Founder Of Reaganomics Says That "Without A Revolution, Americans Are History"

The United States is running out of time to get its budget and trade deficits under control. Despite the urgency of the situation, 2010 has been wasted in hype about a non-existent recovery. As recently as August 2 Treasury Secretary Timothy F. Geithner penned a New York Times column, “Welcome to the Recovery.”

As John Williams (shadowstats.com) has made clear on many occasions, an appearance of recovery was created by over-counting employment and undercounting inflation. Warnings by Williams, Gerald Celente, and myself have gone unheeded, but our warnings recently had echoes from Boston University professor Laurence Kotlikoff and from David Stockman, who excoriated the Republican Party for becoming big-spending Democrats.

It is encouraging to see some realization that, this time, Washington cannot spend the economy out of recession. The deficits are already too large for the dollar to survive as reserve currency, and deficit spending cannot put Americans back to work in jobs that have been moved offshore.

However, the solutions offered by those who are beginning to recognize that there is a problem are discouraging. Kotlikoff thinks the solution is savage Social Security and Medicare cuts or equally savage tax increases or hyperinflation to destroy the vast debts.

Perhaps economists lack imagination, or perhaps they don’t want to be cut off from Wall Street and corporate subsidies, but Social Security and Medicare are insufficient at their present levels, especially considering the erosion of private pensions by the dot com, derivative and real estate bubbles. Cuts in Social Security and Medicare, for which people have paid 15 per cent of their earnings all their lives, would result in starvation and deaths from curable diseases.

Tax increases make even less sense. It is widely acknowledged that the majority of households cannot survive on one job. Both husband and wife work and often one of the partners has two jobs in order to make ends meet. Raising taxes makes it harder to make ends meet–thus more foreclosures, more food stamps, more homelessness. What kind of economist or humane person thinks this is a solution?

Ah, but we will tax the rich. The rich have enough money. They will simply stop earning.

Let’s get real. Here is what the government is likely to do. Once Washington realize that the dollar is at risk and that they can no longer finance their wars by borrowing abroad, the government will either levy a tax on private pensions on the grounds that the pensions have accumulated tax-deferred, or the government will require pension fund managers to purchase Treasury debt with our pensions. This will buy the government a bit more time while pension accounts are loaded up with worthless paper.

The last Bush budget deficit (2008) was in the $400-500 billion range, about the size of the Chinese, Japanese, and OPEC trade surpluses with the US. Traditionally, these trade surpluses have been recycled to the US and finance the federal budget deficit. In 2009 and 2010 the federal deficit jumped to $1,400 billion, a back-to-back trillion dollar increase. There are not sufficient trade surpluses to finance a deficit this large. From where comes the money?

The answer is from individuals fleeing the stock market into “safe” Treasury bonds and from the bankster bailout, not so much the TARP money as the Federal Reserve’s exchange of bank reserves for questionable financial paper such as subprime derivatives. The banks used their excess reserves to purchase Treasury debt.

These financing maneuvers are one-time tricks. Once people have fled stocks, that movement into Treasuries is over. The opposition to the bankster bailout likely precludes another. So where does the money come from the next time?

The Treasury was able to unload a lot of debt thanks to “the Greek crisis,” which the New York banksters and hedge funds multiplied into “the euro crisis.” The financial press served as a financing arm for the US Treasury by creating panic about European debt and the euro. Central banks and individuals who had taken refuge from the dollar in euros were panicked out of their euros, and they rushed into dollars by purchasing US Treasury debt.

This movement from euros to dollars weakened the alternative reserve currency to the dollar, halted the dollar’s decline, and financed the US budget deficit a while longer.

Possibly the game can be replayed with Spanish debt, Irish debt, and whatever unlucky country is eswept in by the thoughtless expansion of the European Union.

But when no countries remain that can be destabilized by Wall Street investment banksters and hedge funds, what then finances the US budget deficit?

The only remaining financier is the Federal Reserve. When Treasury bonds brought to auction do not sell, the Federal Reserve must purchase them. The Federal Reserve purchases the bonds by creating new demand deposits, or checking accounts, for the Treasury. As the Treasury spends the proceeds of the new debt sales, the US money supply expands by the amount of the Federal Reserve’s purchase of Treasury debt.

Do goods and services expand by the same amount? Imports will increase as US jobs have been offshored and given to foreigners, thus worsening the trade deficit. When the Federal Reserve purchases the Treasury’s new debt issues, the money supply will increase by more than the supply of domestically produced goods and services. Prices are likely to rise.

