Sunday, February 24, 2008

Our Economy:
What's Wrong With It?

When former presidential candidate, John Edwards, said there are two Americas, he was telling the sad truth. There are indeed two Americas: The ten percent who are doing quite nicely and the rest of us. More specifically, 90% of us are fighting tooth and nail just to survive while the remaining Vulture Culture Vampires feverishly suck the life blood out of us as we struggle. No person exemplifies the Vulture Culture ethic more than Dick "Darth" Cheney, the ultimate whitened sepulcher Vampire. His cold, black heart has more gears and gadgets than Big Ben.

When the media informs the public about our economy's problems, they tend to wrap its constituent elements together in one narrative. This leaves the impression all Americans are suffering from the same financial difficulties. The difference is assumed to be a matter of degree. Well, nothing could be further from the truth. The American economy has been deliberately bifurcated due to thirty cruel years of irresponsible Republican rule. The once dynamic generator of humanity's hopes and dreams has been savagely deformed into an ugly effigy of itself. It took a long time for us to get into this shaky position. So, it will probably take just as long to recover from the damage.

Main Street and Wall Street aren't suffering from the same illness. Although the maladies in question are closely related, they are not one and the same. Main Street is under the stress of a mountainous cash flow crunch, as illustrated by the subprime loan meltdown. There are two things happening here. One is the bulk of subprime borrowers can't keep up with their mortgage payments. This detail is ominous because these people are the canaries in the coal mine. Whatever happens to them first tends to find its way to the rest of us. The subprime borrowers can't maintain their monthly payments because their incomes have barely kept up with inflation over the last three decades, but their costs of living have skyrocketed over the same period. The most important factor in the explosive growth of real costs of living is the price of energy. The second point is banks and other lending institutions are taking greater risks on the bottom end of the credit curve because business on the more secure top end has dried up. It's been that way for many years. The major reason why is the Middle East wars are sucking up all the available capital. Real growth in the economy is being restricted by the building of war machines which have no value-added multiplier effect -- a computer can be used for many functions; a tank, only one. Giant projects which require the participation of multiple lenders are put on hold for a lack of funds and bidders willing to bear the risk. Moreover, huge deals usually entail some local or federal government support, either as a lender or guarantor. The only ventures getting this type of attention are those related to the World War industry and the builders of our national security state. Everyone else has been sidelined.

The answer to these problems is very simple: End the Middle East wars. When George W. Bush slithered into the White House, crude oil was selling for about $20.00 a barrel. Today, it's $100.00. This is clearly no accident. Dubya and Dick entered office with a plan to snatch control of Arab oil. They didn't care how they got this evil job done. These narrow-minded monsters saw the collapse of the Soviet Union as an opportunity to seize the energy resources of the entire planet for their, not our, benefit. They cloaked this operation in the veil of national security. Then, they used the 9/11 attacks as an excuse for initiating it. These are the deeds of an out-of-control rogue regime. The Founding Fathers must be tumbling and turning over in their graves.

If the wars were ended, the premium price of oil would quickly settle down to the $35-$40 range where it belongs. Capital markets would free up and flow properly. Domestic growth would accelerate. Good jobs would be plentiful. The dollar would rebound. Interest rates would be growth-oriented. And average income would improve. Most Americans would then be able to cover their costs of living without fear of default. The problem is the massive cash flow crunch caused by the illegal and immoral invasion and occupation of Arab land. The solution is to stop these crimes against humanity and to lock up the perpetrators.

Wall Street is suffering from a different disease. A half-century ago, a busy trading day was barely ten million shares. Today, transaction volumes on the NYSE are in the billions. What does all that buying and selling represent? Five decades ago, various market averages were reasonable barometers of the health of our economy and its growth potential. When most trades were still executed with pad and pencil, stock prices were valid indicators of a corporation's true value. Today, we must ask: What do the averages, volumes and trade prices represent? Do we honestly know? Wall Street was created as a venue to bring companies and investors together for the precise purpose of building America's economy. Speculators were usually kept under control. But, the introduction of historic innovations, like the car, phone, TV and computer, has the general tendency of boosting speculation over investment. Boom and bust cycles can be directly attributed to these events.

There was a time when trading was an important factor in the American economy, like any other industry. The leading market drivers were still companies creating products and services which were the envy of the world. Today, our economy is being driven by speculation, not innovation. The vital purpose of Wall Street has been converted from making deals to making money. Corporate contracts were once written for the benefit of all stakeholders. If the deal was successful, then everyone had a chance to benefit. Now, deals are struck to reward the handful of people who contrive them. Very little thought is given to the long-term consequences of these imprudent decisions. The speculators morphed Wall Street into a giant casino -- a place which is completely unworthy of legitimate investment.

The media tell us trillions of dollars are being lost on Wall Street as a result of the slowing economy. What they don't tell us is most of these losses involve pumped up off-book and off-shore schemes. Valuations in the futures, options and derivative markets are made out of thin air. This is because only ten percent of these exotic instruments are backed by any real financial exposure by the investor. The rest is borrowed on margin from banks and other lending institutions.

These markets are primarily colossal Ponzi schemes or mammoth betting parlors. They exist only to make money, not to grow the economy. When American workers catch cold, Wall Street bettors catch pneumonia. The reason why is the speculators depend on us to continue driving the market place, fortified by the eternal optimism which is built into the American Dream. The speculators simply exploit this optimism. The problem is the diabolical policies of the Bush regime destroyed the American Dream. The speculators have no reason to be surprised when they find themselves all alone after having thrown the American Dream baby out with the speculation bath water. When these wildcatters get into trouble, they always seek to recoup their losses by selling off corporate assets and destroying jobs. Rampant arbitrage will never be a practical replacement for wise investment. The solution to Wall Street's problems is evident. The trading markets have to get back in the business of matching companies with investors. The speculation mill has to be reduced to a cottage industry. And the mountains of useless futures, options and derivative contracts should be fashioned into wallpaper.

When Dubya gave his last State of the Union speech, he was correct in saying our economy is basically sound. This is true. But, his insane policies are strangling the life blood right out of it. In short, our economy is suffering from an immense cash flow crunch caused by illegal, immoral wars and rampant, speculative greed. So, the solutions are to end the wars and stop the greed. While we're at it, we must release the jaws of the Vulture Culture Vampires who are sucking on our necks. Presently, it appears America could use a national fiscal exorcism to save our economy's soul.

Franklin L. Johnson


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