Green Shoots and White Lies

by Lila Rajiva / September 12th, 2009

Hark! Hear the buzz?
It’s the sap of the economy stirring.
Animal spirits are back on the prowl.
Just this week, a Schwab analyst argued that the recovery would be much stronger than expected.
Down in the federal maternity ward you can hear the squall of new life as Team Obama slaps cold flesh and breathes life into clammy infant lips.
Recovery is abornin’

How Green Are Our Shoots!

Thus say both Chairman Ben Bernanke and Treasury Secretary Tim Geithner. And the public believes them. How come?

It all began in March. In the first televised interview by any sitting Fed chairman in 20 years,¹ Bernanke used the term, “green shoots” for the first time. He pointed out that the Dow Jones index had recovered from 12 year lows in 2008 and the banking system had stabilized. No more big banks would fail, he predicted.²

Two months later, His Timness echoed Big Ben. Geithner cited reduced spreads on corporate and muni bonds, the reduction in costs in credit protection at the big banks, and smaller risk premiums in the interbank market. He too said the economy was recovering.³

In June, World Bank President Robert Zoellick joined the ’shooters.’

Zoellick is a former US trade representative notorious for forcing US government subsidies and trade policies inimical to small farmers onto emerging markets. Zoellick noted “signs of global recovery,” but cautioned that they might be killed off if protectionism were adopted.⁴

Translation: foreigners had better not object to US government-managed trade policies…or the global recovery will fold.

Put out… or look out.

Zoellick added his own revealing metaphor to the shooter lexicon: “Right now there is a low-grade fever; it isn’t full influenza, but we need to keep a close watch…” [my emphasis]

Oddly, Zoellick’s own employees at the World Bank contradicted their boss’s assessment in a report only a couple of weeks later. (See “World Bank Global Economic Outlook” below.)

By then billionaire hedge-fund manager George Soros was also seeing green. And in July, chief wonk of the Obama economic team Lawrence Summers detected greenery in remarks to the Peterson Insitute for International Economics.

Green shoots were now being sighted by everyone:

In July the International Monetary Fund published its World economic outlook update. The Fund revised expected global growth in 2010 upward to 2.5%. The main source of the improvement, it claimed, was a brightening outlook for Asia.


Simon Johnson, IMF economist–turned-Peterson-Institute-spokesman-turned green-shooting-star even went on PBS to announce, “we are turning some sort of corner.” (August 20, 2009)
Surveys of economists and business leaders in the summer showed that, in contrast to only a few months earlier, slightly more than half thought that the economy had bottomed.

Question: How can a depression heralded as equal to or worse than the Great Depression, a depression described as a ‘reckoning’ for over a quarter of a century of economic misdeeds, correct itself in less than a year?

Answer: It can’t.

Yet, by mid-year, that’s exactly what pundits were telling the public. And that’s exactly what the public was beginning to believe. Not surprisingly, by mid-year, stock markets the world over had rebounded sharply.

White Hats and White Lies

But the economy hadn’t really turned any corners. What was unfolding was a giant sleight-of-hand. The “good guys” of the liberal corporate-state were pulling a fast one, doing two contradictory things at the same time.

On one hand, Team Obama had to admit the enormity of the crisis, in order to justify the size of its own rescue efforts. Thus Tim Geithner in his statement to the banking committee in May took care to note the following:

1. The economy had lost 2.1 million jobs from December to February ‘09, the largest three-month decline since 1945. (the second-largest three-month decline in 1975 was only half as big).

2. GDP fell at an average annual rate of 5.9 percent in Quarter 4 ‘08 and Quarter 1 ‘09 — the fastest six-month rate of decline since 1958.

3. Even before policy changes, the Congressional Budget Office was projecting a budget deficit for 2009 well in excess of a trillion dollars because of the weak economy.

4. The US faced economic problems of such a “unique character” that Congress had had to adopt the largest fiscal stimulus package in the nation’s history, at 5% of GDP.

On the other hand, Team O also had to pretend that the rescue had improved things dramatically or people would ask what the point of it was.

The Obamites managed to pull this off with a slew of white lies.

Some of the biggest ones:

Fudge One: Goldman Sachs had a great quarter, making a profit of $3.5 billion and the government made $1.4 billion on its investment in Goldman Sachs. The government also got a 15% return on its investment in the eight biggest banks.

Truth: Goldman had a great quarter only because it moved its reporting calendar to cut out December 2008, when it had a loss. And the goverment only made a profit on the TARP money it gave to Goldman because

It funnelled more money via the bail-out of insurance giant AIG to AIGs counterparties, including Goldman (which took in $13 billion of the AIG money).
Warren Buffett made a pre-TARP financial investment in Goldman.
Goldman got the benefit of exceptionally low interest rates from the government at the expense of savers and to the benefit of borrowers.
Goldman was issued FDIC-guaranteed bonds.

Without that extra welfare thrown at it, Goldman would actually be broke, not showing a profit. Ditto for the other banks.

Fudge Two: The labor market is getting better because jobs are growing. The unemployment rate fell from 9.5% in June to 9.4% in July.

Truth: That number only shows a slowing in the growth of unemployment. And even that small improvement has been offset by other aspects of the labor market that are worsening quite sharply:

The duration of uemployment is increasing.
Temporary jobs are declining.
The percentage of the eligible population receiving unemployment insurance has increased (0.1 percentage point to 4.7%. by September).
The four-week moving average of initial claims has moved to its highest level in a month⁵

Even when jobs have been added, they’ve been created by government spending and they’ve been in areas like education, health, and government. In the purely private economy, in manufacturing, construction and retail, job losses have been huge.”⁶

Note: Recent improvement in the ISM (Institute of Supply Management) Index that signals expansion of production (and thus hiring) also needs to be discounted against the huge price inflation an increasingly pressured dollar will entail. That’s beside the effects of a hike in the Federal Funds rate that’s bound to follow a dollar crashing scenario.

Note also: The ISM is a leading indicator of executive expectations for future productions, orders, inventories hiring, and deliveries.

Fudge Three: Increases in real personal income in April and May will increase consumer spending.

