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Nov. 5, 2010 - InfoWars Special Reports
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20101105_SpecialReport_Alex
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I'm Paul Craig Roberts.
I'm a former Assistant Secretary of the United States Treasury for Economic Policy.
I was an Associate Editor of the Wall Street Journal, a columnist for Businessweek, and script I'm with News Service.
I'm currently a columnist for Creators Syndicate in Los Angeles.
I'm an academic.
I've held positions at Stanford University, Georgetown University, and other places.
The most important issues of our time, as I see it, are the loss of the American middle class.
Their jobs have been offshored, and the remaining jobs are being filled with foreigners brought in on work visas.
So that we are dismantling the ladders of upward mobility that made the United States an opportunity society and that made differences in income distribution acceptable.
Another great problem is that we've lost the law.
And by that I mean the law that protects the innocent from the power of government.
The law that is a shield of the people instead of a weapon in the hands of the state.
And when you lose the law, you lose your civil liberties.
And that means you have lost the Constitution.
And another serious problem that we are suffering is the collection of power in the executive branch to the exclusion of the legislative and judicial branch.
And so we are seeing grow up before our eyes dictatorial powers in the executive branch of the government.
So these three are very serious problems for the United States.
They threaten its political stability and the viability of the society itself.
The tyranny of good intentions was titled by me how the law was lost.
And the book is about the destruction of the rights of Englishmen, which we know as the Bill of Rights.
The legal principles that protect the innocent, that serve as a shield.
And we are seeing all of these eroded.
And law is becoming a weapon in the hands of the state.
And this book documents that for each of the protections among the Bill of Rights.
It shows the erosion through prosecutorial abuse, various judicial rulings, and how Americans today do not have the protection of law.
Perhaps one of the main contributing factors was that you had all sorts of agendas, single interest agendas, people chasing after devils.
We gotta do something about drugs.
We have to do something about child abuse.
We have to do something about crime.
And so, they made the mistake that Sir Thomas More warns against in the play, A Man for All Seasons.
That if you cut down the law in pursuit of your agenda, what do you do when the devil turns around on you and you've lost the protection of the law?
And that's exactly what has happened.
We had various individual agendas that were deemed to be very important.
For example, we have to do something about the mafia.
We have to do something about drugs and so on and so on.
And so each one of these agendas, by pursuing it, eroded protective features in the law.
And so the law was lost.
The rising police state is already a product Of losing the law, the protective features of the law.
That automatically gives you a police state.
And in addition, we've had all the fear engendered by 9-11.
And this fear was used for an even heavier assault on the Bill of Rights.
The assault on habeas corpus, which prevented indefinite detention without charges.
We've lost that right.
All the due process rights, all the procedural rights that make it possible to enforce civil liberties.
You can tell somebody they have a right, but if you take away the procedural mechanisms by which that right is enforced, they don't have the right.
The erosion of our legal protections began long before 9-11 or the Bush administration.
It was already moving along and that made it easier then for the Bush regime to use 9-11 For an even fiercer assault and that's where we stand today.
Generally when governments get powers they don't roll them back and we've not seen the Obama administration roll back any of the powers that Bush and Cheney claimed.
I can remember when the police viewed themselves as the public servants and as protectors of the public.
But in recent decades The police have been militarized and they now see the public as the enemy.
And we see this in the enormous number of instances of police brutality toward people.
Needless brutality, you know, there'll be beatings, taser people, for which there's no reason.
And so, what does this Mean it means that again the police agencies of the state enforcement agencies Now view the public as an enemy not as something that to which they are accountable so it shows again the breakdown in accountability of Executive agencies to the people and of course the the police are now probably as dangerous to the public as criminals and
And part of it, of course, was unleashed by the breakdown in the protective features of law.
Because when, for budget reasons, you need to solve a lot of crimes or pull in a lot of people, you know, they start planting drugs on people.
You know, the wide range of Police crimes grew so that they could have more and more success in convicting people.
So it's now something that's turned against the people and perhaps is on the verge of doing so in a big way.
If there's some sort of social breakdown, the police will probably be a danger to the public
rather than a protector.
