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The real state of the U.S. economy

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (www.globalresearch.ca). He is at work on a new book, from which this has been adapted, Power of Money: The Rise and Decline of the American Century. He may be reached through his website, www.engdahl.oilgeopoitics.net. He kindly granted Webdiary permission to repost this article

The Real State of the US Economy: Henry Paulson Has Lost Control Over US Finance
By William F. Engdahl

02/08/08 " Global Research" -- -- When Henry Paulson agreed to leave his job as chairman of the powerful Wall Street investment bank, Goldman Sachs to go to Washington as Treasury Secretary in 2006 he demanded extraordinary powers as de facto economic czar. He got it. Paulson is also head of the President's Working Group on Financial Markets -- the secretary of the treasury and the chairmen of the Federal Reserve Board, the Securities and Exchange Commission and the Commodity Futures Trading Commission. The Working Group is the financial world's equivalent of the Pentagon war room. Paulson, not Fed chairman Bernanke, is the person running the Administration's crisis management. And his recent actions indicate he has lost control as the snowballing problems from the semi-government mortgage companies Freddie Mac and Fannie Mae to the collapse of the multi-trillion dollar market in Asset Backed Securities (ABS) to the real economy are compounding into the worst crisis since the 1930's Great Depression.

'The US banking system is sound…'

In an eerie echo of President Herbert Hoover in 1930, during a Presidential campaign against Roosevelt, following the stock market crash and collapse of numerous smaller banks, Paulson recently appeared on national TV to declare "our banking system is a safe and sound one." He added that the list of "troubled" banks "is a very manageable situation." In fact what he did not say was that the US bank deposit insurance fund, the Federal Deposit Insurance Corporation (FDIC) has a list of problem banks that numbers 90. Not included on that list are banks such as Citigroup, until recently the largest bank in the world.

The statement is hardly reassuring. The California savings bank, IndyMac Bank which was declared insolvent a month ago was not on the FDIC list a week before it collapsed. The reality is the crisis created by "securitizing" millions of home mortgages into new financial instruments and selling the packages to pension funds and investors is unfolding like a snowball rolling down the Swiss Alps.

Indication of the lack of control is the statement just weeks ago by Paulson that "financial institutions must be allowed to fail." That was two weeks before Paulson went to Congress to ask for "Congressional authority to buy unlimited stakes in and lend to Fannie Mae and Freddie Mac." As I noted in my recent piece, Financial Tsunami: The Next Big Wave is Breaking: Fannie Mae Freddie Mac and US Mortgage Debt , those two private companies insured some $6 trillion worth of home mortgages, half the entire US mortgage debt. Paulson defended the request by calling Freddie Mac and Fannie Mae "the only functioning part of the home loan market."

That comes back to the statement about a "sound banking system". Can we have a sound banking system where the only functioning part is literally insolvent—its debts greater than its assets?

It is well known on Wall Street that some of the largest financial institutions have huge undeclared problems with Asset Backed Securities they have valued far above their worth to make their books look better than they are. The names Citigroup, Lehman Bros., Morgan Stanley, even Paulson's old firm, Goldman Sachs and of course the inventor of sub-prime mortgage securitization, Merrill Lynch, all hold a huge percentage of what are called Level Three assets, these being assets where no one is willing to buy but the bank declares their worth based on "fantasy." In short the value of those core financial institutions of the US financial system is massively overvalued compared with their value were they forced to sell into the open market today. In a sobering aside, readers should not expect any serious economic remedies for the crisis from a President Barack Obama. Obama's National Campaign Finance Chairman is Chicago real estate billionaire, Penny Pritzker, who is heir to among other things the Hyatt Hotels. It was Pritzker together with Merrill Lynch ten years ago who first developed the model for securitizing "sub-prime" real estate, the trigger for the current Financial Tsunami crisis.

Already Citigroup has been forced to go to Dubai hat in hand and ask for billions in cash. After it announced it would not need more capital. Now Citigroup just announced plans to sell some $500 billion more assets to raise funds. Is Citigroup really solvent is the question sober investors are asking. Similarly Merrill Lynch raised $6.6 billion from Kuwait Mizuho, stated it was fine and weeks later had to raise still more capital. Morgan Stanley sold a 10% share of the company to China International Corp.

The real economy contracting rapidly

Behind the reassuring statements from Paulson and others that the "worst is over" the reality of the credit collapse since August 2007 is a deepening economic contraction which I have said several times in this space will surpass the Great Depression of the 1929-1938 period. A goof friend who is an unemployed homebuilder in a prosperous part of Arizona just sent me the following list of US department retail store closures. It is worth noting that over 70% of the US GDP is consumer spending and that the entire Federal Reserve strategy of Alan Greenspan after the March 2000 collapse of the stock market bubble, was to bring US interest rates to their lowest levels since the 1930's in order to stimulate consumer spending on credit, i.e. debt, to avoid "recession." Note the scale of the following store closings across America in recent weeks:

Ann Taylor closing 117 stores nationwide.

Eddie Bauer to close more stores after closing 27 stores in the first quarter.

Cache, a women's retailer is closing 20 to 23 stores this year.

Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide

Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill.

Gap Inc. closing 85 stores

Foot Locker to close 140 stores

Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.

Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.

Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.

Disney Store owner has the right to close 98 stores.

Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.


Macy's - 9 stores closed

Movie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery

and Hollywood Video stores in addition to the 520 locations the video rental

chain closed last fall as part of bankruptcy.

Pacific Sunwear - 153 Demo stores closing

Pep Boys - 33 stores of auto parts supplier closing

Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year.

J. C. Penney, Lowe's and Office Depot are all scaling back

Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.

Wilsons the Leather Experts – closing 158 stores

Bombay Company: to close all 384 U.S.-based Bombay Company stores.

KB Toys closing 356 stores around the United States as part of its bankruptcy reorganization.

Dillard's Inc. will close another six stores this year.

