James Clay Fuller

Things We're Not Supposed to Say

Tuesday, November 30, 2004

Recovering? The economy is going to tank

My right-shifted local newspaper, the StarTribune, recently carried a truncated version of an article from another publication which suggested that perhaps "moral values" – which, let us be clear, means the right’s sexual hangups, not ethical issues – played less of a part in the November presidential election than many analysts believe.

The economy may have been a more important factor than generally acknowledged, the writer said, and that was good for the Bush campaign because most people think the economy is "doing all right" and recovering nicely from the downturn of a couple of years ago. (The Strib, as it is called locally, makes great and frequent effort to assure the public that the economy is just fine, despite little glitches such as out-of-control consumer debt and a literally ruinous federal deficit. In that it is like all other corporate newspapers.)

If the article’s conclusion is true, and it may be, that’s about as frightening as the fact that millions believe power-mad idiots like Jimmy Swaggart and Bob Jones III have direct lines to God and are his personally chosen representatives on Earth. It’s also another testament to how badly the corporate news outlets have lied to the American public and how ignorant the public is about basic economics.

Also, probably, it’s a measure of how blinded or cowardly are the nation’s economists, most of whom work for outfits such as banks and investment banking (brokerage) firms that don’t want us to recognize the depths of the mess they have helped get us into. Being believers in magic, the economists keep hoping a miracle will come along and save us from what the facts indicate is inevitable.

So let this old economics/financial markets reporter give you a hint:

The economy of the United States is going into the toilet. Quite soon. Perhaps a year, two years, probably not more than three years from now. Millions more people will be out of work or terribly underemployed, many millions more will be hungry, homeless, without medical care. A lot of suburban doofuses who think ownership of an oversized SUV is a basic right will find themselves scrambling to put food on a broken-legged table.

An overwhelming majority of Americans are facing a future of economic pressures on a scale not seen in this country since the Great Depression. It may well be bad enough that most of the world will go into the tank with us. On the other hand, the very rich will be just fine, thank you, and will be able to greatly expand and consolidate their power over this country.

That is not and will not be an accident.

George W. Bush and his bunch of greed-driven, power-drunk punks are directly and entirely to blame.

Am I being too subtle?

(An aside: A lifetime in big-league journalism taught me that many people reading this piece will take my bluntness and harsh certainty as sure signs that I’m a radical nut who can be dismissed out of hand. Frankly, I don’t give a damn. The fact that the public is spoon-fed gentle lies like mewling infants seems to me one of the reasons so many people can’t or won’t face an unpleasant truth. And, hey, I’m doing this on my own time.)

There probably won’t be a sudden and total collapse ala 1929, but there’s some chance I’m wrong about that. It seems more likely that we’ll experience a steady but precipitous slide into economic desperation.

In case you haven’t noticed, it’s already started.

It would take a book to quote all the facts and explain all the reasons for certainty that we’re now whirling around the bowl, and about the time most people have recognized the extent of the problem, several books probably will have hit the shelves. For now, less will have to do:

Exhibit number one is the federal deficit.

Of course, if you’re a reasonably well-informed American, you know that we have gone from a government surplus of more than $236 billion under Bill Clinton to a deficit of somewhere around $422 billion this year. You may even have been able to cut through the blather to come to the realization that Bush administration claims that it will be drastically reducing the deficit over the next several years are – like so many Bush statements – blatant lies.

Oh? Yup. The Bushies are aiming for more tax cuts for their super-rich patrons, the annual tab for just the war in Iraq is $70 billion now, and growing, and the Bushies are prepping for more military adventures. (Initial estimates put the cost of the Iraq blunder at $2.2 billion a month in early 2003. By July of 2003 the costs were about $3.9 billion a month. In June of this year, the monthly cost was just about $5 billion. It’s now running about $5.8 billion, and the rate of increase has not abated, nor is it likely to in the foreseeable future.

John Pike, director of GlobalSecurity.Org., an independent research group, said recently that he believes the pace of spending in Iraq can only increase because the rate of "insurgency" continues to grow. That $70 billion, by the way, is more than the gross national products of all but a handful of countries.)

Other "defense" spending also is increasing.

Of course, newspapers, magazines and even television programs have devoted considerable time and ink to the deficit. There’s been plenty of tongue clicking. But the manner of coverage has allowed most people to believe, and the administration to pretend, that it’s really not all that important. The newspapers stories are mostly on the business pages, which the great majority of readers figure they can safely bypass as being wonkish stuff that doesn’t really affect them. And the stories, whatever the media, are always couched in terms of this or that, on the other hand, perhaps, tsk tsk.

If you read the articles on business pages, and in some news magazines, you will pick up a bit more, such as the fact that this country is absolutely dependent on foreign investors to finance the deficit. Columnist Brett Arends of the Boston Herald recently figured out that the United States has to borrow $2.6 billion a day to finance it’s spending.

That, Arends noted, is an astonishing 80 percent of the entire world’s net savings.

Americans can’t lend to their own government at anything like the rate necessary to keep it afloat if for no other reason than that they already are personally in debt to a ruinous degree. The Strib reported Sunday, Nov. 28, that the average credit card debt per household in America has risen from $3,300 in 1993 to $8,700 today. To keep it short: Other debt, such as car loans and money borrowed against home equity also has grown substantially. And, in Bush’s America, real income per household is dropping, from an average of just under $45,000 a year in 1999 to about $43,300 a year in 2003 (and worse this year).

Also, of course, interest rates on borrowed money are rising, which makes the debt load tougher for both individuals and the government. That trend must continue. The Federal Reserve Bank must keep raising interest rates to counter inflationary trends and to get foreigners to keep investing in U.S. securities. And that’s getting harder.

