Delusions - Economy, War

We live in dangerous times. But we also live in times where delusional behavior is raising the risks and intensifying the danger. An unchecked cancer is growing on our nation's consciousness, fed by denial of degenerative hardship, grown from a layer of ignorance, inhibiting its ability to perceive reality and to properly make decisions for the future. The American public clings to a scintilla of hope that all will be well, jobs secured, threats eliminated, wealth restored, pensions returned to health. My January article "Predictions for the 2003 Year - Bear Claws" closed the preface with an admonition on pervasive delusion within the American psyche:

A dangerous multi-faceted delusion has caught our entire nation in its grip, characterized by naïve perceptions and acceptance of economic disinformation, fair stock values, safe haven in real estate, ultimate sanctuary in Treasury bonds, imminent economic recovery, quick resolution to Iraqi conflict, moderation of crude oil prices, and trust in failed re-tread federal government (Keynesian) and Federal Reserve (monetary) stimulus programs. Pervasive delusion breeds a climate for further accidents, errors, and additional financial losses. The new year will provide ample opportunity to toss much more cold water of reality on our faces. This bear has only begun to claw its way toward Main Street and Wall Street. A ray of hope lies in new the new Bush economic package and the Fed's willingness to forestall deflation. However, the harsh reality calls for political squabbling, watering down its best elements, and watching them fall short of accomplishing much more than procrastinating the time of reckoning. (JW, January 2003)

If anything, the delusions are becoming deeper, wider, more desperate, and departing farther from reality in just the first three months of this new year. A sense of profound denial lingers after the bust of the economic miracle, irresponsibly founded upon the greatest debt-generated speculative mania in human history. Could the New Economic miracle have been a mirage? Won't our fabulous productivity pull us out of the morass? Doesn't debt build wealth? Wasn't the business cycle repealed? Can't the Fed save our skins as in the past? Can't the federal government just print enough money to rescue the economy? Didn't the strong USDollar produce the world's engine of growth and prosperity? What in God's name went wrong? What are we missing? In short, the answer lies in "Economics 101" at a fundamental level. Our entire economics community supports a heretical system that produces apologists for perpetual debt abuse.

I have been astounded and dismayed by the pervasive level of delusion harbored within and widely shared by the American public. Denial of the shattered American Dream seems to be festering against a backdrop of alarming financial illiteracy which saddles citizens and investors of this country. We simply have no interest, nor ability, nor sources of learning, in order to raise our collective intelligence on financial matters. The end result has been the advancement of clinical delusion, based largely on the belief that all will be well, as prosperity is restored. Our empire will remain intact, as will our world dominance. Is such a view based in reality? I think not, and expect that a difficult transition is in progress as our nation sees a significant cutback in its collective wealth, as adjustments are forced upon our spending patterns at all levels, as the abusive expansion of debts are dealt with in draconian fashion. In this piece I hope to disabuse readers of many persistent delusions in support of fallacious views. My list of delusions outlines the neurotic condition of the American mindset.

World opinion and international impressions of the United States are hard to monitor. The world's eyes surely see a nation which offers unlimited opportunity for individual success. They acknowledge a system which delivers tremendous reward for good ideas and innovative, if not revolutionary, approaches. They perceive a land where readily available credit can be used to build businesses, true engines of wealth and jobs. They observe a society which offers perhaps more economic fairness to people of diverse color and creed, than anywhere else in the world. They witness unnerving speed of change within our realm. The enjoy our unique contributions to the arts, films, jazz, and even our western cowboy genre. They benefit from and are grateful for huge charity and aid throughout the world. They detect incredible wealth in stark contrast to abject poverty, in wonderment.

