I hope I haven't said "read this one carefully" too many times. This is a zinger I should have sent a month ago. Thanks to Sid Shniad for these. -Ed
CounterPunch Nov. 16-30, 2007 vol. 14, no. 20 The impending destruction of the U.S. economy By Paul Craig Roberts Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the U.S. economy. If the subprime mortgage meltdown is half as bad as predicted, low U.S. interest rates will be required in order to contain the crisis. But if the dollar’s plight is half as bad as predicted, high U.S. interest rates will be required if foreigners are to continue to hold dollars and to finance U.S. budget and trade deficits. Which will Washington sacrifice, the domestic financial system and overextended homeowners or its ability to finance deficits? The answer seems obvious. Everything will be sacrificed in order to protect Washington’s ability to borrow abroad. Without this, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces. A few years ago the euro was worth 85 cents. Today, it is worth $1.48. This is an enormous decline in the exchange value of the U.S. dollar. Foreigners who finance the U.S. budget and trade deficits have experienced a huge drop in the value of their dollar holdings. The interest rate on U.S. Treasury bonds does not come close to compensating foreigners for the decline in the value of the dollar against other traded currencies. Investment returns from real estate and equities do not offset the losses from the decline in the dollar’s value. China holds over one trillion dollars, and Japan almost one trillion, in dollar-denominated assets. Other countries have lesser but still substantial amounts. As the U.S. dollar is the reserve currency, the entire world’s investment portfolio is overweighted in dollars. No country wants to hold a depreciating asset, and no country wants to acquire more depreciating assets. In order to reassure itself, Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings. But this is utter nonsense. The U.S. dollar has lost 60 per cent of its value during the current administration. Obviously, countries are not locked into accumulating dollars. The reason the dollar has not completely collapsed is that there is no clear alternative as reserve currency. The euro is a currency without a country. It is the monetary unit of the European Union, but the countries of Europe have not surrendered their sovereignty to the EU. Moreover, the UK, a member of the EU, retains the British pound. The fact that a currency as politically exposed as the euro can rise in value so rapidly against the U.S. dollar is powerful evidence of the weakness of the U.S. dollar. Japan and China have willingly accumulated dollars as the counterpart of their penetration and capture of U.S. domestic markets. Japan and China have viewed the productive capacity and wealth created in their domestic economies by the success of their exports as compensation for the decline in the value of their dollar holdings. However, both countries have seen the writing on the wall, ignored by Washington and American economists: by offshoring production for U.S. markets, the U.S.A. has no prospect of closing its trade deficit. The offshored production of U.S. firms counts as imports when it returns to the U.S. to be marketed. The more U.S. production moves abroad, the less there is to export and the higher imports rise. Japan and China – indeed, the entire world – realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars. China is endeavoring to turn its development inward and to rely on its potentially huge domestic market. Japan is pinning hopes on participating in Asia’s economic development. The dollar’s decline has resulted from foreigners accumulating new dollars at a lower rate. They still accumulate dollars, but fewer. As new dollars are still being produced at high rates, their value has dropped. If foreigners were to stop accumulating new dollars, the dollar’s value would plummet. If foreigners were to reduce their existing holdings of dollars, superpower America would instantly disappear. Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits. However, now these deficits seem to have passed the point of no return. The sharp decline in the dollar has not closed the trade deficit by increasing exports and decreasing imports. Offshoring prevents the possibility of exports reducing the trade deficit, and Americans are now dependent on imports (including offshored production) for which there are no longer any domestically produced alternatives. The U.S. trade deficit will close when foreigners cease to finance it. The budget deficit cannot be closed by taxation without driving up unemployment and poverty. American median family incomes have experienced no real increase during the 21st century. Moreover, if the huge bonuses paid to CEOs for offshoring their corporations’ production and to Wall Street for marketing subprime derivatives are removed from the income figures, Americans experience a decline in real income. Some studies, such as the Economic Mobility Project, find long-term declines in the real median incomes of some U.S. population groups and a decline in upward mobility. The situation may be even more dire. Recent work by Susan Houseman concludes that U.S. statistical data systems, which were set in place prior to the development of offshoring, are counting some foreign production as part of U.S. productivity and GDP growth, thus overstating the actual performance of the U.S. economy. The falling dollar has pushed oil to $100 a barrel, which in turn will drive up other prices. The falling dollar means that the imports and offshored production on which Americans are dependent will rise in price. This is not a formula to produce a rise in U.S. real incomes. In the 21st century, the U.S. economy has been driven by consumers going deeper in debt. Consumption fueled by increases in indebtedness received its greatest boost from Fed chairman Alan Greenspan’s low interest rate policy. Greenspan covered up the adverse effects of offshoring on the U.S. economy by engineering a housing boom. The boom created employment in construction and financial firms and pushed up home prices, thus creating equity for consumers to spend to keep consumer demand growing. This source of U.S. economic growth is exhausted and imploding. The full consequences of the housing bust remain to be realized. American consumers lack discretionary income and can pay higher taxes only by reducing their consumption. The service industries, which have provided the only source of new jobs in the 21st century, are already experiencing falling demand. A tax increase would cause widespread distress. As John Maynard Keynes and his followers made clear, a tax increase on a recessionary economy is a recipe for falling tax revenues as well as economic hard¬ship. Superpower America is a ship of fools in denial of their plight. While offshoring kills American economic prospects, “free-market economists” sing its praises. While war imposes