The No-Think Nation

[democracy1st]

The No-Think Nation


Author: Paul Craig Roberts, former Secretary of the U.S. Treasury
Published On: 11/19/08
Source: www.EconomyInCrisis.Org

"The prospects of a government rescue for the foundering American automakers dwindled Thursday as Democratic congressional leaders conceded that they would face potentially insurmountable Republican opposition," reported The New York Times last Friday.

Wow! The entire country is steamed up over the Republicans bailing out a bunch of financial crooks who have paid themselves fortunes in bonuses for destroying America's pensions. Why do Democrats want to protect Republicans from further ignominy by not giving them the opportunity to vote down a bailout for workers? Quick, someone enroll the Democratic Party in Politics 101.

GM's divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn't.

Conservative talking heads are saying GM is a "failed business model" unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model.

The head of the FDIC is trying to get $25 billion -- a measly 3.5 percent of the $700 billion for the banksters -- with which to refinance the mortgages of 2 million of the banksters' victims, and Secretary of the Treasury Paulson says no. Why aren't the Democrats all over this, too?

Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America's manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance.


The financial crisis has had one good effect. It has cured Democratic economists like Robert Reich and Paul Krugman of their fear of budget deficits. During the Ronald Reagan years, these two economists saw doom in the "Reagan deficits" despite the fact that Organization for Economic Development and Cooperation data showed that the United States at that time had one of the lowest ratios of general government debt to gross domestic product in the industrialized world.


What we are talking about here is a minimum budget deficit of $2 trillion. The United States has never had to finance a deficit of this magnitude. Where is the money coming from?

The U.S. Treasury doesn't have any money, and neither do Americans, who have lost up to half of their savings and retirement funds, and are up to their eyeballs in mortgage and consumer debt. And unemployment is rising.

There are only two sources of financing: foreign creditors and the printing press.

I doubt that foreigners have $2 trillion to lend to the United States. Thanks to the toxic U.S. financial instruments, they have their own bailouts to finance and economies to stimulate. Moreover, I doubt that foreigners think the United States can service a public debt that suddenly jumps by $2 trillion. At 5 percent interest, the additional debt would add $100 billion to the annual budget deficit. In order to pay interest to creditors, the United States would have to borrow more money from them.

Economists and policy-makers are not thinking. This enormous financing need comes not to a well-managed economy that can take the additional debt in its stride. Instead, it comes to an economy so badly managed that there are no reserves.

Massive U.S. trade deficits have been financed by giving up U.S. assets to foreigners, who now own the income flows, as well. Budget deficits from six years of pointless wars and from unsustainable levels of military spending have helped to flood the world with dollars and drive down the dollar's exchange value. Consumers themselves are drowning in debt and can provide no lift to the economy. Millions of the best jobs have been moved offshore, and research, design and innovation have followed them. Considering America's dependency on imports, part of any stimulus package that reaches the consumer will bleed off to foreign countries.

Generally, when countries acquire more debt than they can service, they inflate away the debt. If foreign creditors do not save the Obama administration, the Treasury will print bonds and give them to the Federal Reserve, which will issue money.

The inflation will be severe, particularly as Americans will not be able to pay for the imports of manufactured goods from abroad on which they have become dependent. The exchange value of the dollar will decline with the domestic inflation. Once inflation is off and running, the printing-press dollars will only have goods made in America to chase after. The real crisis has not yet begun.

Paulson should rethink the automakers' and FDIC's proposals. A bank produces nothing but paper. Automakers produce real things that can be sold. Occupied homes are worth more then empty ones.

Paulson's inability to see this is the logical outcome of Wall Street thinking that highly values deals made over pieces of paper at the expense of the real economy.




Authors Bio: Dr. Roberts is a former university professor, a former associate editor of the Wall Street Journal, and a former Assistant Secretary of the US Treasury.
http://www.economyincrisis.org/articles/show/2095

[mike_c]

1. I have zero confidence that the political leadership will "get it" in time....

Shit.

[Number_Six]

2. It IS the business model you use

Years ago, frustrated, Lee Iacocca called down the head of Honda and asked "How is it you guys can crank out a new car in 18 months and it takes us 6 years?"

The old man said, "Come on over, we'll show you."

GM, Ford and Chrysler suffer from a common disease: They employ a business plan that focuses more on quarterly profits than long-term goals and plans.

That's like playing football, but focusing only on 1st and X to go. It works, but if the other side's playing long ball, you're going to lose.

Honda, Toyota, Nissan all have specific goals that take years to accomplish, to that, they're damned patient about results. American firms want results by end-of-the-quarter, so we can look good to Wall Street.

Which tends to explain why the Marysville plant is nailing out Accords, why the new Indiana plant is unloading Civics. Can we say high quality, high gas mileage? Of course we can, that's the idea.

Thus, GM, Ford, Chrysler need new business models, to go back to a time when firms focused decades ahead, and not 20 minutes from now, and time is, yes, awasting.

[natrat]

3. paulson sees it allright.....hello, wake up there are evil people at the helm.....sheesh