Truth: The increases were caused by tax-rebates and unemployment benefits kicking in, and most of it was saved, not spent (80 cents on the dollars). There was a temporary lift in consumer spending, but it petered out quickly. And as unemployment rises, benefits decline, and credit tightens in the future, consumption will decline even further

Fudge Four: The bank stress tests came out better than expected.

The bank stress tests led Ben Bernanke to conclude that nearly all of the banks had enough capital to absorb higher losses should the economy worsen, and that the Treasury stood ready to provide more.⁷

Truth: The bank stress tests used an unemployment figure of 10.3% (the most adverse case). But unemployment is likely to be 11% and above by next year. If you take into account discouraged and partially employed workers, some economists suggest the figure is more likely to be 16%.

Another point. The stress tests overlooked all the other ways in which the government was paying for the banks, through FDIC guarantees and cheaper loans, for instance.

Fudge Five: The housing market is improving.

In July, the Pending Home Sales Index was up 3.2%.

Another improvement was in the value of U.S. homes. In the second quarter that number fell year-on-year (the 10th consecutive quarterly decline), but it fell by a smaller amount than in the previous quarter, for the first time since 2007.

Truth: The improvement in home sales has been mostly in the lower end of the market and it largely reflects foreclosure sales and government credit, not real improvement in the market.

The slow-down in price decline has been offset by negatives in other areas:

23% of all homeowners owe more on their mortgages than their houses are worth.
22% of all home sales nationwide in June were foreclosure resales.
29.2 percent of all homes sold in June were sold for less than the owners originally paid.⁸

Loan problems aren’t confined to subprime. Prime mortgages are going underwater too.

Meanwhile, the market also has to deal with the decline in commercial real estate, which is undergoing one of the greatest contractions in retail in decades. Rents, even in the best urban shopping districts, have been declining.⁹

Beyond commercial real estate, there are also all the other plagues about to visit us, when personal loans, auto loans, and student loans tighten over the coming years.

Bottom line? There is no real basis for sustained optimism about the economy yet. 

Simon Johnson’s relatively upbeat assessment reflects only temporary inputs:

the government’s reflation effort (that created cheaper credit)
business write-downs (that created better balance-sheets)
the business cycle (that leads to restocking and inventories rising)

Johnson cites low inflation as another positive factor. However, with all the money pumped into the economy (including the latest cash-for-clunkers scheme), that’s also unlikely to be anything more than temporary.

This harsh reality is reflected in the World Bank Global Outlook Report of June 22, 2009. It notes the following for 2009:

Global growth is set to fall by 2.9%
World trade is likely to shrink by nearly 10%
Industrial production in rich countries will drop by 15% from August 2008
Developed economies will contract by 4.5% in 2009 and grow only in 2010 and 2011
The US economy will decline by 3%
Private capital flows to developing countries are likely to be halved, from $US 707 billion (2008) to $US363 billion (2009)
Industrial production in developing countries, excluding China, is set to fall by 10%
GDP growth in developing countries will fall from 5.9% (2008) to 1.2%.

A Verbal Pandemic Infects the Economy

Given this underlying reality, the media’s success in manipulating market sentiment has been nothing short of astounding.

And all it seems to have taken was the viral proliferation of a single meme. Call it a verbal pandemic.

Go back to March, when there was a second rescue of AIG and Citi in the offing, the Madoff investigation was expanding, and the US had a face-off with China.¹⁰ Fear was widespread and consumer and business confidence were at multidecade lows.

To take one indicator, Google searches for “economic depression” were four times what they were before the crisis broke in 2008.

Then Bernanke came out with the phrase, “green shoots.” After he introduced it, it showed up 3,123 times in news articles that month. Compare that to 436 in February (according to Nomura Holdings Inc. research).

Bulls and bears both used it. It was applied to the Israeli-Palestinian conflict and to the Iranian demonstrations.

In four months, ‘green shoots’ had grown seven-fold. 

Today, a Google search for the meme fetches 3.31 million hits.

As the phrase spread across the media, Bloomberg noted that business and consumer confidence spread with it. Sentiment changed. People stopped panicking and started talking about buying opportunities. It was that change in mood that let administration economists build their flimsy case for economic recovery.

Take a look at Summers’ list of improving indicators in his speech at the Peterson Institute on July 17. You’ll see the proof. At least five of the metrics Summers cites relate to sentiment. I’ve highlighted the relevant words.

Most businesses are now expecting better times, not worse, as they’d expected 6 mths earlier.
Consumer sentiment is improving.
Options are showing a less than one percent chance of the Dow falling below 5000 in 2009 (they were once showing a better than 15% chance).
Private forecasters are expecting positive growth at the end of 2009.
Google searches for economic depression are back to normal. (Yes, that’s on Summers’ list).

Let me repeat this.

It took two simple syllables, neither beyond the reading ability of a pre-schooler, for people to discount the hard evidence of the numbers and the harder evidence on the streets in favor of a sales pitch by the government.

We might even go a bit further. The stimulus by itself can have done no more than buy time for the banks and take the pressure of the interbank market. It’s taken sustained propaganda for banks and businesses to regain enough confidence to operate.

And they’ve regained confidence not in the economy, but in thegovernment.

In brief, a story-line two words long shows up rational man of for a fiction and a fraud. Economic man, the maximiser of his self-interest, turns out not to exist.

Of course, outside economic text books, he had never existed. Man, as we find him in the world, adds up numbers as an afterthought to his feelings. When he feels good, he massages his numbers upward. When he feels bad, the numbers are downcast with him.

Economists who have caught on to this know that what they practice is no science of enlightenment. It is a black art. The knowledge keeps them humble.They stick to describing things the way things actually work. They look just ahead of their noses and count themselves lucky if they can balance their check books at the end of the day.

But government economists labor under the delusion of omnipotence. To a man, they believe they can make bull frogs sing in tune and bats bathe in the sunshine. It isn’t enough that their theories blew up the market. For that alone, lesser men would have cut open their veins or thrown themselves under a passing tram.

Now the delusion is they can fix it. And that is where the meme of ‘green shoots’ figures. It’s task was not so much to boost confidence in the markets as it was to boost confidence in the ability of government experts to fix markets.

