In a recent column, “Can the World Survive Washington’s Hubris,” I promised to examine whether the US economy will collapse before Washington in its pursuit of world hegemony brings us into military confrontation with Russia and China. This is likely to be an ongoing subject on my website, so this column will not be the final word.
Washington has been at war since October 2001, when President George W. Bush concocted an excuse to order the US invasion of Afghanistan. This war took a back seat when Bush concocted another excuse to order the invasion of Iraq in 2003, a war that went on without significant success for 8 years and has left Iraq in chaos with dozens more killed and wounded every day, a new strong man in place of the illegally executed former strongman, and the likelihood of the ongoing violence becoming civil war.
Upon his election, President Obama foolishly sent more troops to Afghanistan and renewed the intensity of that war, now in its eleventh year, to no successful effect.
These two wars have been expensive. According to estimates by Joseph Stiglitz and Linda Bilmes, when all costs are counted, the Iraq invasion cost US taxpayers $3 trillion dollars. Ditto for the Afghan war. In other words, the two gratuitous wars doubled the US public debt. This is the reason there is no money for Social Security, Medicare, Medicaid, food stamps, the environment, and the social safety net.
Americans got nothing out of the wars, but as the war debt will never be paid off, US citizens and their descendants will have to pay interest on $6,000 billion of war debt in perpetuity.
Not content with these wars, the Bush/Obama regime is conducting military operations in violation of international law in Pakistan, Yemen, and Africa, organized the overthrow by armed conflict of the government in Libya, is currently working to overthrow the Syrian government, and continues to marshal military forces against Iran.
Finding the Muslim adversaries Washington created insufficient for its energies and budget, Washington has encircled Russia with military bases and has begun the encirclement of China. Washington has announced that the bulk of its naval forces will be shifted to the Pacific over the next few years, and Washington is working to re-establish its naval base in the Philippines, construct a new one on a South Korean island, acquire a naval base in Vietnam, and air and troop bases elsewhere in Asia.
In Thailand, Washington is attempting to purchase with the usual bribes an air base used in the Vietnam war. There is opposition, as the country does not wish to be drawn into Washington’s orchestrated conflict with China. Downplaying the real reason for the airbase, Washington, according to Thai newspapers, told the Thai government that the base was needed for “humanitarian missions.” This didn’t fly, so Washington had NASA ask for the air base in order to conduct “weather experiments.” Whether this ruse is sufficient cover remains to be seen.
US Marines have been sent to Australia and elsewhere in Asia. To corral China and Russia (and Iran) is a massive undertaking for a country that is financially busted. With wars and bankster bailouts, Bush and Obama have doubled the US national debt while failing to address the disintegration of the US economy and rising hardships of US citizens.
The charts below are courtesy of www.shadowstats.com:
The annual US budget deficit is adding to the accumulated debt at about $1.5 trillion per year with no prospect of declining. The financial system is broken and requires ongoing bailouts. The economy is busted and has been unable to create high-paying jobs, indeed any jobs. Despite years of population growth, payroll employment as of mid-2012 is the same as in 2005 and substantially below 2008. Yet, the government and financial presstitute media tell us that we have a recovery.
According to the US Bureau of Labor Statistics, employment in 2011 was only 1 million more than in 2002. As it takes about 150,000 new jobs each month to stay even with population growth, that leaves a decade long job deficit of 15 million jobs.
The US unemployment and inflation rates are far higher than reported. In previous columns I have explained, based on statistician John Williams’ work (shadowstats.com), the reasons that the government’s headline numbers are serious understatements. The headline (U3) unemployment rate of 8.2% counts no discouraged workers who have given up on finding a job. The government has a second unemployment rate (U6), seldom reported, which includes short-term discouraged workers. That rate is 15%. When the long-term discouraged workers are added in, the current US unemployment rate is 22%, a number closer to the unemployment rate of the Great Depression than to the unemployment rates of postwar recessions.
Changes in the way inflation is measured have destroyed the Consumer Price Index (CPI) as a measure of the cost of living. The new methodology is substitution based. If the price of an item in the index rises, a lower priced alternative takes its place. In addition, some price rises are labeled quality improvements whether they are or not and thus do not show up in the CPI. People still have to pay the higher price, but it is not counted as inflation.
