Signs of the Economic Apocalypse 2-6-06

From Signs of the Times, 2-6-06:

Gold was up again last week closing at 571.90 dollars an ounce, up 2.3% from $558.90 the week before and up13% since Christmas when it was at $505.90. The dollar closed at 0.8317 euros on Friday, up 0.6% from 0.8269 the previous Friday. The euro, then, closed at 1.2024 dollars, compared to 1.2094 the week before. Gold in euros, then, would be 475.63 euros an ounce, up 2.9% from 462.13 euros an ounce the week before. Oil closed at $65.37 a barrel, down 3.7% from 67.76 dollars a barrel at the previous week’s close. Oil in euros would be 54.37 euros a barrel, down 3.1% from 56.03 the week before. The gold/oil ratio closed at 8.75 barrels of oil per ounce of gold, up 6.1% from 8.25 the at the previous Friday’s close. In U.S. interest rates, the yield on the ten-year U.S. Treasury note was 4.53 at the end of the week, up two basis points from 4.51 the week before. In the U.S. stock market, the Dow closed at 10,793.62, down 1.1% from 10,907.21 at the close of the previous Friday. The NASDAQ closed at 2,262.58, down 1.8$ from 2,304.23 the week before.

More signs of trouble in the housing market last week. This from Massachusetts:

Housing slowdown squeezes borrowers
Foreclosure cases hit 12-year high
By Kimberly Blanton, Globe Staff January 30, 2006

The number of foreclosure notices filed against Massachusetts homeowners last year reached their highest level since the housing bust of the early 1990s, as homeowners fell behind on their mortgages and lenders began the process of taking back the properties.

Paradoxically, the sudden halt to sharply rising home prices put a squeeze on many borrowers, analysts said. Homeowners who stretched their finances to the limit to buy a home found it more difficult to make their payments on variable-rate mortgages as interest rates rose, but they were less able to refinance their loans at more attractive rates -- or sell and pay off their debts -- because the value of their homes fell or remained flat.

“When prices are skyrocketing, you have the option" of selling the house for a gain or refinancing, said Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University.

“In an economy where price appreciation is more modest or doesn't exist, what option do you have left?" he said. “Sadly, one of those options is foreclosure."

Last year, there were almost 11,500 foreclosure filings in Massachusetts Land Court, where most notices are filed by banks and mortgage companies against the homeowners, according to ForeclosuresMass Corp., which compiles and tracks filings. That is a 32 percent increase from 2004, pushing the number of filings on record to its highest level since 1993, when a once-booming housing market was in a tailspin. The biggest increases were in Eastern Massachusetts.

During the housing boom of 1999 to 2004, the average price of Massachusetts houses and condominiums surged by at least 10 percent every year except one, putting the state's home-price appreciation among the nation's highest. But last year, price gains slowed to 5 percent, and single-family home prices were flat or even declined in some Boston and suburban neighborhoods.

“There's an epidemic of foreclosures," said Boston lawyer Gary Klein, who represents borrowers in lawsuits against lenders. “We're getting a steady stream of referrals of people who are looking for any option to save their home."

Jeremy Shapiro, president of ForeclosuresMass, predicted filings would rise again this year, because many homeowners with adjustable-rate mortgages will see their monthly payments begin to rise along with interest rates.

“As we get into '06, '07, '08 and beyond, we're going to see more folks whose rates adjust," he said.

When notice is filed, it typically takes a mortgage lender three to four months to complete the foreclosure process and seize the property. Only about one in three filings actually results in a bank or mortgage company taking ownership of the home, but they provide a gauge of financial hardship.

Income was down, adjusting for inflation last year in the United States.

Wages Up by Smallest Amount in Nine Years

By MARTIN CRUTSINGER, AP Economics Writer

Wages and benefits paid to civilian workers rose last year by the smallest amount in nine years, the government reported Tuesday.

The Labor Department said that employee compensation was up 3.1 percent in 2005, an increase that was slower than the 3.7 percent rise in 2004. The slowdown reflected a big drop in benefit costs — items such as health insurance and pensions — which rose by 4.5 percent last year after jumping by 6.9 percent in 2004.

The new Employment Compensation Index should ease concerns at the Federal Reserve that improving labor markets could be starting to push up wage pressures. Wages and salaries rose by 2.6 percent last year, only slightly higher than a 2.4 percent increase in 2004.

The 3.1 percent increase in total compensation for the 12 months ending in December was the smallest annual increase since a 2.9 percent rise in 1996.
Last year's increase was not enough to keep up with inflation. When inflation is considered, overall compensation fell by 0.3 percent, the first time there has been a decline since 1996, when total compensation after adjusting for inflation was down by 0.4 percent.