Perception has an opposite side, sadly evident in recent years. The rest of the world is now steeped in consternation, looking at us and wondering if we have taken leave of our senses. They see a nation whose leaders are either fools or criminals, often inexperienced but overseeing large arsenals, thrusting the western world toward a dangerous war. They are catching their breath after an historically unprecedented speculative disaster struck within our financial markets. They witness a world financial system wretch toward a probable recession and possible depression, as failed discredited monetary and fiscal policy is repeated in unknowing blind futility. They suffer a nation with a superiority complex, stifling arrogance, and ignorance of international culture. They observe a nation conduct politics directed and motivated by big business and press photo opps. They watch a people beset by parallel burdens. Careless abuse of debt has hobbled our ability to maintain the current exalted standard of living. Thoughtless abuse of food has created a ball & chain to be dragged around, called obesity. They see a younger set who learn from television and video games instead of reading, take their fashion cues from the ghetto, and produce music that lately sounds more like bad poetry put to an angry beat. Yet we actually maintain the belief we are a shining beacon to the world, not only in business, but with an emulated culture. More delusion. Instead, we are increasingly the object of world scorn. We are causing big problems. We have been infecting the world with financial viruses which emanate from a debt-based system founded upon hazardous currency and uncontrollable deficit spending, whereby leverage and other gearing are employed in every corner, magnifying the risks.

Below are 69 individual delusions, each clearly identifiable and rampantly spreading. They start with the war and economy, drifting to the USDollar, Treasury debt and banking, gold, stocks, real estate, and miscellaneous areas.

MIDDLE EAST WAR FOOTING

1. Iraq tensions obstruct capital investment, hiring, and consumer spending

Sure, plenty of uncertainty looms on the horizon. But the debt explosion of the 1990 decade together with misread final demand led to a bust. Capital spending has wound down since mid-2000, showing signs recently of extinction, as SunMicro's CEO McNulty chooses to describe it. Industrial capacity is roughly 35% greater than warranted by current demand. Consumer spending is stretched from household debt exceeding annual income in aggregate. Hiring is troubled from bleak prospects of corporate profitability and flagging customer demand. As we proceed down the path that has been marked by paper-based asset writedowns, debt destruction, corporate insolvency, personal bankruptcy, buffeted by seemingly endless new credit and lower rates, realized through mortgage refinance, the economy continues to struggle. A slide into recession now seems certain, which will lead to an acceleration of negative influences likely to deepen the recession, and possibly even flirt with depression. No, Saddam Hussein is the scapegoat to our economic malaise, the direct result of our own devilish handiwork.

2. Saudis and Kuwaitis will compensate for any oil interruption

For starters, Kuwait has extremely little excess capacity. Certainly good will is expressed against a rising tide of fundamentalist power within its governing bodies. Saudi oil production has legendary excess capacity, which has already been running higher in response to the curtailment of Venezuelan oil production. They can surely increase further. But nothing can go wrong for Saudis to come to the rescue. No terrorist hits on their oil terminals… no political obstacles to save the American economy when Saudis are blamed for the World Trade Center attack… no other disruptions to oil shipments from Russia or Nigeria or Venezuela or (name 5 others). The entire Saudi nation benefits from higher oil prices. Kuwait, hosting US Military staging platforms, might sit as a primary target for Saddam's SCUD missiles. No, when something goes awry, expect a crude oil price spike toward $70/bbl if we attack and seize, which would match the 1991 Gulf War peak.

3. Expect the same fast Iraqi war outcome, same immediate stock rally response

Almost no similarities exist between the current war posturing and the Gulf War. I could name ten differences. The biggest are that now Saddam and his regime are entrenched on home soil, and the world is hardly aligned in support of our aggression. The cost was shared in 1991, but now must be borne by Americans alone. Hand-to-hand combat on Baghdad streets will not conclude quickly. Confusion will reign as non-combatants litter the battleground landscape. We cannot even clearly pinpoint Saddam's location. Baghdad is a city of five million residents, larger than Metro Boston. Expect total chaos if war is waged on Iraq. Also, if 1991 is any indication, expect the war to become a spectator sport, diverting our citizens from the shopping malls. No, tensions might persist for many months even after the conflict subsides within the borders of Iraq, which then ushers in the nightmare of occupation, dealing with the complexity of a Kurdish homeland, and putting out fires.