Currently, the substitution-based rate of inflation is about 2%. However, when inflation is measured as the actual cost of living, the rate of inflation is 5%.
The Misery Index is the sum of the inflation and unemployment rates. The level of the current Misery Index depends on whether the new rigged measures are used, which understate the misery, or the former methodology that accurately measures it.
Prior to the November 1980 election, the Misery Index hit 22%, which was one reason for Reagan’s victory over President Carter. Today if we use previous methodology, the Misery Index stands at 27%. But if we use the new rigged methodology, the Misery Index is 10%.
The understatement of inflation serves to boost Gross Domestic Product (GDP). GDP is calculated in current dollars. To be able to determine whether GDP rose because of price rises or because of increases in real output, GDP is deflated by the CPI. The higher the inflation rate, the less the growth in real output and vice versa. When the substitution based methodology is used to measure inflation, the US economy experienced real growth in the 21st century except for the sharp dip during 2008-2010. However, if the cost-of-living based methodology is used, except for a short period during 2004, the US economy has experienced no real growth since 2000.
In the chart above, the lower measure (blue) of real GDP is deflated with the inflation methodology that measured cost-of-living. The higher GDP measure (red) deflates GDP with the new substitution based methodology.
It is now obvious that for America it is economic collapse or war. Reading between the lines Hilary Clinton made this clear in Paris last Friday. She also made clear that her preferred option is war when she threw down the gauntlet at the “Friends of Syria Group” meeting in Paris to Russia and China and insisted that the other countries at the meeting take the side of the Americans.
“I don’t think Russia and China believe they are paying any price at all, nothing at all, for standing up on behalf of the Assad regime,” she said. “The only way that will change is if every nation represented here directly and urgently makes it clear that Russia and China will pay a price. Because they are holding up progress, blockading it. That is no longer tolerable.” Hilary Clinton – Paris 6 July 2012…
And as (I gather) there were about 100 countries represented at these meeings it must be assumed that these countries are being bullied into going to war on the American side against Russia and China.
Hey Hilary, that’s fine, as long as Chelsea is signing up for active duty immediately. For that matter, any person holding public office who votes for war should be required to send their own children to fight that war.
You forgot to mention there are actually
more than 40% of the people some extremely
stupid wanting 4 more year of this….
You would think someone could count 3+3 = 6
UNITED STATES ARE WALKING FOR THE MISSION OF ULTIMATE DECAY AFTER THAT USA WILL LOST IS NAME IN THE P5.CHINA RUSSIA, INDIA ARE ALL WATHING
USA SHOULD BE MORE RESERVED TO PROTECT ITS HONOUR
Sadly, there is very little honorable here in the US to defend or protect, all that was good has been cast off in favor of profits, power and pollution of the world with war!
Reading this piece (an excellent one, by the way) led me to check once more comments on “Can the World Survive Washington’s Hubris”, whereupon I saw your own comment about my criticism of the “frankness” you employ in your columns. To clarify my own view, it’s not frankness or even harsh judgements that I think are counterproductive, but what I see as over-the-top language — go to my previous comments on this subject for examples. As I see it, hyperbole and ad hominem attacks detract from the force of your arguments, and thereby reduce your influence.
You speak in your comment about your influence being at a peak. I don’t follow the foreign press to anything like the extent I do the US media, so perhaps your influence overseas is indeed growing. But here in the US — and the US is still the most important actor in world politics — I never see your writing in publications that are read by those with influence, be it the Times, the Journal, Foreign Affairs, etc. Nor do I see you on network or cable news programs, or even hear your views quoted. Of course many of the views you espouse (some of which I share) are very much out of favor with the political and media elites. That being so, it’s hard to get exposure in mainstream forums. However, you would have a better chance (in my opinion) of getting mainstream exposure (i.e, bringing your case before a wider American audience) if you toned down the rhetoric.
Uou obviously have every right to do and say what you please. I just happen to think that you reduce your influence (at least in America) by being so fierce in language and opinion. And I think that’s a shame, since your background and ideas could make you a much stronger force for change. That’s my view, anyway.
“….and the US is still the most important actor in world politics”
Not any more it would appear. I seems that no one has risen to Hilary’s rallying cry to threaten Russia and China that they “will pay a price”.