For that, visible success.. or even marginal competence.. is no longer needed. The old rain-men had to make rain or they were fed to the lions. The rain-men of today can produce drought… or famine, or even plague and theybecome lions.

The more they fail, the more they are believed. When they have been completely refuted, they become Nobel laureates. They may not know what ails the market, but they know for certain it takes a village of economists to fix it.

Or, as economist Robert Samuelson put it in a sharp criticism of Summers’ speech at the Peterson Institute: “If the president and his allies claim often enough that their policies have succeeded, most Americans may believe them.”¹¹

CBS, 60 Minutes [↩]

AFP, March 15, 2009. [↩]

Tim Geithner, Statement before the Senate Banking Committee, May 20, 2009. [↩]

Reuters, June 8, 2009. [↩]

Thomson Reuters, September 3, 2009. [↩]

Brown manure not green shoots,” Nouriel Roubini, Forbes, July 9, 2009. [↩]

AFP, “Hope is alive for ‘green shoots’ as stress tests trigger optimism,” May 11, 2009. [↩]

Portfolio.com August 11, 2009. [↩]

Colliers International Spring 2009 Retail Report, May 14 2009. [↩]

”Nightmare on Wall Street,” Lew Rockwell, April 1, 2009. [↩]

”Summer’s Spin: We Did It,” Newsweek, July 17, 2009. [↩]

Lila Rajiva is a freelance journalist and the author of The Language of Empire: Abu Ghraib and the US Media (Monthly Review Press, 2005) and Mobs, Messiahs and Markets (with Bill Bonner-Wiley, September 2007). She has also contributed chapters to One of the Guys (Ed., Tara McKelvey and Barbara Ehrenreich, Seal Press, 2007), an anthology of writing on women as torturers, and to The Third World: Opposing Viewpoints (Ed., David Haugen, Greenhaven, 2006). She can be reached at lrajiva@hotmail.com. Read other articles by Lila, or visit Lila's website.

http://dissidentvoice.org/2009/09/green-shoots-and-white-lies/

Ron Paul: My Conversation With Ben Bernanke, February 15, 2006

by Ron Paul

Monetary Policy and The State of the Economy hearing before the Committee on Financial Services, U.S. House of Representatives, February 15, 2006

Chairman OXLEY. The gentlelady yields back. The gentleman from Texas, Mr. Paul.

Dr. PAUL. Thank you, Mr. Chairman. Thank you, and welcome, Chairman. Mr. Chairman, I was very pleased with what you said about your support for transparency, and I want to ask a question dealing with that. Also, at the bottom of page 8, you said something that I thought was very important, where you said that the Federal Reserve, together with all other central bankers, has found that successful policy depends on painstaking examination of a broad range of economic and financial data, and I also think that’s very important. There is a famous quote by an economist, which I’m sure you’re familiar with, that inflation is always and everywhere a monetary phenomenon. And likewise, another famous economist from the 20th Century, and I’ll paraphrase this, said that monetary authorities deliberately confuse the issue of inflation by talking only about price increases. Yet it’s the price increases which are merely the inevitable consequence of inflation. This is done on purpose to distract from the real cause, which is the increase in the quantity of money and credit. And I notice in your report to the Congress, you do report M2, and it went up last year at four percent. And M3 was not mentioned, other than the fact that it won’t be reported any more. M3, interestingly enough, went up twice as fast, and M3 is going up probably more than two times as fast as the GDP. And this is information that I consider important and I know a lot of other economists consider important. And I find it rather interesting and ironic that one of the reasons that the Federal Reserve has given – of course, this was before you were the chairman – for this change is the fact that it costs money; it costs too much money. Now that is really something in this day and age, especially since the Federal Reserve creates their own money and their own budget and they have essentially no oversight, and all of a sudden it costs too much money to give us a little bit of information. So that to me is a bit ironic that this information will not be available to us. And my question to you is, would you ever reconsider this policy of denying this information to the Congress just so that we have another tool to analyze what’s going on with monetary policy? It seems like with your support for transparency, this should be something that you would heartily support.

Mr. BERNANKE. Congressman, first, you’re absolutely right. We do look at a wide variety of indicators, and money aggregates are among those indicators. In particular, M2 has proven to have some forecasting value in the past, and I think the slowdown this year is consistent with the removal of accommodation that’s been going on. In regard to your references to M3, a still broader measure of money, we have done, and I’m now speaking about the Federal Reserve before my arrival, but we have done periodic analyses of the various data series that we collect to see how useful they are. And our research department’s conclusion was that M3 was not being used by the academic community, nor were we finding it very useful ourselves in our internal deliberations. Now it’s not just a question of our own cost; although, of course, we do want to be fiscally responsible on our own budget, but it’s also I think important for us to recognize the burden that’s placed on banks that have to report this information. And so when we can reduce that burden, we would like to do so. And that was one of the considerations in the decision that was made about M3. Would we reconsider it? If there were evidence that this was an informative series and that it was useful to the public and to the Federal Reserve in forecasting the economy, naturally we would look at it again. There’s nothing dogmatic going on here.

Dr. PAUL. If the Congress expressed an interest in receiving this information, would you take that into consideration?

Mr. BERNANKE. If there was broad interest in the Congress in receiving this information, we would look at it. But, again, Congressman, remember, it’s a burden on the reporting banks to provide the information, and we are trying to reduce that burden as much as we can.

Dr. PAUL. But, of course, this has been available to the financial community for a lot of years, and for some people it’s very important to measure what you’re doing. If the money supply is important, which a lot of people believe it is, and it causes the inflation, this to me seems like we’re taking information about the money supply and literally hiding it from the people. And I yield back.

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We Need Our Heads Examined, Says Harvard

by Thomas E. Woods, Jr.

Last weekend, Harvard University sponsored a conference called (I am not making this up) "The Free Market Mindset: History, Psychology, and Consequences." Its purpose was to try to figure out why, since everyone knows the current crisis amounts to a failure of the market economy, the stupid rubes continue to believe in it. The promotional literature for the conference opened with That Quotation from Alan Greenspan – the one in which he suggested that there was, after all, a "flaw" in the free market he hadn’t noticed before.

Well, that does it, then! If our Soviet commissar in charge of money and interest rates says the free market doesn’t work, who are you to disagree?