Wages are down, foreclosures up, yet the mainstream media was trumpeting the supposedly “strong” employment figures for January that came out on Friday. Wall Street panicked at the bad news (bad because they were worried that people might get pay raises) out of fear of interest rate increases, which have taken place. The fake strong employment figures gives the new Federal Reserve Chairman Bernacke a fig leaf for the inevitable interest rate increases. These increases are due to the massive current account, fiscal and trade deficits that the United States is running, but now they can blame working people for asking for measely raises.

The claim that the jobless rate is under five percent is ludicrous. That would only really be the case if there were large numbers of job openings with few applicants. Anyone living in the United States will tell you that that is not the case.

The economy is presented to us as if it operated completely by natural laws. We should always remember that the economic situation is one that was chosen by people who have a large amount of say in the process. There has been a concerted effort to eliminate any vestige of economic democracy from society since the time of William Simon in the Nixon administration. Simon looked at the media and the academy at the time (late sixties, early seventies) and decried the fact that intellectuals seemed to be working against the dominant economic system at the time (corporate late capitalism). Simon called for a portion of corporate profits and the personal wealth of superrich families to be devoted to funding an alternative constellation of think tanks, media outlets, book and newspaper publishers, and radio and television stations devoted to pushing a neoliberal ideology and to eliminating traces of New Deal/Great Society forms of American social democracy. In the area of the law, a major part of this effort has been played by the Federalist Society.

After four decades of right-wing anger with liberal jurisprudence, the Federalist Society (if not Opus Dei) has now gained control of the United States Supreme court. Leaving aside the profound importance this has in constitutional matters, the economic consequences will be a return to a robber-baron type of brutal capitalism, but not in a nineteenth-century, small scale. There will be no competition; this will be a fascism run by global finance and monopoly capitalism using fundamentalist religion and xenophobia for a sufficient level of popular support. Here’s Joe Kay:

What are the aims of the Federalist Society and the various right-wing groups that have helped push the Alito and Roberts nominations? They include the rollback of the welfare state, the elimination of corporate regulations, the repudiation of international law, the expansion of executive power, and the elimination of the separation of church and state. The elevation of Alito to the Supreme Court poses a serious threat to the democratic rights and social interests of the American people.

Politically this will mean an elected dictatorship of a one-party state ruled by a “unitary executive.” The recent behavior of the Democratic Party in the United States leaves no doubt that they are not an opposition party in any real sense of the term.

These and the policies of the Bush administration as a whole are deeply unpopular, and Bush’s poll numbers are falling again. A recent poll conducted by ABC News and the Washington Post found that Bush’s approval rating stands at 42 percent, which, except for Nixon during the Watergate scandal, is the worst for a president entering his sixth year in half a century. Sixty percent of the population disapproves of the war in Iraq and the same percentage thinks that Bush does not understand their problems.

If the Democrats were serious about opposing Alito and his extreme right-wing agenda, they would mount a political campaign among broad masses of the population. However, this is the last thing they want, for this would pose a threat to the interests the Democrats themselves support.

In spite of the declining support for the administration, the popular opposition to the war and the assault on democratic rights, the anger that has been generated due to declining living standards and growing inequality, the ballooning corruption scandal surrounding lobbyist Jack Abramoff, and the indictment of several administration officials—the Republicans are able to carry their programs through the Senate with virtually no opposition from the Democrats.

The Democratic Congressional leadership has sought to apologize for its spineless surrender by citing the Republicans’ 55-45 majority in the upper house. But there is no question that if the roles were reversed the Republicans would be far more aggressive and provocative in the minority than the Democrats have been in relationship to Bush’s agenda. Moreover, the last major action carried out by the Democrats when they did control a similarly narrow majority in the Senate was the infamous vote in October 2002 to authorize Bush to wage war on Iraq, which passed overwhelmingly by a vote of 77 to 23, a margin tellingly similar to the margin by which the Alito nomination was cleared for a final vote.

This can be explained only by the fact that the Democrats have no real opposition to the policies of war, attacks on democratic rights, the assault on social programs, and, in general, the entire policy of the American ruling class. Indeed, on all of these questions, the Democrats have facilitated the Republicans in carrying out a right-wing agenda.

Now, the program is being exported to western Europe, where the corporate fascists want to destroy social democracy. Listen to how the neoliberal priesthood at Davos describe their new servant, Angela Merkel, the chancellor of Germany:

Merkel Makes Waves at Davos

By Jack Ewing
Thu Jan 26, 8:13 AM ET

In astonishingly short time, German Chancellor Angela Merkel has emerged as the most dynamic leader in Europe. That at least seemed to be the verdict of the applause meter at the World Economic Forum in Davos on Jan. 25. "You have given us hope for the first time in a long time," Peter Brabeck-Letmathe, chairman and chief executive of Swiss food giant Nestle, told Merkel after she delivered the keynote address to a packed auditorium.

Merkel called for a massive reduction in bureaucracy in both Europe and Germany, and an increase in the retirement age, among other measures. "We have to be more flexible. We're holding back enormous potential," she said.