How high will they rise? The longer money is created in order that government can pay its bills, the more likely hyperinflation will be the result.

The economy has not recovered. By the end of this year it will be obvious that the collapsing economy means a larger than $1.4 trillion budget deficit to finance. Will it be $2 trillion? Higher?

Whatever the size, the rest of the world will see that the dollar is being printed in such quantities that it cannot serve as reserve currency. At that point wholesale dumping of dollars will result as foreign central banks try to unload a worthless currency.

The collapse of the dollar will drive up the prices of imports and offshored goods on which Americans are dependent. Wal-Mart shoppers will think they have mistakenly gone into Neiman Marcus.

Domestic prices will also explode as a growing money supply chases the supply of goods and services still made in America by Americans.

The dollar as reserve currency cannot survive the conflagration. When the dollar goes the US cannot finance its trade deficit. Therefore, imports will fall sharply, thus adding to domestic inflation and, as the US is energy import-dependent, there will be transportation disruptions that will disrupt work and grocery store deliveries.

Will farms will be raided? Will those trapped in cities resort to riots and looting?

Is this the likely future that “our” government and “our patriotic” corporations have created for us?

Here is what can be done. The wars, which benefit no one but the military-security complex and Israel’s territorial expansion, can be immediately ended. This would reduce the US budget deficit by hundreds of billions of dollars per year. More hundreds of billions of dollars could be saved by cutting the rest of the military budget which, in its present size, exceeds the budgets of all the serious military powers on earth combined.

US military spending reflects the unaffordable and unattainable crazed neoconservative goal of US Empire and world hegemony. What fool in Washington thinks that China is going to finance US hegemony over China?

The only way that the US will again have an economy is by bringing back the offshored jobs. The loss of these jobs impoverished Americans while producing oversized gains for Wall Street, shareholders, and corporate executives. These jobs can be brought home where they belong by taxing corporations according to where value is added to their product. If value is added to their goods and services in China, corporations would have a high tax rate. If value is added to their goods and services in the US, corporations would have a low tax rate.

This change in corporate taxation would offset the cheap foreign labor that has sucked jobs out of America, and it would rebuild the ladders of upward mobility that made America an opportunity society.

If the wars are not immediately stopped and the jobs brought back to America, the US is relegated to the trash bin of history.

Obviously, the corporations and Wall Street would use their financial power and campaign contributions to block any legislation that would reduce short-term earnings and bonuses by bringing jobs back to America. Americans have no greater enemies than Wall Street and the corporations and their prostitutes in Congress and the White House.

The neocons allied with Israel, who control both parties and much of the media, are strung out on the ecstasy of Empire.

The United States and the welfare of its 300 million people cannot be restored unless the neocons, Wall Street, the corporations, and their servile slaves in Congress and the White House can be defeated.

Dr. Paul Craig Roberts is the father of Reaganomics and the former head of policy at the Department of Treasury. He is a columnist and was previously the editor of the Wall Street Journal. His latest book, “How the Economy Was Lost: The War of the Worlds,” details why America is disintegrating.

I agree with you, to a point.

If come November a conservative majority takes one or both chambers, Obama may try an overt rule-by-czars move. Or he may try a sneakier rule-by-bureaucracy move.

It will then be the duty of the House to cut of funding, and the duty of the Senate to threaten impeachment.

But if the two chambers are too timid to do this, then we must go back and try again next election.

After all, this is still a democracy. The folks in Washington really are there by the will of the majority (Yeah, I know. Money corrupts. The media distorts. Etc, etc).

But it is folly to attempt to overturn majority rule just because the majority has elected idiots or even dangerous people.

Far better to fight to change the opinions of the majority!

Believe it or not, I agree with you.

We must walk the extra mile for a peaceful resolution of this Constitutional crisis - ballots and parliamentary warfare are far superior to bullets and combat - and blessed are the peace makers like Glenn Beck.

What I’m saying is the enemy will very likely view such tactics as “counter-revolutionary” and pull naked force out of their tool box.

Let me put it this way - while a young soldier many years ago I was involved in a bar fight while stationed in Germany. I was one of those sitting in the rear of the establishment and when the room erupted into fists of fury and flying beer steins, myself and my friends had no option except to fight our way to the door.