For anyone familiar with American shopping malls and retailing, this represents a staggering part of the daily economic life of the nation, from furniture stores to clothing to video rentals to leather. The process has only begun and neither major party Presidential candidate has dared to mention this on the ground economic reality, because they evidently have no solutions to offer that would not jeopardize their campaign finances. Obama is tied to not only Pritzker but also to Omaha billionaire, Warren Buffett and George Soros. McCain depends on the traditional money contributions of the Republican Party which demand permanent tax reform for highest income earners and a pro-bank laissez faire treatment of millions of homeowners facing home foreclosure and asset seizure by banks.

Banks across the country have severely cut back on loans, fearful of bad debts. That has aggravated the consumer collapse documented above. Hundreds of thousands of real estate brokers, small and large bankers, furniture workers and salespeople, and construction workers are unable to find work. Jobs are being cut wholesale and those working are often on reduced hours. Car sales in June plunged by 28% for Ford, 18% for General Motors and even 21% for Toyota which will mean more layoffs in coming weeks. This will be the next wave of unemployment.

The economic reality is not reflected in official US Commerce Department or Labor Department statistics. There the data is constantly being "revised" to hide the grim reality in an election year.

My good friend, economist John Williams of California, has meticulously tracked such "data revisions" for more than 25 years and found the manipulation of reality so alarming that he founded an independent subscriber service titled "Shadow Government Statistics" (http://www.shadowstats.com/ ), where he makes best estimate calculations of the reality not the official mythology.

By Williams' calculations the US economy first entered recession, defined as two consecutive quarters of negative GDP growth, at the end of 2006. Ever since, the recession has deepened, dramatically so in the past 12 months. Little known is the fact that the Labor Department also publishes six different unemployment statistics from U1, U2 through to U6 being the most comprehensive. The reported "official unemployment" is the very narrowly defined U3 which stands at 5.5%. However, as Williams notes, U6 is the real measure and that officially shows 9.7% unemployed. His calculations put the figure at 13.7% actually unemployed and seeking work.

A personal account

The unemployed homebuilder from Arizona I mentioned above recently sent me the following personal note on the situation:

"Here is how it looks to people like me: Real estate dealings fuelled the economy in most areas of the country for the past decade or more. We've been in a market downturn for three years. We have seen the cost of doing business increase for builders, along with a big drop in buyers as everyone tightens their belts, or can't sell existing homes. Many employers have gone under ending thousands of jobs. If they have a job people are worried about losing it. Driving long distances to work is not possible with gasoline costs double that of 2006. There has been a 40% drop in most peoples' home equity worth. Many people are "underwater" on their homes, meaning they owe more than the market price is worth today. So many under-employed don't show up in government unemployed statistics. Self employed like me never get counted."

The Arizona homebuilder continued, "Today nobody is building. Unsold home inventories are triple that of 2003. Banks no longer give easy credit for home buyers. Many realtors I know have gone two years without selling a home. Empty storefronts are becoming common. In many areas unemployment among construction trades people is 50% or more. Tens of thousands of illegal Mexicans who did most of the manual labor have returned to Mexico to find work. What now? Well, I do handyman projects of all sorts, big or small and make about 70-90% of what it takes to survive with a family of a wife and three young children. My savings make up the rest. That can't go on for too much longer. We went from affluent and comfortable to nervous and broke with diminished opportunities in just three years. We used to be the middle class."

To be continued…


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USA has massive fossil fuel reserves

Stuart McCarthy: "They will need to put themselves on a war footing and do both. Even if they did this the economy will probably still collapse."

What rot. If the US economy is to "collapse", because it cannot "grow the economy while energy consumption declines", then neither will anyone else.

The US, far from being in a worse position to confront the challenges to future growth because of energy shortages, is, as the foremost technological power in the world, in a better position than just about any other.

Moreover, the USA , amongst other things, has a quarter of the world's coal.

I am a glass half full chap willing to risk change

Why do we believe we can prize an infinite amount from a finite resource and grow our economies exponentially in perpetuity? Because we want to. Because it’s easier to believe that than to face the realities of our situation and because it upsets people to think otherwise. So Bollocks to physics, biology and climatology. They’re too difficult. Give us Super Heroes and Father Christmas.

Paul, believe it or not I am a glass half full kind of person. I am naturally a risk taker, but right now I believe we are living through extraordinary times.

I am foolish enough to believe we will survive the crash and we will come out in the end with a sustainable economy. I just want to bring it on now. I want a sustainable economy and I am willing to take the risks necessary to see us through the change.

Change is risk and change is necessary to survive.

So Paul, you see I am a glass half full type. Not so sure about you, though.

I.A.G.next...and then what?

"...the emergence of I.A.G. may be the most troubling event of Wall Street's Bloody Sunday..."



Others will fall - boom boom

The Dow Futures is already down 348 points. This is getting interesting and more to come according to Nouriel Roubini:

...since Lehman is bust the new line of defense was the takeover of Merrill by BofA. After taking over the insolvent Countrywide now Ken Lewis is making another reckless gamble by taking over at a vastly inflated price another distressed broker dealer. This is dangerous behavior for BofA. The lesson for Mack of Morgan Stanley and Blankfein of Goldman is that they should find a buyer today. After the collapse in six months of three major broker dealers Morgan Stanley and Goldman will be next unless they find a large financial institution with a large commercial bank that provides stable FDIC-insured deposits.   As predicted here months ago no independent broker dealer will survive.

So far Roubini has called this debacle rather accurately; if he is correct there could be lots more blood and guts to come.

A note

My quote "Tax increases aren't an inflation problem if government cuts equivalently".

I should read "tax decreases".

Richard: "If John was holding his breath berore Monday's Wall Street trading though, Paul, it doesn't sound like he'd be the only one."

There's certainly nothing wrong with being cautious. Even sceptical. Though being overly pessimistic can also be just as much a problem.