The Posse Comitatus Act was to be sure that we were never oppressed by the military forces of our own government.
And if you see that breaking down, then it tells you that the government somehow
feels illegitimate or it feels it doesn't have the support of people or that it
may be in a position in which it doesn't have support of the people.
And therefore, it would have to rely on coercion.
In other words, the government doesn't regard itself as answerable to the people.
That's the only reason to erode posse comitatus.
It means that the government is beginning to think of itself as separate.
from the people with its own agenda different from the people's and
and it's a realization that at some point they may have to rely on
coercion in order to rule. So that shows again that the separation between the
people and and the government.
It's not a democratic... It's not an indication of democracy or self-rule.
It's an indication of government becoming independent of people.
As it has been in most countries over most of recorded time.
The government is one thing and the people are another.
And we see that creeping back in in the United States.
In a gun club, which I'm a member, where we shoot at paper targets, the police are allowed to use it as a courtesy.
And, you know, the local county police and then others are allowed as well.
And on some days, there will be 25, 35, 40 squad cars and scores of officers.
And they're heavily armed.
And it sounds like a war.
I mean, they must shoot up thousands and thousands of dollars of ammunition.
And I've gone there.
And they've been there, for example, like three days in a row, just blasting away
the same county, even.
And I stopped once.
And I asked myself, what are you doing?
Are you practicing for some kind of competition?
You know, you've got some big tournament coming up.
And they said, oh no, we're practicing to win the shootout.
And the shootout, and it was a small mountain-type town area.
And I said, there?
Who are you going to have a shootout with?
And he said, them terrorists, terrorists.
Well, who are the terrorists?
There'll clearly never be any in that locale.
And I think they're just preparing to put down any kind of public opposition or protest that might arise.
And I think that's the reason the police are being militarized.
They now are equipped by the Department of Defense with military weapons.
Some jurisdictions apparently even have helicopter gunships and tanks.
And they've got rocket-propelled grenades.
It's an amazing array of weapons.
For police, which are essentially supposed to be an investigative force to solve crimes and make a case against whoever committed a crime and present it to the prosecutor.
That's what the police are supposed to do.
But they're becoming like an occupation force.
And they're undergoing military training with military weapons.
This is an enormous departure from the role of police in the United States, or in any democracy.
What we can say about the G20 is that it showed two things.
One, that the rest of the world is losing faith in the dollar as a reserve currency, because this was what was on the minds of most of the people there, whatever the agenda was.
The real agenda on everyone's mind was the dollar.
We're holding all our reserves in dollars and you're inflating it away and we have to do something about this.
We need some alternative way of settling international transactions.
So I think that was an indication of the rest of the world is losing confidence in the United States and in the dollar as a reserve currency.
Now the behavior of the police shows again the militarization of the police because they were very aggressive toward people who weren't causing any trouble and I believe the police were frankly disappointed That there wasn't more trouble for them to beat up on and so they on their own went into neighborhoods with their new weapons or protest suppression systems and just sort of arbitrarily abused people.
So it's a further indication that the police agencies of the government are now separate from people that they're supposed to protect.
It's taken many blows.
It began probably with Abraham Lincoln and what's called the Civil War, because this destroyed the notion of a republic and states' rights.
And it took another heavy blow in the Depression with Franklin Roosevelt and the New Deal, because that essentially took away the legislative power of Congress.
You see, it used to be when Congress passed a law, they dotted every I, they crossed every T, and the regulatory agencies, that is, there really weren't any, the executive agencies had to enforce the law as Congress wrote it.
But during the New Deal, the executive branch gained the power to write the regulations that implement the law.
And so, in effect, they gained the power to write the law.
So that when Congress passes a bill today or a statute, what it really is is it gives some executive agency the right to write the law by how it interprets it with its regulations.
So Congress has lost essentially its legislative power back in the New Deal.
And then what we've seen recently with the Bush regime Is how Congress just acquiesced time and again into executive claims that it was the superior branch of government and that Congress was there but it wasn't really on an equal basis and that the power of the President exceeded that of the power of the Congress and of the judiciary.