4. US occupation of Iraqi oilfields will come without repercussion

From an Islamic or Arab perspective, I cannot think of anything that would more enflame this collection of one billion people into a worldwide frenzy. First of all, restoration of Iraqi oil production would require between $2 and $5 billion, since they have undergone neglect. I believe Saudi Arabia would be the target of violent reaction, for their continued support of US Military forces, and their continued hospitality for use of the Prince Sultan Airbase inside their borders, defiling holy lands. Arabs are likely to stick together when one of their own is attacked, or one of their nations is occupied by infidels, far more than we expect. No, any rational person would expect the nearby Arab Islamic world to absolutely erupt in protest, in public demonstrations, in formal diplomatic objection, culminating in outright violent retaliation.

5. US Military has bigger weapons, which will bring quick victory

This denies the tragic events of September 11th in 2001. US F-16 fighter aircraft and state-of-the-art communications systems failed to stop the attack. Large naval destroyers and aircraft carriers failed to stop the deadly smaller attack on the USS Cole in the Yemen port. We dictate the theatre of war operations, but not the theatre for terrorist activities. Where we isolate the enemy, we will have swift military victory, although with messy collateral civilian casualties. We may prevail inside Iraq, but what of retaliation outside Iraq? We will surely witness counter attacks, not the least of which will be a boycott of US financial markets and of the USDollar itself. Our stocks, bonds, and currency represent our greatest vulnerability, which our enemy realizes. No, our victories will be localized, while our setbacks will be distributed across the globe in financial markets and world sentiment.

6. War is good for our economy as a stimulus

Since when is destruction good for producing wealth, jobs, and prosperity? Diverting scarce capital for the purpose of bombs and bullets has never paved a road to riches. Instead, it greatly distorts elements within an economy, while costing tremendous sums of money. Will the investment result in a much better world, or spark new rounds of terrorism? The trickle down within the defense industry contains only two to three steps, and at exaggerated costs from longstanding relationships that are milked to the hilt. The multiplier effect within the private sector contains six to eight steps, as suppliers and contractors combine to build industries, which actually produce jobs and commercial benefits to an economy. No, war is unproductive.

7. Democracy can be imposed in the Arab world

The Iraq region has not seen democracy in five thousand years. The Arab world has had a few episodes of democratic leadership, but the assassinations of Nasser and Sadat ended those examples in Egypt. Is Mubarak the leader of a democratic land, or is he held ransom by a strong and vocal Islamic community? Our plan to impose democracy steeps with arrogance, hegemony, and naïveté. The Arab culture is inconsistent with such a structure of government. A tribal culture that does not value education or advancement of women's rights offers no foundation for the active requirements of democratic representation and leadership. Most Arab democracies have resulted in brutal dictatorships. No, any attempt to promote a democratic leader would be quickly seen as installation of an American puppet for conducting our business and furthering our interests, inviting a quick broad backlash.

8. Russia is our new friend and ally

Since the fall of the Soviet Union and the more concrete dismantling of the Berlin Wall, Russia has stood as a curious wolf in sheep's clothing, in my opinion. They have promised and delivered on crude oil and natural gas supplies, offsetting and neutralizing the Saudi dominant position. Energy agreements benefit both the USA and Russia. But many rigid crusty ex-Soviet Army diehards remain in place. Supplying the underworld of terrorist commerce with dangerous weapons, the former KGB has become a menace. President Putin himself is ex-KGB, and thus is a likely master at deception and diplomacy. Already, longstanding NATO officials show concern and distrust. Secret military codes and protocols are being shared with not only Russians, but other eastern European nations that once lived under the Soviet Bloc. The Soviet Union supplied arms for 30 years to enemies of Israel and every terrorist state in the Middle East. Most Iraqi military hardware was built in the old Soviet Union. Old ties die slowly, while old habits die even more slowly. No, sooner or later, Russia will betray the United States.