I'm not some crazy ass gambler, or anything like that. I do though believe in taking educated risks - and yes, sometimes things do go wrong. A lot of times they also go very right.

Personally I don't believe in using ones primary house as equity (outside of utter desperation) - many people would disagree (call it a wasted asset); however, I think people need a safety net. Just a little thing that says I'm a little more conservative than people may think.

I wouldn't go into panic mode about my pension fund if I were you, John. The good years will far out weigh the bad. Don't let the "talking heads" and prophets of doom, sway your planned life in any way. That's my two cents, make of it what you will.

There's good and bad in everything

John Pratt, I'd say the recession is already here. The results of the monetary boom bust cycle unfortunately. This one can't be solved by monetary policy alone. Hence the need for tax cuts and reduced government spending.

The new government will have no choice.

Of course they'll have choice. A re-think of energy policy is also a good start. People may not have noticed that there is a hell of a lot of money returning from emerging markets. The necessary re-adjustments, and liquidation of malinvestment, are already underway.

It seems to me you're a glass half empty type of guy. Maybe you should look at the glass half full way of thinking. You may even find some value. You'll never know if you never go.

Richard:  If John was holding his breath before Monday's Wall Street trading though, Paul, it doesn't sound like he'd be the only one.

Credit crunch good news for Obama

John Pratt: " I think in fact what will happen after the election, whoever gets in, is increased tax and reduced spending."

It's highly unlikely that a government would increase taxes during a recession. Like, it would be nuts.

Especially in the middle of a credit meltdown

Actually, this all works for Obama. He can probably start promising big spending relief programmes now and can legitimately offer regulation of the finance sector (up to a point).

Tax cuts are always a good thing

John Pratt: "McCain looks like he is promising tax cuts to me. It is not so conservative to give tax cuts and drive the US government deeper into debt."

Well, I'd like to see something a bit more concrete. It is an election year I guess. Obama is also talking tax cuts.

Raising taxes would be a disaster at this point in time. People are looking to stimulate the economy, not kill it. With increased growth comes increased tax revenue. The reverse of this is also true. That's why Europe will go through a much deeper recession. Just you wait and see.

McCain mentioned government growth of 60% in eight years, and unfortunately he's right. There's saving there by cutting that to shreds. I'd personally go further and look at bigger cuts.

Tax increases aren't an inflation problem if government cuts equivalently. That's something people just don't seem to grasp. I note with the proposed Australian environment tax, that people are thinking it'll be a bonanza for government revenue. It'll surprise me if revenue keeps pace with current figures - I think government will lose money. How so? Easy, commodity prices will lower, and an added tax  on top of that will hurt growth. Think of it as a business. You make money from turnover, hurt turnover, and you hurt profit. In this case tax revenue. Unemployed people are net takers, they're not net gainers.

The surprising thing about the new century is that we're still arguing about this rather basic point.

Would you mind btw explaining why you think tax rises would be good for the economy?

Recession is inevitable.

Paul, I didn't say anything about raising taxes. I just believe that the Bush government has run up such a huge debt, that the only way the US is going to get out of this mess is to start paying off its debt. I am just as happy for the the US to reduce spending, especially defence spending.

I think in fact what will happen after the election, whoever gets in, is increased tax and reduced spending. The new government will have no choice. That is why a recession in the US is inevitable.

Energy production

John Pratt: "McCain looks like he is promising tax cuts to me"

Fair enough.  Though that's not 95 per cent of the working population. The reduced level of demand in the US will help with their balance of payments problem, and the lower US dollar has already helped with exports.

The thing is, the payback on that is slower employment growth except in the import replacement and export oriented industries.

A bit like Australia, with West Australia going gang-busters on commdity exports while NSW slides into the sea.

Perhaps whichever President they have in January, they're likely going to have to contend with long term structural re-adjustment. Energy production will be the key. That, and investment in technology.

The thing is, they'll need to invest in real technology and real energy production, not just the pie-in-the -sky stuff the Greenies keep talking about.

Arithmetic and energy

If you want to understand why the US (and to some extent the world) economy is in such deep trouble you can't go past Chris Martenson's crash course. No ideology or polemics here, just good arithmetic.

Eliot suggests that the US will need to invest in "real energy production" to work its way out of this mess. Good luck. US oil production peaked in 1970 and they currently import 2/3 of their needs at a cost of $700 billion per annum. Coal production has already peaked in terms of energy (tonnages are still increasing marginally but this is more than offset by declining energy density in the lower quality coal being mined), and natural gas production has just about peaked.

They have only two choices within the paradigm of the neo-classical economic growth imperative: grow the economy while energy consumption declines (which has never been achieved in human history) or massively in the "pie-in-the-sky greenie stuff". They will need to put themselves on a war footing and do both. Even if they did this the economy will probably still collapse.

Fiscal conservatism

John Pratt: "The US will not be able to borrow itself out of debt. The only way out is back to basics, balanced budgets and belt tightening."

That's very McCain isn't it?

Obama is proposing sweeping tax cuts for 95 percent of the US working population.

Looks like McCain is promising tax cuts to me

Presidential contender John McCain focused on the economy at a rowdy town hall meeting Monday in Denver where he pledged to make government "a catalyst for growth and good jobs."

"I have a plan to grow this economy, create more and better jobs and get America moving again," the Republican candidate said.

"I have a plan to reform government, achieve energy security, and ensure that health care and a quality education are affordable and available for all."

McCain also pledged to give bigger tax breaks for families with children.

"At a time of increasing gas and food prices, American families need tax relief, and I, not my opponent, will deliver it," McCain said in a 30-minute speech before about 325 people at the Denver Performing Arts Complex.

McCain looks like he is promising tax cuts to me. It is not so conservative to give tax cuts and drive the US government deeper into debt.

Fear is misplaced

John Pratt: "McCain thinks the system can be saved by tax cuts using more borrowed money. The US will not be able to borrow itself out of debt. The only way out is back to basics, balanced budgets and belt tightening".

