Hard Times Getting Harder

by Stephen Lendman

Americans are being hammered economically, politically and socially. Paul Craig Roberts quoted Vladimir Putin calling America “a parasite on the world.”

PR manipulators present a virtuous image. Roberts said “Putin understated the burden that America is on the world. How much longer will (it) put up with” our virtuosity?

Death, destruction, and global economic wrecking defines its agenda. Libya at peace became a hellish charnel house. Mainstream Americans suffer greatly in deepening Depression.

Political Washington fattens itself on campaign cash, hanging out to dry struggling millions. Trends analyst Gerald Celente says it’s time for direct democracy – “tak(ing) power out of the hands of politicians and put(ting) into the hands of the people.”

With their own self-interest at stake, bet on them getting it right. With politicians on the take, they do it only for fat cat contributers, and the bigger the bribe, the more they get.

Depression Defines Today’s Economy

Gluskin Sheff chief economist Dave Rosenberg calls what’s ongoing “a modern day depression,” saying:

A Depression, “simply put, is a very long period of economic malaise and when the economy fails to respond in any meaningful or lasting way to government stimulus programs,” or what passes for them with benefits mostly to corporate favorites and super-rich elites.

It’s defined by a “series of rolling recessions and modest recoveries over a multi-year period of general economic stagnation as the excesses from the prior asset and credit bubble(s) are completely wrung out of the system.”

Using a baseball metaphor, Rosenberg says we’re “in the third inning of this current debt deleveraging ball game.”

In other words, after three tough years, many more lie ahead for ordinary working households suffering most.

“You know you’re in a depression when interest rates go to zero and there is no revival in credit-sensitive spending.”

How can there be with banks hoarding nearly $2 trillion in cash. A classic “liquidity trap” occurs when private sector lending dries up.

Depressions usually follow bursting asset bubbles, especially housing ones. Before his August 2007 death, economist Kurt Richebacher warned about them in a 2004 commentary titled, “Property Bubbles: Beware of Property Bubbles.”

Citing “economic and financial imbalances,” he said America’s growth depends “entirely on the continuation of the frenetic housing bubble.”

However, “all bubbles end painfully, housing (ones) in particular. They’re an especially dangerous asset bubble because of their extraordinary debt intensity.”

They cause great harm by extracting wealth (through refinancing) from rising valuations and by “heavily entangl(ing) banks and the whole financial system as lenders.”

Thus, property bubbles have historically been the main cause of major financial crises, notably Depressions.

Late 1980s Japan was a striking example. Its stock and property bubbles burst together, but the former got most attention. The “property deflation continued for 13 years (with) calamitous effects on (its) banking system through a horrendous legacy of bad loans.”

Japan’s “building sector” also suffered and “never recovered from the depression following its (late 1980s) excesses.”

Richebacher wondered if America faces the same fate, asking, “Is the US economy in better or worse shape today (in 2004) than in 2000 (as it faced recession)? Is it in a self-sustaining recovery?”

Absolutely not, and he was right, saying “it is in dramatically worse shape” because of years of binge borrowing.

Also because of leveraged asset purchases and soaring imports. The former involves no income creation. The latter destroys it. Moreover, this type borrowing is unproductive dead-weight debt, “yielding to debtors no future flow of income from which to” service it.

As a result, a bad ending is assured. In summer 2007, it arrived with painful, deepening effects. Over three years later, growing millions can explain America’s economy better than trained experts by relating their current state.

Rosenberg says Depressions result from “bursting of an asset bubble and a contraction in credit, whereas plain-vanilla recessions are typically caused by inflation and excessive manufacturing inventories.”

Moreover, when true unemployment hovers around 23%, and half of those looking did it fruitlessly for six months or longer, “you know you are in something much deeper than a garden-variety recession.”

Instead of soup lines in streets, they’re “in the mail – 99 weeks of unemployment checks for over 10 million jobless Americans,” and many others end up losing them.

In addition, secular change affect attitudes toward debt. Discretionary spending and homeownership plans are altered or curtailed until hard times give way to better ones.

“More fundamentally, in a recession,” government stimulus revives economic growth. In Depressions, at best, it’s kept from getting worse. Many bucks don’t deliver enough bang to spur sustained upward momentum.

“In a recession, everything would be back to a new high nearly three years after” the economy contracted. Currently, “everything” is still below December 2007 levels.