So that you had an executive making claims that they were above the law and not bound by the law.
And we saw the memos that came from the Department of Justice, John Yu and the others, that basically said the President is not bound by the United States statutory law against torture.
Noisy bound by the Geneva Conventions that we've signed and essentially originated against torture.
He's not bound by the Foreign Intelligence Surveillance Act.
He can spy on Americans without a warrant, even though the law says he can't.
These kinds of claims elevate.
And then they use signing statements and various executive orders and directives to accumulate more and more power.
And it's true, no president yet has tried to exercise all these powers at once, but they're there.
And anytime there's a crisis that they can hide behind to use as a justification, then you now have enormous powers that the President can claim that were totally foreign to the Constitution, to the Founding Fathers, and to most of our experience.
The American Empire took on new meaning after the collapse of the Soviet Union because even though there was a form of empire prior to that, any notion of U.S.
hedge enemy was checked by By the Soviet Union.
It was a formidable military force.
It had huge amounts and numbers of nuclear weapons, you know.
The Red Army had defeated Germany and Europe was still terrified.
So the notion that we had an empire was somewhat different compared to what was possible when the Soviet Union Collapse because we very quickly broke all our agreements that Reagan had made with them and began behaving aggressively and it let the neoconservatives
start preaching uh... empire in a new way and by which it means to them the U.S.
hedge enemy over the whole world that we simply rule the world and they had not just a military justifications for that but they had these justifications that we are an exceptional people and that uh...
We are the virtuous people.
And so we not only had the right, we had the responsibility, the obligation to impose ourselves on the world.
So this form of empire is new.
The funny thing about this new empire is It's coinciding with the beginning of large-scale jobs offshoring.
So while we are telling ourselves, hey look, we are this new world empire, there's nobody to block us, we're sending all the manufacturing jobs to China, all the middle class engineering jobs, the software engineering jobs, the information technology jobs, everything that people were using to rise up, to have upward mobility.
And to have a strong middle class, we start destroying that.
So we are destroying one of the bases for being powerful, at the same time that we get this notion that we are.
And the same with the dollar.
We start then, because of all the offshoring, the trade deficit explodes.
You see, if you take production that you're making in the United States, and you move it abroad, You've destroyed it here and you've created it to wherever you moved it.
It's now Chinese, for example.
When it comes back, it's an import.
And so the offshoring creates huge trade deficits.
And that then puts the pressure on the dollar.
So that's the funny thing about this new neocon version of empire.
That it rose up right while we were destroying the middle class, the manufacturing base, the engineering jobs, the middle class jobs, and the dollar!
We were destroying the dollar in the process.
Well, the only real reason that we were a superpower was that the dollar is a reserve currency.
Which means we can pay our bills on our own currency.
We don't have to earn enough from exporting.
We don't have to earn enough foreign exchange to pay for our imports.
So we can run huge trade deficits because we just hand them dollars.
We have simultaneously expanded our military ventures, which are also very costly and have to be financed.
In fact, you could say, essentially, that our wars are financed by China.
The trade surplus that the Chinese have with the United States, recycled back into the United States, covers the cost of our wars.
So, how are you a superpower if your foreign creditors can cut you off just by not financing your deficit anymore?
You've got no way to conduct war We don't have the money to pay for it.
The current operating budget of the United States government is 50% of the rent.
I mean, we probably can't even pay the President.
The Chinese wasn't financing it, or the Japanese, or the Arab oil emirates, Saudi Arabia, the people who have substantial trade surpluses.
It's the recycling of those surpluses that finance the government, or that has been financing the government.
You know, as we said earlier, the annual budget deficit is getting much larger than the trade surpluses, so there is a growing financing problem.
So, in that sense, the American empire that the neocons had in mind, which was a bigger, a different kind of empire than previously, an unchecked empire.
That was undermined even as the ideas We're being put into their heads.
It was undermined by the loss of the jobs, the manufacturing base, and the beginning of serious erosions on the dollar.
You know, on December the 3rd of 2009, I think it's the first time in history that one Swiss franc is now worth more than one U.S.
dollar.