McCain isn't proposing tax cuts (unfortunately), he's proposing to keep the existing ones. Smart move. With unemployment rising the worst thing would be rising taxes.

Budgets are balanced by taking an axe to government spending. Something Bush faltered badly on. Another way is stimulating growth - something you don't do rising taxes. Kill the economy and the tax revenue will reduce. Unemployed people don't pay much tax. Mr Rudd made this mistake by not cutting either taxes or government spending anywhere close to enough.

Borrowing as a percentage of GDP is a lot lower now then it was in the sixties. America will lead the world out of recession and be stronger for it. As has been the case over the last century.

This financial crisis the worst in a hundred years

THE US is mired in a "once-in-a century" financial crisis which is now more than likely to spark a recession, former Federal Reserve chief Alan Greenspan said today.

The ex-central banker said the crisis was the worst he had seen in his career, still had a long way to go and would continue to affect home prices in the United States.

"First of all, let's recognise that this is a once-in-a-half-century, probably once-in-a-century type of event," Dr Greenspan said on ABC's This Week program.

Alan Greenspan says the US financial system is in crisis, probably the worst crisis in a hundred years. McCain thinks the system can be saved by tax cuts using more borrowed money. The US will not be able to borrow itself out of debt. The only way out is back to basics, balanced budgets and belt tightening.

Global financial system could suffer yet another shock

Unless the US government does a U-turn and puts taxpayers' money into Lehman, the bank will have to file for bankruptcy protection.

If that happens, the global financial system could suffer a severe shock. Banks around the world would have to unwind their complex deals with Lehman, which would put everybody in a state of uncertainty that could last weeks or even months.

Another card is about to fall in this very unstable house of cards.

How do you feel about compulsory superannuation now? Every month billions of our hard earned dollars go into the stock market buying shares that could be worthless in a few years time. Great system isn't it? Take from the poor to prop up the rich.

In the meanwhile the rich are betting that the market will fail.

In May, David Einhorn, one of the most vocal short-sellers on Wall Street, made no secret he was betting against Lehman Brothers. Now, some investors are afraid that fund managers like him will take advantage of the climate of fear stirred up by the troubles of Lehman to target other weak financial firms whose declining share price would bring them rich rewards.

That's right - if the market falls, short-sellers will make rich rewards, but the poor old punter with shares will lose billions. Great system this free market. We are all players now whether we like it or not.

Taxpayers bail out the failing banks, their superannuation shares continue to fall, and the greedy keep betting on the collapse making enormous profits. Great stuff, capitalism!

US the arms supplier to the world.

The United States has long been the top arms supplier to the world. In the past several years, however, the list of nations that rely on the United States as a primary source of major weapons systems has greatly expanded. Among the recent additions are Argentina, Azerbaijan, Brazil, Georgia, India, Iraq, Morocco and Pakistan, according to sales data through the end of last month provided by the Department of Defense. Cumulatively, these countries signed $870 million worth of arms deals with the United States from 2001 to 2004. For the past four fiscal years, that total has been $13.8 billion.

Selling weapons is one way to kick start an economy. Spreading democracy at the point of the gun. How many lives will be lost as a result of these arms purchases? How many wars will be started? We have seen the first one in Georgia. Why would anyone sell weapons to Pakistan? They will probably be used against US and Australian forces in Afghanistan. I am sure the Israelis must be thrilled by the sale of US weapons to Iraq. Oh well, that's business I suppose.

US jobless rate jumped to 6.1 percent

One concern is the jobless rate, which jumped to 6.1 percent in August, its highest level in five years, from 5.7 percent in July. The steady rise in unemployment is one that many economists associate with recession.

“I think the consumer is the weak link in the economy right now,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Company. “They’re heavily in debt, overbought, and obviously with the housing situation, they’re under financial stress in terms of their balance sheets.”

More news from the US indicating that the US economy is in or about to move into recession. The so called growth has been fueled by debt. The bubble is about to burst. You can't live on borrowed money forever.

Mobs, Messiahs and the Markets

Mobs, Messiahs and Markets is a new book by William Bonner and Lila Rajiva. Read it and you'll have the inside story on markets, politics, fads, fashions, trends and wars. And most importantly, you'll be much better able to make sure you're not their next victim.

At this very moment, the public markets are teetering on the brink of a major change of direction…$500 trillion in derivatives could be ready to explode…$15 trillion in worldwide stock market capitalization could disappear…the average American house could lose 20 - 40% of its value…as 5 million families are forced into bankruptcy.....

Look what happened during World War II. In Eastern Germany in 1945, old men, women and children went about their business as if nothing was wrong. Soviet Army tanks were already cutting into their homeland. Millions of Soviet troops were advancing rapidly. Yet the civilians didn't try to get away until the very last minute -- when it was too late. They had been told by their leaders that the German army would stop the Russians at the border. Tragically, they believed them!........

If one lesson in history is clear -- crowds act in unintelligent, often suicidal ways -- World War I was one of the greatest public spectacles of all time. Generations of historians have tried to explain why Europeans did such a self-destructive thing. Militarism, nationalism, interlocking alliances, and imperialism -- many are the 'explanations' they have come up with. None are very satisfying. But after reading Mobs, Messiahs and Markets you'll see World War I in a new light too -- as a showdown between vast, modern societies run by premodern men. They had no real reason to go to war…so they went to war without reasons! These were huge groups…operating as though they were small tribes.

Authors Bonner and Rajiva spend a lot of time looking at history. 'Without history, what else is there?' they ask. 'Reading history,' they say, 'you can see the lies groups told themselves in the past. Then you begin to wonder about the lies we tell ourselves now.'

This book looks like a must read. By looking at the history of civilization we may get some idea of where we are heading today. For many observers of history it is obvious we are on the precipice of something big. To understand what is happening today we can look at what has happened before.

If you believe the US economy can survive just tell me how?