As Robert Reich, former U.S. secretary of labor and now professor of social and economic policy at Brandeis University put about a week ago: "Who wants to lend more and more to a drunken sailor?"

"Foreigners are bailing out of dollars," Reich continued. "Even the Chinese and Japanese, who have kept lending so we’ll keep buying their exports, are starting to wise up."

As a result, the value of the dollar around the world has dropped rapidly, especially in the past two months. The euro was worth 82 cents of U.S. money in October 1999, shortly after it came into being. Last Friday, Nov. 26, 2004, it took $1.33 to buy one euro, and the experts said the price is certain to go to $1.35 in the near future. May be there by the time you read this. The dollar also came close to a five-year low against the Japanese yen a few days ago and is near historic bottoms against some other currencies.

I know, I know. That’s terribly esoteric to most Americans, and doesn’t mean a thing to you, personally, unless you’re planning a foreign vacation. Except that it really does matter now.

Remember: The U.S. must borrow heavily every damned day to sustain the level of spending it now has (given that the Bush crowd has greatly cut the country’s revenue with its tax-cut gifts to the rich). The only way to get the money, as I said, is to pay a rate of return that makes the risk worthwhile. And that means this country has to raise the interest it pays on Treasury bills and such.

To keep it simple: That means we’re paying more to borrow, which means we have even less to spend on the military – or anything else – which means we have to borrow more, and round and round it goes. And when the government has to pay more for the money it borrows, interest rates for such things as credit card debt and mortgages also go up.

Remember all that personal debt Americans are carrying?. The cost of that debt is headed up, and quickly. But real household income in this country is going down, which means that most people are going to be squeezed harder and harder.

And that means they’ll have less to spend, and consumer spending is what has kept the American economy alive throughout the first four years of the Bushies on Parade.

Cheer up; it gets worse:

Because the dollar is worth less than it used to be against other currencies, such as the euro and the yen, imports to this country cost more -- pretty soon, lots more. And, no, we can’t just decide to "buy American." Most of the clothing, virtually all of the shoes, a great majority of the electronic toys we love so and many, many other things we want are made in other countries. There are few, often no, manufacturers of many common goods in the United States.

That’s a very serious pain in the economy. You might want to talk to someone in the Bush administration, or perhaps your Republican congressman, about how "off-shoring" is such a good deal for us. They say it is, though I’ve never quite understood the argument. But then, what do I know?

You also might ask, if you aren’t too flummoxed by now, why individual incomes in this country are falling. That’s another book, but the quick answer is that the Bush crowd and their corporate backers have engineered that to happen with dozens of tricks, such as phony corporate bankruptcies resulting trashing of union contracts, failure to enforce labor laws, the new law taking overtime pay away from huge numbers of workers, and on and on. And, of course, there’s been the big shift of health care costs from employers to employees – while gross pay is unchanged in a great many cases. Unless you are very watchful and very astute, you may not have noticed the wholesale attacks on pensions and other retirement income; the press has largely ignored that little phenomenon.

The Federal Reserve Bank raised interest rates a bit more than a week ago (as I write this) for the fourth time in five weeks. And you ain’t seen nothin’ yet.

Oh, yeah. A number of economists for Bush-backing investment banking outfits and insurance companies are claiming that all the bad news, especially the sinking of the dollar, is good news because it will cause consumers to exercise "restraint." Well, greater restraint would be good, but that’s wishful thinking pure and simple. Those interest rates are going to rip and tear.

Hang on, just a little more.....

So, now we have higher interest rates, lower real income for Americans and costs of foreign-made goods, including necessities, are going to jump.

It gets worse. We have the Bushies actively helping its corporate sponsors to shift the cost of health care from them to us, as mentioned above. At the same time, they are cutting federal aid to health care programs and education to finance their war and the tax cuts for their rich patrons. Ditto on aid for municipalities, transportation and other services.

Americans already are seeing a deterioration in all of those things, and that deterioration must accelerate for the simple reason that funding for them will be further slashed; G.W. Bush, Tom DeLay and the rest of the servants of the rich have declared that.

Local governments will make some effort to maintain basic services -- and that means property taxes will continue to climb at a great rate. (It ain’t your city council’s fault, gang. Look to Washington, and maybe the State House if you have right wingnuts in charge there, too, as we do in Minnesota.)

For now, just one more observation: The right wing hogs we’ve put in office are openly planning to finance more and more of remaining public services through sales taxes of various types. That really shifts the burden from the rich to the rest of us, and the poorer you are, the higher the percentage of your income you’ll pay in taxes. (Conversely, of course, if you’re loaded, you get another big cut in taxes. The percentage of income you pay in taxes will be maybe a 20th of the percentage paid by the folks some fellow shoppers gripe about because they are using food stamps and taking too much time in the grocery checkout line.)

One of the ethically-deprived Tom DeLay’s Minnesota proteges in Congress, the conscienceless Gil Gutknecht, proposed a couple of weeks ago that federal income taxes be done away with entirely, in favor of sales taxes. It was a trial balloon, of course, but it shows where they’re heading.

Can you console yourself with this? As we get poorer, the rich will gather the wealth we lose to themselves – pick up your foreclosed house for a quarter of it’s present value and rent it out as one example -- and that means they can buy even more political clout, until they own the whole thing. Ah, the American Dream. Ayn Rand fans will adore this -- until they realize they're among the screwees.


As reported in Time Magazine recently: In 2003, the average corporate chief executive officer was paid 301 times the amount earned by the average worker. That’s was up from a ratio of 282 to 1 a year earlier. The ratio is presumed to have changed further in favor of the execs this year.
The federal minimum wage, now $5.15 an hour, would be $15.76 if it had grown at the same rate as executive pay since 1990. That wouldn't buy a lakeshore house on 100 acres, but it beats living four to a tiny one-bedroom apartment.