When I was a young man, there were 4.2 Swiss francs to the dollar.
A number of years ago, I guess maybe four or five years ago, I predicted at a Brookings Institution conference in
Washington that the United States would be a third world country in 20
years.
I I think I'm sticking.
I think I'm sticking to that.
Now, what could we possibly do?
Here's a possible scenario to solve it.
First of all, you would abolish the corporate income tax and not tax corporations on their profits.
You would tax them according to where the value is added to their product.
If they're producing abroad for American markets and the value to their product is being added in China, for example, you would have a very high tax rate.
But if they are producing in the United States and the value added to their product is in the United States, they'd have a low tax rate.
That might offset the huge labor cost advantage of jobs offshoring and may bring them back while there's still enough knowledge here to do the job.
Ralph Gomory has made that proposal and I support it.
And the other thing you would have to do is you would have to save the dollar as reserve currency.
And so how can they save the dollar as a reserve currency?
What they would have to do is get both the trade and the budget deficits under control.
How could they get the budget deficit under control?
Well, obviously they'd have to stop the wars.
They'd have to bring back everybody from the 700 military bases.
They would have to slash the military budget.
We don't need a military budget that's as large as the rest of the world put together.
We have vast oceans on our east, on our west.
We have puppet states on our north and our south.
There's nobody can invade us.
It can't happen.
The Canadians are an American puppet state.
The Mexicans are an American puppet state.
You couldn't possibly bring an invading army across the Atlantic or the Pacific.
It's just not... So, we don't have that huge budget for defense.
We have it for hegemony.
And we can't afford the head's enemy.
It's costing us our reserve currency status.
So, we could get that under control.
And the very fact that we changed the form of taxation in order to stop offshoring, And then we cut the defense budget.
This would show people and the rest of the world, hey, they are getting their act in place.
They're going to save the dollar.
Oh, wow, isn't that great?
We don't have to worry about it anymore because they don't really know what to do.
It's not like there's another powerful country there that wants their currency to be the reserve currency.
They don't really know what to do.
So if we showed sense and intelligence and that we were taking definite steps to get both the trade and budget debits under control, then the world, I think, would continue supporting the dollar and give us time.
It would take years, of course.
And give us time to get our act back into balance.
You'd have to get the budget back into balance, and you'd have to get the trade balance back into balance.
And instead of getting the budget that was under control, we've blown it up by four times.
It's four times greater this year than last year.
Instead of dealing with the wars and saying, hey, what are we doing this for?
We're expanding it!
We're putting more troops into Afghanistan.
We're putting more pressure on Iran.
So we're sending the signals that we're going to continue the extravagance that has put the dollar under so much pressure and made it decline in value even against the Botswana pool.
The United States dollar over the course of its life has become a fiat currency.
It didn't start out that way.
It started out backed by gold and to some extent in different times by silver and it therefore was commodity money.
It actually Could be redeemed in precious metals.
Americans could still exchange paper currency for gold and silver in the early part of the 1930s until President Roosevelt made them turn in the gold.
And therefore he took the domestic economy off of gold and made it a fiat currency except there were still a few Federal Reserve notes that were silver certificates and were backed by silver and the coinage remained silver.
As the Fiat, part of the currency, expanded.
It put pressure on the ability to maintain a silver coinage and they got rid of that in 1968.
And so that was the last of our silver coinage.
They also got rid of the silver certificates that were Federal Reserve notes.
And then in the early 70s, Nixon Ended any gold connection to the dollar in international transactions.
So between the early 30s and the early 70s, foreigners still had the right to exchange paper dollars for gold.
And that was the basis on which the dollar became a reserve currency, taking the place of the British Pound after World War II.
But as the supply of Paper dollars grew and grew.
The rest of the world began to see that they couldn't be converted into gold.
And when the French made an effort to convert their holdings of dollars into gold and asked the United States government to take the dollars back and give them the gold equivalent, Nixon closed the gold window.
And so since the early seventies there's been no connection between the currency of the United States and precious metals.
We still had a copper penny.