9. German, French, Russian objections to Iraqi war center on humanitarian concerns

Business investment by German industries involves chemical plants, where much money is owed by Iraq. Business investment by French industries involves chemical plants, the supply of helicopter parts, and of weapons-grade plutonium. Much money is owed by Iraq. Business investment by Russian industries (and former Soviet Union contracts) involves oilfield and military equipment, where much money is owed by Iraq. All these debts would have to be rewritten or renegotiated, if the USA occupies Iraq and controls Iraqi industry. Controversy would arise on fair treatment, especially after the nature of direct French participation in weapons programs is revealed. No, these nations are primarily disturbed about threats to industrial investments with their Iraqi business partners, and might be embarrassed when an occupation reveals their extent.

US ECONOMY

10. Economic recovery will come in the 2nd half of this year

Like the chant of a mindless cult, this refrain is trotted out each spring following the failure of the recovery to arrive as predicted. Bear in mind that the chant is written by those who want the retail investor to remain fully invested for the long haul. Also important is avoiding a consumer pause, waiting for cheaper future prices. Each year this forecast becomes more laughable, as its fallacious framework from the previous year is not adequately explained. In fact, with each passing year, the justification for its next late arrival becomes even more naïve, insulting, and ludicrous. No, this incantation is getting old and might only work with imbeciles.

11. Consumption can pull the US out of its recession

This belief points out the depth of ignorance when understanding how wealth is created at all. If incomes are not growing, jobs are disappearing, debt is still rising, and businesses are not investing in capital equipment, how on earth can continued consumption promote growth to form a strong foundation whereby the economy can grow? This absurd premise has been promoted ever since our mfg base disappeared and a service sector began to dominate. On several occasions, our leaders have urged us to continue our spending, even to raid our home equity to support spending. I believe we are caught in a trap, one which was entered as a result of excessive consumption, largely financed by debt. The economy is now slowing, as consumption has slowed. So we are deluded into thinking that more consumption can lead us out of the very same trap. Such twisted thinking leads me to conclude that our economic design team (i.e. economists) is so inept that they cannot properly discern the quagmire we are in. No, our economy requires the opposite - savings and investment, and a painful transition whereby excessive debt burdens are cleansed by whatever means.

12. The 2001 recession was little different from previous cycles

No resemblance whatsoever exists between this recession and any since World War II. A long recession in the 1970's occurred as VietNam war debts came due, OPEC quadrupled oil prices, and price inflation hit our shores like a fierce firestorm. We endured the stupidity of Nixon's "Wage Price Freeze" whose only accomplishment was widespread shortage. The recession in the early 1980's could be characterized as a systemic reflex pullback following a monetary and fiscal stimulus that succeeded in extracting us from the previous morass, only a few years before. The recession during the Gulf War was from an energy price shock. No, this recession has come after a decade of debt explosion, a speculative mania, and an asset valuation bust, in the face of worldwide excess capacity, overflowing product surplus (with attendant liquidation) and wholly unrealistic expectations for technological expansion and demand.

13. Double-dip recessions are unusual, and don't occur very often

Again, a bold statement that flies in the face of history since World War II. Does anyone even study history? Every recession in the past fifty years has been accompanied by a follow-up recession, brought about by the economy's inability to properly absorb the heightened stimulus required to extract businesses and consumers from the drag of the prior recession. Such beliefs seem to be almost as desperate as pathetic in nature. In the challenging 1970 decade marred by VietNam War cost reconciliation, OPEC price increases, and Watergate, we actually witnessed a triple-dip recession. Instead of rationally accepting a reality, we cling to false hope. Instead of accepting that we must reap what we sow, we attempt to forestall natural consequences, thus risking more dire outcomes. No, double-dip recessions are the norm, not the exception.

