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Deficit Hysteria: Wrongheaded in Times of Depression

by Stephen Lendman Tuesday, Jul. 06, 2010 at 12:58 PM

proposed policies are wrecking economies

Deficit Hysteria: Wrongheaded in Times of Depression - by Stephen Lendman

When economic stimulus and productive investment are most needed, public spending cuts are coming, G20 governments agreeing to cut deficits and balance budgets, what economist Michael Hudson calls "fiscal suicide, (months into) a carefully orchestrated financial war against the 'real' economy."

Begun in Washington, Obama, in his first State of the Union address, announced plans to "freeze government spending for three years," starting in 2011, and said he'll establish a bipartisan fiscal commission by executive order, to cut the deficit by imposed austerity - social spending cuts, including Medicare, not defense, banker bailouts, or other handouts to corporate favorites, how Washington works under both parties, anti-populist by any standard, anti-productive when large stimulus is needed to revive the cratering economy.

Yet on February 18, 2010, a White House press release announced the commission's establishment - a "bipartisan National Commission on Fiscal Responsibility and Reform," co-chaired by two deficit hawks, former Republican Senate Whip Alan Simpson and former Clinton administration White House Chief of Staff Erskine Bowles, heading an 18-member team stacked with like-minded members, Democrat and Republican austerity advocates against Medicare, Social Security, and other social spending.

Deepening Global Depression

In his July 3 commentary, longtime market analyst Bob Chapman sees the US economy cratering, perhaps towards another credit collapse, saying:

-- "the (US) housing market is in serious freefall;" June mortgage applications plunged 15% and pending home sales dropped 30% (after temporary tax credits expired), a record low in May;

-- "US (and world) stock markets (are) hav(ing) a case of indigestion;

-- sovereign debt problems rage across the world financial scene;"

-- across the board, economic fundamentals signal worsening hard times;

-- unemployment is increasing, not decreasing, accurate measures putting it over 20%, not the bogus Labor Department figures, hiding the real level;

-- the "warning signs can't be missed, they are all around (us); don't be fooled by smoke and mirrors; stick with reality," a dark one Wall Street and Washington engineered and won't explain;

-- as a result, stock and commodity prices are fading; "bonds could be topping out;"

-- the US economy may "collapse into a deflationary depression;" and

-- America's unemployed won't get extended benefits, but so-called "financial reform" pleases Wall Street, the public again stiff-armed by Congress and the White House, Democrats as corrupted as Republicans.

Economist David Rosenberg is just as negative, publishing daily assessments, the kinds not heard in the mainstream, producing fantasy ones to deceive and defraud, claiming the recession is over, prosperity just ahead, the same all is well theme pundits and politicians repeated at the onset of the Great Depression, what was wrong then and again now. Only a few honest analysts explain it.

In recent weeks, Rosenberg's observed the following:

-- America has "too many vacant houses, empty apartment and office buildings, idle manufacturing plants and unemployed people;"

-- credit keeps contracting rapidly; and

-- money velocity and the multiplier are anaemic, signaling a "highly deflationary brew."

His "worry list" includes:

-- Greek default spreading, harming world economies;

-- credit tightening when stimulus is needed; and

-- America heading for a double-dip recession, a depression he signaled earlier.

"Scary math," examples include:

-- one in 10 US homeowners missed a Q 1 mortgage payment;

-- one in six are either unemployed or underemployed;

-- over four in 10 US workers have been unemployed for at least six months;

-- only one in 10 Americans think their income will rise in the next six months;

-- only one in eight believe government policy is improving the economy;

-- only one in 50 plan to buy a home in the next six months;

-- only one in 10 US small businesses have job openings;

-- one in ten credit card users are defaulting on debt; and

-- five or more unemployed workers compete for every job, "hence downward pressure on wage growth."

He also cites rolled over leading economic indicators, weak retail sales, weak consumer sentiment, rising jobless claims, slowing industrial production, ("the last vestige" of US economic strength), and a disappointing June nonfarm payroll report - distorted by the "fantasy" birth-death model, boosting it by 147,000, and an unemployment level drop to 9.5%, a "statistical illusion" because the labor force "plunged" by 652,000, discouraged workers not looking, not counted, and ignored.

It's so hard finding a job that seekers take "an average of 35.2 weeks," an "unheard of" amount of time, and about 46% of the unemployed have looked in vain for at least six months - "again, this is without precedent."