The penny was still a commodity money and that ended in the early years of the Reagan administration.
I can still remember the Treasury meeting when they said they were going to take the copper out of the penny.
And I protested and I said, well, you mean we can't even have an honest penny?
What kind of country have we become?
This is the situation today.
It's a paper that can be printed endlessly.
And yet there has been a certain amount of discipline.
They have not really run the presses because they've been able to finance their budget deficits through issuing bonds and people buy the bonds.
And when the American saving rate evaporated, the trading partners of the United States, who had large trade surpluses with the United States, used their trade surpluses to buy the Treasury's bonds.
And so the money that we would pay out to them for imports Would recycle and then come back and finance the government's budget.
So we haven't really had to print money on the level of a banana republic in order to finance the current operating expenditures of the government until recently.
It's coming upon us because the fiscal year deficit in 2009 is four times larger than the fiscal deficit of 2008 and it's much larger than the trade surpluses of our trading partners and therefore there's not enough dollars to recycle to finance
The deficit.
And the same thing is occurring in 2010.
The deficit again is huge.
And the government itself forecasts it's going to be a trillion dollars a year for the next decade.
So that's two and a half times for ten years the size.
Of the 08 deficit and the rest of the world doesn't have this kind of surplus savings or surplus from their trade with the United States to buy all these bonds so there's no way to finance them in my view except to print the money.
One exception would be another decline in the stock market.
If the stock market busts again, which it's likely to do, then people fleeing for safety We'll buy the bonds.
Because that's traditional.
I mean, it's habit.
It's the way people behave.
When they get scared of stocks, they run and get into government bonds.
And they still think the Treasury is a safe place to be.
So that could finance a near-term deficit.
But that'll only work once.
Because, you know, after the stock market crashes again, it's not likely to have a whole lot of people going back into it.
So that's what we face.
We face these very large deficits for which there's no obvious way of financing them.
Except to create new money.
and the way that happens is when the treasury takes a bond
uh... takes its new debt to auction
uh... it says okay this year we've got x billion this quarter we've got x billion
of treasuries and cement your bids
and there are not enough bids to take the bonds then the federal reserve
steps in and buys them by creating checking accounts for the
treasury and that is how they print money
all of a sudden there's
uh... billions tens of billions of new
money created just because the federal reserve makes an entry
in a book and...
And it takes the bonds and creates the money to pay for them.
Now, when you start doing that, you're telling the whole world that you're printing money.
And if the whole world is still holding dollars and they see that's going on, they're going to try to get out of them pretty quickly.
And as they get out of them, then who's going to buy those?
They're trying to sell them.
Everybody's trying to sell.
What happens to the price?
The exchange value of the dollars, the price, relative to other currencies, and it starts dropping, dropping, dropping.
And so who buys them?
The Fed creates more money to redeem the bonds that nobody wants.
And this is why some people see hyperinflation.
In our near to intermediate term future, sometime within the next five years.
Once hyperinflation starts, it moves very quickly.
And if it coincides with high unemployment, you have a crisis that we've never experienced.
You know, the Great Depression, when everyone was unemployed, you had high unemployment, but prices were stable or falling.
To have high unemployment and rabidly rising prices when people have no way of getting income.
This is a devastating social situation.
It has the possibility and the potential of destroying the society and the political order.
They're not giving any attention to this.
Apparently, the authorities think that they can create a whole bunch of money to overcome the financial crisis and then they can step in and take it all back out.
So it's a very serious situation and receives no attention, no debate.
I mean, I'm talking about from the government authorities.
There are no hearings.
The financial press avoids it.
You could say that Goldman Sachs has run the treasury since the Clinton administration.
You had one Goldman Sachs CEO who was Secretary of the Treasury and with Bush you had another Goldman Sachs CEO who was Secretary of the Treasury.
And now with Obama we have a protege of Goldman Sachs as Secretary of the Treasury.
We have all the testimony about how Goldman Sachs convinced the Securities and Exchange Commission not to require the investment banks to have reserves so that their leverage could just go up and up and up.
So you could say who's running the policy are interests whose short-term interest is enriched at the expense of the long-term interest of the country.