14. Real estate equity extractions can sustain the economy

Alan Greenspan repeats this heretical statement periodically. Sharply lower interest rates in 2001 induced and encouraged the stock bubble to migrate and develop into a credit bubble. What resulted was yet another speculative mania, this time in real estate and its mortgage finance. Now the Master of Bubbles has seen fit to encourage homeowners to continue and sustain their profligate spending patterns, to sustain the consumption insanity, so as to keep the economy running on fumes. He has actively encouraged people to tap into their most stable and secure nestegg, which often serves as the basis of retirement security. In the process, households will have fewer resources to fall back on when the MAIN EVENT recession comes next, many of those same homeowners lose their jobs, and distress turns painful. If and when housing prices turn down, as they did in the late 1980's, we will surely hear of negative home equity. No, tapping home equity is temporary and finite, only to leave people far more vulnerable on the next downturn, which might be now.

15. China is a constructive trade partner, lowering our costs

The transition continues that began around 1980. The United States began to ship its mfg jobs offshore, realizing lower labor costs. The jobs went to Japan and the Pacific Rim. Later assembly jobs went to Mexico with the advent of NAFTA. Now we see the next final stage, where China's vastly lower labor costs severely undermine the entire Japanese economy and the PacRim to boot. A valid argument can be made that our increase in money supply is matched by increases in consumer debt, which are equivalent in magnitude to increases in the Chinese trade surplus with the USA. So we as a nation are hemorrhaging money, and this money was created by a printing press. The same quantity of money is being collected by China, which is building factories, creating jobs, increasing its standard of living, and filling its banks with gold and other sovereign bond reserves. Our prices are indeed lower, but this is a trap for US consumers. Our jobs continue to disappear, as do jobs among Asian export partners competing against China. When international pressures are forced upon Chinese leaders to honor commitments for entry into the World Trade Organization, they will revalue upwards their yuan currency, resulting in markedly higher prices for American consumers. Then the real problems arrive for our Treasury Bonds and longterm interest rates. No, China is rapidly gaining market share, and in several years will be both positioning itself as our adversary and competing for equal status on the world stage, where influence is parceled out.

16. Japan's bust has almost no similarity to the USA bust

Japan's bust is 90% similar to the bust seen in the United States. Again, poor comprehension of history. They modeled their economy after ours, from the mfg foundation to the banking system. Their debt levels rose at a dangerous pace, while their asset base (stocks and real estate) appreciated into a speculative mania. Ditto for the USA. In fact, where we indeed differ, the USA displays severe comparative weaknesses that point to danger. We allow bankruptcies, and are seeing them rise without obstacle. We are an importing nation, and are seeing the stage set for rising import prices from dollar devaluation. We are an indebted nation, and are now subject to K-Winter vicious liquidation. We save inadequately, and cannot invest in capital formation without stacking more debt atop debt. We have a bloated overvalued currency, whose correction will wreak untold havoc on our economy. I am sorry to report that we careen down the Japanese path, but with more dangerous turns. The most recent similar signal is our 0% rate promotions for car sales, which is the current Japanese prevailing rate. Japan has gone so far as to offer negative interest rates on loans, to encourage spending. Is that what lies next for us? No, our bust is not only similar to Japan's, but our differences point to dangerous additional vulnerability.

17. Recent evidence of inflation's return is good, seen in rising commodity prices

Some naïve observers proclaim early victory in the Fed's battle to turn back the forces of deflation. We have seen early evidence of some price inflation, which have encouraged only the deeply illiterate. The American public is legion with ignorant and illiterate. We already have been dealing with rising employment costs -- wages, health, insurance. Now we are seeing higher producer prices for materials, as commodities generally are rising in price. The coup de grace is the spike in energy costs, both crude oil and natural gas. Production costs for businesses are now rising, even as pricing power is nonexistent. Household costs are now rising, even as job security is slowly eroding. No, we are witnessing "bad inflation" which leads to higher production costs and shrinking profit margins and upcoming job layoffs, complemented by higher household costs and shrinking budgets and reduced consumer spending.