I served for twenty years in Army Intelligence during the Cold War. I know socialists as well as I know every inch of my glorious naked body. I can tell you based on my experience that in their minds they have already won. They worship history. They believe their victory is inevitable.

The socialists will not be happy campers come November when the tide turns against them. I believe they will start a civil war and those of us sitting in the back of “bar” will have to fight in order to survive.

Yeah. He and I agree on a lot of stuff in his article, but his bringing in irrelevant specifics like Israel and wars is an area in which we disagree (not that I agree with all wars).

But that is a good thing. If we agreed on everything, we would be redundant and I would have to off him. ;)

You wrote: “The socialists will not be happy campers come November when the tide turns against them. I believe they will start a civil war...”

I see your point. But in that case, wouldn’t the military quickly extinguish such a move?

And I would think that the folks in the FBI, CIA, and Secret Service wouldn’t stand idly by either.

The socialists have to know this.

The government will go after nonpayers on the grounds that they are defying the law of the land and the popular will.

The government does not care about millions of illegals entering the country during war time. They've proved this.

The government has full, legitimate authority to enforce tax collection and it will make examples of those who break the law.

You can say the exact same thing about our lawless, violent borders as people enter by the millions illegally during war time.

Why does the government not enforce or secure our borders yet it has no problem taking money from legitimate law abiding documented citizens?

I agree!

Attack, Attack, ATTACK! the Left everywhere and put them on the defensive as the Ancient Regime reactionaries they are.

After all, we Patriots are the revolutionists with the whip hand...Let them dance to our tune!...Let them learn to FEAR the righteous and the iron yoke of the Law.

The Left controls the military and federal law enforcement - Obama is still the CIC and many leadership positions - such as the chief of the U.S. Secret Service and Chief of Staff of the U.S. Army - are boot licking stooges of the Regime and would click their heels like good little Germans and do their Master’s bidding.

Would the rank & file follow their orders? Good question. In the last civil war the regular military dissolved peacefully and the service members went home to join their respective sides.

Another option would be to turn on their Obama Regime commanders and shoot them. After all, the military oath is to the Republic and not to the CIC.

Yes, too bad Shakespeare missed Oliver Cromwell and the English civil wars - In particular whose scenes where Cromwell had Charles I executed, and that famous scene where he marched his army into Parliament and dissolved it.

I’ve always admired Cromwell.

I have his picture on my living room wall.

Yes, Shakespeare killed off as many high born in his plays as your alter ego did of Romans aristocrats in the proscriptions...

Speaking of proscriptions - I wonder if our radical republicans are putting together such a list?

I understand the Left have a list 25 million patriots they’d sent to a GULAG in the Southwest for “re-eduaction”, if you believe Bill Ayers.

Personally, I think the Southwest would be too good to send the Leftists after their defeat in the inevitable civil war. I have something much better in mind for them - The Aleutian Islands off Alaska. I’ll bet on Shemya alone we could put at least 40,000 and at Adak a good 250,000 Leftist POWs. This region has arctic weather and cold Being Sea makes escape impossible.

I agree.

Say what you will about the Jacobins but they got rid of the Ancient Regime in a hurry...They literally chopped off the head of the ruling class from the king and queen on down.

Personally, I think old Robespierre went thousands of executions too far - The point could have been made just as well with the trials and executions of the leading members of the Regime, as was done by the Allies to the Nazis after WW II.

The rank & file ruling class can be neutralized by prison, exile and poverty as was done to the Tory ruling class after the First American Revolution.

Canada could find good use for 20 million new English speaking citizens that would double their population in a few months in the aftermath of a Second American Revolution.

Sulla:

My blog is here: http://ronbosoldier.blogspot.com/

I’m thinking of doing another article on what many are calling “The Second American Revolution” and I’m interested in using some of the arguments against a revolution you have advanced.

Again, my take is that a revolution started on January 20, 2009 when Obama took office. Therefore, those of us who oppose Obama and want to restore the republic are rebels, or in Marxist terms, “Counter-Revolutionists.” (CONTRAS)

Of course, to this point Obama’s revolution has been more or less peaceful, but that could change overnight since the man is apparently a radical socialist of some type and a psychopath.

Also, the Left knows they may never again be in a commanding position to overthrow the USA and that time is running out.

A good metaphor would be Lee at Gettysburg on July 3, 1863 when he ordered Pickett’s assault on the Union center in a last roll of the dice for Southern independence.

So we wait for the other shoe to drop.

Peace or War?

The ball is in the Leftist camp.

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