Now whether they know that or not, or whether their time horizon is just very short, it's this year's bonus.
And at all costs.
And we're a superpower, and we're full of hubris.
And everybody will bail us out and do what we want, and why do we have to worry about it?
We're getting it now.
It could be that sort of a mentality, you know.
I don't know.
When was it that the Romans realized that they were finished, you know?
When, along the long decline that they went through, did they finally, or did they think the whole time, it's just some kind of setback, we're the world's power, we're the world's superpower, nobody can field an army like ours, or supply it, or they don't have administrative systems, these barbarians can't even maintain a siege on a city because they have no supply apparatus.
They're similar to the kinds of things you hear people say about the United States.
Why, you know, we don't have to worry because we're the top dog and blah, blah, blah.
So, it could just keep people blind.
Hubris can blind you.
When I sit and think about it, and I say, you know, when we were there, could anything like this have happened?
And you say, no.
But again, you know, Reagan was way back.
Things change.
The United States had a large middle class and it was possible in the United States for people to rise up and that's how the middle class grew.
And it was based on good manufacturing jobs which were high productivity jobs because of the technology and capital with which Americans worked.
So they produced a lot so you could pay them a lot.
And it was based on education.
And we have all these huge numbers of colleges and universities and a very large percentage of people who went through university.
Now, when you take the jobs that those people used to go into, and you move them offshore, or you have them fulfilled by foreigners who send in the work over the internet, or you discharge your own workforce and bring in foreigners on work visas, then you have ended the ability of people to rise.
You have destroyed the value of an education because the jobs that people We're used to taking are no longer there for them.
They've been moved offshore, filled with foreigners on work visas.
And so you undermine the strength of your own society.
And that's what we've done.
Now, why did this happen?
It's a result of two things.
One, the collapse of world socialism.
When the Soviet Union collapsed, the whole notion of socialism collapsed.
China gave it up.
India gave it up.
So suddenly the vast underutilized populations in India and China were available to American capital or any first world capital.
Previously an American company couldn't go into China and produce for the American market.
The Chinese wouldn't hear about it and you couldn't do it in India either.
This opened up the There are extreme numbers of Indians and Chinese to work for American firms.
And American firms said, hey, look, if we move from Illinois or Michigan or wherever to China, we can hire labor at a tiny fraction of the cost.
Plus, we don't have other problems.
There's less regulation, the government's not on our back all the time, the unions and blah blah.
So, the collapse of world socialism was important.
The second thing that was important was the rise of the high-speed internet.
Because the high-speed internet lets intellectual work, lets engineering work, software work, design work, even radiology.
You know, the hospitals send the CAT scans or the MRIs to India to be read.
Because they do it for $20 and they don't have to pay the American trained doctors to do this.
So all sorts of intellectual work that used to provide good jobs, really comfortable salaries, good careers for Americans can now be done anywhere in the world sitting on the internet.
And then the remaining jobs that are still here.
The corporations have learned they can bring people in on work visas and supplant their own workforce.
And they don't have any obligations to these people on work visas.
They don't have any pension obligations.
They don't have any career obligations.
And so It's a way to greatly increase the profits of firms by minimizing labor costs.
So that's what made it possible.
Now, what pushed for it?
Well, Wall Street.
Wall Street pushed the firms to enhance shareholder value.
That is, to drive up the share price.
And you drive up the share price by driving up profits, and you drive up profits by driving down labor costs.
And so the pressure from Wall Street on firms, and also from takeovers.
There are all sorts of shareholder activists who would descend on a firm and say, we can run this firm better than the current management.
We're going to, vote for us, take us, make us the management, get rid of the old management, we're going to do better.
That's another reason for them to move their production offshore, because profits go up.
And then you had Congress, which in its great unwisdom passed a law that an executive of a corporation Their pay, their salary, was capped at a million dollars a year.
And if you paid them more than that, it could not be treated as a business expense and deducted from profits.
Unless it was performance-based.
And performance-based, again, means did profits grow?
So the whole system then gave the incentive to the managers to move as much offshore as possible.