“…you would have a better chance … of getting mainstream exposure … if you toned down the rhetoric.” Do you mean that the truth is so unpalatable that it must be made “politically correct” to get people to listen to it.
Jon, you would do well to look elsewhere for your ‘news’ as you call it, since without exception, the media in all its forms in the US, is controlled, filtered, purposefully myopic and totally ‘in-lock-step’ with the government, rather than acting as a check on the out of control Executive, Legislative and Military systems we have in place at this time.
Peter, if you had read my comment more carefully you might have seen that I wasn’t talking about the state of the U.S. media. Although you overstate somewhat, I pretty much agree with your characterization of that media. However, that wasn’t the issue I was addressing in my comment. Trust me, I don’t need to be told what the state of US news reporting is.
“Do you mean that the truth . . . must be made ‘politically correct’ to get people to listen to it” — I wouldn’t go that far, but I would say that ad hominem attacks and stretching the truth hurt the cause. If one calls Obama a madman, for example, a significant portion of readers will not take seriously whatever else one has to say. If one claims that “millions of Muslims” have been killed by the US since 9/11, you have a problem with the facts. The truth is bad enough: probably 200,000 dead in Iraq, and some thousands more in Afghanistan, Pakistan, Libya. etc. The fact remains that “millions” is an unpardonable exaggeration that damages the credibilty of the person who makes it.
This is a problem that’s by no means confined to this interesting and often on the money site. Like-minded people who hold minority opinions and share them largely amongst themselves generally end up indulging in emotion-laden language that carries them beyond known facts. Largely powerless to affect events, they fall prey to what Nietzsche called “ressentiment”, with the result that their views are further marginalized, or at least fail to find a hearing before mainstream audiences. Thus their influence cannot grow — a vicious circle, as it were.
As for US influence in the world, I didn’t claim that the US gets its way all the time. Nevertheless, it’s still the most important actor. No power has ever gotten its way in every situation it happens to involve itself in. The implication of your comment is that because the US is not getting Russian and Chinese cooperation in Syria, it cannot be the most important actor in world politics. That’s a mistake of logic on your part. I assure you, if you go to Moscow or Beijing, they will acknowledge that the US is the most important single actor in the world. How long that will continue is another matter — but that particular subject is not germane to what we are discussing right now.
Calling for a bond bubble, is frankly stupid.
1. Bubbles burst.
2. Bonds mature. The only possible “bond bubble” would be the result of the debtor not being able to pay. So there are examples. GM bond holders saw their bonds burst in value as the government saw fit not to honor the bond holder’s rights (covenants) and reward the union. Ain’t socialism great?
3. If one holds a ten year US Government bond and bought it yielding 1.80% and the US Government honors its obligations, unlike what they did for the GM bond holders, then in ten years the investor will get 100 cents on the dollar and have earned a whopping 1.80%. However the 1.80% if it is yield to maturity, then the calculation assumes a reinvestment rate equal to the YTM or 1.80%. So if you want to be technical about it the final rate of return would depend upon what rate the interest payments are reinvested.
If people really mean bubble, in that situation I think one of the better places to hide would be the southern island of New Zealand, or possible being self sustaining deep in the mountains of Colorado.
Yes, “Calling for a bond bubble, is frankly stupid.” But that is exactly what Bernanke, et al, are calling for when they hold interest rates artificially low for so long.
If the issuer is money good, one will eventually get their investment back and that to me is not a bubble.
The amount of time and attention spent on a bond bubble takes ones focus and concentration away from where it should be!
What Ben and Company have done, in all likelihood is to have created an environment that has provided the components necessary for the development of bubbles.
In my opinion, it is a question of trying to capitalize and/or avoid the bubbles created by the environment Ben and Company have created.
It is like one of the scams played on the streets of NYC. Guy has a hot dog. Sees what looks like a good mark going to walk buy. Goes to squirt mustard on his hot dog and squirts it on someone walking buy. With everything going on between the hot dog guy and the mark, he doesn’t notice that someone just took his wallet.
Ben is the hot dog guy and we are all worried about the mustard on our shirt when what we should be worried about is getting our pocket picked.
A statement which implicitly acknowledges that if the money of the issuer is not good and yet investors continue to purchase its debt, then its bonds are in a bubble.