The promotional material continues: "If the current state of the U.S. economy makes clear that former Federal Reserve Chairman Alan Greenspan's faith in free markets was misplaced, the question remains: what was it about free markets that proved – and still continues to prove – so alluring to economists, scholars, and policy-makers alike?" Because, of course, if there’s one guiding principle behind the largest government in world history, it’s free markets. Ahem.

This conference, we were told, "brings together leading scholars in law, economics, social psychology, and social cognition to present and discuss their research regarding the historical origins, psychological antecedents, and policy consequences of the free market mindset. Their work illustrates that the magic of the marketplace is partially an illusion based on faulty assumptions and outmoded approaches." The speakers then spent the day, I am sure, laying out their own faulty assumptions and outmoded approaches, and studiously ignoring the Austrian School of economics.

In short, the conference was about this: Why do people still think the interaction of free individuals is a superior economic system to one directed by Harvard Ph.D.s like us? I mean, apart from the failure of central planning in every case in which it’s been tried, a failure so staggering that only a blockhead could miss it, why would people cling to the idea that being herded into a collective run by the experts isn’t the best way to live?

So by assuming from the outset the very thing that needs to be proven – namely, that the current state of the economy just occurred spontaneously, as the result of wicked market forces – our betters relieve themselves of the need to consider that central banking, a government-established institution, just might have had, you know, a little something to do with what happened.

George Reisman has already demonstrated the absurdity of referring to our present system as a "free market" one. Naturally, of course, none of the participants bothered to notice that a Soviet commissar in charge of money and interest rates amounts to something like the opposite of the free market, or that the economic distortions he causes cannot, therefore, be the fault of the free market. This is exactly why, in my book Meltdown, I call the Fed "the elephant in the living room." We’re not supposed to notice it, and we’re supposed to pretend the damage it causes is the result of wildcat capitalism, unfettered free markets, or whatever other juvenile phrase is currently in vogue to describe the usual bogeyman.

Now I don’t want to list all the paper topics at this conference, since it’d be a shame to make all of you feel stupid for having frittered away your weekend when you could have listened to, say, Stephen Marglin’s paper on "How Thinking Like an Economist Undermines Community." Now there’s a topic I haven’t heard quite enough platitudes about. (If you must, you can view the whole schedule here.) You could also have heard a bunch of totally conventional polemics about how the market economy allows for "too much" pollution, when in fact a genuine free market – which, I need hardly point out, is not actually considered in any of these alleged papers – would punish polluters and bring about the internalization of so-called externalities. Murray Rothbard dealt with this matter in an extremely important article none of the participants had read.

I wonder if anyone at the conference asked questions like this:

When Greenspan flooded the economy with newly created money and brought interest rates down to destructively low levels, thereby distorting entrepreneurial calculation as well as consumers’ home purchasing decisions, was that the fault of the free market? Do you think the Fed’s creation of cheap credit out of thin air makes market participants more careful or less careful in how they allocate borrowed funds?

When Alan Greenspan bailed out Long Term Capital Management in 1998, was that a "free market" phenomenon? Do you think he thereby encouraged more or less risk-taking among other major market actors?

The Financial Times spoke in 2000, in the wake of the dot-com boom, of an increasing concern that the so-called "Greenspan put" was injecting into the economy "a destructive tendency toward excessively risky investment supported by hopes that the Fed will help if things go bad." "All the insane dot-com investment we’ve seen, all this destruction of capital, all the crazy excesses of the past few years wouldn’t have happened without the easy credit accommodated by the Fed," added financial consultant Michael Belkin. Did the free market cause that?

Do lending standards decline for no particular reason, or could this phenomenon have a teensy weensy bit to do with (a) government regulation aimed at increasing "homeownership" and (b) loose monetary policy by the Fed? When the banks get the additional reserves the Fed creates, they naturally want to lend it out – and in order to do so, they wind up lending it to people they either have or would have rejected previously. As I show in Meltdown, the phenomenon of lax lending standards in the wake of an inflationary boom by a central bank is traceable all the way to the nineteenth century. There is nothing even slightly unexpected – or market-driven – about it.

Questions like these could go on and on. Not one, you can be certain, was raised at this conference.

Now if you really wanted to sponsor an event whose purpose was to try to understand why people believe inane things that have been falsified by reality, you’d do much better to hold a conference on socialism, or on Keynes and his school. It would be fascinating to learn the psychological motivation behind the persistence of Keynesian economics, whose popular version is a non-falsifiable, ersatz religion. Is Japan’s economy still suffering? Why, that’s because Japan didn’t spend enough – even though it spent so much that it became the most indebted country in the developed world. Have people spent so much that they’re now burdened with debt they can’t possibly repay? Then we need more spending. Is the economy a distorted mess after an artificial boom? Then instead of letting the economy restructure itself along sustainable lines, let’s instead "stimulate" the system just as it is, with the goal of bringing about more "consumption," more "labor" employed, and higher "income," without bothering to disaggregate any of these things and deciding what kinds of labor need to go where, what kinds of consumption are sustainable and what are figments of the bubble economy, or how the capital structure needs to be reassembled in order to cater to genuine consumer demand. In fact, let’s actually boast about neglecting capital theory altogether (as indeed Keynes did in a 1937 article in the Quarterly Journal of Economics).

Here’s another thought: given how many Keynesian economists predicted a return to depression conditions when World War II spending came to an end, and that what we instead got was the single most robust year the private economy has ever seen, isn’t it a little strange that not one of these economists went back and re-examined his premises?

On the other hand, consider the names Jim Grant, Peter Schiff, Ron Paul, and Jim Rogers. Apart from having predicted the current crisis – unlike anyone at the Harvard conference and indeed unlike the paper-tiger economists they unsurprisingly preferred to spar with during their deep-thinking session last weekend – one thing these men have in common is that they are all Austrian economists, they all believe in the Austrian theory of the business cycle, and they all pin the blame for the crisis on the Fed, a non-market institution. These men believe in the real free market, not the centrally planned market of Alan Greenspan, Ben Bernanke, and the Federal Reserve. And they saw a crisis coming at a time when everyone else was predicting new highs for the Dow and singing the praises of a world economy that was more robust than it had ever been.