SHOW OF STATESMANSHIP. Merkel's Davos performance was only the latest in a series of coups for the Chancellor. Since she was chosen in November to lead a coalition government of her Christian Democrats and the center-left Social Democrats, Merkel has repaired relations with the U.S., strained by the Iraq war. She also has displayed a new toughness toward Russia by visiting human-rights groups during a trip in January to see Russian President Vladimir Putin.

These and other shows of statesmanship have made her Germany's most popular leader in years, banishing memories of last year's national election campaign, when she squandered a commanding lead to barely achieve a plurality against the Social Democrats. Immediately after her speech, Merkel showed she's comfortable in the world of business as well as politics, bantering on stage with members of a panel that included Michael Dell, chairman of computer retailer Dell, and Henry McKinnell, chairman and CEO of drugmaker Pfizer. Dell advised Merkel to cut jobless benefits to remove the incentive not to work. "Good advice," replied Merkel in English.

Merkel delivered the rest of her remarks in German, even though she speaks English well -- a sign she was aiming at a domestic audience and setting the tone for policy moves to come. In a Continent dominated by the likes of such battle-scarred political warhorses as France's Jacques Chirac and Italy's Silvio Berlusconi, Merkel is a badly needed fresh face. It's not just image. As the chancellor reminded her listeners, she grew up in Communist East Germany and has no emotional stake in the social-welfare state that holds down economic growth.

The fact that a majority of the voters in Germany are completely opposed to Merkel’s neoliberal economic policies and neoconservative foreign policies is ignored in this Business Week article. If they mention public opinion at all, it is seen only as a nuisance standing in the way of enlightened policies. On either side of the Atlantic Ocean the contempt for democracy couldn’t be clearer. Canada is clearly in the crosshairs of the neoliberals and neoconservatives.

Here is what middle-class Europeans and Canadians have to look forward to under the new “dynamism:”

The Middle Class on the Precipice
Rising financial risks for American families
by Elizabeth Warren

During the past generation, the American middle-class family that once could count on hard work and fair play to keep itself financially secure has been transformed by economic risk and new realities. Now a pink slip, a bad diagnosis, or a disappearing spouse can reduce a family from solidly middle class to newly poor in a few months.

Middle-class families have been threatened on every front. Rocked by rising prices for essentials as men’s wages remained flat, both Dad and Mom have entered the workforce—a strategy that has left them working harder just to try to break even. Even with two paychecks, family finances are stretched so tightly that a very small misstep can leave them in crisis. As tough as life has become for married couples, single-parent families face even more financial obstacles in trying to carve out middle-class lives on a single paycheck. And at the same time that families are facing higher costs and increased risks, the old financial rules of credit have been rewritten by powerful corporate interests that see middle-class families as the spoils of political influence.

Raising Incomes the Two-Worker Way
In just one generation, millions of mothers have gone to work, transforming basic family economics. The typical middle-class household in the United States is no longer a one-earner family, with one parent in the workforce and one at home full-time. Instead, the majority of families with small children now have both parents rising at dawn to commute to jobs so they can both pull in paychecks.

Scholars, policymakers, and critics of all stripes have debated the social implications of these changes, but few have looked at their economic impact. Today the median income for a fully employed male is $41,670 per year (all numbers are inflation-adjusted to 2004 dollars)—nearly $800 less than his counterpart of a generation ago. The only real increase in wages for a family has come from the second paycheck earned by a working mother. With both adults in the workforce full-time, the family’s combined income is $73,770—a whopping 75 percent higher than the median household income in the early 1970s. But the gain in income has an overlooked side effect: family risk has risen as well. Today’s families have budgeted to the limits of their new two-paycheck status. As a result, they have lost the parachute they once had in times of financial setback—a back-up earner (usually Mom) who could go into the workforce if the primary earner got laid off or fell sick. This “added-worker effect” could buttress the safety net offered by unemployment insurance or disability insurance to help families weather bad times. But today, a disruption to family fortunes can no longer be made up with extra income from an otherwise-stay-at-home partner.

Income risk has shifted in other ways as well. Incomes are less dependable today. Layoffs, outsourcing, and other workplace changes have trebled the odds of a significant interruption in a single generation. The shift from one income to two doubled the risks again, as both Mom and Dad face the possibility of unemployment. Of course, with two people in the workforce, the odds of income dropping to zero are lessened. But for families where every penny of both paychecks is already fully committed to mortgage, health insurance, and other payments, the loss of either paycheck can unleash a financial tailspin. Nor are such risks solely related to unemployment. Consider health-related exposures. Two wage-earners means either Mom or Dad could be out of work from illness or injury, losing a substantial chunk of the family income. Finally, the new everyone-in-the-workforce family faces higher risks for caregiving. When there was one stay-at-home parent, a child’s serious illness or Grandma’s fall down the stairs was certainly bad news, but the main economic ramification was the medical bills. Today, someone has to take off work—or hire help—in order to provide family care. At a time when hospitals are sending people home “quicker and sicker,” more nursing care falls directly on the family—and someone has to be home to administer it.

