The US Meltdown

The current economic troubles are part of a 30-year slide that might be leading toward a brink. In 1995, before Bush policies shifted huge amount wealth from the lower economic strata to the elite, Lester Thurow wrote the following in The Future of Capitalism (He also provides the data to back it up):

No country, not experiencing a revolution or a military defeat, has probably ever had as rapid or as widespread an increase in [wealth] inequality as has occurred in the United States in the last two decades. Never before have Americans seen the current pattern of real-wage reductions in the face of a rising per capita GDP [because the wealth was going to a small minority of wealthy elite].
- Lester Thurow, Economist, 1995.

Now, in his book Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, Kevin Phillips is saying things are worse and the US is facing a crisis of historic proportions. Many empires have fallen throughout history. Why should the US be an exception?

DemocracyNow! introduces Phillips as follows:

A generation ago, Kevin Phillips wrote "The Emerging Republican Majority", which Newsweek described as the “political bible of the Nixon administration.” Throughout the ’70s and ’80s Kevin Phillips was viewed as one of the GOP’s top theoreticians and electoral analysts. But today he’s considered one of the leading critics of US political culture.

Phillips has a lot to say in the full interview with DemocracyNow, but here is a quick synopsis of his prescient views:

Asked for "the most serious signs of this overall global crisis of American capitalism," by DemocracyNow's Amy Goodman, Phillips effectively said the worst 'sign' is the fact that there are so many bad signs all at the same time. Phillips says,

Normally when a country is—United States is—heading into a recession, there are one or two, sometimes three, factors that you worry about. But at this point in time... there are like six or seven [factors], and you don’t usually see anything like that number.

1. Financialized Economy: "We have a financialized economy in which we don’t make much anymore, and finance is up to 20 to 21 percent of the US GDP, and manufacturing down to 12. Finance dominates the US economy." (In simple terms, Finance is the business of making loans, which recently has been exposed as a hollow shell game).

2. Debt (which relates to #1): "We have massive debt, both public and private. It’s gone up about 700 percent since the early 1980s, staggering numbers where there—we basically have $50 trillion worth of credit market debt. It’s not government debts that’s the problem, it’s private sector debt, both financial and corporate and then in the consumer sector with credit cards and then mortgage debt. 340 percent of the gross domestic product, that’s how big debt is. And the last time something was close to this—and it was less—was in the late 1920s and early 1930s. So it’s enormously a vulnerable, dangerous thing.

3. Real Estate Boom/Bust: Spawned by the financialized economy is the collapse of home prices. "They continue to follow the scary trajectory that has people predicting that there’s going to be a 15 to 20 percent decline in home prices, which would be the sharpest since the Great Depression."

4. Global commodity inflation: Consider Oil and food. People are as worried now about the price of milk as they are about the price of a gallon of gasoline. That’s a global problem, but it makes a mockery of the administration’s pretense that there’s no inflation.

5. Dishonest Economic Statistics: "I don’t think the average American should believe either the inflation numbers, the GDP numbers or the unemployment numbers. The long and the short is that over thirty to forty years, we’ve seen a kind of Pollyanna Creep, and administrations of both parties have done this. They want the figures to be friendlier, not to get them in trouble. And we’re at a point now where the figures lie enough that foreign investors are starting not to believe them." (Trust in the good faith US government backing of Treasury bonds and the dollar is eroding. Why shouldn't faith be unraveling after decades of the right-wing drum beat for "less government"?)

6. Price of Oil: And it’s not just global commodity inflation, it’s the problem that we see of oil production peaking in the world sometime in the next ten to twenty years. And the advance signs of this are scarcity and peaking in certain countries (e.g., US production has already peaked). And the prediction just came out of Goldman Sachs a couple of days ago that within a fairly short period of time, probably this year, you’re going to see $150 or $200 [a barrel] oil.

7. Demise of the US Dollar: The US dollar has been tied historically, since the 1970s, to oil (More). Henry Kissinger and others were involved in getting OPEC to commit that they would sell and buy oil only in dollars and that they would invest their petrodollars in the US, in Treasury debt. So we have a currency that’s profited from the connection to oil, which sustained it in many ways. But now oil has boomeranged on the United States.

We have to spend $400 billion a year to import the oil we need. We don’t have the basis for controlling oil anymore, after the idiocy in Iraq, which was partly put in motion to solve the oil problem, and instead you’ve got oil prices going up 500 percent in five years. (Good for Bush cronies, bad for the average American).

Sources:

“Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism”, an interview with Kevin Phillips on DemocracyNow, May 6, 2008.