The Herald of the Golden Dawn

John Pratt: "Alan, if you want to compare the economy of Australia to that of the US I think the Australian economy is doing just fine"

Based on the most recent quarterly data, the US economy is growing faster than the Australian economy. As was pointed out earlier, the US economy grew by 3.3 per cent in the second quarter compared to the same time last year, helped by strong exports. This was ahead of 0.9 of a per cent in the first three months of the year. In the main body of the article by William F. Engdahl(above), the author says:

By Williams' calculations the US economy first entered recession, defined as two consecutive quarters of negative GDP growth, at the end of 2006.

Then, in that case, the US is now clearly growing out of the recession. I realise that will make depressing reading for many readers who may have been hoping (yet again) for the spontaneous conclusion of the era of American capitalism.

But never mind, there's always the 22nd Century to look forward to, which while no more likely to see the sudden Death of the Great Satan and the Era of the Golden Dawn than the 18th through to 21st Centuries, must by definition be at least a hundred years closer to the end of history come what may. Meanwhile, did you notice that overnight the Hang Seng slid below 20,000 points for the first time in, oh, years? And that oil went below a $100US a barrel? America? Why won't it go just away?

Just stating the facts, ma'am

And, the US does indeed seem to lag well behind China when it comes to the number of honours students.

Here's an analogy, Jenny.   If I point out that Australia has more reserves of uranium than does England, I am stating a fact.   I am not British bashing.

Any constructions that you make from the facts come from your mind, not from mine.

not a per capita tally

What it tells us, Jenny Hume, is that if a highly educated brain is a resource of personal and national value, which I think it is, then China has a heap of such.

For whatever reasons: the size of its population being an obvious one.

arbeit macht frei

That riches are the result of hard work is a slogan as true as the "work will set you free" signs above the Nazi concentration camps.

There is no credit given in that silly canard to knowledge or education, both of which are individual and national wealth-makers.

In terms of which, it's interesting to me that China has more honours students that America has students.

Population F Kendall?

F Kendall: "In terms of which, it's interesting to me that China has more honours students that (sic) America has students"

Well surely one would need to compare on a per capita basis for that to tell us anything worth noting would it not?

Which principle if applied would also surely put Australia above China, and ever other country as well, in the gold medal tally at the recent sports fest over there.


Well it seems to me

Well it seems to me the point you were trying to make F Kendall, apart from the importance of education in wealth creation, was that the US lags well behind China when it comes to the number of honours students, with the obvious negative about the US contained therein.

I know I can be a bit long winded in my posts, but brevity is not necessary the best way to communicate one's point of view. It can lead to ambiguity at best and at worst have people scratching their heads wondering what the point is that the person is trying to make.

Yes, population is the obvious issue in your comparison. In fact it is the most important one if one is to make a valid comparison. Otherwise it is totally meaningless.

12 years of so-called conservative government

John Pratt: "Nothing unusual just a well controlled economy. We still have a very low number of unemployed."

So, everything's going good with the economy, then?

That is what happens after 12 years of so-called conservative government, I guess.

Unemployement in the US 6.1 percent and rising.

The unemployment rate jumped to 6.1 percent in August, its highest level in five years, pushing the job troubles of American workers onto the political stage as the presidential campaign enters its final eight weeks.

Eliot, this is the result of a conservative government. How do you suggest the US pull itself out of this mess? More tax cuts?


John Pratt, you seemed to be concerned with what is happening in the USA but ignoring what is happening here in Australia. Unemployment is on the rise together with inflation and it is only going to get worse towards the end of the year. This was of course inevitable under Rudd and Swan. It will not be long before you and the missus cannot afford to go out for your $6.50 dinner.

Regarding your other concern, climate change, you just cannot see that you have been conned by Rudd.

The federal government's top climate adviser recommends Australia cut its emissions by 10 per cent by 2020, a target slammed by conservationists as "laughable". Professor Garnaut  is doing exactly what Rudd has directed him to do, just make it look as though you are doing something. Rudd will eventually announce that it is not in Australia's interest to pursue the course that Bob Brown and his clowns want us to take. As for Penny Wong, put her in charge of the Simpson Desert and it would run out of sand.

US budget deficit expected to reach $436 billion in 2009.

The US budget deficit is expected to reach a record $438bn in 2009, according to estimates from the Congressional Budget Office (CBO).

It also warns the deficit could go higher as the figure does not take into account possible government costs for taking over Fannie Mae and Freddie Mac.

The CBO added the US government will run a deficit of $407bn this year.

During the next fiscal year - starting on 1 October - a "turbulent" economy would cut revenues, the CBO warned.

'Increase in spending'

The CBO estimate for 2009 does not include the possible costs of rescuing the two stricken giant mortgage firms, which was announced on Sunday.

Its assessment of $438bn would breach the 2004 record of $413bn and far outstrip the $161bn budget shortfall last year.

"The significant expansion in the deficit is the result of a substantial increase in spending and a halt in revenue growth," the CBO report said.

Alan, if you want to compare the economy of Australia to that of the US I think the Australian economy is doing just fine. The only reason I have the slightest interest in the US economy is it has been the main driver for global growth. The collapse of the US economy is going to cause a major global downturn. The mismanagement of the Bush government has probably put the US economy into terminal decline, similar to the UK economy at the end of WWII.

Only a madman would cut taxes and increase expenditure on the scale of the Bush government and hope to run a successful economy.

What do you think will get the US out of its current debt crisis?

Rudd's only problem is how and when to spend the surplus.

Fred and Fannie still in big trouble.

That is capitalism at its worst: it means shareholders and executives reap the profits, but the taxpayer bears the losses. It is also risky. Between them, the firms have more than $200 billion of debt to roll over in the next month, and the markets are queasy. The collapse of just one bond auction could send shock waves around the world. An alternative would be for the Treasury to throw Fannie and Freddie a lifeline, perhaps as much as $25 billion-30 billion in new capital.

Eliot, on the other hand have a look at what happening in the US. The US economy is in a mess and the dept clock is still ticking.

