Economic
Crisis: The U.S.
Political Leadership Has Failed
By Richard C. Cook
15 September, 2007
Global
Research
As
the 2007 economic collapse picks up speed, it’s time to take a
hard look at the performance of the U.S. national political leadership
in meeting some of their most fundamental responsibilities. It’s
time to face the fact of serious failure over the last quarter century.
During this time, the leaders
of both political parties and of major institutions such as the Federal
Reserve have presided over the abandonment of some of the most solemn
obligations of constitutional government. They have done this in order
to embrace an agenda favorable mainly to the financial, corporate, and
government elites.
On January 20, 1981, a full
generation ago, President Ronald Reagan said in his first inaugural
address, "Government is not a solution to our problem, government
is the problem."
Reagan was both right and
wrong.
The problem the U.S. was
facing then was the collapse of the nation’s manufacturing base
through a recession that happened when the Federal Reserve raised interest
rates to over the twenty percent level. It did so almost a decade after
President Richard Nixon removed the gold peg for the dollar, leading
to the inflation of the 1970s when our currency flooded world markets
through the oil trade.
Reagan’s statement
that "government is the problem" was correct to the extent
that failed financial policies and the out-of-control actions of a Federal
Reserve beholden to private financial interests combined in the worse
economic downturn since the Great Depression to wreck the world’s
greatest industrial powerhouse.
But he was wrong in thinking
that the solution was deregulation of the economy, particularly deregulation
of financial and investment institutions which took place during his
two terms. The result was enormous growth in the power and influence
of Wall Street and the big banks over the rest of the economy. The era
of leveraged mergers, acquisitions, and buyouts was the predecessor
of the disaster of today with the unfolding fiasco of equity, hedge,
and derivative funds in the process of collapse.
After Reagan came President
George H.W. Bush. By the end of his term, the loss of manufacturing
jobs had produced another recession. Within a couple of years of Bill
Clinton’s election in 1992, action by Secretary of the Treasury
Robert Rubin to strengthen the dollar attracted enough foreign investment
to create the dot.com bubble.
Clinton then cut the federal
budget enough by reducing federal employment that he was able to achieve
a budget surplus. This lessened the drag on the economy from the national
debt which Reagan had left behind from his tax cuts and trillion dollar
military build-up. But the over-leveraged dot.com bubble burst with
the stock market collapse of 2000, leaving us in recession again.
Enter President George W.
Bush. Despite the "achievement" of Federal Reserve Chairman
Alan Greenspan in creating another bubble—the housing one—big
enough to float the U.S. economy for four consecutive years—2002
to 2005—the economic fundamentals today are horrendous. We are
living in an economy that has begun to crash, with the Federal Reserve,
the Treasury Department, and Congress cobbling together bail-outs of
various descriptions which they hope will right what is obviously a
sinking ship.
We can only hope they will
succeed to some extent, because it would be heartless to wish disaster
on the ones who suffer the most from the consequences of the greed and
stupidity of people in power—namely the ordinary people who work
for a living and who honestly try to raise their families and hold to
a decent standard of living. But life is becoming very hard for the
vast majority of Americans who have been bearing the brunt of our failed
economic and monetary polices of the last three decades.
Our political leadership
has let us down in the following critical respects:
- Going back to the 1930s, President Franklin D. Roosevelt established
an economic system—the New Deal—that pulled the U.S. out
of the Great Depression, enabled us to fight World War II, and created
the world’s greatest industrial democracy. He did this largely
through programs that, taken together, were based on the principle of
low-cost credit treated as a public utility. This persisted into the
1960s and 70s, when it was replaced with the system of monetarism, whereby
the economy is now regulated by the Federal Reserve through raising
and lowering of interest rates. This system, with interest rates much
higher, on average, than during previous decades, has been catastrophic
for the U.S. economy. It has enriched the financial industry at the
expense of everyone else through what can only be called institutionalized
usury. Under this system, every period of economic growth since 1983
has been a bank-created bubble, while the general population has become
steadily poorer. The Federal Reserve claims that it raises interest
rates to reduce inflation, when in fact higher interest rates cause
inflation by making every transaction more expensive. Under the reign
of monetarism, the U.S. dollar has lost over eighty percent of its value.