The broader Household survey, more sensitive to the small business climate, plunged 301,000 in June, following a May 35,000 drop, "the steepest contraction for the year and first back-to-back declines since last fall, (showing) the amount of slack in the US labor market is palpable," deflationary seeds being sown.

"We need a war room dedicated to reviving the moribund labor market," yet administration policies are killing it.

In a recent commentary, financial expert and investor safety advocate Martin Weiss listed "11 startling facts that Obama and Bernanke do NOT want you to think about:"

(1) the official .68 trillion national debt equals 88.5% of the real economy, all goods and services produced annually;

(2) unfunded liabilities for Medicare, Medicaid, Social Security and veterans is an additional 8 trillion, an amount so huge, it will be reneged on and not paid, cleverly over time;

(3) "state, county and local governments are nearly trillion in debt; many can't pay," and will either get federal help, make huge (unacceptable budget cuts) or default;

(4) "total federal, state and local government indebtedness now stands at a mind-blowing 3.6 trillion;"

(5) in FY 2009, the national debt increased by .4 trillion, another .6 trillion coming in FY 2010, and trillions more ahead;

(6) besides funding the annual deficit, increased Treasury borrowings are needed to replace maturing short and longer term debt;

(7) record amounts of issued debt obligations will negatively affect bond prices, causing higher interest rates;

(8) "in a desperate attempt to keep (rates) low, (the Fed) created .25 trillion out of thin air to buy mortgage-backed securities....another 0 billion (for) US Treasuries....and yet another 0.6 billion (for) other government bonds," nearly .7 trillion in total;

(9) from September 2008 - March 2010, the Fed increased the "monetary base from 0 billion to .1 trillion - a 250% increase in 18 months;"

(10) so far, despite massive money-creation, interest rates remain artificially low, but only for so long; and

(11) the US dollar lost nearly 10% of its value in the past 12 months alone, greater erosion ahead because of destructive monetary policy.

Conclusion: "This unprecedented debt crisis is the single greatest threat to your wealth and standard of living in decades," engineered by a Wall Street-Washington cabal.

A Longstanding Cabal Member

His resume reveals a consummate high-level government/corporate insider - formerly Nixon's commerce secretary, chairman of the New York Fed, chairman and CEO of Lehman Brothers and Bell and Howell, board member of seven major corporations, current chairman and co-founder of The Blackstone Group, former chairman of the Council on Foreign Relations (succeeding David Rockefeller), and co-founder and president of the Concord Coalition, calling itself:

"a nationwide, non-partisan, grassroots organization advocating generationally responsible fiscal policy."

In fact, it's partisan and elitist, its board comprised of wealthy powerful figures, including Paul Volker, Robert Rubin, and former Senators Sam Nunn, Warren Rudman, Charles Robb, and Bob Kerry, among others - allied with hard-right groups like the Heritage Foundation. It's for corporate bigness, limited government, imperial wars, fiscal austerity, ending social spending, homeland harshness, banning abortion, abolishing affirmative action, and other extremist positions the Concord Coalition endorses, openly or covertly, including the transfer of public wealth to private hands and corporate takeover of America and world governments, making billionaires like Peterson richer. In 2008, he ranked 149th among the Forbes 400 Richest Americans.

He also established the Peter G. Peterson Foundation "to increase public awareness of the nature and urgency of key economic challenges threatening America's future and accelerate action on them."

Its public and covert positions support:

-- fiscal austerity for the majority, unlimited wealth opportunities for the rich;

-- ending Medicare, Medicaid, Social Security and other social benefits;

-- making America's tax structure even more advantageous for elitists; and

-- improving the nation's healthcare system by offering less, charging more, and letting low and middle-income earners pay or do without.

Its also allied with extremist organizations like Heritage, the American Enterprise Institute, Citizens Against Public Waste, the Concord Coalition, and others, working for their interests, not ours, including deficit fear-mongering, an Ellen Brown theme in her March 1 article titled, "IMF-Style Austerity Measures Come to America: What 'Fiscal Responsibility' Means to You," saying:

Besides government imposed higher health insurance premiums, coming soon may be a " 'mandatory savings' tax and other belt-tightening measures urged by (Obama's Deficit Commission), radical austerity measures (that) will actually make matters worse." More about it below.

