America for Sale
by William Norman Grigg September 4, 2006 As our
government careens toward bankruptcy, Americans are being dispossessed by the
outsourcing of industrial jobs and the buyout of our infrastructure by foreign
interests.
We begin with a parable: Driven
to the streets after a run of relentless misfortune, a man took up station on a
street corner holding a hand-lettered sign stating: "Will work for food."
Most pedestrians and motorists passed the desperate man without so much as
a second's worth of thought. One exception was a well-dressed businessman, who
read the sign while waiting for the street light to change. But burdened by
thoughts of his own concerns, the businessman gave in to a moment of imprudent
sarcasm. "You 'work for food'? I work for Visa!" he exclaimed to the
sign-bearing man. "I'm working for food I ate years ago!" After getting the
green light, the businessman launched one last unworthy gibe: "You're not broke
— you're even!" The homeless man eventually found a steady job paying just enough for him
to get by and save a little money. His employer, a large and amoral conglomerate
paying most of its employees subsistence wages, used its workers' savings (which
the conglomerate controls) to make loans to spendthrifts like the heavily
leveraged businessman — people who continued to live well beyond their means by
stretching their credit lines well past the breaking point. At the same time,
the conglomerate quietly used its expanding financial holdings to buy up
practically everything in sight. Eventually, the loans were called in, the debtors were unable to pay, and
the businessman found himself — along with many of his fellow spendthrifts —
working for that same predatory conglomerate. His earnings and standard of
living were "harmonized downward" to those of the homeless man whose plight he
had once mocked. Adapted from a stand-up routine broadcast on Comedy Central about a
decade ago, this parable is not intended to inspire mockery of the homeless or
other unfortunate people. It's intended to encourage a realistic appraisal of
our national economic condition. Think of the homeless man as symbolizing the
poor but industrious Chinese population, willing and eager to work for a
fraction of what Americans earn, and the businessman as a stand-in for an
American population whose prosperity is largely a debt-enhanced illusion. The conglomerate, of course, is the entity upon which our nation and our
government have become increasingly dependent to underwrite that
pseudo-prosperity: the Communist Chinese regime, which is rapidly acquiring the
means quite literally to buy our country out from underneath us. Indeed, the process of selling off public assets to foreign interests is
already underway. In June, for example, a Spanish-Australian conglomerate paid $3.8 billion to
lease the Indiana Toll Road. Transfer of electronic tolling equipment began in
August, and by fall it is expected that the new foreign owners will be
collecting tolls once paid by Indiana residents to their own state government.
And similar deals are being struck by states and municipalities across the
country. "Roads and bridges built by U.S. taxpayers are starting to be sold off, and
so far foreign-owned companies are doing the buying," reported the Associated
Press on July 15. At present the main foreign players in these deals are
companies based in Australia and Spain. But as China accumulates ever-increasing
quantities of depreciating dollars, it will start looking for tangible goods in
which to invest those dollars. And as we will see, some analysts in this country
are suggesting that we should welcome Chinese "direct investment" in our country
as a way of closing our imponderably huge "fiscal gap." Beijing Buyout "Without Chinese support, the dollar would have already collapsed, bond
yields would have soared, and the U.S. economy would already be in a recession,
if not a depression," observe Bill Bonner and Addison Wiggin in their study
Empire of Debt: The Rise of an Epic Financial Crisis. "Where does the
money come from? The Chinese get the dead presidents from selling products to
live Americans, who seem ready to consume anything that comes their way. First,
the dollars come rolling off U.S. printing presses, then they make their way
into the hands of Chinese and other manufacturers, and finally, they are
returned to their birthplace as loans. China is fast becoming America's 'company
store,' to whom we owe our standard of living and maybe even our soul." By accumulating hundreds of billions of dollars in their foreign-exchange
holdings, the Chinese are acquiring the power to define our nation's economic
destiny. At some point, perhaps very soon, Beijing will have the ability to
decimate our currency by selling off its dollar-denominated bonds. But this
would inflict severe damage on China's economy as well, making that option the
economic equivalent of a suicide-bomb attack. A better approach, from Beijing's perspective, would be to take its huge and
expanding supply of depreciating dollars and invest them in tangible productive
