Is we or is we ain't in depression; chicken little
Source Charles Brown
Date 10/08/31/08:06

by Stephen Lendman

LONG-TIME ECONOMIC, political and market analyst Bob Chapman
publishes the "International Forecaster," offering incisive analysis
absent through mainstream sources, especially important now given
America's deepening economic crisis getting harder to conceal as
evidence mounts.

His August 25 issue says the following:

Twenty countries (including America) are headed into bankruptcy
and more will follow. That brings up the subject of state debt in
the US. America has been in an inflationary depression for eighteen
months. States have been cutting back for two years, but still face
huge budget gaps required to be closed ... 2011 will be a terrible
year (with) eighty percent of states expect(ing) deficits of more
than $200 billion. 2012 looks even worse. Most worrisome, there is
no recovery and there never has been ... the US economy and
financial system is comatose. The worst is yet to come and will hit
hard on arrival.

On August 24, economist David Rosenberg said, "Now (I'll) tell you
why this is a depression, and not just some garden-variety
recession", what he's been repeating for months unlike few others,
corporate analysts claiming the fall 2007 downturn "ended sometime
last year". Not so, it's deepened, growing evidence providing more

Offering a historical perspective, Rosenberg said the Great
Depression wasn't marked by declining GDP each quarter. The 1929 to
1933 recession lasted four years, followed by recovery and another
"deep downturn" in 1937 and 1938.

During the first one, "there were no fewer than six - six! -
quarterly bounces in GDP data", averaging eight percent at an
annual rate, accompanied by sharp market increases, then declines
confirming false positives. So "guess what? We may be reliving
history (now). If you're keeping score, we have recorded four
quarterly advances in real GDP", averaging only three percent. The
late 1930s reversal showed "how fragile the post-bubble recovery
really was", a faux one again repeated in a weaker economy now than
then, one headed for serious trouble ahead, harming millions more
Americans as a result.

The Fed cut interest rates to near zero with no effect, at best
buying time, resolving nothing. "Then the Fed tripled the size of
its balance sheet - again with little sustained impetus to a broken
financial system".

Weeks back, then confirmed with new data, Rosenberg stressed
weakness, numerous indicators turning down, including production,
retail sales, consumer confidence, and housing, a bellwether
industry impacting the entire economy. New reports show it's
collapsing, some readings to record lows, others disturbingly weak
throughout the country.

July existing home sales dropped 26%, the largest monthly decline
since records began in 1968, bringing annualized sales back to 1995
levels, and signaling worse trouble ahead. Other housing data
confirm the malaise, including new home sales, housing starts and

As worrisome were increasing layoffs and first-time unemployment
claims hitting 500,000, flashing red for trouble nearly three years
after the initial downturn, combined with a near-22% unemployment
rate, not the bogus ten percent headline number, the 1980
calculation reengineered to conceal weakness like all other fake
economic data, putting lipstick on an economy, increasingly looking
and smelling more like a pig, a sick one.

According to Rosenberg, You know you are in a depression when:

Congress (extends) jobless benefits seven times (in the past
two years) when almost half (of those) unemployed have been looking
for at least a half year;

the adult male unemployment rate (25 - 54 years) hit a
post-World War Two (high and still tops) the 1982 peak, the worst
then since the Great Depression;

youth unemployment is stuck near 25%, and for inner-city black
youths it's eighty percent or higher; these developments will have
profound long-term consequences - social, economic and political;

the depression's fiscal costs keep mounting, the federal
deficit soaring with no end to it in sight;

for over a year into a supposed recovery, the Fed still
contemplates new ways to stimulate growth, its tool, of course,
printing money (funny money, or as one analyst calls it, "toilet
paper") and quantitative easing, compounding the deficit, or the
equivalent of throwing fuel on a fire instead of monetary and
fiscal sanity plus sound economy policies to extinguish it;

after two years of record trillion dollar plus deficits to
kick-start the economy, interest rates are shockingly low, flashing
weakness, not strength; to wit, on August 24, the five-year note
was 1.36%, seven-year at $1.95%, ten-year at 2.50%, and thirty-year
at 3.57%; as well as thirty-year fixed mortgage rates at record
lows below 4.5% (4.42% on August 24), despite no fewer than eight
(government) programs to put a floor under the housing market;
we're in big trouble when (Washington) can expend so many resources
(on) one sector in vain;

the FDIC keeps shuttering more banks; again, the carnage keeps
spreading, yet most economists cling tenaciously an economic
recovery theme, at most hit by a soft patch; Rosenberg's response -
"Some recovery (when) the private credit market is basically
defunct ... what replaced it was rampant government intervention
(buying time) by trying to (put) a floor under the economy"; once
it stops, and it will, they'll be no hiding the dire truth, and no
end of pain for growing millions.

The Worst Is Yet to Come

Financial expert and investor safety advocate Martin Weiss began
warning about a major economic decline long before it began and
keeps at it, citing evidence most analysts downplay or ignore,

America's worst ever housing depression showing no signs of
abating; since January 2006, housing starts alone have plunged from
2.3 million annually to a recent 477,000 low that may not yet
reflect a bottom because demand is so weak for this bellwether

record long-term unemployment, its worst since first officially
tabulated over sixty years ago; and

the most chronic credit squeeze ever recorded ... suffer(ing)
its deepest plunge since World War Two.