9.63 trillion today

Did you know that the US government has accumulated $53 trillion of direct and indirect debt? If so, you are no doubt in a minority because most people are oblivious to the size of the government’s debt.

These debts are overwhelming by any measure, but here’s one way to put them into perspective. We can compare them to debts carried by General Motors, which we all know is financially strapped because of its huge debt load.

GM’s 2006 audited accounts indicate that its debts totaled $190.4 billion, which is a daunting 91.8% of the $207.4 billion of revenue GM generated that year. In contrast, not only is the $53 trillion US government debt greater than its annual revenue, it is in fact 20-times greater than the $2.6 trillion of revenue it received last year. The US government’s debt load by comparison makes GM look like a paragon of financial prudence.

That is what happens after 8 years of so-called conservative government.

Stagflation genie out of the bottle

"At an annualised rate, growth for the April-June period came in at 2.7%, weaker than the previously reported 3.6% rise for the March quarter, and the slowest pace in almost two years. Analysts had tipped the economy to post a 2.9% growth rate for the June quarter."

So, there you go John. Not only is the American economy at 3.3 per cent outperforming the Australian economy, the Australian economy is slowing.

And with higher than expected inflation, to boot.

That's called 'stagflation'. You might recall Paul and I talking about 'stagflation'.

For example, in September 2007 we had the opposite:

"Inflation due to cost push factors like high oil prices would more likley cause "stagflation" - high inflation with high unemployment. We have the reverse. High employment and relatively low inflation."

-  September 28, 2007 - 6:38pm.

Now, we've got slowing growth and increasing inflation. Stagflation.


Just sit back and relax - we have a strong hand on the wheel

Eliot, I don't think we have stagflation at all. We have a growing economy which has been slowed by the RBA raising interest rates to curb growth and slow the economy in an effort to bring inflation back into the preferred range. Nothing unusual just a well controlled economy. We still have a very low number of unemployed.

What we're looking at the trends in the data and what the trends show is that employment growth has remained pretty reasonable, although it has slowed in recent months now to the order of around about 10,000 a month.

And the jobless rate, well that's been pretty flat at 4.3 per cent. That's consistent with a slowing of the economy.

So just sit back and relax - we have a strong hand on the wheel.

US economy is out-performing Australia. Reality cheque.

John Pratt: "With 900,000 vacant homes and that number rising it is hard to see how the US is going to pull itself out of this economic mess."

John, the US economy grew by 3.3 per cent in the second quarter this year. 

In Australia, Gross domestic product (GDP) is forecast to increase by 0.4 per cent in the June quarter for an annual pace of 2.9 per cent.

And the UK economy is actually going backwards.

That's how the US economy will "pull itself out of this economic mess." 

Here, maybe this will help explain what's happening..

Several major export buyers in Europe and Asia, particularly Japan, have also started to show signs of a slowdown. The European Central Bank recently warned about slower growth in its member nations. 

"The evidence, in terms of the industrialised world, is pretty clear-cut right now that growth is slowing quite substantially," Mr Shapiro said. "The whole world is in a slowdown phase."

These places are markets for Chinese goods, okay. This doesn't mean that the Chinese conomy is about to collapse, though, there being so much internal growth there to be had (it's a developing economy), but this will affect it's growth nonetheless.

Global economies are interconnected, John.

The US economy is doing much better than I would have expected under the circumstances. But then, it's the world's biggest, and probably most flexible economy.

900,000 vacant homes

Across the United States, neighborhoods are littered with an estimated 900,000 vacant homes, the result of foreclosures, bank repossessions and abandonment. And with defaults rising nationwide, the number is expected to grow well into next year. Such blight is contagious. Empty houses pose fire and health hazards, attract crime and prolong the housing slump by depressing the value of nearby homes and adding to the nation’s already bloated unsold inventory. No one is immune. Even if your neighborhood looks fine — and you are financially secure — foreclosures in your metropolitan area mean less property tax revenue and, as the downturn deepens, less state sales tax revenue.

With 900,000 vacant homes and that number rising it is hard to see how the US is going to pull itself out of this economic mess. It seems it is contagious.

The debt crisis still has a long way to run.

Don't let the facts spoil a good panic, I say

John Pratt: "Paul and Eliot have constantly told us that the US economy is in great shape."

Well, actually, John, I've been taking considerable pains to refer "us" to the current  economic data reporting on the state of the US economy as it is, as opposed to the more bizarre suggestions afoot about the US economy being more or less desroyed or finished.

For months I've been saying that the US economy is in surprisingly good shape given the credit crunch and that moreover the US exchange rate would boost its export performance, facts both born out entirely by the last quarter's data (below).

One of the more bizarre claims I've heard recently is that the US currency is "worthless" (on an ABC blog) and the US economy being on the verge of a 1929-era Depression (here).

Also, my side of politics is Obama's side of politics in the current election.

It's hard to fix a problem that you don't think exists.

Democrats say and, as far as I can tell, really believe that working Americans are getting a raw deal; Republicans, despite occasional attempts to sound sympathetic, basically believe that people have nothing to complain about.

As it happens, the numbers support the Democrats.

Yet working-age Americans had significantly lower median income in 2007 than they did in 2000. (The elderly, whose income is supported by Social Security — the program the Bush administration tried to kill — saw modest gains.) Meanwhile, poverty was up, and health insurance — especially the employment-based insurance on which most middle-class Americans depend — was down

But Republicans, very much including John McCain and his advisers, don’t believe there’s a problem.

It’s true that elected Democrats are often too cautious — and too beholden to major donors — to be as progressive as the party’s activists would like. But even in the face of a Republican Congress, Mr. Clinton succeeded in pushing forward policies, like the State Children’s Health Insurance Program, that did a lot to help working families.

And what one sees on the other side is a total lack of empathy for and understanding of the problems working Americans face. Mr. Clinton, famously, felt our pain. Republicans, manifestly, don’t. And it’s hard to fix a problem if you don’t even think it exists.