assets. In recent years, China has been following that approach in the Western
Hemisphere. During his 2005 tour of Latin America, President Hu Jintao inked
lucrative energy and resource deals with Brazil, Argentina, and Venezuela. In
January, China completed a deal with Canada for joint development of Alberta's
uranium mines and oil sands. With Beijing using its dollar hoard to buy up assets in both South America
and Canada, what's to stop it from buying up the U.S.A. — a debt-plagued country
with vast natural resources, the world's best transportation system, and a huge
(and increasingly idle) manufacturing base? Horrifying as the prospect of a Beijing buyout would be to most Americans,
the concept is being discussed, in principle, by some policymakers as a solution
to our impending — and all but inevitable — national bankruptcy. How Big Is the Deficit? "The federal government keeps two sets of books," noted USA Today for
August 3. "The set the government promotes to the public has a healthier bottom
line: a $318 billion deficit in 2005." An "audited financial statement produced
by the government's accountants following standard accounting rules" discloses
that the actual deficit for 2005 was $760 billion," continues the paper. And if
the costs of Social Security and Medicare were included in the total, as any
honest accounting would require, "the federal deficit would have been $3.5
trillion." That's the annual deficit — not the national debt. In what sense is a
deficit of nearly one-third of a trillion dollars "healthy"? In roughly the same
sense that congestive heart failure is "healthier" than a sucking chest wound:
Both are lethal if untreated, but the latter will kill much more quickly. "We're a bottom-line culture, and we've been hiding the bottom line from the
American people," complains Rep. Jim Cooper (D-Tenn.), a former investment
banker who offered a draft resolution — supported by congressmen on both sides
of the aisle — to require the president to include audited spending and deficit
numbers in his budget proposals. "It's not fair to [the people], and it's
delusional on our part." That Washington has invested heavily in the
preservation of that delusional system is illustrated by the fact that Rep.
Cooper's proposal for honest accounting wasn't even considered by the
Senate. Official Washington remains determined to conceal the size of the "fiscal
gap" — a figure that includes not only the existing national debt, but also
future commitments, such as Medicare and Social Security. A 2005 report compiled
for the National Bureau of Economic Research by economists Jagadeesh Gokhale and
Kent Smetters concluded that the fiscal gap is $65.9 trillion, and growing. The "fiscal gap," explains Professor Laurence J. Kotlikoff of Boston
University, offers the most telling measure of a country's solvency. If the
"fiscal burdens facing current and future generations ... exceed the resources
of those generations, get close to doing so or simply get so high as to preclude
their full collection, the country's policy will be unsustainable and can
constitute or lead to national bankruptcy." By any rational reckoning, the United States has already reached that
point. The estimated fiscal gap of $65.9 trillion "is more than five times U.S. GDP
and almost twice the size of national wealth," Kotlikoff continues. "One way to
wrap one's head around $69.5 trillion is to ask what fiscal adjustments are
needed to eliminate this red hole. The answers are terrifying. One solution is
an immediate and permanent doubling of personal and corporate income taxes.
Another is an immediate and permanent two-thirds cut in Social Security and
Medicare benefits. A third alternative, were it feasible, would be to
immediately and permanently cut all federal discretionary spending by 143
percent." Beijing as "Savior"?! These details are offered by Dr. Kotlikoff in Is the United States
Bankrupt?, a recently published paper commissioned by the Federal Reserve
Bank of St. Louis. To begin closing the fiscal gap, Kotlikoff urges imposition
of a national sales tax to replace existing income, payroll, and estate taxes;
phasing out the existing Social Security Program in favor of a Personal Security
System into which all workers would be required to give 7.15 percent of their
wages into an investment fund managed by the Social Security Administration; and
abolishing Medicare and Medicaid in favor of a "Medical Security System," under
which Americans would receive "an individual-specific voucher to be used to
purchase health insurance for the following calendar year." Kotlikoff believes that these radical reforms would dramatically reduce the
level of current federal spending — which is, at best, a debatable assumption.
In any case, a fiscal gap still remains that can only be closed through
additional revenues. How is it to be overcome? Some relatively optimistic commentators insist that increased productivity —
working smarter, rather than harder — will lead to consistent growth in the U.S.