Maybe that’s why people believe in market economics: unlike the Rube Goldberg models of their counterparts in the profession, the things Austrian economists write and say actually have some connection to the real world.

People who believe in the market economy support a social order in which free individuals make voluntary contracts with each other, and no one can initiate physical force against anyone else. Is that vision so obviously unattractive that we have to refer its supporters for psychological evaluation? We might instead wonder at the psychological condition of those who would denounce such a system: might they be motivated, for all their noble talk, by nothing but base envy of those with more material wealth than they, or by a pathological desire to dominate other people?

I’m sure that will be covered at next year’s conference.

March 12, 2009

Thomas E. Woods, Jr. [send him mail] is senior fellow in American history at the Ludwig von Mises Institute. He is the author of nine books, including two New York Times bestsellers: The Politically Incorrect Guide to American History and the just-released Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse. Visit his new website.

http://www.lewrockwell.com/woods/woods106.html

Copyright © 2009 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.

A Banana Republic by 2012? Obama's Budget

By PAUL CRAIG ROBERTS

President Obama has presented the most irresponsible budget in US history.  His fiscal year 2010 budget projects federal spending of $3.5 trillion and a federal deficit of $1.75 trillion. In other words, 50 percent of the government’s budget consists of red ink.

And Americans are angry that sub-prime borrowers took mortgages they couldn’t afford.

The bald fact is that the US government is going to have to borrow -- or print -- half of the money it intends to spend in Obama’s first budget. This fact has fallen through the cracks as New York Times headlines proclaim “A Bold Plan Sweeps Away Reagan Ideas.”  It certainly does sweep away Reagan ideas.  No Reagan budget ever presumed that the federal government could borrow half of its annual expenditures. Indeed, Obama’s budget deficit for 2010 alone exceeds the totality of “Reagan Deficits” for Reagan’s two terms of office.

As presidential budgets are marketing devices rather than financial statements, they are imbued with optimistic assumptions.  Obama’s budget is based on optimistic assumptions about the extent of decline in GDP.  A more realistic projection of GDP decline would reveal that Obama’s budget is the first since World War II in which more than half of the government’s expenditures must be financed by red ink. I suspect that the red ink component of the FY 2010 budget will surpass World War II budgets.

To whom can the US government turn for $1.75 trillion for FY 2010, on top of $1.2 trillion for FY 2009?  

Not to taxpayers. Obama’s net tax increase comes to $170 billion over 10 years, or $17 billion a year, a drop in the bucket.  A supply-side economist could have told him that not even these paltry revenues will be realized.

Not to private savers. Americans are over their heads in debts.

Not to foreigners. Thanks to Clinton/Bush financial deregulation and Wall Street and bankster greed, the rest of the world is in financial turmoil and hasn’t $1.75 trillion in savings to lend.  Possibly, the stock market will collapse further, and whatever remaining wealth Americans have will flow into “safe” US Treasuries.  

The only other alternative is the printing press. Printing press finance would destroy the dollar as reserve currency and ignite high inflation. The US would be unable to pay for its imports, and Americans whose incomes do not rise with the rate of inflation would be plowed under.

This prospect is not a “war on terror” scare tactic like “anthrax,” “weapons of mass destruction,” “al Qaeda connections,” and “Iranian nukes.”  

The economic catastrophe that the US faces is very real.  But there is no awareness of this reality in Obama’s budget.  The crux of Obamanomics is the assumption that the economy can run forever on consumer loans, if we can just get the banks to lend, and the federal government can run forever on loans from China, Japan,and Saudi Arabia. 

Obama is requesting $130 billion for wars in Iraq and Afghanistan during 2010 plus a $75 billion supplemental  request for the wars during 2009. This $205 billion is on top of $534 billion for the Pentagon in 2010, for total military spending of $739 billion.  

The Chinese government’s budget shows China’s military spending at $59 billion in 2008.  (The Pentagon claims Chinese military spending is between $97 billion and $139 billion.)  Russia’s military spending in 2009 is projected to be about $50 billion.  

In the midst of the greatest economic crisis in US history when trillions of dollars are being added to US national debt, Obama’s budget spends more on two pointless wars  than the total military spending of China and Russia combined.  Obama’s wars serve only the profits of the military/security complex and the promotion rate of military officers. The longer the wars continue, the larger the number of officers who can retire at higher ranks, thus further swelling future annual deficits and the national debt.

Moreover, as is becoming apparent, the Bush/Obama war in Afghanistan cannot be fought without fighting a war in Pakistan.  

As if this isn’t enough war, Obama parrots Dick Cheney’s charge, totally unsupported by any evidence, that Iran is making nuclear weapons.  The chances are high that the new White House occupant will have us at war in Afghanistan, Pakistan, Iran, and Iraq.  As Obama’s wars expand, the $205 billion for war in Iraq and Afghanistan will become $400 billion annually and then $600  billion annually.  

Obama’s “troop withdrawal” from Iraq has proved to be just another con job.  Obama has announced that the withdrawal doesn’t include the 50,000 US soldiers who will remain in Iraq indefinitely--like the US troops that have been kept in Japan and Germany for 64 years and in Korea since the early 1950s.   

Meanwhile Medicare is on the ropes. The latest Medicare trustees report says that Medicare’s funds for hospital payments will be exhausted in 10 years.  To make ends meet, Obama proposes cutting payments to Medicare providers. 

Obama’s plan is to make doctors and patients pay for Medicare. One way to get National Health is to make it uneconomic for private health care to service Medicare patients. Already many doctors will not accept Medicare patients because of the low payments, endless paperwork, and risk of prosecution for “over-billing.”  Looking at one recent Medicare patient medical bill, Medicare and supplemental insurance paid 29 percent of the billed amount, requiring the doctor to eat 58.5 percent of his charges and the patient to pay 12.5 percent.  The doctor was paid  $93.16 on a $320.89 bill.  And Obama wants to reduce payments to providers?

What is Obama thinking? A country that can’t afford Medicare can’t afford National Health. Medicare provides only for the elderly, and it provides very little.  A person pays the Medicare tax as long as he earns and on the totality of earnings.  For the rich the Medicare tax can exceed the cost of a gold-plated private insurance policy.  