Paul and Eliot have constantly told us that the US economy is in great shape.

That is why their side of politics is in trouble: because unless you realise there is a problem you will never try to fix it.

You, me, and they

Bill Avent: "Trying to borrow a style of expression from Eliot now, are we, Paul?"


I would advise a little more study before you go public with it. Or better still, develop a style of your own. The way you're using Eliot's, it doesn't work.

You need not bother with any advice.

Also, if you wish to speciously misrepresent someone else's meaning, you will need to quote their words more selectively. You have quoted enough of my words to make their meaning abundantly clear to anyone who reads them.

So according to you, I've committed the crime, of actually using the full and correct quote? You are indeed a man of mystery.

That is, if they understand what the word "they" means. I expect most do.

As I've already alluded, "they" is a man for all seasons. I just inquired about who is "they", and where is "they" to be found?

My own view is that speaking in third person hints at a lack of social confidence (mostly exhibited by young athletes placed in situations outside of their experience), evasiveness and or guilt.

Maybe "they" could clear it all up? If somebody tracks him down, that is.

"America, we are a better country than this"

“America, we are better than these last eight years,” he said. “We are a better country than this.”........

“We measure the strength of our economy not by the number of billionaires we have or the profits of the Fortune 500, but by whether someone with a good idea can take a risk and start a business, or whether the waitress who lives on tips can take a day off to look after a sick kid without losing her job – an economy that honors the dignity of work.”

Obama says there is more to an economy than the number of billionaires.

Let's hope that the dream is still alive.

Strong growth in US economy. Surprise, surprise.

"Revised gross domestic product data in the US shows the economy grew by 3.3 per cent in the second quarter compared to the same time last year, helped by strong exports."

"The US economy grew by 0.9 of a per cent in the first three months of the year."

As any schoolboy economics student could have predicted, the lower US dollar turned the terms of trade in the USA's favour.

Silly old economists.

The man of all centuries

Bill Avent: "Paul Morrella, the people I am talking about who wish America didn't exist are not concerned with symbols. They are concerned about American bullets and bombs and rockets, and loud-mouthed morons charging about their country in war machines like they owned the joint. They are not worried about some 'poor hand' someone like you thinks they have been dealt. They are resentful of the poor hand America is dealing them now."

"They" is obviously one of the most interesting, talked about, and quoted guys in history. It really is astounding how much "they" has lived. The sheer diversity of the experiences and opinions of "they" is really nothing short of mind blowing.

If Webdiary can track down "they", perhaps he might like to write a piece? I'd certainly like to read it. Maybe Bill could get you in contact with him? I can but wait in hope, and hardly contained anticipation.

Advice for Paul

Trying to borrow a style of expression from Eliot now, are we, Paul? I would advise a little more study before you go public with it. Or better still, develop a style of your own. The way you're using Eliot's, it doesn't work.

Also, if you wish to speciously misrepresent someone else's meaning, you will need to quote their words more selectively. You have quoted enough of my words to make their meaning abundantly clear to anyone who reads them. That is, if they understand what the word "they" means. I expect most do.

But to rescue you from your hardly contained anticipation, here you go — from the American Oxford brought to us via Mac OSX:

they |ðā|
pronoun [third person plural]
1 used to refer to two or more people or things previously mentioned or easily identified : the two men could get life sentences if they are convicted.
• people in general : the rest, as they say, is history.


"Anyone know his boss?"

I'm sure Mrs SWMBO Ramsey knows who the boss is; otherwise, who cares?

The burgers are better at Hungry Jacks

Malcolm B Duncan:"'Definitions' of poverty make no sense if people are not in poverty but still starving."

I know. The starving masses in the USA.

Bill Cosby used to have a line in one of his routines;

"I was born into a poor family in the ghetto. My family was so poor that when I was born, they couldn't afford to buy me a crib. Instead, I had to sleep in the cardboard box the colour television came in."

There are both relative and absolute components to poverty.

That the USA has set its poverty line at $US21,000 ($A24,350) for a family of four, a level of income that would be considered wealthy in most communities in the world, doesn't alter the fact that there is relative poverty in the USA.

But it does indicate that in absolute terms, Americans are on average very wealthy by world standards.

An American family of four trying to get buy on $US21,000 is decidedly poor when compared another American family getting by quite nicely on, say, $100,000.

Poverty is relative as much as absolute.

That's why people can speak meaningfully of an emerging Chinese or Indian middle class which, on average, have real incomes that in the USA would classify them as poor. Even very poor.

Not only that, in China inequality of income is growing as rapidly as the GDP, but very unevenly. So, not only is there still much more absolute poverty in the "successful" Chinese economy than in the USA or other developed countries, there's actually growing relative poverty, too.

When people start going on about "poverty" in the USA, it's usually in a rhetorical sense calculated to draw attention away from actual poverty elsewhere.

Take popular marxisant stand-up comic Hugo Chavez. His government funds "poverty" relief programmes in the USA.

He likes to make a big point about this. You know? How Socialist Venezuela is providing aid to the "poor" of the USA?

Cute. Two things, though. Venezuela is an oil rich OPEC country. And the stinking slums of Caracas have to be seen to be believed.

Perhaps Hugo should wait till the poverty line in Venezuela gets to US21,000 before handing over Venezuelan's money to people in the USA.

But then, Hugo's a marxist and more interested in rhetoric than results.

Well done Eliot

And in the red corner, Eliot Ramsey exercises his undoubted common-law right not to incriminate himself.  Anyone know his boss?

the freedom to be poor...

I remember watching a documentary about the social consequences of unemployment in Detroit after a major lay off of auto-workers sometime in the early 80's. An Afro-American was explaining how, after he had exhausted his unemployment "pension", he was reduced to boiling up newspapers and eating the resultant slurry. He said that he had boiled up the Chicago Tribune or some such but then commented that he preferred the taste of the NYT. Well, you would develop some taste preferences, wouldn't you?