… The data can be summarized in a financial snapshot of two families, a typical one-earner family from the early 1970s compared with a typical two-earner family from the early 2000s. With an income of $42,450, the average family from the early 1970s covered their basic mortgage expenses of $5,820, health-insurance costs of $1,130 and car payments, maintenance, gas, and repairs of $5,640. Taxes claimed about 24 percent of their income, leaving them with $19,560 in discretionary funds. That means they had about $1,500 a month to cover food, clothing, utilities, and anything else they might need—just about half of their income.

By 2004, the family budget looks very different. As noted earlier, although a man is making nearly $800 less than his counterpart a generation ago, his wife’s paycheck brings the family to a combined income that is $73,770—a 75 percent increase. But higher expenses have more than eroded that apparent financial advantage. Their annual mortgage payments are more than $10,500. If they have a child in elementary school who goes to daycare after school and in the summers, the family will spend $5,660. If their second child is a pre-schooler, the cost is even higher—$6,920 a year. With both people in the workforce, the family spends more than $8,000 a year on its two vehicles. Health insurance costs the family $1,970, and taxes now take 30 percent of its money. The bottom line: today’s median-earning, median-spending middle-class family sends two people into the workforce, but at the end of the day they have about $1,500 less for discretionary spending than their one-income counterparts of a generation ago.

What happens to the family that tries to get by on a single income today? Their expenses would be a little lower because they can save on childcare and taxes, and, if they are lucky enough to live close to shopping and other services, perhaps they can get by without a second car. But if they tried to live a normal, middle-class life in other ways—buy an average home, send their younger child to preschool, purchase health insurance, and so forth—they would be left with only $5,500 a year to cover all their other expenses. They would have to find a way to buy food, clothing, utilities, life insurance, furniture, appliances, and so on with less than $500 a month. The modern single-earner family trying to keep up an average lifestyle faces a 72 percent drop in discretionary income compared with its one-income counterpart of a generation ago.

Combine changes in family income and expenses, and the biggest change of all becomes evident—on the risk front. In the early 1970s, if any calamity came along, the family devoted nearly half its income to discretionary spending. Of course, people need to eat and turn on the lights, but the other expenses—clothing, furniture, appliances, restaurant meals, vacations, entertainment, and pretty much everything else—can be drastically reduced or even cut out entirely. In other words, they didn’t need as much money if something went wrong. If the couple could find a way—through unemployment insurance, savings, or putting their stay-at-home parent to work—they could cover the basics on just half of their previous earnings. Given the option of a second paycheck, both could stay in the workforce for a few months once the crisis had passed, pulling the family out of their financial hole.

But the position today is very different. Fully 75 percent of family income is earmarked for recurrent monthly expenses. Even if they are able to trim around the edges, families are faced with a sobering truth: every one of those expensive items—mortgage, car payments, insurance, childcare—is a fixed cost. Families must pay them each and every month, through good times and bad; there is no way to cut back from one month to the next, as can be done with spending on clothing or food. Short of moving out of the house, withdrawing their children from preschool, or canceling the insurance policy altogether, they are stuck.
In other words, today’s family has no margin for error. There is no leeway to cut back if one earner’s hours are cut or if the other gets sick. There is no room in the budget if someone needs to take off work to care for a sick child or an elderly parent. Their basic situation is far riskier than that of their parents a generation earlier. The modern American family is walking a high wire without a net.

The Rules Have Changed
The one-two punch of income vulnerability and rising costs has weakened the middle class, at the same time that the revision of the rules of financing delivers a death blow to millions of families each year. Since the early 1980s, the credit industry has rewritten the rules of lending to families. Congress has turned the industry loose to charge whatever it can get and to bury tricks and traps throughout credit agreements. Credit-card contracts that were less than a page long in the early 1980s now number 30 or more pages of small-print legalese. In the details, credit-card companies lend money at one rate, but retain the right to change the interest rate whenever it suits them. They can even raise the rate after the money has been borrowed—a practice once considered too shady even for a back-alley loan shark. When they think they have been cheated, customers can be forced into arbitration in locations thousands of miles from home. Some companies claim that they can repossess anything a customer buys with a credit card.

Credit-card issuers are not alone in their boldness. Home-mortgage lenders are writing mortgages that are so one-sided that some of their products are known as “loan-to-own” because it is the mortgage company—not the buyer—who will end up with the house. Payday lenders are ringing military bases and setting up shop in working-class neighborhoods, offering instant cash that can eventually cost the customer more than a thousand percent interest.