And once it started, of course, Walmart then told all of its suppliers, meet the Chinese price.
These are the things that destroyed the prospects for the middle class.
And of course, by taking away the value of an education, You know, sooner or later people are going to realize, what am I paying all these tens of thousands of dollars for an education when I get a job as a waitress or a bartender or temp or hospital orderly?
This doesn't make sense.
How am I going to pay off these student loans?
What is going on?
So, at some point, when this realization hits, the universities won't have any clients because you can't get anywhere.
There are all sorts of software engineers.
They come out, they get graduated, and there's no jobs.
There's nowhere for them to work because their jobs are offshore.
Oh, they're filled and the work comes in on the internet.
This is a very serious thing.
How do you save the middle class when the jobs that they occupy are dwindling?
I think Pat Buchanan was right that NAFTA and all that was simply a way for the large American companies to dump their American workforces and all the responsibilities that came with them and to rely on foreigners.
It also, of course, broke the unions.
I mean, the unions were essentially wiped out because of the industrial jobs.
They're gone.
So, there were probably many motives of that sort behind it.
And it shows the inability for governmental leaders to, and even those who are serving their own interests, to realize what the unintended consequences are of what they're doing.
See, in the end, all of this destroys the American market for the offshored goods.
Because when you lay off your workers, and you make the goods with, say, Chinese, and you bring them back in here to sell them to people, well, the workers are laid off.
Where they got any money?
When you divorce a significant percentage of your population, If you divorce their incomes from the production of the goods and services that they consume, they can't buy them.
The net effect, you know, over the longer period of time of what these people have done, the corporations, the government, is destroy the American consumer market.
And this can get destroyed even faster You see, we're always bidding up on China.
Why?
You've got your currency undervalued.
Raise the value of your currency.
Well, is that what you want to tell somebody?
That you're heavily dependent on imports from China?
go way up. You see we're always bidding up on China. Why?
You've got your currency undervalued. Raise the value of your currency. Well is that
what you want to tell somebody that you're heavily dependent on imports from
China? Push up your prices. You see there'll come a time when Americans
walk into Walmart and they think they've walked into Neiman Marcus.
You You see what I'm saying?
The minute the dollar declines to the Chinese currency, wow!
Prices are going to rise.
People don't have incomes already.
How are they going to pay these prices?
So, just the complete absurdity of the whole thing.
I mean, it's really an absurd situation that we have gotten in, and it shows a complete failure of leadership.
Politically, intellectually, business-wise, and the people themselves.
They just, they don't pay any attention.
Who knows about this?
It's the laid-off people who know about this.
The ones who are laid off.
Everybody else is somewhere else.
How bad can it get?
It can get worse.
And it will get worse.
And it's also the reason why the traditional stimulus programs to deal with unemployment don't work.
You see, in the post-war, post-World War II period, recessions were generally engineered by the Federal Reserve in order to cool down labor demands for higher wages, because they thought that was inflationary, and they would, anytime the economy got booming, they'd just turn off the money, cause a recession, let things cool down, and they'd start the money back, and things would pick back up.
Well, the jobs were still there, so the factories could call the workers back to work.
Jobs aren't there anymore.
So, to say, hey, here's easy credit.
Look, we've got historically low interest rates.
We've got historically high budget deficits.
Both of these things are considered to be major stimuli to the economy.
And yet nothing's happening.
Nothing is happening.
And why?
Because the jobs aren't there.
Certainly over the course of its history, the Federal Reserve has caused a lot of problems.
For example, right after it was created, it caused the Great Depression.
It didn't do it on purpose.
But it failed in its responsibility to be the lender of last resort to the banks.
And when the banks were failing because of runs on the banks, and the inability to call in loans fast enough to pay off depositors, It was the responsibility of the Federal Reserve to get up car loans of cash and rush over to the bank and deliver it so they could pay off the customers and stop the runs.
And as the banks failed, the money supply shrank.
You know, every time a bank failed, in those days, there was no FDIC, no guaranteed deposits.
So when a bank failed, the money supply shrank by the amount of the deposits in the bank.