The push for "fiscal responsibility" is based on "bad economics," the kind Peterson and his Concord Coalition et alia endorse, a credit shrinking agenda, wrecking world economies, waging class warfare, impoverishing the many and enriching the few by transferring public wealth to private hands - IMF austerity spawning protests in Greece, Iceland, Latvia, Spain, Italy, and France, coming harshly to America, policies Peterson strongly supports, the Obama administration, Congress and other G20 countries as well, the public unaware of what's coming or how draconian, ruinous, and inhumane, promoted by outlandish fear-mongering, Peterson's specialty.

America Speaks - "Engaging Citizens in Governance," the Peterson Funded Group, Selling Snake Oil, not Solutions

Claiming to "reinvigorate American Democracy by engaging citizens in the public-decision-making" process through a series of "21st Century Town Meetings," its agenda is deceptive, destructive and discriminatory, taking aim at Medicare, Medicaid and Social Security, Concord Coalition executive director Robert Bixby calling the latter "low-hanging fruit," easy pickings for deficit cutting profiteers, Peterson adding:

"While a Social Security fix would cure only a small part of the country's long-term fiscal shortfall, it could pay big dividends in terms of the US standing internationally, deficit hawks (like himself) say. It would be a confidence builder with our foreign lenders."

America Speaks snake oil includes a deceptive introductory guide, "Federal Budget 101: An Introduction to the Federal Budget and Our Fiscal Challenges," framing the issues its way, based on false 2025 budget projections, assuming nothing will address growing deficits between now and then, and saying saving America means drastically cutting them, placing the onus on middle America, aiming, of course, to destroy it, through class warfare, impoverishing everyone but the rich, enhancing their wealth and privilege more than ever.

After causing the housing crisis, wrecking the economy, stealing trillions in public wealth, supporting imperial wars and homeland repression, Peterson's scheme (through America Speaks) is to convince people that gutting Social Security and Medicare protects our futures, by destroying them.

Its guide says:

"When government borrows large amounts of money, (our) children and grandchildren may have to endure a weaker economy and lower living standards than they would otherwise enjoy, (and) not even a return to a strong, sustained growth of the 1990s would eliminate the deficit."

In fact, private and publicly created debt work, as long as for productive investment and job creation, stimulating growth. Banks create money and lend it, creating debt - no debt, no money, and under today's credit freeze, the money supply is shrinking, contracting economic growth, creating hardships for millions.

During hard times, if banks won't lend, governments must do it, monetizing debt to reverse a downward cycle, investing it productively to create prosperity, what banker bailouts and imperial wars won't do, or the America Speaks/Concord Coalition solution - what they know but won't explain, what the public must understand to prevent their ideas catching on, ones planning to destroy America to enrich them, one way by a "mandatory savings tax," endorsed by Peterson and the Obama administration.

One proposal calls for all employers in business two years or longer to establish mandatory, Social Security Administration-handled, IRA accounts, funded by an automatic payroll deduction (a tax, perhaps 3%) - letting Wall Street manage the money, the same folks that created the bubble economy, crashed it, and now want a new revenue source to do it again, destroying more of middle America's savings, Peterson et alia supportive because Blackrock Financial, created by his Blackstone Group, will profit.

It unmasks their real agenda and meaning of "fiscal responsibility" - class warfare to wreck America, destroy the middle class, and make billionaires like Peterson much richer, what Professor Carroll Quigley explained in his 1966 book, "Tragedy and Hope," saying:

"(T)he powers of financial capitalism (have a) far-reaching aim, nothing less than to create a world system of financial control in private hands to dominate the political system of each country and the (entire world economy). This system (would) be controlled in a feudalist fashion by (global, privately run central banks), acting in concert" secretly.

As Ellen Brown and others explain, their plan "is virtually complete. Unless we wake up to what (Peterson et alia want) and take action, the 'powers of financial capital' will have their way."

With a lock on both US parties, they've got it, what only mass activism can reverse, what so far a comatose America lacks, what hopefully will change before it's too late to matter.

Stephen Lendman lives in Chicago and can be reached at Also visit his blog site at and listen to cutting-edge discussions with distinguished guests on the Progressive Radio News Hour on the Progressive Radio Network Thursdays at 10AM US Central time and Saturdays and Sundays at noon. All programs are archived for easy listening.

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