ECONOMIC ANALYSIS:

America Facing Depression and Bankruptcy

Responsible solutions proposed to put our country on a sound fiscal course.

by Stephen Lendman
Friday, 27 August 2010
Bad policy begets bad results, and bad solutions makes it worse. For sure, America is "broke and can no longer afford no-pain, all-gain 'solutions.' " It needs responsible solutions implemented now.

Long-time economic, political and market analyst Bob Chapman publishes the International Forecaster, offering incisive analysis absent through mainstream sources, especially important now given America's deepening economic crisis getting harder to conceal as evidence mounts.

His August 25 issue says the following:

"Twenty countries (including America) are headed into bankruptcy and more will follow. That brings up the subject of state debt in the US. America has been in an inflationary depression for 18 months. States have been cutting back for two years," but still face huge budget gaps required to be closed....2011 will be a terrible year (with) 80% of states expect(ing) deficits of more than $200 billion. 2012 looks even worse." Most worrisome, "there is no recovery and there never has been....the US economy and financial system is comatose." The worst is yet to come and will hit hard on arrival.

On August 24, economist David Rosenberg said, "Now (I'll) tell you why this is a depression, and not just some garden-variety recession," what he's been repeating for months unlike few others, corporate analysts claiming the fall 2007 downturn "ended sometime last year." Not so, it's deepened, growing evidence providing more clarity.

Offering a historical perspective, Rosenberg said the Great Depression wasn't marked by declining GDP each quarter. The 1929 - 33 recession lasted four years, followed by recovery and another "deep downturn" in 1937 - 38.

During the first one, "there were no fewer than six - six! - quarterly bounces in GDP data," averaging 8% at an annual rate, accompanied by sharp market increases, then declines confirming false positives. So "guess what? We may be reliving history (now). If you're keeping score, we have recorded four quarterly advances in real GDP," averaging only 3%. The late 1930s reversal showed "how fragile the post-bubble recovery really was," a faux one again repeated in a weaker economy now than then, one headed for serious trouble ahead, harming millions more Americans as a result.

The Fed cut interest rates to near zero with no effect, at best buying time, resolving nothing. "Then the Fed tripled the size of its balance sheet - again with little sustained impetus to a broken financial system."

Weeks back, then confirmed with new data, Rosenberg stressed weakness, numerous indicators turning down, including production, retail sales, consumer confidence, and housing, a bellwether industry impacting the entire economy. New reports show it's collapsing, some readings to record lows, others disturbingly weak throughout the country.

July existing home sales dropped 25.5%, the largest monthly decline since records began in 1968, bringing annualized sales back to 1995 levels, and signaling worse trouble ahead. Other housing data confirm the malaise, including new home sales, housing starts and permits.

As worrisome were increasing layoffs and first-time unemployment claims hitting 500,000, flashing red for trouble nearly three years after the initial downturn, combined with a near-22% unemployment rate, not the bogus 9.5% headline number, the 1980 calculation reengineered to conceal weakness like all other fake economic data, putting lipstick on an economy, increasingly looking and smelling more like a pig, a sick one.

According to Rosenberg, "You know you are in a depression when:

The Worst Is Yet to Come

Financial expert and investor safety advocate Martin Weiss began warning about a major economic decline long before it began and keeps at it, citing evidence most analysts downplay or ignore, including:

As a result, he sees deepening economic trouble ahead, no matter what steps the administration, Congress or the Fed undertake. He expects little more stimulus, just another futile central bank attempt to print money (lots of it) to buy time. "These paper dollars will not create real prosperity," just an illusory, "temporary, false prosperity," but none at all for most people, hung out to dry on their own.

He also expects a sovereign debt crisis to hammer Europe and the US, saying America's plight exceeds the dire situation of PIIGS countries (Portugal, Italy, Ireland, Greece and Spain), citing the Bank of International Settlements (the central bank of central bankers) saying US debt will hit 400% of GDP, more than triple Greece's burden at 129% that plunged the country into (undeclared) bankruptcy. Indeed the worst for America is yet to come.

America Is Already Bankrupt

Boston University Economics Professor Laurence Kotlikoff explains it in his August 10 article, titled "US Is Bankrupt and We Don't Even Know It," saying:

"Let's get real. The US is bankrupt. Neither spending more nor taxing less will help the country pay its bills." What's needed, he says, is reengineering the economy by "radically simplify(ing) its tax, healthcare, retirement and financial systems...." Revitalization depends on it with unfunded liabilities topping $110 trillion and growing. Even the IMF is worried, saying "closing (America's) fiscal gap requires a permanent annual fiscal adjustment equal to about 14 percent of US GDP," meaning, of course, from working households, not corporate interests or national security, the most glaring areas needing reform.

The fiscal gap represents "the difference between projected spending (including debt service) and projected revenue in all future years. (It's) the government's credit-card bill and each year's 14 percent GDP is the interest on that bill."

When it's not paid, it increases the balance owed. And each trillion the Fed prints bailing out bankers compounds it. Make them pay, not the public they robbed, starting with shutting them down, breaking them up, seizing their assets, and nationalizing them for the collective good.

Kotlikoff is scary saying "Uncle Sam's Ponzi scheme will stop, (perhaps) in a very nasty manner," citing three possibilities:

  1. massive benefit cuts on retirees;
  2. huge tax increases hitting working Americans hardest, and/or
  3. printing vast amounts of money ad infinitum until debt overload crashes the economy eventually.

Calling America "Worse than Greece," he believes "Most likely we will see a combination of all three responses with dramatic increases in poverty, tax(es), interest rates and consumer prices," the path we're on heading us for the worst of all possible worlds.

Based on the latest Congressional Budget Office (CBO) data, he calculates a $202 trillion fiscal gap - "more than 15 times the official debt" because Congress "label(s) most of its liabilities 'unofficial' to keep them off the books, (out of sight) and far in the future" to concern other officials, not them. Labeling, of course, isn't fixing. It's just concealing unpleasant realities, letting others, not them, face the music in out years.

Current federal revenue totals $14.9% of GDP, the IMF saying that closing it requires "an immediate and permanent doubling of our personal-income, corporate and federal taxes as well as the payroll levy set down in the Federal Insurance Contribution Act."

Such policy would produce a 5% surplus this year, the IMF prescribing ad infinitum fiscal austerity, saying delay will make it tougher ahead. "Is the IMF bonkers?" Not at all, just preferential, wanting workers, not special interests hit hardest, the way it's raped and mauled economies for years, serving capital, not people, now aiming at America, the biggest plum of all ripe for plucking with millions of vulnerable households, easy pickings for the powerful, harming, not relieving their needs by:

Indeed let's get real. Bad policy begets bad results, and bad solutions makes it worse. For sure, America is "broke and can no longer afford no-pain, all-gain 'solutions.' "

It needs responsible ones, too many to list, but here's a few:

Responsible policies, all of the above and more, will reinvigorate America. The unsustainable fiscal crisis is reason enough to do it.


Stephen Lendman

Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. His blog is sjlendman.blogspot.com.

Listen to Lendman's cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

Mr. Lendman's stories are republished in the Baltimore Chronicle with permission of the author.



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This story was published on August 27, 2010.