In fact, government policies are designed to generate inflation, because
this makes it cheaper to pay down the national debt and while augmenting
tax revenues.
- It has been well-documented
that since the early 1980s the federal government has acquiesced in
every respect to economic policies that have resulted in the steady
erosion of our manufacturing base, elimination of millions of skilled
industrial jobs, creation of a crushing burden of household and individual
debt, crumbling of our physical infrastructure, privatization or elimination
of public services, failure to meet such crises as the Katrina disaster,
export of jobs to low-cost foreign labor markets, unfair distribution
of taxation, and toleration of the influx of millions of illegal aliens
who keep wages low within the domestic economy.
- Since the Clinton administration, the government has misled the public
through distortion of economic indicators. Calculations of the GDP are
too high and exaggerate the growth of the economy. The consumer price
index on which government cost-of-living adjustments are based has eliminated
such items as food, fuel, and home buying. Actual inflation is running
at a rate of three times what the government estimates; i.e. closer
to ten percent than the three percent which is claimed. Regarding the
money supply, the Federal Reserve has stopped reporting one of the most
important indicators, which is M3—the amount of money available
to the largest institutional investors. Data which are available today
show without question that the producing economy—that is, the
everyday world of people who work for a living—has been in recession
for over a year. Meanwhile, the financial economy that lives off the
producers as a parasite continues to float on rollovers of mega-loans
originating with the Federal Reserve and its policy of allowing banks
to capitalize the massive amounts of repurchase agreements generated
by electronic funds transfer.
- Insufficient attention
has been paid to the disastrous effects of NAFTA in destroying family
farming in the U.S., Canada, and Mexico. On top of this has been the
diversion of agricultural products into bio-fuel production with the
attendant inflationary effects. Meanwhile, our food supply has been
taken over by agribusiness and the financial markets at the same time
that two-thirds of the nation has been in the grip of long-term drought.
The high interest rates of the monetarist regime have worked to make
farming at the local level impossible and have destroyed the production
of entire regions, such as the once-great Idaho potato industry. Unless
local farming can be revived, there is a real-danger of massive food
shortages breaking out under a prolonged economic crisis.
- Finally, there are our
failed foreign and military policies. After the U.S. lost the Vietnam
War, we had reason to believe that our political leaders might have
learned a lesson about military adventures abroad, particularly land
wars on the continent of Asia. Instead, starting in earnest with the
"Reagan doctrine" of endless proxy conflicts on every continent,
the U.S. has embarked on a policy of world military conquest. The Iraq
War, the planned permanent occupation of that country, and the designs
being formulated against Iran, are part of a policy of military control
of the Middle East that has been ongoing for almost twenty years. The
dual objectives of this policy are to control Middle Eastern oil and
advance the interests of Israel. Talk of the "surge," troop
drawdown, etc., are nonsense, because the U.S. plans to occupy permanent
bases and control the remaining oil reserves in the region. These wars
are being paid for by sale of Treasury bonds to possible future adversaries
such as China, while the U.S. bubble economy that is backing up our
military forces overseas is deflating. Clearly something has to give,
either through exhaustion of our military capability abroad, economic
collapse at home, or the catastrophe of a world war. The denouement
seems to be drawing closer as foreign governments dump their U.S. dollars
which are declining in value due to the twin trade and fiscal deficits.
What our leaders should now be doing is recognize the fact that we live
in a multilateral world where conflicts can only be resolved by nations
acting as equals under the umbrella of the U.N.
So many mistakes have been made over the last several decades that it
is difficult to see how real change could take place without a revolutionary
transformation of American society. Those who worked for change in the
1960s through opposition to the Vietnam War hoped for such a transformation,
but the opposite has happened.
