DOOM!

Well, Blogger has been acting ornery lately. Here's hoping this post actually makes it through the cyberspatial roadblocks...

New articles about economic doom are posted hourly. Trouble is, no matter how many times you send the message to John and Mary Six-Pack, they just won't open the envelope. You've probably heard the same stories I've been hearing first-hand: First these poor ninnies max out their credit cards. Then they refi the homestead (often not at fixed rates) in order to pay down the debts. Then they head out a-charging once more. Then they vote for Republicans who pass laws making bankruptcy more difficult for all the John and Mary Six-Packs out there.

And that's the way things are breaking for the ever-shrinking number of people lucky enough to hold down good jobs. God help those of us lower down on the totem pole.

How do we get our warning through to these people? I see no alternative: We have to repeat the message with an insistence that would make even Steve Reich scream for mercy.

So here's the latest news about Economic Apocalypse:

Paul Craig Roberts, an Assistant Secretary for the Treasury under Reagan, has written an amazing piece for Counterpunch. You've probably heard that our economy is propped up by Asian investment in our t-bills, but this is the first time I've seen these figures:

The Asia Times reported (March 12) that Asian central banks have been reducing their dollar holdings in favor of regional currencies for the past three years. A study by the Bank of International Settlements concluded that the ratio of dollar reserves held in Asia declined from 81% in the third quarter of 2001 to 67% in September 2004. India reduced its dollar holdings from 68% of total reserves to 43%. China reduced its dollar holdings from 83% to 68%.

The US dollar will not be able to maintain its role as world reserve currency when it is being abandoned by that area of the world that is rapidly becoming the manufacturing, engineering and innovation powerhouse.

So it's not a matter of "what will happen if...?" It's already happening. Slowly.

Roberts was, as noted, a Reaganite. (Yet he's now writing for Counterpunch! That says something about how far this country has swung to the right...) Another conservative who scries Apocalypse Soon -- very soon, as in later this year -- is William Engdahl, whose works were directed to my attention by Xymphora. I strongly recommend his piece outlining his prediction for a 2005 collapse. After reminding us that no previous recovery was marked by rising debt, he forces the reader to consider the ramifications of a red ink tsunami:

All this economic consumption has created the illusion of a recovering economy. Behind the surface, a huge debt burden has built up. Since 1997, the total of home mortgage debt for Americans has risen 94% to a colossal $7.4 trillion, a debt of some $120,000 for a family of four. Bank loans for real estate purchases have risen since 1997 by 200%, to $2.4 trillion. Average US home prices have risen by 50% in the period since 1998. In 2003 alone a record total of $1 trillion in new mortgage loans were made. In 1997 mortgages totaled $202 billion.

In many parts of the US, home price inflation has become alarming. An apartment in Manhattan is now above $1 million. Home prices in Boston have risen by 64% in five years. California real estate prices are soaring. On average US home prices have risen 50% in six years, an unprecedented rise, driven by Greenspan's easy credit. In seven years to 2004, prices of US homes had risen on paper by $7 trillion to a total of $15 trillion, the highest in US history. The problem is so obviously dangerous, that Greenspan recently was forced to deny existence of any real estate "bubble," much as he denied a dot.com stock bubble in 2000.

Much home lending has gone to risky families who haven't put down a penny of their own -- after all, the federal government backs even the most ludicrous mortgage contracts.

Engdahl goes on to discuss other forms of debt. Looks like I'm not the only fellow to note the growing number of folks who owe $7 thou on cars whose resale value is maybe half that amount.

When the loans go bad (and they will), the banks will reel and bellyflop. Uncle Sam will have to step in -- but with what reserves of cash? The Asians will stampede over to the euro in fast-motion, like Keystone Kops chasing Chaplin. Masses of homeless people will demand aid which will never come, because all revenue will be earmarked for paying interest on the money borrowed by Republicans.

Of course, people who earn over $200,000 a year are paying less in taxes than ever before (well, not ever, but let's not look all the way back to the gilded age). That revenue won't be tapped. Even as working class Americans starve in the streets, the dying dolts will still believe the propaganda that their problems are caused by high taxes on the wealthy.

Of course, the ever-rising price of oil means the price of everything goes up. (Never mind whether or not Peak Oil theorists are correct: The price is going up.) Despite the rising oil prices, the stocks in oil companies are falling, which shows just how little faith savvy investors have in the American market.

Morgan Stanley's economist, Steve Roach, last week announced that we have only a ten percent chance of avoiding 'economic Armageddon' (his words!). For more on Roach, see this blog, "Shining Light in Dark Corners":

His first point is the interest rates are artificially low given the falling dollar worldwide. The Fed has been supporting these artificially low interest rates, the results have lead to a more volatile investment climate with stable investments showing flat returns, investors venture into riskier territory.

His second point is that the demand factor in the US that produces trade imbalance is not stable. If demand were to fall stateside, the apparently permanently high priced energy and commodities may just collapse when Chinese production drops in response. He thinks the assumption of permanently higher oil and other commodity prices needs to be stress tested.

All in all, it appears the world economy is in fragile condition. The rapid growth in China and India may just be an artifact of the artificially lower interest rates. When the balance is corrected by the Fed or a crashing dollar, the world could see a recession.

Warren Buffet, in a letter to shareholders, also rails at our horrifyingly imbalanced trade, in terms that an old-fashioned mercantilist would easily comprehend. Buffet says that we are "force-feeding" foreign nations our wealth to the tune of 1.8 billion each and every day. That's what happens when we purchase $618 billion dollars worth of goods produced in other nations, without reciprocation.

When writers for the L.A. Times write a story about our miserable trade balance, they usually note that at least foreigners still like our movies. If I recall correctly, the non-domestic take for American films last year was something on the order of $13 billion. Kind of puts matters into scale, huh? $13 billion versus $618 billion: Don't expect Hollywood to come to the rescue.

So what will happen?

Asian investors fund our debt because they don't know what else to do with their cash, and because they want us to keep buying their crap at WalMart. If Asian economies collapse, no-one will buy our treasury notes. Some forecasters have posited a world where even the Asian-produced goods at WalMart rise in price so drastically as to seem like luxury items. Maybe -- but I suspect that if China undergoes truly hard times, they will pump out goods at ever-lower prices.

The solution? More protectionist trade policies, and a return to Eisenhower-era soak-the-wealthy tax schemes. Shut down any corporate attempts to hide assets overseas. The government should be particularly aggressive in making sure that non-manufacturing corporations find fewer tax loopholes. Use tax policy to force investment in manufacturing and technology, and to punish companies relian on outsourcing.

Will this scenario happen?

No. Not as long as the insidious engines of propaganda and ideology keep shredding reason.