Basic Medicare leaves a person unprotected.  To provide better coverage, it is necessary to enroll in Medicare Part B for which the premium is $308.30 per month or $3,699.60 per year.  On top of this, a person needs a privately supplied supplemental policy to complete Medicare coverage.  AARP’s policy, which, after deductibles are met, covers half of drug costs, cost the “Medicare protected” elderly  $ 273.50 per month or $3,282 per year.  The drug prescription plan passed by Congress costs the individual yet more.

The two supplements to Medicare cost the Medicare patient $6,981.60 per year. In addition, if the Medicare patient has much retirement income besides Social Security, he pays income tax on 85 per cent  of the $3,699.60 Medicare Part B premium as it is part of taxable Social Security, which for someone in the 25 per cent bracket is another $925 dollars.

In the late 1970s, Democratic Senator Russell Long, Chairman of the Senate Finance Committee, told me that as Social Security was collected as a tax on wages and salaries, the US government had promised never to tax the benefits.  So much for any commitment that the US government makes to the American people.

A top Social Security income, net of Medicare Part B premium, is $23,220 per year. Deduct the AARP policy, and the elderly who have paid in maximum Social Security taxes, get $20,000 per year.  Of course, few Social Security retirees receive the maximum payment.  AARP’s Public Policy Institute reports that in 2006 the average annual Social Security benefit for a retired worker was $12,372.  Such a worker would have little left after paying the Medicare Part B premium and an additional premium for a supplement.

Offshoring and “free trade” have destroyed employer-provided health coverage for millions of employees.  Private health care coverage can cost as much as one-third and even one-half of a person’s earned income, and some people are not insurable.  National Health seems to be in the cards --only there is no money for it.  All the money is being spent in pointless wars and on bailouts of financial fraud.  The Obama budget puts bankster bailouts and pointless wars ahead of the health of the American people.

National Health advocates emphasize that a single-payer system is less expensive because it eliminates layers of profits.  It is also less expensive for a less promising reason.  Unless there is a parallel private health care system, National Health systems limit health spending to what is provided in the government budget.  Over time, health care has to compete with everything else in the budget. Every part of the budget has its partisans and special interests.  It is fantasy to assume that National Health will always be well funded.  Just look at the state of the National Health Service in the UK.

Obama’s plan to tax the rich is another con job.  Obama’s budget defines the rich as a person with a $250,000 before tax income.  But the  rich are the banksters, such as Hank Paulson with his $160 million annual bonus, and heads of hedge funds with their $1,000 million annual incomes.  Obama’s “tax the rich” scheme will devastate the upper middle class and leave the super rich undamaged.

Bush’s FY 2008 budget deficit was $450 billion.  The FY 2009 deficit is projected at $1.2 trillion. The budget deficit in Obama’s first budget is $1.75 trillion, a fourfold increase in two years.  

Obama’s projected budget deficits are an understatement. For example, Obama’s budget assumes a less steep economic decline than the economy is experiencing, and it projects that war costs will drop to $50 billion annually beginning in 2011--this despite Obama sending more troops to Afghanistan and recent congressional testimony of Lt. General David Barno, former head of US forces in Afghanistan, who said the war in Afghanistan could last until 2025.  

The “war on terror” will never end, because the moronic US government has defined everyone who resists US hegemony as a “terrorist.”  The great danger to American civil liberty is that the US government regards as terrorists American citizens who realize that the neoconservative dream of American hegemony is a fantasy.  As the Obama regime has not repealed the Bush regime rule -- “you are with us or against us” -- Americans who oppose hegemonic war are lumped into the “against us” category.

There seems little chance that civil liberties will be restored. Obama and his “liberal” Justice (sic) Department have sided with Bush/Cheney on every important civil liberties issue.  Yet, the ACLU sees “hope” in Obama’s rhetoric!

On February 21 Yahoo News reported: “President Barack Obama's administration has sided with predecessor George W. Bush on the rights of detainees at Bagram air base in Afghanistan, saying they cannot challenge their detention in US courts. In a two-sentence court filing Friday, the US Justice Department said "the government adheres to its previously articulated position" of denying habeas corpus rights to Bagram detainees, backing a similar decision by the Bush administration.”

“Earlier this month,” Yahoo News reports, “the Obama administration backed another Bush anti-terror policy when it urged a federal court to dismiss a lawsuit accusing Boeing Company of helping fly suspects to secret CIA detention centers overseas. The Justice Department said the case should be thrown out to protect state secrets.”

Do you remember the illegal spying?  The US telecom industry succumbed to Bush regime pressure and broke the law together with President Bush.  The illegal act made the US telecom industry subject to lawsuits, but the Bush regime placed its co-conspirators above the law.  

Now Obama has sided with the Bush regime.  On February 26,therawstory.com reported: “The Obama Justice Department continues to stand behind a Bush era law meant to prevent lawsuits against telecommunications companies accused of illegally sharing private customer information with intelligence agencies. In a brief filed late Wednesday obtained by Raw Story, the Department of Justice provided its views to Chief U.S. District Judge Vaughn Walker, after the San Francisco federal judge questioned the constitutionality of the wide-sweeping law and whether it gives the U.S. Attorney General too much power in deciding whether a company is immune from lawsuits after it has shared information with federal agents.”

On February 26 antiwar.comreported that the “new CIA director (Leon Panetta) declares nothing has changed, nothing will change.”  Panetta declared that the US policy of conducting war on Pakistan’s sovereign territory “would continue.”  The attacks, Panetta claimed,  “have been successful.”  For the CIA, claims of success equal legality.  Did the Bush regime ever express greater arrogance and hubris?

With Rahm Israel Emanuel, an Israeli dual citizen, in charge of the White House and Obama’s schedule, Obama will have an even less independent foreign policy in the Middle East than Bush.  Somehow someone among the Obamacons managed to put forward an appointment that could challenge the Israel Lobby’s stranglehold.  Charles Freeman, former US ambassador to Saudi Arabia, former top Pentagon official, and president of the Middle East Policy Council, was chosen by Admiral Denis Blair, Director of National Intelligence, to head the National Intelligence Council.  