Under normal conditions or garden variety recessions, all the monetary, fiscal and bailout stimulus would revive a “roaring” economy. Because it failed shows Depression conditions exist. That’s what bond prices are signaling, with yields approaching Japanese levels. At near zero, it hasn’t worked.

Even with current government deficits around 10% of GDP, double Great Depression levels, bucks injected to stimulate bang fell flat.

A decade of credit growth excess created the current mess. No quick fix will end it. Another $5 trillion “has to be extinguished either by paying it down,” walking away from it, or having it socialized.

With 10-year Treasuries around 2%, the message not only is something is very wrong but that years are needed to fix it. Even then, only if good, not counterproductive, policies are employed.

At the same time, “epic changes” are occurring in how households allocate budgets, especially regarding discretionary spending and debt at a time they’re undergoing a prolonged deleveraging cycle.

Years of credit expansion were fueled by no-doc loans (requiring no documentation), low-doc ones, liar loans, NINJA ones (with no income, jobs or assets), 0% vendor financing, subprime mortgages, risky Alt-A ones, and option ARMs (adjustable rate ones) with negative amortization.

From the mid-1960s through mid-1980s, household debt to income was 70%. In 2002, it was 105%. In 2007, it hit an all-time 140% high, and it’s still 120%. It shows years more deleveraging are required to return it to normal levels.

In fact, “for the first time in recorded history, the entire $70 trillion household balance sheet is in a long-term process of shrinking.”

It suggests rising savings and weaker private sector growth. It’s also deflationary at a time essential commodities are rising, including food, energy, and medical care, key items in every household budget.

Bottom line reality is protracted pain ahead for working households, no matter what policy measures are employed.

Given counterproductive ones proposed and planned (including austerity when stimulus is needed), expect hard times indeed ahead to get harder.

A Final Comment

No wonder America’s middle class is disappearing. At its current pace, it won’t be long before it’s gone.

In his book titled, “How the Economy Was Lost,” Paul Craig Roberts said it’s gone and won’t come back until “free trade myths are buried six feet under.”

“America’s (19th and) 20th centur(ies) economic success was based on two things. Free trade was not one of them. (It) was based on protectionism (and) British indebtedness.”

US economic ascendance eroded by abandoning traditional practices and preaching “free trade” dogma, neoliberalism, globalization, and the disease of offshoring. As a result, “American cities and states lost tax base, and families and communities lost jobs,” replaced by fewer lower paying ones.

“The pressure of jobs offshor(ed), together with vast imports, has destroyed the economic prospects for all Americans….Doing a good job, providing a good service, is no longer the corporation’s function. Instead,” goal one is cutting labor costs, exporting high paid jobs to low wage countries, and hollowing out America for profit.

As bad as it’s been it may get worse with millions more white-collar jobs vulnerable to offshoring. They include high paying positions in information technology, accounting, architecture, advanced engineering design, news reporting, stock analysis, and medical and legal services.

In other words, any job, high or low level, performed effectively anywhere will be moved to the lowest paying locales, abandoning America and other higher cost ones.

At the same time, major media scoundrels won’t explain it or the truth about America’s troubled economy.

Instead, consensus lying reports slow growth but no recession at a time of deepening Depression. In other words, coverup and denial substitutes for hard truths when they’re most needed.

In his latest summer review, Gerald Celente says America’s “economy is in collapse. Nothing the White House, Congress or the Federal Reserve tries to do to stop the crash” is working.

Everything tried fell flat. Operating on life-support, when the plug finally is pulled “and the money pump stops, the US economy will go down and” take much of the world with it.

It shows financial destruction can be as painful as military might. Either way, ordinary people suffer most, especially when governments they rely on don’t help.

That’s the state across America and Europe. It’s why activism, not apathy, must confront what only will worsen unless effectively addressed.

Of course, responsible leaders are needed to do it. They’re, in fact, nowhere in sight, so it’s up to voters to clean house for better ones.

Given Americans’ choice between bad or worse, it may be beyond reach, but what option is there than to try.

ABOUT THE AUTHOR: Stephen Lendman lives in Chicago and can be reached at lendmanstephen@sbcglobal.net. Also visit his blog and listen to 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. He is also the author of “How Wall Street Fleeces America“

The Progressive News Hour

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Guest: Paul Craig Roberts

Roberts was former Assistant Treasury Secretary under Ronald Reagan, a Wall Street Journal Associate Editor, and holder of numerous academic appointments, including at Georgetown University’s Center for Strategic and International Studies.

He now prominently criticizes destructive, repressive state policies, harming people everywhere.

Major world and national issues will be discussed.

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