As a result, he sees deepening economic trouble ahead, no matter
what steps the administration, Congress or the Fed undertake. He
expects little more stimulus, just another futile central bank
attempt to print money (lots of it) to buy time. "These paper
dollars will not create real prosperity", just an illusory,
"temporary, false prosperity", but none at all for most people,
hung out to dry on their own.

He also expects a sovereign debt crisis to hammer Europe and the
US, saying America's plight exceeds the dire situation of PIIGS
countries (Portugal, Italy, Ireland, Greece and Spain), citing the
Bank of International Settlements (the central bank of central
bankers) saying US debt will hit 400% of GDP, more than triple
Greece's burden at 129% that plunged the country into (undeclared)
bankruptcy. Indeed the worst for America is yet to come.

America Is Already Bankrupt

Boston University Economics Professor Laurence Kotlikoff explains
it in his August 10 article, titled "US Is Bankrupt and We Don't
Even Know It", saying:

Let's get real. The US is bankrupt. Neither spending more nor
taxing less will help the country pay its bills.

What's needed, he says, is reengineering the economy by "radically
simplify(ing) its tax, healthcare, retirement and financial
systemsn..." Revitalization depends on it with unfunded liabilities
topping $110 trillion and growing. Even the IMF is worried, saying
"closing (America's) fiscal gap requires a permanent annual fiscal
adjustment equal to about fourteen percent of US GDP", meaning, of
course, from working households, not corporate interests or
national security, the most glaring areas needing reform.

The fiscal gap represents "the difference between projected
spending (including debt service) and projected revenue in all
future years. (It's) the government's credit-card bill and each
year's fourteen percent GDP is the interest on that bill."

When it's not paid, it increases the balance owed. And each
trillion the Fed prints bailing out bankers compounds it. Make them
pay, not the public they robbed, starting with shutting them down,
breaking them up, seizing their assets, and nationalizing them for
the collective good.

Kotlikoff is scary saying "Uncle Sam's Ponzi scheme will stop,
(perhaps) in a very nasty manner", citing three possibilities:

(1) massive benefit cuts on retirees;

(2) huge tax increases hitting working Americans hardest, and/or

(3) printing vast amounts of money ad infinitum until debt
overload crashes the economy eventually.

Calling America "Worse than Greece", he believes "Most likely we
will see a combination of all three responses with dramatic
increases in poverty, tax(es), interest rates and consumer prices",
the path we're on heading us for the worst of all possible worlds.

Based on the latest Congressional Budget Office (CBO) data, he
calculates a $202 trillion fiscal gap - "more than fifteen times
the official debt" because Congress "label(s) most of its
liabilities 'unofficial' to keep them off the books, (out of sight)
and far in the future" to concern other officials, not them.
Labeling, of course, isn't fixing. It's just concealing unpleasant
realities, letting others, not them, face the music in out years.

Current federal revenue totals $14.9% of GDP, the IMF saying that
closing it requires "an immediate and permanent doubling of our
personal-income, corporate and federal taxes as well as the payroll
levy set down in the Federal Insurance Contribution Act".

Such policy would produce a five percent surplus this year, the IMF
prescribing ad infinitum fiscal austerity, saying delay will make
it tougher ahead. "Is the IMF bonkers?" Not at all, just
preferential, wanting workers, not special interests hit hardest,
the way it's raped and mauled economies for years, serving capital,
not people, now aiming at America, the biggest plum of all ripe for
plucking with millions of vulnerable households, easy pickings for
the powerful, harming, not relieving their needs by:

cutting wages and benefits;

destroying, not creating jobs; privatizing everything for
private gain; and

turning America into Guatemala, a corporatist's dream.

Indeed let's get real. Bad policy begets bad results, and bad
solutions makes it worse. For sure, America is "broke and can no
longer afford no-pain, all-gain 'solutions' "

It needs responsible ones, too many to list, but here's a few:

* end imperial wars and a bloated defense budget;

* reinvent government to make it responsive to public needs and
democratic values;

* make offenders pay most, starting with Wall Street, defense
contractors, Big Oil, Big Pharma, Agribusiness, and other corporate
predators profiting at public expense for decades;

* make now the time for payback, assuring their victims fair and
equitable reimbursements;

* reinvigorate industrial America;

* end Wall Street's financial chokehold;

* return money creation power to Congress as the Constitution

* encourage publicly-owned state banks like North Dakota's, making
it prosperous when most states are debt-strapped and faltering;

* create full-time, good-paying jobs with benefits; don't destroy

* bring back those offshored;

* protect homeowners from foreclosure;

* re-institute progressive taxes, including a Tobin tax (perhaps
one percent) on all speculative financial transactions, a
millionaire's/Wall Street bank levy generating a huge windfall,
enough to smack if not close the budget gap, making those most able
pay; for example, the Bank for International Settlements estimated
annual 2008 global over-the-counter derivatives trading at $743
trillion; a one percent tax would yield $7.43 trillion, and if
taxes curbed speculation, the take would still be enormous;

* dismantle corporate predators;

* think small and local, not big and global;

* reinstitute financial, environmental, and other consumer-friendly

* get money out of politics;

* end the two-party monopoly;

* institutionalize a free, open, fair media and Internet;

* assure equitable social benefits for all, including universal,
single-payer health care, government-supported public and higher
education, and more; and

* reinvigorate an eroding democracy before it's too late to matter.

Responsible policies, all of the above and more, will reinvigorate
America. The unsustainable fiscal crisis is reason enough to do it.

Stephen Lendman lives in Chicago and can be reached at Also visit his blog site at

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