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Global Report
The US Economic Recession
An Update

William (Bill) Buckler
Captain of
The Privateer
Jun 4, 2008

A second extract from the Late May 2008 Issue of Bill Buckler's "Global Report"

The US Economic Recession - An Update:

While the attention of America and most of the rest of the world is focussed upon the attempts by the Fed and Congress to lean against the internal financial contractionary hurricane inside the US financial system, the declining economic situation on the ground in the US economy bears very close attention. US payrolls are down by a total of 260,000 in the past four months. US industrial production peaked back in January and has fallen at a 4.9 percent annual pace in the past three months. Total US business sales have plunged at a 7 percent annual rate in the three months ending in February despite a surge in wholesalers' sales. Retail sales are grinding to a halt. Unsold inventories are climbing. This is a real recession.

The Biggest Debt Beat Of All:

To see this is like watching the edge of an expanding black hole in interstellar space, but this is a financial hole on the verge of swallowing an entire nation. The federal government's long-term financial obligations grew by $US 2.5 TRILLION last year, a reflection of the exploding costs of Medicare and Social Security benefits as more baby boomers reach retirement age. As reported in a USA Today analysis, American taxpayers are on the hook for a record $US 57.3 TRILLION in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs. That's $US 500,000 per household. When the liabilities of State and local governments are added to this, the total rises to $US 61.7 TRILLION. That's $US 531,472 per household, more than four times what Americans owe in personal debt and mortgages. This is now front page news on USA Today.

Staring Into The Abyss With Wide Open Eyes:

Millions must have seen this report. The presidential candidates had nothing to say. The White House had nothing to say. Congress had nothing to say. Economically, this much is certain. The debt is unpayable, even if Americans who still have any are stripped of all their assets to pay for it.

The American Social Revolution Ahead:

At some point, Americans will start to realise the reality of this debt morass. They will try to count their own individual assets and, at that point, a national panic will take place. Today most Americans have more personal, household and other liabilities than they have assets. Once this sinks in, the US will be at the trigger-line of a social revolution because the physical assets Americans do have control over will, to most, become a life and death matter. To be stripped of them - as so many Americans are now being stripped of their houses - will mean to be left destitute in the street with nowhere to go. It has happened before. It happened during the 1930s when agents of bankers showed up to sell a farm they had repossessed. On the day of the auction, other farmers walked and rode up. They all had guns in their hands. The auction began and there were no bids. Finally, a younger man stood forward and offered one Dollar for the property. Silence. The agents for the bank tried to leave, only to find that they could not. The other farmers were still there and some raised their guns. Another long silence. Then the top man from the bank accepted the one Dollar bid and that one Dollar was handed over to be followed by a bill of sale. The younger man then handed another Dollar to the first farmer and all he said was that the other farmer could pay it back when he was able. The farm changed hands again and, entirely legally, the farm was back in the legal ownership of the original owner with no debts owing.

The agents of the bank left in their cars in a cloud of dust. For a long way, they could see men and boys with guns along the roads. At the farm, the other farmers left one by one and went home. There had been no violence, nobody had died. But there would have been dead men if this had not happened and all the men there knew it, the farmers as well as the bank's agents. This happened many times in the 1930s but the history of it has died in silence. In future, when the truth dawns on millions of Americans that the Federal Government is BROKE and unable to pay them what it has promised, the stage is set for streets and cities in chaos as Americans rise in rage and in fear.

Living In The Streets:

Where are they all going? Where are they living now? About 8.5 million US homeowners, about 11 percent of the total, owed more on their mortgages than their homes were worth in the first quarter. The forecast is that the number of people in this predicament will rise to more than 12 million next year.

California SCREAMING:

To get a sense of how drastic events are in the US, it is worthwhile to look at California. If California were to be measured as a standalone economy, it would be the world's seventh largest. Take a look at what is happening there. The median Californian home price has fallen by 29 percent in the year to March and repossessions are increasing. Unemployment hit 6.2 percent in March, up 1.2 percent from the same month last year. In many ways, California is a bell weather for the rest of the US. Everything almost always happens there first and to a greater extent and for a longer period before it takes place in other parts of the US to a lesser degree. These huge price drops in California are now taking place all over the US and are cutting like a knife in under the collateral value of houses. This leaves the lenders looking at their balance sheets being torn apart. Soon, the lenders will be ripped apart.

A Financial View Of The United States From Space:

The financial foundation of the United States has been broken. The deflationary effect of falling house prices alone, if run at present speed for a year, would wipe out about $US 13 TRILLION in the value of the collateral. That sum, $US 13 TRILLION, is very close to the annual US GDP! In effect, it has the effect of wiping out the sum total of what the US has made, traded for and produced for an entire year. In all economic history, no nation's economy has ever survived that without a thunderous depression and a crash in its financial system. In fact, the real (not financial) US recession has just begun. From now on, no interest rate finagles or other financial legerdemain can stop it from continuing and getting worse.