The neocons went berserk.  Steve Rosen, formerly of AIPAC, currently indicted as an Israeli spy,  Gabriel Schoenfeld, who wants the New York Times indicted for allegedly violating the Espionage Act for reporting the Bush regime’s illegal spying, Daniel Pipes, who sees Muslim terrorists under every bed, Michael Rubin of the warmonger American Enterprise Institute, and Frank Gaffney, possibly the goofiest person in America,  damned Freeman’s appointment as “deeply troubling,” because Freeman has an open mind on the Middle East situation.  

In other words, if you are not on Israel’s side, you are disqualified.

There is no more certain indication of continuing war in the Middle East on Israel’s behalf than for Freeman’s appointment to be blocked.
  
Pay close attention to this one. If Obama succumbs to the Israel Lobby and nixes Blair’s appointment of Freeman,  the US will have to finance interminable wars on top of trillion dollar bailouts and massive unemployment.  

The US might not even make it to 2012 before it is a banana republic.

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: PaulCraigRoberts@yahoo.com

http://counterpunch.com/roberts03022009.html

IS OBAMA BAILING OUT BIG PHARMA'S BURSTING BUBBLE?

By Byron J. Richards, CCN
February 7, 2009
NewsWithViews.com

Bubble economics has become a painful financial lesson for America and the rest of the world. Will we learn from our mistakes? Will we get smarter about recognizing bubbles before they burst, so that the air can be let out of them in a less painful manner? It appears that our new president, in his passion to provide health care for everyone, is about to pump hot air into a bubble that is ready to explode under the weight of its own fraud and lack of results. The magnitude of this problem is on par with the scope of our mortgage meltdown mess, yet the problem is quietly flying under the radar – mostly due to denial. Sound familiar?

A free economy works well when its members roll up their sleeves and put in a hard day’s honest work. It suffers when those in leadership or control con the system for excessive personal profit or when members are lazy or seek something for nothing.

At the moment it is very popular for Americans to hate Wall Street – and with good reason. However, be careful what you wish for. Wall Street exists to coordinate investment in the private sector, leverage the power of money to expand business productivity, and consequently to produce jobs for Americans and the rest of the world – so that you can buy whatever you want in exchange for what you have produced. Investors help make this possible, and expect a piece of the pie.

A bubble is a fraudulent product with a sustained revenue source that does not produce a legitimate or desired result. It sucks up money and acts like a parasite on true productivity, eating pie that wasn’t earned. In the case of the financial products provided by Wall Street, various players created fraudulent investment products with no real value and sold them as if they were legitimate.

Investors around the world bought them, providing the bubble funding. Consumers went along with it, using the money to buy houses they couldn’t afford while acquiring additional possessions with Monopoly-money credit. The price of housing soared on the back of this fraudulent bubble, providing temporary financing to fuel real jobs for the economy. The problem with all bubbles is that there is a day of reckoning. And that day has come.

The Health Care Bubble

Many are now blaming the lack of regulation on Wall Street for the bursting economic bubble. This implies that greater amounts of regulation would solve the problem and prevent it from happening again. However, laws are typically bubble makers. This is because those with money, often obtained by a bubble in the first place, use that money to lobby for laws that lock in their bubble. And this gets me to the story of the Big Pharma health-care bubble – a story driven by the opposite problem of Wall Street – too much regulation getting in the way of health while flowing hundreds of billions of taxpayer dollars into a black hole.

Hospitals profit only when beds are full. Last year in the beginning of February, like this year, hospitals were lamenting over the lost profits from the lack of a vigorous flu season. Yes, it’s true, unless a lot of people get really sick in the next few months hospitals will be in big financial trouble.

Doctors can only make money when people come to see them; which doesn’t happen that often when people are well. When doctors get people well they lose business. No wonder they swear by vaccination programs. And Big Pharma can only make money on drugs when people have to take them endlessly – not when people are made well by a treatment. Hundreds of billions of dollars are in play.

Most of us in the field of natural health call this the sickness industry. Yes, I know, there are legitimate health care needs and expenses. That is not my point. We have more than a slight problem on our hands, as several hundred thousand Americans are killed each year by the fraud within this industry. No war has ever taken such a toll, especially from an enemy that is not even openly identified. Regulations and laws, both state and federal, are used to buy cover for this fraudulent and murderous bubble world – sanctioning it as legal.

The problem is far worse than public health officials care to admit. Denial is always needed in order to perpetuate a bubble. Injuries and deaths are swept under the rug. They are typically blamed on the patient’s underlying health, not on the treatment that caused further problems.

The health-care bubble has been building for a century. It has reached the breaking point due to high profile disasters like Vioxx. There are currently numerous bubble-related drug scandals under investigation, causing the general public to be more afraid of bubble treatments pushed on them by their bubble-trained doctors. FDA management is most often a co-conspirator, pitting itself against the more prudent advice of its safety scientists. FDA management is a revolving door with the industry it is supposed to regulate, and FDA managers typically move on to take high-paying jobs in the health-care bubble economy.

Scientific journals have been hijacked by the bubble gangs, their integrity lost. Research universities are on the bubble payroll, as are key doctors around the country. Professional organizations like the American Medical Association and the American Heart Association are little more than organized bubble gangster mobs. Most doctors live in fear of their licensing boards. The Big Pharma bubble economy is like house building gone wild – is it too big an industry to let fail?

The problem with the health-care bubble can be summed up by asking one simple question: Where is the result of actual health produced from services and treatments? No business can survive without help when it routinely fails to produce the result or product that is expected – why should health care be any different?

This phony industry can only be sustained if the costs of its services and products are paid for by others – and these health care costs are already a major drag on productivity and competitiveness for all Americans (costing lots of jobs). Obama was told by the health care industry that it would take at least two years to try to rein in the fraud in this system before a national health care system could even have a chance – and that is just the blatant fraud – nobody is looking into how deep the rabbit hole actually goes.

Obama is not listening and is instead taking the opportunity of the financial meltdown to orchestrate his health care agenda through “stimulus” spending, locking in hundreds of billions of dollars of new yearly funding for this bubble. Republicans argue that such spending doesn’t create enough new jobs. And Democrats argue that any spending stimulates the economy. Since Democrats are now in control, they will stimulate the economy in a way that reflects their health-care objectives.

