More economic disaster on the way, and what should be done about it

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Just read an excellent piece on the second wave of the economic crisis that's about to hit us, and what should be done about it. Article athttp://counterpunch.org/roberts01222009.html .
A note on the source: Counterpunch is the decidedly left-wing soapbox of one of my favorite commentators, Alex Cockburn. However, unlike most on the left, he brings in a wide range of points of view, many of which surprisingly coincide with his own.
For those who object to the opinions of lefties, a word on the author of this piece: from the mini-bio at the end of the article:
Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions.
====================================================================== Another Real Estate Crisis is About to Hit
By PAUL CRAIG ROBERTS
For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.
The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate--shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.
The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.
Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.
Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.
The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.
The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obamas economic team is to expand debt further. This is not surprising as Obamas economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse.
The unexamined question is: Who is going to finance the next wave of debt?
The US budget deficit for fiscal year 2009 already appears to be on a path to $2 trillion, and that is before Obamas stimulus program. What we are looking at is a $3 trillion budget deficit if Obamas program is enacted in time to impact the economy this year.
Foreign countries can finance a $500 billion US budget deficit out of their trade surpluses with the US. But foreigners do not have the funds to finance a US budget deficit in the trillions of dollars, and they would not finance such a deficit even if they had the funds. Foreigners are over-weighted in dollar holdings and prefer to lighten their holding than to add to them. Americas economic prospects are dim as are the dollars prospects as reserve currency. An annual budget deficit in the trillions of dollars makes the dollars prospects appear even dimmer.
The federal governments likely solution to the debt problem will be to monetize the debt, that is, the government will finance its deficit by printing money. Debt will be inflated away. But for those Americans without jobs or whose incomes do not rise with inflation, life will be cruel.
Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. Interest rates are so low that debt instruments produce no income, and there are scant capital gains in the stock market. Retirees are living by consuming their capital.
Americas economic policy of low interest rates and debt expansion bodes ill for everyone living off their savings. Their future prospects are even worse as high inflation will destroy the value of their savings, especially if held in cash or debt instruments, including safe US Treasuries.
There are more intelligent ways to try to escape from the current crisis. However, the financial gangsters and their shills that Obama has put in charge of economic policy are thinking only of their own interest. What happens to the American people is not a concern.
A compassionate government would handle the crisis in this way:
The trillions of dollars in credit default swaps (CDS) should be declared null and void. These swaps are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.
The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.
The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.
Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.
To preserve the dollars status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.
The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.
This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.
This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.
=========================================================================Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions. He can be reached at: snipped-for-privacy@yahoo.com.
--
"I know I will go to hell, because I pardoned Richard Nixon."

- Former President Gerald Ford to his golf partners, as related by
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Economics is neither left or right just remember on whose watch this crises came. I believe that a few people are walking away with tons and tons of our money.
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On 1/22/2009 11:44 AM snipped-for-privacy@gmail.com spake thus:
[snip]

Your comment is appreciated, but could you please learn to *trim your posts*, and not quote the entire text before your 3-line reply?
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network news says 200,000 stores nationwide will close this year and 3000 malls will go bankrupt.
our spend credit spend economy was a house of cards blown over by the wind.
yeah things will get much worse, we no longer produce anything
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On Thu, 22 Jan 2009 11:29:15 -0800, David Nebenzahl wrote:

And the government's response to irresponsibly low interest rates is to lower the interest rate even further! And brainless Obama endorsed this action.
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As a real estate investor and rental owner, I would urge people NOT to sell their homes or rental units, no matter what, because the selling frenzy (as we've seen on Wall St.) is just making things worse. Instead, trim back on buying all those things you don't need: new shoes, matching candle sets, cute little salt shakers, etc. Good luck everyone, Brian http://www.ezlandlordforms.com/documents /
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On Thu, 22 Jan 2009 20:18:05 -0800 (PST), REO Guy

I'm not in that situation, but I can empathize with people who are facing real, terrible problems. It's somewhat patronizing to equate cutting down with "new shoes, matching candle sets, cute little salt shakers".
How about medical premiums and/or out-of-pocket medical costs, car payments/repairs, children's tuition, even nutritious food as opposed to poisonous fast-food!
People out there are suffering. Have some compassion rather than ridiculing them!
Fortner
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No. That's from Lincoln's Gettysburg Address. When was the last time you read the US Constitution? It's a worthwhile exercise every few years. Doesn't take long, it is an impressively short document for what it is.
-- Doug
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The U.S. Constitution is less than a quarter the length of the owner's manual for a 1998 Toyota Camry, and yet it has managed to keep 300 million of the world's most unruly, passionate and energetic people safe, prosperous and free. P. J. O'Rourke
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Kurt Ullman wrote:

"It" what? The Camry owner's manual or the Constitution?
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On 1/24/2009 11:59 AM HeyBub spake thus:

I'd vote for the Toyota manual. (Not that I don't love the Constitution, but it's honored mostly in the breach, as they used to say.)
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wrote:

I wish US CONGRESScritters would read the Constitution,every year. Then I wish they would FOLLOW it.
--
Jim Yanik
jyanik
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Jim Yanik wrote:

The Constitution is like the Bible - it doesn't matter what it says. The only thing that counts is what it means.
Sometimes the Constitution or Bible do not mean what they say and sometimes they do not say what they mean.
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Look, the imbecile who wrote that article knows less than zero about economics. Suggesting that the solution to the present crisis is to RAISE interest rates and REDUCE the deficit is completely contrary to everything known about macro-economics. Any sane economist would tell you so, from Keynes, Samuelson, Greenspan, take your pic. You'd also learn it in a freshman course in economics and if you took such a course, you'd stop embarrasing yourself by posting such rubbish.
On another note, how did you like the response Obama got from those peace loving Hamas friends or yours? Obama made a statement that the Palestinians must stop firing rockets at Israel and Israel must complete it's troop withdrawl from Gaza. Seems pretty reasonable to me. The response from Hamas was swift. They said Obama is following Bush and is destined to another 4 years of failure in the Middle East. That despite the fact that Obama spent the last year going out of his way to try to be nice to them and kiss their asses. Gee, what a swell bunch of reasonable, decent, peace loving folks.
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snipped-for-privacy@optonline.net wrote:

He's trying.
His very first call to a foreign leader as president was to a dude named Mahmoud. Three of his first four calls were to tacit supporters of terrorists (Palestinian Authority, presidents of Syria and Egypt). Evidently, the line to Hamas was "Not a working number."
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David Nebenzahl wrote:

Not that there's anything wrong with that... We'll still get high marks for trying, and our reputation in the world is what counts.

I dunno. Dennis Ross is a brilliant and thoughtful emissary. I can tell that because he appears on Fox News from time to time.
(His

Mitchell solved the Irish problem. Or they got tired of fighting, I forget which.
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Lets try separating that URL so it might work.
--
Christopher A. Young
Learn more about Jesus
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David Nebenzahl wrote:

No empire lasts forever!!
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On 1/24/2009 10:40 AM Tony Hwang spake thus:

[snip]
Again, I ask; was it *really* necessary to quote the entire damn message to add a 2-line reply?
Sheesh. People like you give bottom-posting a bad rap.
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Doesn't anything make you happy? I would think you'd enjoy seeing the entire message re-posted so more people could read the rubbish you posted from an obvious economic illiterate.

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