For those who can stay out of debt, the rules of lending may not matter. But the economic pressures on the middle class are causing more families to turn to credit just to make ends meet. When something goes wrong the only place to turn is credit cards and mortgage refinancing. At that moment, the change in lending rules matters very much indeed. The family that might manage $2,000 of debt at 9 percent discovers that it cannot stay afloat when interest rates skyrocket to 29 percent. And the family that refinanced the home mortgage to pay off other debts suddenly faces escalating monthly payments and may find itself staring at foreclosure. Job losses or medical debts can put any family in a hole, but a credit industry that has rewritten the rules can keep that family from ever climbing back.

…During the same period, families have been asked to absorb much more risk in their retirement income. In 1985, there were 112,200 defined-benefit pension plans with employers and employer groups around the country; today their number has shrunk to 29,700 such plans, and those are melting away fast. Steelworkers, airline employees, and now those in the auto industry are joining millions of families who must worry about interest rates, stock market volatility, and the harsh reality that they may outlive their retirement money. For much of the past year, President Bush campaigned to move Social Security to a savings-account model, with retirees trading much or all of their guaranteed payments for payments contingent on investment returns. For younger families, the picture is not any better. Both the absolute cost of healthcare and the share of it borne by families have risen—and newly fashionable health-savings plans are spreading from legislative halls to Wal-Mart workers, with much higher deductibles and a large new dose of investment risk for families’ future healthcare. Even demographics are working against the middle class family, as the odds of having a frail elderly parent—and all the attendant need for physical and financial assistance—have jumped eightfold in just one generation.

From the middle-class family perspective, much of this, understandably, looks far less like an opportunity to exercise more financial responsibility, and a good deal more like a frightening acceleration of the wholesale shift of financial risk onto their already overburdened shoulders. The financial fallout has begun, and the political fallout may not be far behind.

Elizabeth Warren is Gottlieb professor of law and faculty director of the Judicial Education Program.

It looks like the British are ahead of the curve, compared to the rest of the EU:

Number of bankrupt British families hits record

Sat Feb 4, 1:56 PM ET

LONDON (AFP) - The number of British households declaring bankruptcy because of an unmanageable burden of debt hit a record high last year, according to official figures.

The total of 67,580 bankruptcies was 45 percent up on 2004 and the highest since the statistic began to be recorded 45 years ago.

Analysts warned the figure could hit 100,000 in the current year, a new rise of almost 48 percent.

Steve Treharne, head of personal insolvency at consultants KPMG, said Saturday: "The bankruptcy bubble is getting bigger, but seems unlikely to burst for some time yet."

The number of households who saw their homes repossessed because they could not meet their mortgage repayments rose by 22 percent in the second half of 2005 to 5,630.

The total for the year was 10,260, 70 percent up on 2004.

Those who fell behind on their mortgage payments increased 20 percent between the first and the second half of 2005.

British households' private debt soared to 1.130 trillion pounds (1.650 trillion euros, 2.011 trillion dollars) following the Christmas season. On credit cards alone it stands at two-thirds of the total in the whole European Union.

As for people in the United States, a look at Latin America in the era of right-wing military dictatorships or post-collapse Russia might give us an idea of what’s planned.

The True State of the Union
More Deception from the Bush White House
By Paul Craig Roberts
February 1, 2006

Gentle reader, if you prefer comforting lies to harsh truths, don't read this column.

The state of the union is disastrous. By its naked aggression, bullying, illegal spying on Americans, and illegal torture and detentions, the Bush administration has demonstrated American contempt for the Geneva Convention, for human life and dignity, and for the civil liberties of its own citizens. Increasingly, the US is isolated in the world, having to resort to bribery and threats to impose its diktats. No country any longer looks to America for moral leadership. The US has become a rogue nation.

Least of all did President Bush tell any truth about the economy. He talked about economic growth rates without acknowledging that they result from eating the seed corn and do not produce jobs with a living wage for Americans. He touted a low rate of unemployment and did not admit that the figure is false because it does not count millions of discouraged workers who have dropped out of the work force.

Americans did not hear from Bush that a new Wal-Mart just opened on Chicago's city boundary and 25,000 people applied for 325 jobs (Chicago Sun-Times, Jan. 26), or that 11,000 people applied for a few Wal-Mart jobs in Oakland, California. Obviously, employment is far from full.

Neither did Bush tell Americans any of the dire facts reported by economist Charles McMillion in the January 19 issue of Manufacturing & Technology News:

During Bush's presidency the US has experienced the slowest job creation on record (going back to 1939). During the past five years private business has added only 958,000 net new jobs to the economy, while the government sector has added 1.1 million jobs. Moreover, as many of the jobs are not for a full work week, "the country ended 2005 with fewer private sector hours worked than it had in January 2001."

