FedUpUSA

Archive for July 22nd, 2010

Today most Americans are completely obsessed with the silliest of things.  They wonder how Lindsay Lohan is going to fare in jail and they agonize over who LeBron James is going to play basketball for.  But when it comes to the things that really matter, most Americans are completely clueless.  For example, while most Americans would agree that we are experiencing difficult economic times right now, most of them would also argue that our economic system is in fundamentally good shape and that things will get back to “normal” at some point.  Those of us who are trying to warn America of the impending economic nightmare are dismissed as “doom and gloomers” and “conspiracy theorists”.  But of course, as with so many things, the passage of time will tell who was right and who was wrong.  Below there is a chart that I want all of you to burn into your memory.  It is a chart of total U.S. debt as a percentage of GDP from 1870 until 2009.  This chart clearly and succinctly communicates the horror of the debt bubble that we are currently dealing with.  When this debt bubble pops, it is going to make the Great Depression look like a Sunday picnic.

As you can see from the chart below, the total of all debt (government, business and consumer) is now somewhere in the neighborhood of 360 percent of GDP.  Never before has the United States faced a debt bubble of this magnitude…. 

Most of us were not alive during the Great Depression, but those who were remember how incredibly painful it was for America to deleverage and bring the economic system back into some type of balance.

So if our current debt bubble is far worse, what kind of economic horror is ahead for us?

But the truth is that we are facing some circumstances that even the folks back during the Great Depression did not have to deal with….

1 – Back in the 1930s, tens of millions of Americans lived on farms or knew how to grow their own food.  Today the vast majority of Americans are totally dependent on the system for even their most basic needs.

2 – A vast horde of Baby Boomers is expecting to retire, and the “Social Security trust fund” has nothing but 2.5 trillion dollars of government IOUs in it.  According to an official U.S. government report, rapidly growing interest costs on the U.S. national debt together with spending on major entitlement programs such as Social Security and Medicare will absorb approximately 92 cents of every dollar of federal revenue by the year 2019.  This is a financial tsunami the likes of which Americans back in the 1930s could never have even dreamed of.

3 – American workers never had to compete for jobs with workers on the other side of the world back in the 1930s.  But today, millions upon millions of our jobs have been “outsourced” to China, India and a vast array of third world nations where desperate workers are more than happy to slave away for big global corporations for less than a dollar an hour.  How in the world are American workers supposed to compete with that?

4 – Back in the 1930s, there was nothing like the gigantic derivatives bubble that hangs over us today.  The total value of all derivatives worldwide is estimated to be somewhere between 600 trillion and 1.5 quadrillion dollars.  The danger that we face from derivatives is so great that Warren Buffet has called them “financial weapons of mass destruction”.  When this bubble pops there won’t be enough money in the entire world to fix it.

5 – During the Great Depression, the United States economy was relatively self-contained.  But today we truly do live in a global economy.  Unfortunately that means that a severe economic crisis in one part of the world is going to affect us as well.  Right now, the United States is far from alone in dealing with a massive debt crisis.  Greece, Spain, Italy, Hungary, Portugal and a number of other European nations are in real danger of actually defaulting on their debts.  Japan (the third biggest economy in the world) is on the verge of complete and total economic collapse.  So what happens to the U.S. economy when the dominoes start to fall? 

The truth is that by almost any measure, we are in worse economic condition than we were right before the beginning of the Great Depression.  We have been living way beyond our means and the debts we have been piling up are clearly not anywhere close to sustainable. 

Did you think that we could just continue to run deficits equal to 10 percent of GDP forever?

Of course not.

The U.S. economy is being driven off a cliff, but America’s ”ruling class” has insisted all along that they know better than we do. 

But the truth is that in the final analysis it is not us that they care about.

What they do actually care about is getting more money and more power for themselves and for other members of the ruling class.  Today, 10,000 people make 30% of the total income in the United States each year.

That leaves 70% of the pie for the remaining 99.99% of us to divide up.

The reality is that however you want to slice it, the U.S. economic system is broken.  However, considering the fact that America’s ruling class has a stranglehold on both major political parties, we are not likely to see any fundamental changes any time soon.

That is very unfortunate, because time is running out on the U.S. economy.

