[NYTr] Roberts & Whitney on the Collapsing US Economy

[All the News That Doesn't Fit]

Counterpunch - Nov 8, 2007
http://www.counterpunch.org/whitney11082007.html


The Long Fall

A Market Without Parachutes

By MIKE WHITNEY

America is finished, washed up, kaput. Foreign investors and central
banks around the world have lost confidence in US markets and are
headed for the exits. The dollar is sinking, the country is insolvent,
and its leaders are barking mad. That's bad for business. Investors are
voting with their feet. They've had enough. Capital is flowing to China
and the Far East in a torrent. It's "sayonara" downtown Manhattan
and"Hello" Tiananmen Square.

The dollar fell another 2 per cent last night, gold soared to $840 per
ounce, oil topped $98 per barrel, General Motors reported a $39 billion
loss after the market closed on Tuesday, the real estate market
continued its downward slide, and the major investment banks are
marching in lock-step towards bankruptcy.

The news is all bad. The nation's economic foundation is in shambles.
US credibility is shot. Bush and Greenspan have put us on the road to
ruin. Now their work is done. We're flat broke.

The catalogue of fiscal ailments now facing the country is too long to
list. We'd need a ledger the size of a small encyclopedia. There's been
a stampede away from the dollar even though it's already lost over 60
per cent of its value since Bush took office and even though central
banks around the world will lose their shirts if it collapses. They
don't care. They're getting out while they can.

Cheng Siwei, the vice chairman of China's National People's Congress,
announced yesterday that China would continue to diversify its $1.4
trillion reserves away from the dollar to "stronger currencies" like
the euro. "Strong currencies"; isn't that Paulson's line? Siwei's
comments ignited a firestorm in the currency markets triggering a big
blow-off of the greenback. The poor dollar has no place to go now but
down, and it's on a greased pole to the bottom. With consumer spending
paralyzed by the decline in home equity and frozen wages, and the banks
"stuffed to the gills" with over a trillion dollars of mortgage-backed
sludge; the prognosis for the hobbled dollar is looking grimmer by the
day. The bulging trade deficits and dwindling foreign inflows haven't
helped either. The greenback has suddenly become the global pariah; all
it needs is a leper's rattle and a tin cup.

The news is no better in the real estate industry either, where the
nation's biggest builders are reporting record losses and inventory is
backed-up 11 months. Sales are off 22per cent in one year alone.
Foreclosures are skyrocketing, jumbo loans (over $417,000) are
impossible to get regardless of one's credit history, 40 per cent of
all mortgages (subprime, Alt-A, piggyback, reverse amortization,
interest-only) have been eliminated, and entire projects in Florida,
Arizona, Las Vegas, and California's Central Valley have stopped
building altogether. Tens of thousands of unoccupied homes across the
Southwest have been reduced to ghost towns. Nothing is selling. The
building boom, that began when Alan Greenspan ginned-up the Fed's
printing presses in 2002, has turned into the biggest housing bust in
American history.

On top of that, the banks are tightening lending standards and shunning
potential buyers just when the economy needs a boost in demand. Loan
originations are down and bankers are spooked by the gathering storm in
the credit markets. That means that home sales will continue to be
sluggish, prices will correct more quickly, and the anticipated "soft
landing" will turn into a full-blown crash.

New home construction has accounted for 2 out of every 5 new jobs
created in the last 5 years. Most of those workers are either
delivering pizzas, cleaning bed pans or are lining up at the soup
kitchen. The BLS's numbers on employment are bogus. It's just more
government bunkum. They're predicated on a "birth-death" model that
creates millions of fictitious jobs out of whole cloth. In truth,
unemployment is soaring and the most vulnerable and impoverished among
us are taking a beating from housing debacle.

According to the Mortgage Bankers Association of Washington, the total
of mortgage loans outstanding in 2006 was $10.9 trillion; $6 trillion
of which were transformed into securities. (CDOs, MBSs) About $1.5
trillion of those securities are subprime; another $1 trillion Alt-A
(nearly as risky) and at least another $1.5 trillion in adjustable rate
mortgages (ARMs) At least 20 per cent of these shaky
liabilities/securities will default, and yet, no one really knows who
is holding them on their books. All of the major financial
institutions-the insurance companies, foreign banks, hedge funds,
investment banks---have purchased these CDO "roadside bombs" and mixed
them in with their other performing loans and hard assets. The
projected explosions have already begun to take their toll on the
financial giants---Citigroup and Merrill Lynch are just the latest
victims; others will follow. The problem can't be fixed with Bernanke's
low interest rates. The bad debts are everywhere and must accounted for
and written down. That puts us on the threshold of a jarring
market-downturn triggered by an unprecedented number of defaults that
will rumble through the entire system. Bankruptcies will pop up
everywhere at random. It is a blueprint for economic chaos. And it is
unavoidable.