Gross Domestic Product. Kotlikoff, after crunching the numbers, doesn't buy into
this assessment. "Were productivity growth a certain cure for the nation's fiscal problems,
the cure would already have occurred," Kotlikoff points out. "Assuming the
United States could restrain the growth in its expenditures ... is there a
reliable source of productivity improvement to be tapped? The answer is yes, and
the answer lies with China." "Not only is China supplying capital to the rest of the world, it's
increasingly doing so via direct investment," he points out. "For example, China
is investing large sums in Iran, Africa, and Eastern Europe." Given that China
holds hundreds of billions of dollars in its foreign exchange reserve, the
question for the United States "is whether China will tire of investing only
indirectly in our country and begin to sell its dollar-denominated reserves.
Doing so could have spectacularly bad implications for the value of the dollar
and the level of U.S. interest rates." Another possibility presents itself, however: China could use its dollar
hoard to buy valuable assets within the United States. In other words, rather
than dumping its dollars, China could use them to buy up the United States. "Fear of Chinese investment in the United States seems terribly misplaced,"
Kotlikoff writes soothingly. "With a national saving rate running at only 2.1
percent — a postwar low — the United States desperately needs foreigners to
invest in the country. And the country with the greatest potential for doing so
going forward is China." In fact, China could emerge as "the world's saver and,
thereby, the developed world's savior with respect to its long-run supply of
capital." The Buyout Begins Unlikely as it may seem that foreign interests could buy our country out from
beneath us, the process is already underway. "On a single day in June," reported the AP on July 15, "an Australian-Spanish
partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian
company bought a 99-year lease on Virginia's Pocahontas Parkway, and Texas
officials decided to let a Spanish-American partnership build and run a toll
road from Austin to Seguin for 50 years. Few people know that the tolls from the
U.S. side of the tunnel between Detroit and Windsor, Canada, go to a subsidiary
of an Australian company — which also owns a bridge in Alabama." These are just
a few examples of how roads and bridges built with U.S. taxpayer dollars are
starting to be sold off, and so far foreign-owned companies are doing the
buying. State and local governments are strapped for cash and relatively limited in
the financial tools at their disposal. (While they can float bond issues, for
instance, they cannot simply write blank checks that are covered by new money
printed by the Federal Reserve.) Thus many of them, lured by the prospect of a
quick influx amounting to billions of dollars, have put public assets —
highways, airports, utilities, and even state-run lotteries — on the auction
block. While this approach offers a short-term remedy for state and local
governments, it leaves the public facing the worst of both worlds: the prospect
of increased taxes to cover rising local expenses, plus paying fees and tolls to
foreign companies that are, in effect, absentee landlords over what had been
locally controlled infrastructure. Referring to the sale of a 75-year lease over
the Indiana Toll Road to an Australian-Spanish consortium, Democratic state
Representative Patrick Bauer summarized the lose-lose proposition: "In five,
maybe 10 years, all that money is gone, and the tolls keep rising and the money
keeps flowing into the foreign coffers." Last winter, much of the United States was figuratively up in arms over the
prospect of an executive branch deal to permit Dubai, one of the United Arab
Emirates (UAE), to operate U.S. port facilities. This was seen, with just
reason, as a potentially disastrous breach of national security, since it would
put our port security in the hands of a company owned by a government cozy with
al-Qaeda. Yet less than six months later, Congress enacted a "free-trade"
agreement with Oman — which borders Yemen, Saudi Arabia, and the UAE — that
would permit government-controlled companies in that Arab nation to own and
operate U.S. ports. Not surprisingly, China — which now controls the most crucial port facilities
in the hemisphere, the "anchor ports" to the Panama Canal — is looking to build
on that advantage, and it has cash-hungry politicians across the country lining
up to help. In late July, three members of the Dallas City Council — Ed Oakley, Bill
Blaydes, and Ron Natinsky — traveled to China to discuss a possible joint
venture involving building and operating a shipping, storage, and distribution
facility located inland for the purpose of relieving congestion at seaside entry
ports, called the "Inland Port of Dallas," described by Traffic World as
the "linchpin of a new NAFTA corridor." (The nascent Dallas port facility
already has a working relationship with the Chinese-controlled Panama Canal
Authority.) "Dallas hopes to become the place where East meets West —
literally," notes the publication. "It seeks Asian imports in containers shipped