The Economic Collapse

 
Attorney General Eric Holder was at the White House event with Biden and pledged to crack down on American businesses that discriminate against employees based on sex, race or country of origin. (CNSNews.com/Penny Starr)

The Obama administration, already under fire for unprecedented allegations of racial bias, faces a new bias claim from a most unlikely source: one of the administration’s own inspectors general.

Decisions on which car dealerships to close as part of the auto industry bailout — closures the Obama administration forced on General Motors and Chrysler — were based in part on race and gender, according to a report by Troubled Asset Relief Program Special Inspector General Neal M. Barofsky.

[D]ealerships were retained because they were recently appointed, were key wholesale parts dealers, or were minority- or woman-owned dealerships. [Emphasis added.]

Thus, to meet numbers forced on them by the Obama administration, General Motors and Chrysler were forced to shutter other, potentially more viable, dealerships. The livelihood of potentially tens of thousands of families was thus eliminated simply because their dealerships were not minority- or woman-owned.

As has been widely reported, the Inspector General’s study skewered the Obama Gang for strong-arming the companies into closing 2,000 dealerships, costing an estimated 100,000 people their jobs during a recession.

But the news media has ignored key elements of Barofsky’s report — elements that are far more damaging, if possible, to Obama. As we reported earlier in the week, a top Obama official, manufacturing czar and “Auto Team” leader Ron Bloom admitted that the dealerships could have been kept open, saving those jobs, “but that doing so would have been inconsistent with the President’s mandate for ‘shared sacrifice.’”

Barofsky says the administration insisted on the closings even though a GM official told him

that GM would usually save ‘not one damn cent’ by closing any particular dealership. … Furthermore, a GM official stated that removing a dealership from the network does not save money for GM — it might even cost GM money — and that savings cannot be attributed or assigned to any one dealership.

And a reading of the IG’s study makes plain that some dealership closings forced by the administration were based largely on politics.

The report is highly critical of how dealerships were selected for closure, or termination. Barofsky notes that

experts said that while metro areas were oversaturated with GM and Chrysler dealerships and reductions were needed in these areas, this was not the case in rural areas where GM and Chrysler had an advantage over their import competitors. [...]

Although sales volume in small towns may be lower, the cost of operating dealerships in small towns is lower as well.  In addition, closing dealerships in small towns could ruin the “historic relationship” that GM has had with residents in small towns and force buyers to drive to metro areas, where there are more competitors. In the worst case, the loss of market share in small and medium-sized markets could “jeopardize the return to profitability” for GM and Chrysler, the (the Center for Automotive Research) representative said.  Representatives from the National Automobile Dealers Association also concurred that dealership terminations would cause GM and Chrysler to lose market share in rural areas. [Emphasis added.]

Nevertheless, as Barofsky notes, “ultimately close to half of all of the GM dealerships identified for termination were in rural areas.”

That is where raw, hard, sewage-filled Chicago politics came into play.

Records indicate that in 2008, Obama lost the vote totals in the nation’s 1,300 rural counties by nearly 80%.

The Obama administration’s insistence on radical numbers of closures ended up shuttering dealerships in those rural areas disproportionately, while dealerships and jobs in metro areas — Obama’s geographical base — were left open.

Additionally, it has been widely theorized that dealers targeted for closure as a result of Obama’s interference were predominantly those who donated campaign contributions to Republicans. Although evidence to date is largely anecdotal, given what we’ve already reported about the Obama administration’s handling of the auto bailout, such speculation does have considerable grounds for support.

While that last point is leaves room for debate, the details contained in the Barofsky report are not. As Barofsky points out, the Obama administration was given an advance copy, and “Treasury [the Obama Treasury Department] might not agree with how the audit’s conclusions portray the Auto Team’s decision making or with the lessons that SIGTARP has drawn from those facts, but it should be made clear that Treasury has not challenged the essential underlying facts upon which those conclusions are based.”

Included among those undisputed facts:

-”[D]ealerships were retained because they were … minority- or woman-owned dealerships”;

-Thousands of jobs were lost, unnecessarily, due specifically to Obama’s “mandate for shared sacrifice”;

-A disproportionate number of Obama-forced closings were of rural dealerships, in areas unfriendly to Obama, even though such closures could “jeopardize the return to profitability” for GM and Chrysler.

The media, of course, remain mute about these serious allegations in the Barofsky report. They have limited their coverage to the job loss numbers and tried to place the blame on Treasury Secretary Turbo-Tax Tim Geithner.

Before long, we’ll be reading that it was somehow Bush’s fault.