The global markets have never seen a financial typhoon of this
magnitude before. Mortgage lenders, homeowners, banks, hedge funds,
bond insurers, etc. will all either go under or feel the sting of a
slumping market.

Many of the major investment banks are already broke; it's clear from
their own reporting. Charles Hugh Smith sums it up like this in his
recent article "Empire of Debt: The Great Unraveling":

    "If their bad bets were marked to market, Citicorp and Merrill
Lynch would be declared insolvent. Why? Because they are
insolvent--right now. The meaning of insolvency is straightforward:
their losses exceed their capital. Recall that these firms list assets
of $100 billion (or whatever) but their actual net capital is on the
order of 2.5 per cent to 5 per cent---a mere sliver of their stated
assets. In other words: a 5 per cent loss of their stated assets wipes
them out..The game is now over, and the players shuffling losses can
only last a few more days or weeks."

Up to this point, the banks have been able to place a sizeable portion
of their "hard-to-value" assets in a Level 3 grab bag, which allowed
company accountants to assign a value to those assets according to
their own judgment. No more. The new FASB 157 regulation will force the
banks to use "market prices" to determine the true value of their
holdings. Some analysts believe that these new disclosure rules may
result in $200 billion write-downs on assets and require that the
over-leveraged banks to increase their capital reserves. That will slow
down lending and put a wrinkle in the banks' bottom line. In any event,
once the law is enacted; we'll see who's "faking" the value of their
assets or as Warren Buffet says, "Who's swimming with their clothes off.

Professor Nouriel Roubinisummed it up like this:

    "The amount of losses that financial institutions have already
recognized - $20 billion--is just the very tip of the iceberg of much
larger losses that will end up in the hundreds of billions of
dollars.Calling this crisis a sub-prime meltdown is ludicrous as by now
the contagion has seriously spread to near prime and prime mortgagesAnd
it is spreading to every corner of the securitized financial system
that is either frozen or on the way to freeze.The reality is that most
financial institutions have barely started to recognize the lower "fair
value" of their impaired securities.The credit crunch is getting worse
and its financial and real fallout will be severe." (Nouriel Roubini
blog.)

The constant drumbeat of bad news is having a numbing affect on Wall
Street. Traders' are tight-lipped and downcast. Spirits are sagging. No
one likes loosing money, and yet, the credit storm shows no signs of
letting up anytime soon. Yesterday, the Dow Jones Industrial's took
another 360-point pounding before the bell rang.Another day, another
bloodbath. The subprime virus has now infected the broader markets
leaving the once-brawny financial giants bruised and reeling like Joe
Frazier in the Thrilla in Manila. A few more down-days like yesterday
and they'll be carrying out hedge funds feet first.

The stock market is looking more and more like a glass pitcher propped
up on the edge of a bookshelf. One little bump, and down she goes.

[Mike Whitney lives in Washington state. He can be reached at:
fergiewhitney at msn.com ]

                             ***


Counterpunch - Nov 7, 2007
http://www.counterpunch.org/roberts11072007.html

Supermodel Spurns the Dollar

Dollar's Fall Collapses the American Empire; 
Bring Those 737 Overseas Military Bases Home!

By PAUL CRAIG ROBERTS

The US dollar is still officially the world's reserve currency, but it
cannot purchase the services of Brazilian super model Gisele Bundchen.
Gisele required the $30 million she earned during the first half of
this year to be paid in euros.

Gisele is not alone in her forecast of the dollar's fate. The First
Post (UK) reports that Jim Rogers, a former partner of billionaire
George Soros, is selling his home and all possessions in order to
convert all his wealth into Chinese yuan.

Meanwhile, American economists continue to preach that offshoring is
good for the US economy and that Bush's war spending is keeping the
economy going. The practitioners of supply and demand have yet to
figure out that the dollar's supply is sinking the dollar's price and
along with it American power.

The macho super patriots who support the Bush regime still haven't
caught on that US superpower status rests on the dollar being the
reserve currency, not on a military unable to occupy Baghdad. If the
dollar were not the world currency, the US would have to earn enough
foreign currencies to pay for its 737 oversees bases, an impossibility
considering America's $800 billion trade deficit.

When the dollar ceases to be the reserve currency, foreigners will
cease to finance the US trade and budget deficits, and the American
Empire along with its wars will disappear overnight. Perhaps Bush will
be able to get a World Bank loan, or maybe one from the "Chavez bank,"
to bring the troops home from Iraq and Afghanistan.