The fallacy of your argument is its assumption that the U.S. will make good on its debts. It will not. The entire U.S. Federal Reserve monetary system is a Ponzi scheme. One way or the other, the U.S. will default, most likely through inflation.
Jeremy, if you believe that then I would suggest you join me in the mountains of Colorado :)
It’s not a “belief”, it’s a fact. The mountains of Colorado sound nice.
I pointed out the possibility of national bankruptcy in the US back in 2006, when I started publishing articles about political economy. The US economy is so large and potentially productive that it would be possible to avoid default (through bankruptcy or inflation) even now IF proper measures were taken. This would entail a grand bargain involving public spending cuts (including the defense budget), entitlement reform, and real tax reform encompassing both the elimnation of most special breaks and loopholes, and a lowering of both individual and corporate tax rates. I would end too big to fail by breaking up the big banks, and do something about derivatives along the lines sketched out by Roberts. I would also like to see a program to rewrite all home mortgages at a 4 or 4 1/2 per cent interest rate, which would free up money for consumer spending.
Obama made a big mistake with the stimulus program in 2009, when he basically just threw cash at the economy. That program amounted to a thousand points of pork for the US Congress. Instead, a $1 trillion program to rebuild America’s infrastructure from top to bottom should have been enacted, even if many of the projects would not have been “shovel-ready” until 2011 or 2012. Such a program would actually have had the advantage of restoring our roads, bridges, etc. and getting a couple million unemployed construction workers off the dole. We would be reaping the benefits today, instead of bemoaning the fact that we threw away almost a trillion in cash.
It’s still not too late. Obviously nothing will happen until after the election. Then something will get done, though probably not enough to restore American prosperity.
Yes, IF they acted now. Which they aren’t, and aren’t going to. They aren’t going to make the spending cuts required to balance the budget, much less tackle the debt. People need to get their households in order and prepare for what’s coming, because the government isn’t going to fix it.
An economic collapse is the best thing that can happen in America and then we can put the guilty in a cage forever and start over
ROOT OF ALL USA’S PROBLEMS: A MISTAKE IN THE CONSTITUTION.
SOLUTION: NATIONAL REFERENDA
Thanks for the great article, Dr. Roberts. What is killing America is these wars and massive 3rd world immigration. The US is the 3rd most populous nation on earth, after China and India, yet it lets in more foreigners, 6 million per year, than the rest of the world combined. This flood of foreign labor is the root cause unemployment, falling wages and rising prices, according the basic law of economics: the law of demand and supply.
See US 3rd most populous nation:
http://en.wikipedia.org/wiki/List_of_countries_by_population
No country can provide such a high standard of living for so many people, for long. It has to become a 3rd world country, sooner or later.
When you see our “representatives” (who are our servants) take bribes and turn to crimes against their own nation, such as flooding the nation with aliens, engaging in illegal wars and we have to meekly beg our servants to stop their war on our nation, we know something is clearly wrong with our system.
The problem is that there are no binding national referenda in the United States. Many other countries, including 3rd world countries, have it, but not the US! Therefore America’s secret shame is that we do not have a real democracy! That is why American pseudodemocracy is a joke. Our criminal govt. must be ashamed going around the world preaching democracy but denying it to its own people!
The Constitution gave all the power to the 3 branches of govt. and assumed they will keep an eye on each other (“checks and balances”). The three branches have become corrupt, usurped power and are under the control of the Oligarchs.
But there is a solution to this govt’s war on the nation. It is a constitutional amendment to allow national referenda, so people can pass good laws in the national interest themselves. These laws will supersede laws passed by Congress and cannot be overturned except on constitutional grounds by a supermajority of both houses and unanimous vote of the Supreme Court. The people can then still override it by a 66% vote. Some believe that this right to amend the constitution is inherently vested in the American public. Others suggest an actual amendment. A survey showed that 76% of the public approved the idea.
We can pass a national referendum that all laws that affect the nation as a whole, such as raising taxes, large welfare programs, foreign aid, immigration, bailouts, and raising the debt ceilings, etc. can become law only if finally approved by the people. We will solve 90% of our problems this way.
For eg., see:
http://ni4d.us/index.htm
http://www.iandrinstitute.org/National%20I&R.htm
We Americans need to visit these websites, join these groups, contribute and call radio talk shows, etc. and promote this idea and get the process started soon, before it is too late.