Presidents
Reagan, Bush Sr., Clinton and Bush Jr. jointly increased the national
debt by over six trillion dollars. Clinton by passing NAFTA and
accelerating the de-industrialization of America started the movement of
manufacturing jobs to countries with cheap labor and no environmental
laws. The technology bubble blown by Greenspan’s reckless policies led
to overbuilding of fiber-optic transnational cables. Manufacturing which
had migrated to Mexico left North America for China and services for
India.
The seeds of
stagflation were sown to undo the Herculean efforts of taming inflation
by honest Volcker. The collapse of the tech bubble and the dastardly
9-11 terrorist attack brought the economy to its knees and one trick
pony Greenspan, the enfant terrible, resorted to his favorite nefarious
pastime by blowing another bubble (real estate). He kept the Fed Funds
rate at 1% to jumpstart the economy and rescue banks from the
Argentinean bankruptcy and default. He had done the same during the
Russian default to help LTCM hedge fund and brokerages in the late
nineties.
Kennedy and Johnson began the profligate spending of the Vietnam war
that led to beginning of the demise of the Bretton Woods agreement and
the dollar. Reagan with Alzheimer’s and a monomaniacal paranoia about
the already crumbling Soviet Union, increased the national debt by over
a trillion dollars with his defense buildup and star wars fantasies. He
cut taxes without fulfilling his promise to cut spending and American
trade deficits with Japan ballooned to fifty billion dollars. Many
Republicans because of their limited mental abilities have a single
repertoire and obsession with increasing defense expenditures and
cutting taxes with total disregard for fiscal responsibility as the
idiotic statements of the current president, vice-president and many
Republican contenders for the presidency in 2008 prove. Bush Sr.
practiced the same voodoo economics despite condemning it.
Clinton, whose ambition overwhelmed his formidable intellect and meager
behavior ethics, was a closet Republican who enacted NAFTA in betrayal
of his labor support to enrich his business elite donors. Their greed
for money and plan of enrichment by stock options to the detriment of
working Americans’ salaries and well being, led to factories and jobs
moving to China and services to India. The above follies were topped by
the current idiot in the White House by the same policies and invasion
of Iraq under false pretexts of WMD, spreading democracy and other lies
to capture Iraq’s oil. Saddam was a despicable tyrant but a former ally
and protégé whose overthrow could be camouflaged as humanitarian
intervention to hide the oil grab.
The US Federal Reserve has two mandates, price stability and economic
growth. It has been a Trojan horse for the financial behemoths. During
the earlier irresponsible lending behavior of big banks to Latin
America, it reduced the Fed funds rate low and long enough to make
Citibank and others whole. Similar favors were done by Treasury
Secretary Rubin in collusion with Greenspan in the Clinton era to bail
out bad loans of US banks to Mexico and brokerage houses during the
Reagan era in the 1987 market crash. Reagan who was a spokesman for GE
had pushed through legislation to allow Savings and Loan Banks to
indulge in reckless speculation and used 500 billion of taxpayer money
to set up a Resolution Trust to rescue these institutions and enrich fat
cat donors. US government policy is socialism for the rich and merciless
capitalism for the poor. A similar policy is being proposed to bail out
bond insurers, banks (crooked lenders) and irresponsible, ignorant and
foolish borrowers. Bernanke is slashing interests again to rescue the
stock markets and financial institutions to the detriment of the savers
and taxpayers.
The sub-prime mess arose because Bush Jr. boasted about making America a
homeowner’s society. Financial institutions had learnt to securitize
home mortgages, credit card and automobile loans receivables and sell
them to high yield hungry investors like pension plans, hedge funds and
European and Chinese banks and insurance companies with the connivance
of equally greedy and irresponsible rating agencies (Moody’s, S&P, Fitch
etc. graded them as triple A) and monoline insurers (FGIC, MBIA, Ambac
etc.) who insured them without setting up adequate reserves for loan
losses. Mortgage brokers and lending institutions executives desiring
large commissions and big year end bonuses encouraged borrowers to fudge
or falsify income data and abandoned due diligence.
The borrowers wanting to be home owners and investors convinced that
house prices were on a perpetual one way upward trajectory, cheered on
by their irrational exuberance took the imprudent and false advice of
Federal Reserve Chairman Greenspan to take out low adjustable rate
mortgages without reading the fine print that the rates would skyrocket
once the short teaser period was over. The unethical greed of CEOs
(Enron, Worldcom, Tyco etc.) kept the American workers’ earnings
stagnant and job security poor. Two income couples mortgaged themselves
to the hilt and could not meet payments if one lost a job (Read the book
– Two Income Trap) or if the interest rates rose. The repeal of
the Glass Steagall act has erased the barriers between commercial banks
and investment banks, setting the stage for a re-occurrence of the
market crash of 1929.
Structured Investment Vehicles which were off the books and balance
sheets like the two trillion dollar cost of the Iraq and Afghanistan
wars which don’t figure in the national budget and its deficit will have
to be put back on the balance sheet books of financial institutions. The
losses they have taken so far (150 billion) are a mere tip of the
iceberg. Eventually they may amount to half to one trillion. In addition
the losses reduce bank capital and restrain commercial lending which is
the lubricant of the economy. The US government is so much in hock that
the top Federal employee (comptroller of the currency David Walker) has
been shouting from rooftops that we are heading for bankruptcy and
mortgaging our children’s future. The unfunded government liabilities
over the next 50+ years are 70 trillion dollars. The financial
institutions have a derivative exposure of nearly 500 trillion dollars.
No wonder the credit markets have clogged up and Bernanke is slashing
rates every few days. He seems to have forgotten that no matter how much
you flog a dead horse it won’t get up and run.
The government, similar agencies and corporations have been funding
their money needs with short term paper in the money market instead of
long term bonds to keep their interest expense low. Last week the Port
Authority of New York which owns bridges, ports and toll roads in New
York and is not a credit risk, was compelled to pay an interest rate of
20% per annum to finance it short term money needs. Many municipalities
and hospitals have lost access to borrowing money. The dollar is sinking
and metals, oil and food prices soaring, thanks to Reagan, Clinton, the
two Bushes, Greenspan and the corrupt, stupid and do nothing Congresses
(House & Senate) of the last 30+years.
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Presidents
Reagan, Bush Sr., Clinton and Bush Jr. jointly increased the national
debt by over six trillion dollars. Clinton by passing NAFTA and
accelerating the de-industrialization of America started the movement of
manufacturing jobs to countries with cheap labor and no environmental
laws. The technology bubble blown by Greenspan’s reckless policies led
to overbuilding of fiber-optic transnational cables. Manufacturing which
had migrated to Mexico left North America for China and services for
India. 