enormous costs on a bankrupt country, neoconservatives call for more war and Republicans and Democrats appropriate war funds, abroad. By focusing America on war in the Middle East, the purpose of which is to guarantee Israel’s territorial expansion, the executive and legislative branches, along with the media, have let slip the last opportunities the U.S. had to put its financial house in order. We have arrived at the point where it is no longer bold to say that nothing now can be done. Unless the rest of the world decides to underwrite our economic rescue, the chips will fall where they may. CP Dr. Roberts was assistant secretary of the U.S Treasury for Economic Policy in the Reagan administration. He is credited with curing stagflation and eliminating “Phillips curve” trade-offs between employment and inflation, an achievement now on the verge of being lost by the worst economic mismanagement in U.S. history. *** The Nation 12 December 2007 Israel’s Palestinians speak out Nadim Rouhana The Annapolis peace talks regard me as an interloper in my own land. Israel's deputy prime minister, Avigdor Lieberman, argues that I should "take [my] bundles and get lost." Henry Kissinger thinks I ought to be summarily swapped from inside Israel to the would-be Palestinian state. I am a Palestinian with Israeli citizenship -- one of 1.4 million. I am also a social psychologist trained and working in the United States. In late November, on behalf of Mada al-Carmel, the Arab Center for Applied Social Research, I polled Palestinian citizens of Israel regarding their reactions to the Annapolis conference and their views about our future, and how they would be affected by Middle East peace negotiations. During Israel's establishment, three-quarters of a million Palestinians were driven from their homes or fled in fear. They remain refugees to this day, scattered throughout the West Bank and Gaza, the Arab world and beyond. We Palestinian citizens of Israel are among the minority who managed to remain on our land. Like many Mexican-Americans, we didn't cross the border, the border crossed us. We have been struggling ever since against a system that subjects us to separate and unequal treatment because we are Palestinian Arabs -- Christian, Muslim and Druze -- not Jewish. More than twenty Israeli laws explicitly privilege Jews over non-Jews. The Palestinian Authority (PA) is under intense pressure to recognize Israel as a Jewish state. This is not a matter of semantics. If Israel's demand is granted, the inequality that we face as Palestinians -- roughly 20 percent of Israel's population -- will become permanent. The United States, despite being settled by Christian Europeans fleeing religious persecution, has struggled for decades to make clear that it is not a "Christian nation." It is in a similar vein that Israel's indigenous Palestinian population rejects the efforts of Israel and the United States to seal our fate as a permanent underclass in our own homeland. We are referred to by leading Israeli politicians as a "demographic problem." In response, many in Israel, including the deputy prime minister, are proposing land swaps: Palestinian land in the occupied territories with Israeli settlers on it would fall under Israel's sovereignty, while land in Israel with Palestinian citizens would fall under Palestinian authority. This may seem like an even trade. But there is one problem: no one asked us what we think of this solution. Imagine the hue and cry were a prominent American politician to propose redrawing the map of the United States so as to exclude as many Mexican-Americans as possible, for the explicit purpose of preserving white political power. Such a demagogue would rightly be denounced as a bigot. Yet this sort of hyper-segregation and ethnic supremacy is precisely what Israeli and American officials are considering for many Palestinian citizens of Israel -- and hoping to coerce Palestinian leaders into accepting. Looking across the Green Line, we realize that Palestinian Authority President Mahmoud Abbas has no mandate to negotiate a deal that will affect our future. We did not elect him. Why would we give up the rights we have battled to secure in our homeland to live inside an embryonic Palestine that we fear will be more like a bantustan than a sovereign state? Even if we put aside our attachment to our homeland, Israel has crushed the West Bank economy -- to say nothing of Gaza's -- and imprisoned its people behind a barrier. There is little allure to life in such grim circumstances, especially since there is the real prospect of further Israeli sanctions, which could make a bad situation worse. In the poll I just conducted, nearly three-quarters of Israel's Palestinian citizens rejected the idea of the Palestinian Authority making territorial concessions that involve them, and 65.6 percent maintained that the PA also lacked the mandate to recognize Israel as a Jewish state. Nearly 80 percent declared that it lacks the mandate to relinquish the right of Palestinian refugees -- affirmed in UN General Assembly Resolution 194 of 1948 and reaffirmed many times -- to return to their homes and properties inside Israel. Palestinians inside Israel have developed a history and identity after nearly sixty years of hard work and struggle. We are not simply pawns to be shuffled to the other side of the board. We expect no more and no less than the right to equality in the land of our ancestors. Israeli Jews have now built a nation, and have the right to live here in peace. But Israel cannot be both Jewish and democratic, nor can it find the security it seeks by continuing to deny our rights, nor those of Palestinians under occupation in the West Bank and Gaza Strip, nor those of Palestinian refugees. It is time for us to share this land in a true democracy, one that honors and respects the rights of both peoples as equals. Nadim Rouhana is Henry Hart Rice Professor of Conflict Analysis at George Mason University and heads the Haifa-based Mada al-Carmel, the Arab Center for Applied Social Research. This essay was originally published by The Nation and is republished with the author's permission. --------------------------------------------------------------------------- LAAMN: Los Angeles Alternative Media Network --------------------------------------------------------------------------- Unsubscribe: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Subscribe: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Digest: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Help: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Post: <mailto:[EMAIL PROTECTED]> --------------------------------------------------------------------------- Archive1: <http://www.egroups.com/messages/laamn> --------------------------------------------------------------------------- Archive2: <http://www.mail-archive.com/[EMAIL PROTECTED]> --------------------------------------------------------------------------- Yahoo! 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