zero or negative, with the implication that capital is so abundant that its cost is zero and can be had for free. Large enterprises, such as mega-banks and auto manufacturers, that go bankrupt are not permitted to fail. Instead, public debt and money creation are used to cover private losses and keep corporations “too big to fail” afloat at the expense not of shareholders but of people who do not own the shares of the corporations.
Profits are no longer a measure that social welfare is being served by capitalism’s efficient use of resources when profits are achieved by substituting cheaper foreign labor for domestic labor, with resultant decline in consumer purchasing power and rise in income and wealth inequality. In the 21st century, the era of jobs offshoring, the US has experienced an unprecedented explosion in income and wealth inequality. I have made reference to this hard evidence of the failure of capitalism to provide for the social welfare in the traditional economic sense in my book, The Failure of Laissez Faire Capitalism, and Thomas Piketty’s just published book, Capital in the 21st Century, has brought an alarming picture of reality to insouciant economists, such as Paul Krugman. As worrisome as Piketty’s picture is of inequality, I agree with Michael Hudson that the situation is worse than Piketty describes. http://michael-hudson.com/2014/04/pikettys-wealth-gap-wake-up/
Capitalism has been transformed by powerful private interests whose control over governments, courts, and regulatory agencies has turned capitalism into a looting mechanism. Wall Street no longer performs any positive function. Wall Street is a looting mechanism, a deadweight loss to society. Wall Street makes profits by front-running trades with fast computers, by selling fraudulent financial instruments that it is betting against as investment grade securities, by leveraging equity to unprecedented heights, making bets that cannot be covered, and by rigging all commodity markets.
The Federal Reserve and the US Treasury’s “Plunge Protection Team” aid the looting by supporting the stock market with purchases of stock futures, and protect the dollar from the extraordinary money-printing by selling naked shorts into the Comex gold futures market.
The US economy no longer is based on education, hard work, free market prices and the accountability that real free markets impose. Instead, the US economy is based on manipulation of prices, speculative control of commodities, support of the dollar by Washington’s puppet states, manipulated and falsified official statistics, propaganda from the financial media, and inertia by countries, such as Russia and China, who are directly harmed, both economically and politically, by the dollar payments system.
As the governments in most of the rest of the world are incompetent, Washington’s incompetence doesn’t stand out, and this is Washington’s salvation.
But it is not a salvation for Americans who live under Washington’s rule. As all statistical evidence makes completely clear, the share of income and wealth going to the bulk of the US population is declining. This decline means the end of the consumer market that has been the mainstay of the US economy. Now that the mega-rich have even more disproportionate shares of the income and wealth, what happens to an economy based on selling imports and off-shored production of goods and services to a domestic consumer market? How do the vast majority of Americans purchase more when their incomes have not grown for years and have even declined and they are too impoverished to borrow more from banks that won’t lend?
The America in which I grew up was self-sufficient. Foreign trade was a small part of the economy. When I was Assistant Secretary of the Treasury, the US still had a trade surplus except for oil. Offshoring of America’s jobs had not begun, and US earnings on its foreign investments exceeded foreign earnings on US investments. Therefore, America’s earnings abroad covered its energy deficit in its balance of trade.
The economic stability achieved during the Reagan administration was shattered by Wall Street greed. Wall Street threatened corporations with takeovers if the corporations did not produce higher profits by relocating their production of goods and services for American markets abroad. The lower labor costs boosted earnings and stock prices and satisfied Wall Street’s cravings for ever more earnings, but brought an end to the rise in US living standards except for the mega-rich. Financial deregulation loaded the economy with the risks of asset bubbles.
Americans are an amazingly insouciant people. By now any other people would have burnt Wall Street to the ground.
Washington has unique subjects. Americans will take endless abuse and blame some outside government for their predicament–Iraq, Afghanistan, Libya, China, Russia. Such an insouciant and passive people are ideal targets for looting, and their economy, hollowed-out by looting, is a house of cards.
11 Comments on "The US Economy Is A House Of Cards"
RICHARD RALPH ROEHL on Sun, 11th May 2014 5:55 pm
Insouciant?