from Los Angeles and Long Beach and intermodal freight moving north from Mexico
on the proposed $180 billion Trans-Texas Corridor, or 'TTC.'" This explains the pilgrimage of Dallas councilmen to Beijing to court China's
favor. Houston's city government has also made a pitch to China. Both Houston
and Corpus Christi are reportedly offering Beijing access to ports on the Gulf
of Mexico, and China is reportedly in negotiations to lease Kelly Air Force
Base, which was converted into an industrial park about five years ago. But these developments in Texas are just "part of a larger battle that
involves cities such as Kansas City, Missouri; St. Louis; Memphis, Tennessee;
and even Indianapolis, all of which hope to use transportation and logistics
assets to become the next big North American Gateway for Asian imports,"
concludes Traffic World. Beijing, U.S.A. But we're not just talking about importing inexpensive Chinese-made consumer
goods. Remember the process described by Bonner and Wiggin in Empire of
Debt: dollars are printed by the Federal Reserve, which are spent on
Chinese-made goods, and end up being sent back to the United States as loans,
which are used to buy more Chinese-made goods. We've reached the point in this process where American politicians are
literally begging Beijing to be taken on as business partners. And if Laurence
Kotlikoff's recommendations prove attractive to policymakers, our government
will come to embrace "direct investment" from China as the key to staving off
utter insolvency. What this could mean, in practical terms, is that the debt-wracked American
middle class would suffer the fate of the businessman in our parable. Serf's Up During the late 1990s, abetted by the Federal Reserve's loose
money and easy credit policies, an unprecedented number of Americans invested
money in the stock market, many of them seeking a quick fortune in "dot-com"
tech stocks. The Fed continued its inflationary policies following the 2000
bursting of the "dot-com" bubble, which wiped out trillions of dollars in
speculative wealth. The result was a nationwide housing and mortgage refinancing bubble, with
artificially low interest rates permitting millions of borderline or unqualified
borrowers to get mortgage loans on almost concessionary terms. Escalating demand
for new homes drove home prices skyward, permitting debt-plagued households to
take out second or even third mortgages against the inflated value of their
homes in order to pay off high-interest debt, such as credit cards and car
payments. After the Fed reversed course and raised interest rates, the Hindenburg-sized
real estate bubble backed into a nest of porcupines. Mortgage foreclosures
surged 72 percent in the first quarter, as compared to a year ago. Last
February, Wayne County, Michigan, financially crippled by the ongoing demise of
General Motors, was the site of a spectacle out of the Great Depression: a
Wednesday foreclosure auction of 379 homes in 35 minutes. During one 60-second
stretch, 11 houses were auctioned away. In June, reported the August 7 Wall Street Journal, "total single-home
sales fell 8.7% from a year earlier." This was the sharpest decline since April
1995, when the Fed began its recent inflationary binge. While some analysts
insist that the housing/mortgage industry will enjoy a "soft landing," Ian
Shepherdson, chief U.S. economist at High Frequency Economics, is more
realistic: "It's a 15-year bubble unwinding in two years. It's going to
hurt." And because our consumer economy now effectively rests on the
housing/mortgage refinancing bubble, its collapse will inflict greater hurt on
more people than any similar financial catastrophe in our nation's history. "Never before have so many Americans gone so deeply into debt so willingly,"
warns Dr. Michael Hudson of the University of Missouri-Kansas in "The New Road
to Serfdom," published in the June issue of Harper's. "Housing prices
have swollen to the point that we've taken to calling a mortgage — by far the
largest debt most of us will ever incur — an 'investment.'... In the odd logic
of the real estate bubble, debt has come to equal wealth." Hudson points out that right now "more people owe more money to banks than at
any other time in history. And that's not just in terms in dollars — $11.8
trillion in outstanding mortgages — but also as a proportion of the national
economy. This debt is now on track to surpass the size of America's entire gross
domestic product by the end of the decade." Tens of millions of Americans have been lured into mortgages by artificially
low interest rates and the perverse notion that over-valued homes can serve as
ATMs. Now that rates are rising and values are falling, those who bought into
the bubble because of "the promise of 'economic freedom' almost certainly will
end [up] ... locked into a lifetime of debt service that absorbs every spare
penny," predicts Dr. Hudson. Rather than enjoying financial security, they "will
find out that what they really signed up for was the hard servitude of debt
serfdom." http://www.thenewamerican.com/artman/publish/article_4163.shtml
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