With me at the time was my mate George who'd spent time in Hanoi during the war working as a translator. He commented: "Yeah. But at least he's free. He has choice. In Russia you'd only have Pravda to eat".

I reckon he was right. Capitalist poverty is always preferable to socialist poverty coz it tastes better.

Hating for hating's sake

Bill Avent: "While we're in speculation land, I'll put forward for consideration the idea that in the next ten minutes a pretty large sector of the world's population will wish that America had never been found."

Well, unfortunately this may be true.

Neither America nor Americans have at all times been covered in glory. The price of freedom unfortunately is the acceptance that some will use it to behave in all manner of ways - good and bad. Sure, there are many in the world who have been dealt a poor hand, and rightly or wrongly, America (being on top of the mountain) may have become a symbol of things gone wrong in their lives. The truth is, I don't really know what all the world's individuals personally think - and many of the most dire don't have internet access to share their woes.

You on the other hand have definitely found benefit in what you call the capitalist way. You seem educated enough (I mean you keep reminding us all about your word skills), and you obviously have technological access (so I am assuming a level of wealth), and I am assuming you come from a nation, in this case Australia, that enjoys a mutually beneficial relationship with the United States etc.

So yes, I understand why many in the world may not like, perhaps even hate, the United States - that's not an issue to me. You on the other hand, with your pet hates, are what I'd term a complete mystery.

Killing me softly with symbols

Paul Morrella, the people I am talking about who wish America didn't exist are not concerned with symbols. They are concerned about American bullets and bombs and rockets, and loud-mouthed morons charging about their country in war machines like they owned the joint. They are not worried about some "poor hand" someone like you thinks they have been dealt. They are resentful of the poor hand America is dealing them now. How would you feel if some horde of weird barbarians whom you had always held in contempt were running around in your country destroying it and telling you and your people how they should live?

I don't think I have ever used the term "the capitalist way". Plenty of nations embrace capitalism without behaving like the USA. I am critical of the American way. So are many Americans. Here's one:

No one likes us — I don't know why
We may not be perfect, but heaven knows we try
But all around, even our old friends put us down
Let's drop the big one and see what happens …

We give them money, but are they grateful?
No, they're spiteful, and they're hateful
They don't respect us, so let's surprise them
We'll drop the big one and pulverise them

We'll save Australia
Don't wanna hurt no kangaroo
We'll build an All American amusement park there
They've got surfin', toooo!

Randy Newman — Political Science.

Bizarre to call USA economically poor

John Pratt: "Do you think it is a sign of successful economy that 37 million people live below the poverty line?"

If the poverty line is set at $US21,000 ($A24,350) for a family of four, then quite clearly that's a successful economy, especially when compared with an economy where the poverty line is $1,460 for a family of four. As in China.

Do you think it is a sign of successful economy that hundreds of millions of people live below the poverty line in China when that is line is set at a lousy $1,460 for a family of four?

We never stop hearing the propaganda about how "successful" China's economy is in lifting people out of poverty. So, obviously, the USA is about 20 times as successful at very least.

For all I know, you might argue that the poverty line for a family of four in the USA should be, I dunno, $US50,000 .

In American terms, even that might be poor. Perhaps in Bel Air or on Fifth Avenue it is.

But it's palpably absurd to suggest that in absolute or even comparative terms with other countries that $US21,000 for a family of four is 'poverty'.

How would $US21,000 for a family of four rate in Zimbabwe? Or Venezuela? Or Cuba? Or Haiti? Or East Timor? Or even in New Zealand or Greece or Portugal, for that matter?

About the only people in Cuba ever likely to see $US21,000 are corrupt Party officials and refugees to Miami, though the Castro boys a billionaires.

To say that $US21,000 for a family of four is 'poor' only makes sense in a very wealthy, very successful economy indeed.

I've been to the USA, John. By and large, most people there live very well by any measure. Take Google Street View through any major US town or city and see how many thatched cottages or open sewers you can find.

That's not to say that there aren’t issues of access and equity worth discussing in the USA, and I'm sure Senator Obama will be talking about these in coming months.

But to say that an economy, where it's meaningful to talk about a poverty line set at $US21,000, has some 'failed' or is some way 'unsuccessful' is kinda bizarre when we compare it with "successful" economies where you're not poor if you get $1.10 per day to live on.

No Americans live in poverty

John Pratt: "It seems the American dream is only for the rich."

John, did you get a chance to read the article you linked us to?

It says this about 'poverty' in the USA:

"The poverty threshold for 2007 was set at $US21,000 ($A24,350) for a family of four, regardless of whether they lived in a smaller US city such as Milwaukee or a large city like Los Angeles, where the cost of living was significantly higher."

$A24,350 for a family of four? Poverty?

What percentage of China's population lives on $A24,350.00 a year, I wonder? Or Cuba's? Or North Korea's?

Here's how the World Bank defines poverty:

"The World Bank uses a poverty line based on household real consumption (including consumption of own-produced crops and other goods), set at $1 per day measured at Purchasing Power Parity."

$1 per day. Now that's poverty.

The World Bank estimates that more than 60% of China's population was living under its $1 per day (PPP) poverty line at the beginning of economic reform. That poverty headcount ratio had declined to 10% by 2004, indicating that about 500 million people have been lifted out of poverty in a generation.

What if the definition of 'poverty' in China was set at $US21,000 ($A24,350) for a family of four, say, instead of $365 x 4 = $1460 for a family of four?

How would China compare then?

So, not only has capitalism lifted hundreds of millions of Chinese out of poverty by the World Bank definition, most of them till live in poverty.

It's plain to see, though, that if you used the World Bank definition of poverty, most likely no Americans live in poverty.

In fact, here's a map of the world showing poverty distribution. It shows the percentage population living on less than 1 dollar day in 2007-2008.

How does the USA compare?

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