Contraction in real economic activity in the USA

Thirty-six years ago this week, on August 15, 1971, President Nixon ended gold settlement among nations and fixed currency parities, and thus pulled the plug on the Bretton Woods world monetary system, the most successful world currency arrangement that the world has ever known.

Nixon was responding to British demands for gold payment. Among many crimes, this was Nixon’s greatest. Since then, world economic growth has gone negative, into reverse, with net world deindustrialization in the US, the former USSR, eastern Europe, the UK, the EU, and elsewhere. (Only China, partially outside the system, represents a consistent exception.)

During all these years, the London-New York financiers have been concerned to keep political power in their own hands by engineering a gradual decline or “soft landing,” treating the US population like the frog in the pot of water which is slowly brought to a boil. The key to this has been the looting of underdeveloped countries to keep the homeland stupefied and inert. In all these years, the big question has been about The Contraction -- that is to say, about the moment when events like the 1987 stock market and dollar crash, the 1990 banking crisis, or the 1998 hedge fund debacle would begin to translate into mass layoffs, business shutdowns, economic disruptions, Hoovervilles, and bread lines inside the US itself. This is what happened over 1930, as the US descended into the Great Depression. It appears to be happening right now.

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Harbingers: Freight car loadings down 4.2 percent; truckload volume down 5 percent

It would appear that the point of Contraction has been reached in the first months of 2007, and that the real or physically productive economy has been in marked decline for some time. This is also the opinion of Richard C. Cook. It is hopeless to rely on the cooked figures of the Bush administration, the most notorious liars of the age. Private associations may well be more accurate.

One obvious data series for measuring real economic activity is freight car loadings and trucking ton-miles, which few hedge fund operators have ever heard of. But these real-world physical units are a useful way of estimating overall levels of real economic activity, as distinct from total derivatives held by banks and other measures based on toxic paper.

According to the American Trucking Associations, “the truckload industry started 2007 poorly as seasonally adjusted (SA) volumes plummeted 5.0 percent from December. This was the largest monthly decrease since a 6.5 percent drop in February 2000. . . . Compared to January 2006, the total SA loads index was off 2.3 percent, which was the first year over year contraction since July 2006.” (American Trucking Associations, Trucking Activity Report, 15:3 (March 2007). The same tendency was confirmed several months later by the Association of American Railroads, which announced that for the week ending April 28, weekly rail car loadings were down 1.7 percent and intermodal units were down 5.6 percent, both compared to the same week a year before. For the first 17 weeks of 2007, rail car loadings were down a cumulative 4.2 percent, while intermodal trailers were down 11.5 percent (Dow Jones, May 3, 2007) These are only fragmentary snapshots, but they do provide more than a strong hint that the Contraction is indeed upon us. Are there any economists left who still look at the real, physical economy?

The great question posed by any depression is, who should pay for it? Should working people, the victims, pay by having their wages, working conditions and standard of living driven down even lower than the current minus 65 percent? Or should it be those responsible -- the economic royalists and financial parasites, the jackals, lampreys, and hyenas of Wall Street -- who are made to disgorge? For any person of good will, the answer is clear. The full program for doing this is discussed in my book Surviving the Cataclysm: Your Guide Through the Worst Financial Crisis in Human History (1999). One more example will suffice.

Slap a securities transfer tax on Wall Street

With the New York Stock Exchange churning over 2.5 billion shares per day, and with the VIX volatility index at an all-time high, how might markets be cooled down? One socially useful way to do this would be the Securities Transfer Tax or Tobin tax, a levy of about 1 percent on the total turnover of securities markets -- stocks, bonds, futures, options, derivatives, Treasuries, foreign exchange, and other paper property titles -- paid by the seller on each transaction. It is named after Professor James Tobin of Yale University, who originated this idea as a way to discourage rampant speculation in currency markets. It would be eminently fair.

Right now the financiers who send trillions of dollars rushing through the markets every day all get an absolutely free ride. By contrast, working people who need to buy clothing, shoes, and school supplies in many states have to pay the odious and regressive sales tax, second only to the ultra-regressive poll tax as the worst tax ever devised. In Maryland the sales tax is 5 percent, but groceries are exempt. In Virginia, there is a 7 percent sales tax, and supermarket checkouts are included. In California the sales tax is often 7.75 percent. If working people have to pay these taxes, why cannot finance oligarchs pay a mere 1 percent on their speculative activity? The results could be liberating: right now US banks probably hold derivatives, including structured notes, to the tune of some $400 to $500 trillion of notional value. A 1 percent Securities Transfer Tax would thus produce some $4 to $5 trillion of new revenue -- enough to guarantee Social Security into the 22nd century, replenish Medicare and Medicaid, fully fund Head Start and WIC, and begin rebuilding vast sectors of infrastructure to give the US a modern economy, not a post-industrial rubble field. All that is needed is political will.