It is my opinion that the Amerikan corn syrup sheeple-people are the most manipulated and ill informed population on Earth. The dumbest of the dumb.
Aside from bad GMO frankinfood and too many pharmaceuticals, the Amerikan sheeple are clueless… and defeated… and distracted by bread and circus pro-$ports on tell-lie-vision.
Rome is burning. And I now think it’s the patriotic duty of every sane man to pour fuel on the fire!
Makati1 on Sun, 11th May 2014 6:19 pm
“…Let’s take two representative households to understand the decline of the middle class and the solution. Let’s say both households earn $81,000 annually, virtually all from wages and salaries. This puts the family at around the 70% mark of U.S. households, just within the top 30%. (For context, the 2011 median household income was $50,054.)
This income is solidly middle class: not low enough to qualify for much in the way of government subsidies but not high enough to avoid prioritizing and trade-offs.
Household A has a big mortgage on a house they bought near the top of the market with a minimal down payment, student loans, two auto loans and credit card balances. After making the loan payments and paying for utilities, transportation, groceries, employees’ share of healthcare costs, eating out, mobile phone/broadband/TV service plans, there is little money left to save for emergencies, travel, college for the kids, home maintenance, etc.
How do we describe this family: middle class or debt-serfs? Actually, they’re both: measured by what they superficially own (home, two vehicles, communication and entertainment devices, college degrees, etc.), this household is solidly middle class. But measured by how much income is spent servicing debt, how much is left to accumulate or invest, the family’s net worth (their assets’ market value minus debt) and generational wealth, this household is mired in debt-serfdom: their debts will never be paid off…”
http://www.oftwominds.com/blog.html
“…Household B shares the family home that is owned free and clear (mortgage has been paid off) with other family members, owns debt-free vehicles and maintains the cars themselves, rarely eats out, has no student loans (either paid cash for college, used scholarships and grants or paid their loans off), buys cheap catastrophic medical insurance and invests money in staying healthy/preventative care, i.e. eating and preparing real food and enjoying regular fitness, lives close to work, invests some of the ample family savings in enrichment (lessons for the kids, etc.), occasional frugal travel and income-producing assets and retains the rest for emergencies such as vehicle breakdown, medical emergency, etc.
If this scenario seems “impossible,” recall that 1/3 of all homes (roughly 26 million houses) in the U.S. are owned free and clear, i.e. there is no mortgage.
How do we describe this family: middle class or wealthy? Actually, they’re both: this household has a solidly middle class income, but because they’ve eradicated fixed costs (most importantly, debt, costly “gold-plated” healthcare insurance, etc.) and discretionary luxuries such as eating out, costly entertainment plans, etc., but measured by their values, behaviors and net income saved and invested, this household is upper-middle class or wealthy, having achieved a level of prosperity that eludes free-spending households with double their annual income.
The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption that cripples the household’s ability to accumulate capital that generates income…”
The ‘1/3’ are not going to stay that way for long. Wait and see.
Plantagenet on Sun, 11th May 2014 7:09 pm
Obama’s policies are destroying the middle class. On the bright side, Obama himself is greatly improving his golf game.
Boat on Sun, 11th May 2014 8:07 pm
Makati1,
I know a guy that got married had 2 kids and at 22 bought his first house that was in terrible shape for $30,000. They lived in it for 10 years. This was back in the early 80’s. After living in it for 5 years he got a 2nd mortgage and bought another house that was ready to fall down. Got it for $20,000. He leveled the house, replaced all sheet rock, wiring, roof, furnace and plumbing because the house was in that bad of shape. He then rented the house and it paid for the mortgage, insurance and got $100 extra.
He invited the bank to come look at the 2 houses he had retrofitted. They agreed to loan him money whenever he need it. Fast forward 30 years and he is now worth almost 2 million and has 15 rentals and has sold a couple. He still lives in the first house he built. There are paths to success with no education if your willing to work. It’s called sweat equity. As factory workers we are used to that.