McMillion reports that the largest sources of private sector jobs have been health care and waitresses and bartenders. Other areas of the private sector lost so many jobs, including supervisory/managerial jobs, that had health care not added 1.4 million new jobs, the private sector would have experienced a net loss of 467,000 jobs between January 2001 and December 2005 despite an "economic recovery." Without the new jobs waiting tables and serving drinks, the US economy in the past five years would have eked out a measly 64,000 jobs. In other words, there is a job depression in the US.

McMillion reports that during the past five years of Bush's presidency the US has lost 16.5% of its manufacturing jobs. The hardest hit are clothes manufacturers, textile mills, communications equipment, and semiconductors. Workforces in these industries shrunk by 37 to 46 percent. These are amazing job losses. Major industries have shriveled to insignificance in half a decade.

Free trade, offshore production for US markets, and the outsourcing of US jobs are the culprits. McMillion writes that "every industry that faces foreign outsourcing or import competition is losing jobs," including both Ford and General Motors, both of which recently announced new job losses of 30,000 each. The parts supplier, Delphi, is on the ropes and cutting thousands of jobs, wages, benefits, and pensions.

…Americans are constantly reassured that America is the leader in advanced technology and intellectual property and doesn't need jobs making clothes or even semiconductors. McMillion puts the lie to this reassurance. During Bush's presidency, the US has lost its trade surplus in manufactured Advanced Technology Products (ATP). The US trade deficit in ATP now exceeds the US surplus in Intellectual Property licenses and fees. The US no longer earns enough from high tech to cover any part of its import bill for oil, autos, or clothing.

This is an astonishing development. The US "superpower" is dependent on China for advanced technology products and is dependent on Asia to finance its massive deficits and foreign wars. In view of the rapid collapse of US economic potential, my prediction in January 2004 that the US would be a third world economy in 20 years was optimistic. Another five years like the last, and little will be left. America's capacity to export manufactured goods has been so reduced that some economists say that there is no exchange rate at which the US can balance its trade.

McMillion reports that median household income has fallen for a record fifth year in succession. Growth in consumer spending has resulted from households spending their savings and equity in their homes. In 2005 for the first time since the Great Depression in the 1930s, American consumers spent more than they earned, and the government budget deficit was larger than all business savings combined. American households are paying a record share of their disposable income to service their debts.

With America hemorrhaging red ink in every direction, how much longer can the dollar hold on to its role as world reserve currency?

…Globalization is wiping out the American middle class and terminating jobs for university graduates, who now serve as temps, waitresses and bartenders. But the whores among economists and the evil men and women in the Bush administration still sing globalization's praises.

The state of the nation has never been worse. The Great Depression was an accident caused by the incompetence of the Federal Reserve, which was still new at its job. The new American job depression is the result of free trade ideology. The new job depression is creating a reserve army of the unemployed to serve as desperate recruits for neoconservative military adventures. Perhaps that explains the Bush administration's enthusiasm for globalization.

Ironically, things in Latin America are looking up. The Interntional Monetary Fund is worried about the fact that Brazil and Argentina are paying their loans off early.

IMF Faces Deficit, Doubts on Role as Brazil, Argentina Pay Debt

Feb. 2 (Bloomberg) -- The International Monetary Fund's loss of two of its biggest borrowers last month has left the lender with a widening budget shortfall and renewed questions about its role in the global economy.

In the past six weeks, Brazil made early repayment of $15.5 billion it owed and Argentina repaid $9.5 billion in debt two years ahead of schedule, closing the accounts of the IMF's first- and third-largest borrowers.

The enticement to pay the debt -- foreign reserves that have swelled as Latin American economies rebound from recession and investors' appetites for government bonds grow -- is present in other large borrowing nations, including Pakistan, Serbia and Ukraine, which have hinted they too may sever ties to the lender.

…Founded at the end of World War II to promote global economic stability, the IMF typically makes loans to countries on the condition that the borrowers undertake economic policy changes such as adjusting their balance of payments or reducing inflation.

With elections nearing, those conditions grew unpopular in Argentina and Brazil, where the public has blamed their countries’ economic crises on IMF-mandated changes. And those countries aren’t alone.

Pakistan, the IMF’s third-largest debtor now that Argentina has walked away, is carrying $1.51 billion in debt and says it’s seeking to cut its dependence on the fund; Ukraine, the fourth- largest debtor, said in 2004 it would probably decline any additional assistance; and Serbia, which owes the IMF about $874 million, said last month it wouldn’t borrow any more.

Russia, Thailand Repay

A year ago, Russia repaid early its $3.3 billion debt to the IMF following seven years of economic expansion; in 2003, Thailand finished paying off its obligations two years ahead of schedule.

When the IMF lends to a nation, it often forces changes in fiscal policies that are rarely popular among citizens, said Desmond Lachman, who spent 24 years as an IMF economist and is now a senior fellow at the American Enterprise Institute, a Washington-based think tank.