18. Capital investment can lead a recovery, with consumer spending and hiring to follow

Again, reality ruins this wishful thinking exercise. Instead, the evidence suggests that capital equipment purchase and investment typically comes 8-12 months following the pickup in spending by customers within that business sector. Surely we need capex to increase, which would be a solid shot of adrenalin to the economy. But that hardly suggests it will happen without the accompanying justification for large capital outlays by cash-strapped businesses. Demand must come first. Furthermore, lenders are less willing to lend to distressed firms. Abused in the last decade, secondary stock issuances are not now available as a source of funding. The bottom line is that mfg capacity utilization stands at 75%. Why would our business sector risk failure overextending capex in the face of historically high excess capacity? No, capex follows resumption of customer demand, does not lead it, and will be very slow in returning.

19. Evermore fiat money is the prescription for the current economic condition

The United States economy is suffering from several decades of excessive monetary and debt expansion. This steady, relentless addition of money and debts created horrendous imbalances among the consumption and investment communities. We consumed to excess, thus creating large debts. We invested in production capacity to excess with attached debts, thus creating a surplus of goods. At the same time we neglected the messy and more difficult business of producing commodities, while gearing down their prices and burdening them with regulations. So we have deflation in finished product prices, as debts are liquidated. We have consumers exhausting themselves, as they run up debts even faster than income, and refuse to change their engrained lifestyles. We have inflation in materials costs, as their value rises relative to the unbridled increase in paper-based securities and money supplies. We maintain the heretical notion that a deep recession (or worse) can be averted if only we prevent the spread of illiquidity. The result would be the same if Jack Daniels were steadily supplied to an alcoholic during detox. We do not understand what plagues our economy. The inept economic advisors who led us to this mess have no solutions besides more of the same negligent defiance of nature. No, evermore printed money only delays the inevitable, plants seeds for future price inflation, and makes certain that the final recession is far more painful when it arrives.

20. The stimulus of lower interest rates will eventually succeed

Since January 2001, eleven interest rates have failed to stimulate the economy. We find rates now at the Fed Funds 1.25% target level. Yet economic activity remains subdued and moribund. Debt levels are too high. Final demand is extremely sluggish. Mfg capacity is still in excess. Asset prices are still in retreat. Income sources are still at risk. In fact, lower rates beget even lower rates as the economy slows, the absolute opposite of what bungling economists preach. Twice as much interest income is received as interest cost is paid out. So consumer spending is slowing down from lower rates, not stimulated. The income earners tend to be more docile grayhairs; the debt payments are made by more vocal younger "go-go" crowd. If lower rates were to succeed, they would have elicited a strong response by now. The same path in a post-bubble environment destroyed the economy in Japan, another fact denied by the incompetent economist community. No, lower rates ensure we proceed down the Liquidity Trap of zero interest with zero future and bank destruction, just like Japan.

21. Fiscal stimulus will ensure recovery, whereas monetary stimulus so far has been sluggish

As the govt carries on with increased deficit spending, they will aggravate an already risk-laden situation with the USDollar and our Treasury debts. The trouble is overloaded debt, excess capacity, and now rising materials cost. Besides, the govt is likely to place the money in the hands of poor consumers, rather than the rich who invest in business and jobs. This perpetuates the consumption bubble that is bound eventually to dissipate. The real horror story lies within state govt fiscal books, where deficits are outright frightening. Hikes in state sales taxes, state income taxes, and local property taxes will offset any relief offered by the federal govt. So once more, the cure will be fleeting, leaving us with greater govt debt and nothing fixed. No, continued fiscal stimulus will raise the currency risk and eventually lead to higher longterm interest rates, delaying ultimate resolution by extending our unproductive consumption.

22. Productivity increased in 1990's, and is still strong

This is not so much a delusion as a corruptly promoted myth. Productivity has increased at a steady pace of 2% annually for many years. Under Greenspan and Clinton's supervision, we now double and triple count capital investments, thus greatly exaggerating productivity. The most recent ploy is to move software investment into the capital equipment category, which serves to amplify its effect through even more double counting. Our govt uses the same corrupt accounting methods decried in corporate fraud cases. Greenspan routinely relies on this productivity miracle as justification for both high stock share prices and expected economic revival, his alibi for failure. And the American people accept it on face value, knowing no better. When overcapacity drags on an economy, idle equipment will typically come into service during upticks in business demand. So the recent perceived (distorted) rise has come in the face of near-depression levels of capacity utilization. Such is hardly a signal of economic recovery. No, productivity is still around 2%, is steady, neither weak nor strong, and is not changing.