Foreign leaders, observing that offshoring and war are accelerating
America's relative economic decline, no longer treat the US with the
deference to which Washington is accustomed. Ecuador's president,
Rafael Correa, recently refused Washington's demand to renew the lease
on the Manta air base in Ecuador. He told Washington that the US could
have a base in Ecuador if Ecuador could have a military base in the US.

When Venezuelan president Hugo Chavez addressed the UN, he crossed
himself as he stood at the podium. Referring to President Bush, Chavez
said, "Yesterday the devil came here, and it smells of sulfur still
today." Bush, said Chavez, was standing "right here, talking as if he
owned the world."

In his state of the nation message last year, Russian president
Vladimir Putin said that Bush's blathering about democracy was nothing
but a cloak for the pursuit of American self-interests at the expense
of other peoples. "We are aware what is going on in the world. Comrade
wolf knows whom to eat, and he eats without listening, and he's clearly
not going to listen to anyone." In May 2007, Putin criticized the
neocon regime in Washington for "disrespect for human life" and "claims
to global exclusiveness, just as it was in the time of the Third Reich."

Even America's British allies regard President Bush as a threat to
world peace and the second most dangerous man alive. Bush is edged out
in polls by Osama bin Laden, but is regarded as more dangerous than
Iran's demonized president and North Korea's Kim Jong-il.

President Bush has achieved his dismal world standing despite spending
$1.6 billion of hard-pressed Americans' tax money on public relations
between 2003 and 2006.

Clearly, America's leader and America's currency are poorly regarded.
Is there a solution?

Perhaps the answer lies in those 737 overseas bases. If those bases
were brought home and shared among the 50 states, each state would gain
15 new military bases. Imagine what this would mean: The end of the
housing slump. A reduction in the trade deficit.

And the end of the war on terror.

Who would dare attack a country with 15 new military bases in every
state in addition to the existing ones? Wherever a terrorist turned, he
would find himself surrounded by soldiers.

All of the dollars currently spent abroad to support 737 overseas bases
would be spent at home. Income for foreigners would become income for
Americans, and the trade deficit would shrink. The impact of the 737
military base payrolls on the US economy would end the housing crisis
and bring back the 140,000 highly paid financial services jobs, the
loss of which this year has cost the US $42 billion in consumer income.
Foreclosures and bankruptcies would plummet.

If this isn't enough to turn the dollar around, President Bush's pledge
not to appoint an Attorney General if Michael Mukasey is not confirmed
offers more promise. If the Democrats will defeat Mukasey's nomination,
there are other superfluous cabinet departments that can be closed down
in addition to the US Department of Torture and Indefinite Detention.

The American empire is being unwound on the battlefields of Iraq and
Afghanistan. The year is two months from being over, but already in
2007, despite the touted "surge," deaths of US soldiers are the highest
of any year of the war.

The Taliban are the ones who are surging. They have taken control of a
third district in Western Afghanistan. Turkey and the Kurds are on the
verge of turning northern Iraq into a new war zone, another
demonstration of American impotence.

Bush's wars have endangered America's puppet regimes. Bush's Pakistani
puppet, Musharraf, is fighting for his life. By resorting to "emergency
rule" and oppressive measures, Musharraf has intensified his
opposition. When Musharraf falls, thanks to Bush, the Islamists will
have nukes.

American generals used to say that the wars Bush started in the Middle
East would take 10 years to win. On Oct. 31 General John Abizaid,
former commander of US forces in the Middle East, put paid to that
optimistic forecast. Speaking at Carnegie Mellon University, Gen.
Abizaid said it would be 50 years before US troops can leave the Middle
East.

There is no possibility of the US remaining in the Middle East for a
half century. The dollar and US power are already on their last legs,
unbeknownst to Democratic leaders Pelosi and Reid who are preparing yet
another blank check for Bush's latest request for $200 billion in
supplementary war funding.

There isn't any money with which to fund Bush's lost war. It will have
to be borrowed from China.

The Romans brought on their own demise, but it took them centuries.
Bush has finished America in a mere 7 years.

Even as Gisele throws off the dollar's hegemony, Brazil, Venezuela,
Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Columbia are
declaring independence of the IMF and World Bank, instruments of US
financial hegemony, by creating their own development bank, thus
bringing to an end US suzerainty over South America.

An empire that has lost its backyard is finished.

Paul Craig Roberts was Assistant Secretary of the Treasury in the
Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review. He
is coauthor of The Tyranny of Good Intentions.He can be reached at:
PaulCraigRoberts at yahoo.com