Norm on Sun, 11th May 2014 8:09 pm
Makat1 writes way too much for a post board. Here is something shorter: What used to be our middle class, has morphed into a deteriorated blob of substandard DNA, stupid fat lazy destructive, and on drugs. They are entitlement mentality, think they have their first million and the second is on the way. But in reality they can’t keep the repo man out of the drivers seat of the car they can’t afford and were too stupid and lazy to do much as change the oil. Although the ruling elites are truly evil for creating a fraudulent fake economy, who cares when the tires who think they are middle class deserve every boot kick to their collective fat tattoo’d illiterate rib cage. Bye bye fat lazy entitlement american middle class, may you go peacefully to the nearest on ramp, cardboard sign by day, and sleep under at night. Your disgusting attitude deserves nothing else. Hard working foreigners with solid values, will occupy the homes the former middle class was foreclosed out of. If a corrupt wall street sped it up by ten years, good riddance to ex middle class, faster is better.
Perk Earl on Sun, 11th May 2014 8:34 pm
“The Federal Reserve and the US Treasury’s “Plunge Protection Team” aid the looting by supporting the stock market with purchases of stock futures, and protect the dollar from the extraordinary money-printing by selling naked shorts into the Comex gold futures market.”
If gold is shorted to support the dollar, wouldn’t we expect ramifications? If not, then cheating in this case works. I don’t condone it, but apparently valuations can be manipulated (at least so far) with impunity.
paulo1 on Sun, 11th May 2014 9:29 pm
My favourite ‘money’ saying: “It’s not what you own, it’s what you have paid for”.
Mt 2nd favourite was uttered by a barge loader one day trying to smarten up a tug boat deckhand. The deckhand had just bought a house and was talking about how his $1,200.00/month mortgage payment was more than affordable. (This was in the early 90s and $1200 was a huge mortgage payment at that time….mine was around $500.00). The loader said, “It doesn’t matter what you can afford when you’re working, it’s what you can afford when you’re not working”.
The first statement was made by a logging contractor who did very well and was extremely well fixed. The barge loader started out working in logging camps and ended his career making huge money loading log barges. I was the quiet pilot who flew them into camp and kept his mouth shut and listened and learned.
Paulo
GregT on Sun, 11th May 2014 9:59 pm
“If gold is shorted to support the dollar, wouldn’t we expect ramifications?”
Yes we would expect ramifications. They just haven’t come to fruition, yet. But they will eventually. Cheating might work in the short term, but dishonesty has a nasty way of biting back. As they say, Karma, it’s a bitch.
baptised on Sun, 11th May 2014 10:07 pm
I live on $852 a month retired at 50 and now I am 55. I bicycle, kayak and go to the ymca. Just got back from 6 days of motorcycle riding in the mountains of north Carolina, camped on corp. of engineers property for free. It is not always easy, but I had to start paying as little taxes as possible to this military industrial complex, war monger country as possible. It was a personal conviction that I have never regretted.
baptised on Sun, 11th May 2014 10:09 pm
O forgot to say I will never take welfare, foodstamps, or any of that stuff period. I feel I would be beholding.
Davy, Hermann, MO on Mon, 12th May 2014 5:23 am
Baptised, why not take welfare? The very rich are looting the country and for that matter the globe. Take all you can it is like a LA mob riot. The corporate and wealthy welfare is so far out in the stratosphere compared to what the poorest rung of people are receiving I would have no reservations about taking whatever you can get from the racket we call a government. I am always against ill-gotten gains through illegal activity. Yet, folks, what is right and wrong today. The very wealthy have rigged and distorted the system. They have created a revolving door of patronage/education, back scratching, protection rackets, and secrete code of conduct. This sounds like the mafia and in fact they are an institutionalized mafia. Folks this is not a US of A phenomenon. It has morphed into a global phenomenon. The scary thing about the globalization of an institutionalized mafia behavior is these folks are jumping boarders to hide from any attempt to control these criminal behaviors. I call them criminal because if you took our US founding fathers and put them in a room and explained the basics of what is happening they would call it criminal.