“This plays very well politically in those countries,” Lachman said. “Prepaying the IMF is declaring independence.”

Argentina had been pursuing a new loan with the IMF last year. Talks failed after President Nestor Kirchner rebuffed IMF demands to remove a cap on utility rates, reduce intervention in currency markets that has kept the peso low against the dollar and bolster national savings. Kirchner said the IMF’s suggestions would have hurt the nation’s economy.

Back in the United States, the transformation of the country from Athens to Sparta seems complete as the Bush Administration requested total military spending for next year of more than a half-trillion dollars. The official numbers are more in the 400 billion range, but those totals don’t include supplemental requests for money for the wars in Iraq and Afghanistan, requests that end up totaling more than 200 billion a year:

Bush to Request $70B More for War Funding

By ANDREW TAYLOR, Associated Press Writer
The White House has told Congress to expect requests for about $70 billion more for the wars in Iraq and Afghanistan in the ongoing budget year and $18 billion more for hurricane relief, Senate Republican aides say.

The details of the requests are not finalized but President Bush's budget for 2007, to be submitted next week, will reflect the totals for planning purposes, said the aides, who spoke on condition of anonymity because the White House has not yet announced the requests. Another $2.3 billion to combat avian flu is also expected.

The funding for Iraq is in addition to $50 billion approved in December and should be enough to conduct the war through Sept. 30, the end of the fiscal year.

Bush is also expected to set aside $50 billion in the 2007 budget for the war effort, though such funds won't be enough for the entire year.

"We understand that besides the supplemental that now, for the first time, they're going to request a bridge fund," said Rep. C.W. "Bill" Young, R-Fla., who chairs the House Appropriations Defense Subcommittee. "This is what we're hearing."

Young and Rep. John Murtha of Pennsylvania, the senior Democrat on the panel, said late last year that military officials had told them to expect additional Iraq funding of as much as $100 billion for 2006.

In the 1990s the total defense budget was around 300 billion a year. Where is the money coming from? From anything that might help the struggles of ordinary people:

US budget slashes social spending to fund war and tax cuts for the rich
By Bill Van Auken3 February 2006

In the wake of George W. Bush’s State of the Union address, the White House and the Republican-led Congress have moved swiftly to implement a series of budget measures that will slash funding for health care and education while allocating vast new sums for the wars in Iraq and Afghanistan and tax cuts for America’s wealthy elite.

The House of Representatives approved a $39.5 billion five-year budget-cutting package on Wednesday. More than half of the savings has been carved out of funding for Medicare and Medicaid, the principal programs that provide minimal health care coverage to the elderly, poor and disabled.

On Thursday, Congressional sources reported that the White House was preparing to ask Congress for another $70 billion to pay for the US wars in Iraq and Afghanistan. This comes on top of $50 billion approved just last December, and brings the total allocated for these military interventions in little over four years to more than $420 billion, the vast majority of it spent on the aggression against Iraq.

Before the year is out, the administration will seek yet another supplemental appropriation to pay for the military operations in the two countries. It is anticipated that before the end 2006, the cost of these wars will top the $500 billion mark—ten times the amount estimated by the administration prior to the invasion of Iraq.

Meanwhile, the Senate continued debate on a $56 billion tax cut that has already been passed by the House.

Taken as a whole, these legislative initiatives will deepen the social misery in America while widening the already enormous gulf separating a tiny financial oligarchy from the masses of working people. They further underscore American capitalism’s growing dependence upon militarism to offset the decline in its economic position in the world arena.

The House bill is misnamed the Deficit Reduction Act. In fact, it will do next to nothing to reduce the US budget deficit, which is expected to rise to $360 billion this year. While draconian in their impact on those who depend on the programs being slashed, the budget cuts hardly make a dent in this deficit and account for less than 3 percent of the $14.3 trillion in federal spending projected over the next five years.

The House leadership and the Bush White House praised the budget package for taking what one Republican congressman termed a “first step toward long-term fiscal discipline.” However, it is clear that discipline is being demanded only from those at the bottom of the social ladder, who will pay for the amassing of even greater personal fortunes by those at the top.

The tax package that is currently under consideration is centered on the extension of capital gains and dividend tax cuts, over half of which would go to the top 0.2 percent who have incomes in excess of $1 million a year. Over three-quarters of the tax cuts benefit only households making more than $100,000 a year—just 14 percent of the population. According to some estimates, the real cost of this give-away to the super-rich and the most privileged sections of the upper-middle-class will be closer to $100 billion in lost federal revenues over the next five years.

The biggest spending cuts enacted by Congress include $6.4 billion slashed from Medicare, the health program for the elderly, and $4.8 billion from Medicaid, which provides health coverage for the poor and disabled.