The problem that neither political party seems to be addressing is: What happens when stimulus spending is fueling another major bubble that is about ready to burst?

Obama is Likely to Expand the Health Bubble

During the McCain and Obama debates the question was asked, “Is health care a right or a privilege.” Obama said it was a right.

It is of course very admiral for a wealthy society to do whatever it can to help its members in need – there obviously must be some form of a safety net based on a country’s ability to pay. Accidents, serious acute illness, and many health problems beyond an individual’s control should be the priorities for such care.

Health care expenses are never discussed in a meaningful way because there are too many politically incorrect elephants in the room. No politician, Republican or Democrat, will ever get elected or re-elected actually talking about the real issues as they alienate large blocks of voters who want something for nothing.

The noose around the neck of democracy comes at the point when the non-productive reach such numbers that they realize they can vote themselves a free handout – redistributing wealth from the productive into a bottomless pit. We are now on that doorstep.

For example: our obesity epidemic is causing a diabetes and heart disease epidemic – with unbelievable health costs that are scheduled to skyrocket in the coming years – not to mention lost productivity. Yet, this problem is self-induced in the majority of cases. And it is more often self-induced by the low income sector of society – meaning those that don’t pay taxes in the first place. Who is going to pay for their care? Result: class and race warfare.

Then we have seniors addicted to the Big Pharma medication bubble, many of whom are already on fixed incomes. The medications they think they need do little more than suppress symptoms while making their health worse over time. Who is going to pay for their care? Result: generation warfare.

Then we have the new entry to the health bubble – super expensive biotech drugs that manipulate gene switches that buy time, but, like their predecessors, don’t cure anything. Big Pharma is betting the house on this future. These drugs can extend the life of a cancer patient four-six months – just long enough to bilk the families of their life savings. Who is going to pay for this type of care? Result: certain national economic ruin.

Even if society could reach consensus on such issues, it still comes back to the question of who will pay for it. How can that question be answered when the current health care system is a major bubble of fraud getting ready to blow its gasket? How can we pour money into health care when the current system is perverted – profiting from people being sick and staying sick? While treatments can change numbers on paper, they often fall far short of producing health.

Is Your Health Based on a Sub-Prime Mortgage?

Economists tell us that we must spend, spend, spend to get out of the current mess. In the next breath they tell us that if we had saved more in the first place and hadn’t become a plastic nation of spenders we wouldn’t be having such a hard time right now. And at some magical time in the future we are supposed to stop spending so much and start saving. Moral of the story: if we all would have spent more prudently, saving more as we went along, and bought only what we could afford, then we wouldn’t have helped fuel the current economic bubble.

Apply this idea to your personal health. You should have health reserves – is there anything in them? You should have energy reserves, structural reserves, antioxidant reserves, and an overall state of fitness. Do you? Or have you spent everything into a state of wear and tear, inflammation, fatigue, and declining health? And whose fault would that be?

The more this latter question is answered by pointing the finger away from oneself, the greater our collective problem with health as a society. The more people count on a “free” quick-fix medication that must now be taken forever, the greater our problems.

In my view, rights are earned. Their foundation is hard work, honesty, personal integrity, and doing what you know is right as often as you can. When these concepts are applied to being healthy then individuals eat better, exercise more, enjoy a healthier lifestyle, and manage stress better. They are also much more able to be productive and add value to the financial prosperity of the collective group – while incurring less health care costs.

As a health writer I do what I can to help those who want to follow such a path. I am constantly exposing the fraud within the Big Pharma bubble. I spend many hours trying to explain natural health options to those who want to know. I appreciate all those who are trying to do the same. And we all hope there will be enough of us to weather the coming storm.

Health Freedom in Jeopardy

Natural options for health are in direct competition with the forces that are driving the Big Pharma bubble. It is David vs. Goliath. The natural health forces have little political lobbying clout – it’s mostly a grassroots effort that could be blown away at any time if not for the will and resolve of its members.

While there are individual politicians in both parties (not many) who are allies of natural health – politicians are overall not in tune with the people on this issue and are locked into bubble economics and consequent law making.

Republicans don’t rally behind natural health because they are handsomely paid by Big Pharma to sustain its profits as the priority. Democrats don’t rally behind natural health because the concepts of freedom and choice are at odds with socialized medicine and strict control over public health policy and treatments – key principles of health care for everyone.

Democrats, like Republicans, are also influenced by the Big Pharma bubble lobby and its band of affiliate organizations. And Democrats like regulation to accomplish their objectives. Key Democratic members of Congress have routinely expressed a desire to increase cumbersome regulations for natural health.

The Big Pharma bubble will burst, as all bubbles eventually do. It won’t go down without a fight. Be ready to defend your rights. The coming years will be a battle as Big Pharma tries to obliterate any and all competition in a last ditch effort to retain its false power and profits.

It certainly would be nice if Obama didn’t inadvertently help Big Pharma perpetuate its crimes, but the handwriting is on the wall. Even if Obama understood the nature and scope of the Big Pharma bubble, addressing the issue would delay any movement towards national health care in the foreseeable future. That would appear to be too high a political price tag. What we are seeing is an effort to prop up the Big Pharma bubble with enough spending to keep it going long enough to implement drastic health care reform. Unfortunately, the reform is not based on any financially sustainable model of quality care. The question is not will the bubble burst, the question is when.

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© 2009 Wellness Resources, Inc. - All Rights Reserved

Byron J. Richards, Board-Certified Clinical Nutritionist, nationally-renowned nutrition expert, and founder of Wellness Resources is a leader in advocating the value of dietary supplements as a vital tool to maintain health. He is an outspoken critic of government and Big Pharma efforts to deny access to natural health products and has written extensively on the life-shortening and health-damaging failures of the sickness industry.

His 25 years of clinical experience from the front lines of nutrition have made him a popular radio guest who callers find impossible to stump. He has personally developed 75 unique nutraceutical-grade nutritional supplement formulas with a focus on thyroid nutrition, healthy weight loss supplements, cardiovascular nutrition, and stress management.

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E-mail: byron@truthinwellness.com

http://www.newswithviews.com/Richards/byron171.htm