23. Federal deficits don't matter, since we can grow out of them

When our economy grew in the 1990 decade, our federal deficits grew from $4.5 trillion to $6 trillion. The Keynesian model dictates that during the prosperous years, government surpluses be drawn upon to pay down the debt. Instead, we increased it, vastly expanding our socialist system. When our economy falls into retreat during more challenging times such as recessions, our federal deficits usually escalate in dramatic fashion, as we are seeing now. Magnify those deficits when security and wartime concerns dominate. We have shown no discipline. Our deficits rise in good times, and rise faster in bad times. And worse, they threaten our Treasury debt, our longterm interest rates, and the viability of our dollar currency. Worse still, our Treasury debt is 45% owned by foreigners. Eventually our creditors will doubt our ability to repay at all. We advertise to young television viewers that their drug purchases support murder and other violent crimes against South American children. Let's project the same phenomenon to a national level. Our federal debts owned by foreign nations are now supporting Islamic Fundamentalist movements, which finance world terrorism like seen at the World Trade Center. No, we never have nor never will grow out of federal deficits, which contribute to the spread of world conflict.

24. Trade gaps don't matter either, since they are good for the world economy

Of course trade gaps and balance of payments matter. When large, they register a dire signal, which cannot be dismissed. The global economy has yet to be recognized as a failed experiment. It will culminate in endless recession for economies with higher wage structures and overvalued currencies, most notably the USA. The message (largely ignored) is that we do not build what we consume, and must address the imbalance. Our largest export is debt. As a nation, we rely upon foreign capital to maintain our entire economy. The financial market response is designed to bring the system back into balance, by means of a currency correction. In our case, the dollar decline will be dangerous and vicious. We have for decades been creating Asian jobs, building economies abroad, supporting developing nations, while recklessly dismantling the entire US Economy and suffocating ourselves to death with debt. No, trade gaps indicate deep distress, which must be addressed with or without cooperation. The consequences will be certainly grim, like endless recession.

25. Jobless rate is holding up well, still under 6.0%

The jobless rate is far higher than 6.0% since so many people are no longer even counted. If a worker has exhausted his/her unemployment benefits, then not only is that person out of subsistence income, but the govt prefers to consider him/her a missing person in their Enron-style accounting system. The Germans still count people whose jobless benefits have run dry, criticizing our methods. We shove them into the labor sewer, and out of the counting system. We do not even bother to estimate the young minority adults who rank among the unemployed. Experts in labor accounting estimate that our jobless rate is around 9.0% and climbing. Further distortions center on counting a person as "employed" even if he/she works only a few hours per week. No, our jobless rate is much higher, since we distort the reporting process in order to keep confidence and foreign investment high.

26. Blame game: 1999 Y2K, 2000 soft landing, 2001 WTC/Enron, 2002 Iraq

Americans simply cannot come to grips with the reality of what ails us and what is failing in our system. Giant cracks in the entire system are being exposed, from debt structures to irresponsible central banking, to derivative gearing, to asset speculation, to corrupt accounting, to embezzlement, to distortions in economic reporting owing to govt vested interests. So we blame the stock bubble of 1999 on the Y2K snafu that never arrived. So we blame the tech/media /telecom/internet bust in 2000 on the healthy need for a Soft Landing. So we blame the recession in 2001 on the World Trade Center attack, the Enron fraud scandal, and general corporate malfeasance. And now we blame the stalling economy on Iraqi tensions and war buildup. This entire blame game is symptomatic of an addict in denial, coupled with a national abdication of responsibility. The Weimar Republik blamed their country's problems on the Jews and the threat of a Zionist state. Have times really changed? Next year will likely place blame on higher energy costs and Arab withdrawal from our markets. No, the blame goes to our system, its designers, its leaders, our Congress, all participants - US.