The cause has been the assertion
of influence by the corporate-financial-government elites, who have
essentially negated the ability of the people through their elected
representatives to manage affairs for the sake of the general welfare
as stated in the preamble to our Constitution.
The government under the
leadership of both political parties has even violated some of its basic
constitutional mandates.
Congress, for instance, has
failed to exercise its duties with respect to oversight and control
of the monetary system, having ceded its authority to the private banking
industry through the Federal Reserve Act of 1913. Congress has also
failed to provide effective regulation of the financial industry under
the interstate commerce clause of Article One, as the subprime mortgage
debacle and other abuses have clearly demonstrated.
The government as a whole
has failed to provide for equal protection of the laws as specified
in the Fourteenth Amendment by allowing so much of the wealth of the
nation to be transferred to the upper income brackets who manipulate
the corporate and financial systems to their advantage. It could also
be argued that the passivity of the government in standing by while
millions of people have lost their homes, jobs, or pensions due to fraudulent
financial practices or speculative bubbles violates the Fifth Amendment
provision which specifies that "no person shall be…deprived
of life, liberty, or property, without due process of law."
Finally, it could be argued
that many of our economic and tax policies violate the Thirteenth Amendment
which states that, "Neither slavery nor involuntary servitude,
except as a punishment for crime whereof the party shall have been duly
convicted, shall exist within the United States, or any place subject
to their jurisdiction."
We’re used to interpreting
the Thirteenth Amendment as applying only to chattel slavery, but economic
servitude can be almost as onerous. Certainly the provision of the 2005
bankruptcy reform legislation which makes student loan debt and unpaid
taxes a lifetime obligation, not subject to bankruptcy write-off, constitutes
"involuntary servitude." So too may a cumulative tax burden
where up to fifty percent of an individual’s income goes for taxes
at the federal, state, and local levels.
It is obvious that the elite
intend to make every effort to ride out the current crisis. This is
what the so-called "soft landing" is about.
At the point in time when
it may become possible to have real change, it can only be done effectively
as it was accomplished during the New Deal—through control of
credit as a public utility. This is because the causes of social distress
are economic, and the economy is controlled through the monetary system.
The essence of monetary policy is who controls credit and for what ends.
It would not be difficult to create programs, institutions, and systems
to develop an updated New Deal to meet present conditions. The knowledge
is there, as is the technology. What is lacking is political recognition
and will. Today most individuals are passive spectators to the ongoing
train wreck, and none of the leading presidential candidates is addressing
basic policy issues. Ninety-five percent of what they are saying is
media fluff.
As an example of what could
be done, it would be possible immediately to place all pubic infrastructure
programs within the U.S. under a funding mechanism whereby a federal
infrastructure bank could be self-capitalized by special Treasury infrastructure
bonds with lending at zero percent interest for a multitude of long-term
projects.
A new money supply would
thereby come into being that would completely by-pass the Federal Reserve
System. This could be supplemented by a citizens’ basic income
guarantee and a National Dividend, similar to the Alaska Permanent Fund,
which would reduce poverty and inject purchasing power at the grassroots
level. The denial of purchasing power except through more debt in a
country where the wage and salary base has stagnated is an economic
crime. One purpose is doubtless to create an impoverished underclass
as a source of military recruitment.
Such measures would revolutionize
local economies and restore the ability of the general population to
participate in the economic life of the nation. But until enough people
wake up to what is going on and the fact that they have the power within
themselves to make a difference, nothing will change. They will continue
to be fleeced by the rich and powerful as they have been throughout
most of history.
Richard C. Cook is a retired federal analyst, whose
career included service with the U.S. Civil Service Commission, the
Food and Drug Administration, the Carter White House, and NASA, followed
by twenty-one years with the U.S. Treasury Department. His articles
on monetary reform, economics, and space policy have appeared on Global
Research, Economy in Crisis, Dissident Voice, Atlantic Free Press, and
elsewhere. He is the author of "Challenger Revealed: An Insider’s
Account of How the Reagan Administration Caused the Greatest Tragedy
of the Space Age." His website is at www.richardccook.com.
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