..While slashing benefits for the poor and elderly, the legislation was carefully crafted to protect the interests of the managed health care industry and the major drug companies. Provisions in the Senate version of the bill that would have required the big pharmaceutical firms to give larger rebates on drugs bought by states under Medicaid and cut overpayments to HMOs covering Medicare beneficiaries—which alone would have saved an estimated $22 billion over 10 years—were stripped from the legislation. Some in Congress charged that the final language of the bill was directly dictated by lobbyists for HMOs and drug companies, which are among the largest campaign contributors to both major parties.

Another socially regressive provision will sharply increase interest rates on college loans to students and their parents. The interest rate on PLUS loans to parents will rise from the current 6.1 percent to 8.5 percent next July, while the rate on federal Stafford Loans used by some 10 million students will climb from 5.3 percent to 6.8 percent.

This change amounts to a cut in financial aid that will ultimately deprive a section of working class youth of the right to a higher education. It is projected to generate as much as $14 billion in revenue over five years, money that will be used to defray the cost of tax cuts for the rich.

At least we in the United States still have bread and circuses. Yesterday was Super Sunday and this year the Super Bowl was played in Detroit:

February 3, 2006
Super Bowl City on the Brink
Fourth and Long in Detroit
By Dave Zirin

"A celebration of concentrated wealth."

That's what Washington Post sportswriter Tony Kornheiser called the National Football League's two-week long pre-Super Bowl party binge. Every Super Bowl Sunday, corporate executives and politicians exchange besotted, sodden backslaps, amidst an atmosphere that would shame Jack Abramoff. Only this year the bacchanalia -- complete with ice sculptures peeing Grey Goose vodka and two tons of frozen lobster flown directly to the stadium -- is happening in the United States' most impoverished, ravaged city: Detroit. Detroit's power elites in government and the auto industry are rolling out the red carpet while many of its people shiver in fraying rags. This contrast between the party atmosphere and abject urban suffering has been so stark, so shocking and so utterly revealing that news coverage on the city's plight has appeared in the sports pages of the New York Times and Detroit Free Press, among others.

Only a Bush speechwriter couldn't notice the gritty backdrop while limos clog the streets and escort services are flying in female reinforcements like so much shellfish. Detroit -- and there is no soft way to put this -- is a city on the edge of the abyss. Its 2005 unemployment rate was 14.1 percent, more than two and a half times the national level. Its population has plummeted since the 1950s from over two million to fewer than 900,000, and more than one-third of its residents live under the poverty line, the highest rate in the nation. In addition, the city has in the past year axed hundreds of municipal employees, cut bus and garbage services, and boarded up nine recreation centers. As the Associated Press wrote, "Much of the rest of Detroit is a landscape dotted with burned-out buildings, where liquor stores abound but supermarkets are hard to come by, and where drugs, violence and unemployment are everyday realities."

Ryan Anderson of Detroit, wrote me a chilling email saying, "The mood is one of Orwellian-flavored siege: dire warnings of a 30-day police speeding ticket bonanza, designed to raise $1 million for the construction of a damn bridge welcoming out-of-towners to the Motor City; the mayor, the governor, and every other notable on the radio urging us all to 'show 'em what we got' [read: Don't further sully our already bad reputation]; and the homeless being taken to a three-day 'Superbowl Party,' where they'll get the actual food and shelter they need until the big game's over, after which they'll be kicked back out on the streets. Welcome to the Poorest City in America, sponsored and enabled by lily-white Oakland County."

Anita Cerf, a teacher in Detroit also wrote to me, "I am appalled by the living conditions of its residents as contrasted with the hype for the Super Bowl and the fancying up of downtown for all the rich out-of-town guests. I live on the East Side, which probably has one of the highest poverty rates in the country, and I teach high school dropouts on the Southwest Side. My students have horrific problems, many of which stem from these economic and social conditions. It's disgusting."

Mitch Albom of the Detroit Free Press described the shelter, called the Detroit Rescue Mission, throwing the "three day party" to cleanse homeless people from the city's landscape. As Albom wrote, "Lines formed before sunset, dozens of men in dirty sweatshirts, old coats, worn-out shoes. They had to line up in an alley, because, [the shelter's director says], the city doesn't want lines of homeless folks visible from the street. Even at a shelter, they have to go in the back door."
But these days Detroit is dealing with more than normal tough times. While the Super Bowl is played at Ford Field, the Ford family announced last week that it would eliminate up to 30,000 jobs and close 14 plants in the next six years. The cuts mean it's the unemployment line, and maybe Albom's shelter, for about a third of the 87,000 Ford workers who are members of the United Auto Workers (UAW).

For a city that built a stable "middle class" out of union struggle and the auto plants, this is injury added to insult. But have no fear. NORAD, the North American Aerospace Defense Command, will be flying sorties over Ford Field to protect everyone from terrorist missile attacks. There is no NORAD however on the streets of Detroit to protect people from Operation Enduring Class War otherwise known as the Super Bowl.