The SIX Sectorial Areas Of US Insolvency:

Today there are four lesser areas of insolvency in the United States. These are the federal budget deficit, the US trade and current account deficit, the now insolvent big US banks, and the rising tide of negative equity for American homeowners. Right in the middle of these four lesser insolvencies are the two biggest of all. These are the combined federal and state unfunded liabilities of $US 61.7 TRILLION and the $US 7 TRILLION in US external debt - which is climbing by $US 1 TRILLION per year.

After taking a long deep breath, it should be obvious that to "solve" even one of these six areas of US insolvency would take an extraordinary effort. To solve all six, even in a sequence, would take the efforts of at least one US generation but likely more than one. Worse, much worse, is the fact that it would take most Americans totally by surprise that they now are in this economic situation even after it has been plastered all over a recent issue of USA Today. The rest of the world CAN see this coming. That is why they are pulling away from the US, barricading themselves inside their own respective economic corners, and making urgent arrangements amongst themselves in this recent series of top-level global summits. Remember, the US was not present at a single one of these summits.

It is this last which is signal, in global geo-political terms, because it signifies that the US is no longer the world's real centre of gravity anymore. The rest of the world has already downgraded the USA to being simply the power on the North American continent in world economic terms and is impossible to talk to.

The only thing really feared by the rest of the world is that the economic collapse of the US, now sliding into deepening recession, will have drastic effects on their own economies. This is the driving power behind these recent world summits. Only closer economic relations between these other nations can lessen the effects of the worldwide effects of the coming US economic depression and financial collapse.

The Policy Of The "Elite" Versus The Public:

Politically, one can always know when an "establishment" is in charge of any nation. After every election and change of government, nothing really changes. The public is given the spectacle of people running for public office, of primaries, of party conventions, of national elections for Prime Minister or President. After it is all over, everything looks the same until the next election approaches. Then the same thing happens all over again. Politically though, as time passes, this process splits the establishment from the general public so that, at election time, the numbers of those voting starts a long-term decline.

When the nation's political establishment realises this is happening, it often starts small external wars in order to distract the public internally. These wars are never large enough to place the nation in jeopardy. Any internal changes or improvements are postponed because of the small external war and the public waits for a peace to be made. It cannot protest while the war is going on, that would be unpatriotic. This attitude is also known by the political establishment, which is the historical reason why many of these small wars have gone on for astounding lengths of time. But the real internal political problem with all small external wars is that the process of fighting them often leads to increasing internal repressions in order to extract from the public the economic means of war. When that happens, the public's outlook starts to diverge from that of the political elite and the nation has a fissure. Here, the political elite faces a policy choice. It can either alter its own policy, end its external wars and start to address what the public is concerned about. Or it can continue its policy of small external aggressions for the purposes of internal distraction. If it does the latter, it places itself on the political road of ever increasing internal repression in order to continue its external policy. Having done that, and in increasing fear of its own public, the elite starts to finance its external wars with credit, i.e. loans. It does not dare to tax for the costs.

The Political Cross-Over Point:

Along this road, a point is always reached where the public realises that their own lives are going nowhere because of the climbing costs of the external wars. An example here is the US where real American living standards have not improved since the early 1970s. In 2001, in the midst of recession and after 9/11, the US political "elite" declared war - on "terror". Then came the attack on Iraq. Five years later, the US armed forces are still there in an unwinnable war. The costs are killing the fiscal budget of the US and Treasury debts are soaring. In response to the increasing resentment felt by ever more Americans, the US political establishment has established a full-scale internal surveillance state, always only a step away from a police state. That has been done because it is now the US political establishment which lives in political fear of the American public. What they fear is that the American public will spontaneously turn on them in a massive demonstration of sheer frustration.

The FINAL Choice:

The political elite now faces an American public which has realised that the US has failed in its military campaign in the Middle East as well as having failed as the economic managers of the US economy. This is the most dangerous point of all. Politically, this is the point where the political elite has to make its final choice. That choice is to maintain its external policy at the internal cost of full-scale repression or to give away its external policy at the very likely political cost of a total loss of internal political power.

Historically for the United States, the outlook is not good. No political elite nor its political establishment has ever vacated power without an immense internal political and/or physical struggle to maintain it. But as the sudden fall in 1991 of the USSR has shown, once a political establishment (the Communist Party) loses its morale, its fall from power is total and absolute. The American political establishment is today in a similar position. The United States is now in a pre-revolutionary position.

It will either suddenly swing backwards towards its historical tradition of Individual Liberty and Freedom. Or it will suddenly swing into the long night of an internal police state and endless new wars.

Lots more follows for subscribers

June 2008
William (Bill) Buckler
Captain of
The Privateer

Copyright ©1984-2008 The Privateer All Rights Reserved. (reproduced with permission)

The Privateer 2008 Volume - Late May Issue - Number 604

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