27. Depression could never happen again, since the system has designed counter-measures

After the Great Depression in the 1930's, we installed safeguards and created institutions which were designed to prevent calamity from occurring again. But did we avoid the gratuitous granting of credit and usage of debt? Did we avoid speculative mania in stock prices? Did we avoid vast over-expansion in productive capacity? Did our govt leaders encourage the excesses? Did our corporate leaders corrupt the system with their own fraud, largesse, and embezzlement? In the 1930 decade, our Congress passed legislation that erected a firewall among the banking, brokerage, and insurance business. In 1997, Clinton's Congress repealed the law, just in time for the bust, which is far from over. Depressions occur to purge a system from widespread and crippling excesses in debt, often coupled with irresponsible expansion of the money supply. Since 2000, debts have actually accelerated while the monetary base has expanded at an alarming rate. No, a depression is far more likely than it was even two years ago, since safeguards are removed and debts continue unabated. By treating the systemic ills with more of what caused the sickness, we put the nation at greater risk now of depression.

28. US capitalism prevails over all other nations, the world's growth engine

Our version of capitalism might dominate, but let's see if it prevails. Our type of capitalism unfortunately allows uncontrollable expansion of debt and the limitless supply of new money, together with unpunished large-scale fraud, not to mention the drone of paid legislative influence. The sun might be setting on Pax Americana. We will see; the jury is still out. It is not clear we have capitalism at all - it is more like DEBTISM. And this newfangled "financial engineering" is just a façade to conceal the fraudulent management of leveraged debt. Large institutions are not permitted to fail, provided their roots are in New York City. No doubt we operate as the growth engine. The world might for now continue to support us, knowing their future will diminish if we fail. They are desperate for us to snap out of it, and resume vigorous spending. However, our abuse of this engine status is reaching criminal proportions. Our dependence upon foreigners for their savings and capital seriously brings into question whether we are indeed an "engine" at all. Our chief export is clearly debt. Our national balance sheet is showing extreme hemorrhage. No, if we are an engine, we are a debt engine, and we can fail if the world cuts off our credit line which we abuse for a hedonistic lifestyle and colonialist foreign policy.

29. Foreigners are taking jobs away from our citizens

My last job at a national retail chain was filled, after I departed, by an Iranian recent graduate. My former manager claimed he saw few American qualified candidates. Skilled technicians do not often emerge from American schools. Nintendo players do, hiphop singers and dancers do, World Wide Wrestling fans do, drunken college dropouts do, bankrupted college graduates do, since our school systems too often merely advance students instead of educating them. Heck, math is optional now in high schools after the second year. Every German high school exchange student I have known has jumped to the head of his class when entering our less skilled student force. Our high technology sector would never be so strong without skilled Indians and Taiwanese. Their skill and leadership has created thousands of jobs for Americans. Ignorance and hard times usually breed contempt for foreigners. No, our economy desperately needs highly capable foreigners, since our domestic workers are largely unskilled and often have poor discipline.

30. US service sector is bedrock, and will remain strong unlike the manufacturing sector

Clearly, the US economy is a service giant with over 55% of the GDP devoted to service. But now intercontinental telephone costs are low. But now the internet has provided zero marginal costs for shipping service products. But now English is widely spoken in lands which offer professional wages at a fraction of ours. India, Hong Kong, and other countries are undercutting our service sector, employing tens of thousands of highly trained workers. Customer support centers, software development, product testing, and other service enterprises are increasingly being provided by foreign sources. India has become an emerging software powerhouse, embarrassing Americans with better, more reliable software. Standards facilitate competition from abroad, while our overvalued currency and high labor costs constantly encourage foreign outsourcing. Many jobs have been lost in recent years. No, the trend has begun, whereby lower cost service businesses are being managed by foreign firms, sometimes with higher quality.