So, there were a lot of bank failures, so the money supply was shrinking.
And the Federal Reserve did take expansionary actions.
They just never took them enough to offset the shrinkage.
They misjudged or they didn't know what they were doing or something, but the net effect was the supply money shrank.
You know, by 25%, by a third.
Well, if the supply of money shrinks, you can't maintain the same level of purchases and employment.
And so when you shrink the supply of money, you shrink sales, you shrink employment, you get unemployment, you get falling gross national product.
And that's what happened.
And the entire decade of the 30s was troubles, serious troubles for people whose whole lives were disrupted.
And it was because the Fed failed to do what it was established for.
Now, so either this means that there's not enough competence to go with the power, or there's not enough accountability.
To be sure that they're doing the right thing.
Maybe they're too independent.
Maybe there needs to be additional levels of oversight so that these kinds of mistakes don't happen.
And since the end of World War II, we've had the opposite problem.
Instead of shrinking money supply, they've let it grow too fast.
And so we've had inflation.
There's enormous inflation.
Over my lifetime.
Enormous.
And that means the Federal Reserve is conducting policy inappropriately.
They're not, they weren't established to create inflation.
You see, if you've got 3, 4, 5, 6 percent inflation year after year after year, it compounds.
And the value of the dollars ends up Worthless.
You can be very critical of the Fed.
You can say it's done far more harm than good.
The reason they made it independent was they didn't trust the government not to manipulate it.
But you can't trust the government, that's for sure, but you can't trust anybody with unaccountable power.
So you have the same problem.
And I think what it really comes down to is anytime you have unaccountable power, then you have a greater range for misbehavior, a greater range for mistakes that go unrecognized and uncorrected.
This is a cost for the system and it becomes an even greater cost if the currency is a fiat currency that itself is not limited by some amount of precious metal, gold or silver or limited in some way.
When the currency becomes essentially unlimited by anything Except the need to print it.
It's clear the tremendous amount of bank reserves that they've created are not finding their way from the banks into an expansion of the money supply.
It's simply they're sitting on the reserves.
But if the Fed's creating money in another way, which is printing it so the government can pay its bills, Then that money is, sooner or later, got to find its way into prices.
And the more unemployment there is, The quicker it'll find its way into prices because there's less goods to absorb the money so it drives them up.
The Federal Reserve published in April of 2008 that the existing money supply by which they make currency and circulation and checking accounts was 1.4 trillion.
That was the money supply in spring of 08.
Now, the budget deficit in 2009, a year later, is $1.4 trillion.
If they had to print $1.4 trillion to pay that deficit, the money supply would have doubled in one year.
Right?
Next year, they say the deficit is going to be $1.4 trillion.
If they had to print the money in 2010 to cover the budget deficit, the money supply would have tripled in two years.
If something like this happens, that they have to print these huge sums of money, inflation is going to start up.
And look at the enormous reserves in the banking system that are there To be drawn on to fuel the inflation.
Once prices start rising, then if real estate prices go up, then people's homes are out of trouble.
That's one way to get rid of the real estate crisis, is to inflate away the value of the mortgage debt.
Once that starts, the banks will be lending everywhere.
And so you would have a tremendous ability for a massive inflation, and a long-lived one.
And how would you stop it?
The only way these things have ever been stopped is they just say, okay, that currency no longer exists.
We're creating a new one.
One new dollar is equal to a hundred trillion old dollars.
These are all implications of what is going on.
And when the implications of what you're doing are so dire, you should stop!
But we don't.
We don't stop.
The Afghan war, at a minimum, it's just an out-of-pocket expenses, it's $100 billion a year.
Now, if you then count the incurred medical care for the troops for the rest of their life, the cost of replacing all the equipment that gets blown up, The loss of $100 billion of resources for better uses, the cost of the war is huge.
We're not in a position we can afford in such war.
Particularly when we have to borrow it and then pay the interest on $100 billion to the Chinese.
It's not sensible.
And the things that we do are not sensible.
I can't think of anything that the United States government does that's sensible.
I can't think of any policy that's working.
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