Credit for jobs and production, not financial bailouts

The Fed’s $38 billion at 4 percent, if committed for a decade or two, would have been enough to reconvert and retool the dying Detroit automobile industry to produce modern urban mass transit and long-range maglev trains. (Consider that Chrysler was sold to Cerberus recently for a paltry $5 billion.) A hundred thousand industrial jobs could have been secured, and much more. Or, $38 billion would finance a permanent human colony on the moon, with incalculable benefits in the form of technological spin-offs, and honoring Stephen Hawking’s prophetic observation that humanity has no future if we do not go into space. The $325 billion wasted worldwide would have been enough to give all of Africa clean water, electricity, and transportation. Instead, that third of a trillion was shoveled into the furnace of the panic to keep the hyenas above water for one more day. The Fed has never lifted a finger to prevent millions of Americans from being thrown out of their homes, but when the malefactors of great wealth, the Wall Street bankers, were threatened, the Fed sprang into action.

Needed: Cheap federal credit for real production

At the end of the day, the secret of economic recovery is that the Federal Reserve System is illegal, unconstitutional and a failure. It thus needs to be nationalized at once, and incorporated into the federal government as a bureau of the US Treasury. This means that decisions about interest rates, money supply, relative priorities of full employment or reducing inflation, bailouts or non-bailouts, would have to be made by public laws, debated in election campaigns, passed by the Congress, and signed by the president -- not decided in secret by unelected and unaccountable cliques of finance oligarchs.

The resulting national bank or Fourth Bank of the United States should issue tranches of $1 trillion long-term, low-interest credit from time to time for production for business activity in industry (meaning manufacturing), farming, mining, infrastructure, home building, public construction at Davis-Bacon rates, new productive plant and equipment, new productive jobs with union pay scales, infrastructure of all types, and other areas of tangible, physical production. New schools, hospitals, libraries, and other socially necessary projects should also be funded.

But those who want money for any kind of financial speculation, flipping condos, gambling, prostitution, organized crime, narcotics, drug money laundering, pornography, and other sociopathic activities will be cordially invited to take their chances in the free credit market they admire so much.

As long as the credit goes only to well-managed productive projects, the loans will be repaid, and revolving credit arrangements will allow these payments to be recycled into a series of additional projects. With these methods, it should be possible to create 4 to 5 million new, productive, jobs per year at union wages, putting an end to decades of monetarist unemployment, underemployment, and despair. Full employment, something most living Americans have never experienced, would be attained within four to five years, and the country returned to the status of a high-wage economy, not a low-wage service economy. As Richard C. Cook says, the essence of New Deal economics is to see credit as a public utility. It is too important to be left to greedy banksters.

The nationalization of the Fed is more feasible now than it was a few months ago. Wall Street is boiling with resentment against Helicopter Ben Bernake, partly for his failure to bail out the Bear Stearns hedge funds and other entities silently, through the back door. A cartoon lampooning Helicopter Ben’s ineptitude and incompetence has even appeared in the Washington Post, which since the mid-1930s has been the house organ of the Federal Reserve System. (August 11, 2007) In the current crisis, Helicopter Ben may well assume the role of the infamous Brownie of Hurricane Katrina, and this is in fact the theme of the cartoon just mentioned. Helicopter Ben may actually believe some of the monetarist garbage that he has been spouting before his students for so many years. If he does, the damage will be incalculable. The Fed may soon become so hated by wide sectors of the US population, providing the first chance we have had for a serious attack on this illegal institution since the late 1930s.

Cheney’s thermonuclear bailout

The disintegration of the dollar system is ultimately one of the strongest factors impelling Cheney’s controllers -- meaning the George Shultz-Rupert Murdoch faction of the US-UK ruling elite. From Cheney’s point of view, an economic depression requires drastic austerity measures to drive the standard of living down even further below its present reduced level, with the proceeds going to the finance oligarchs. Can these cuts in the standard of living be accomplished under the present system? If not, what kind of dictatorship can be used to impose them? This is, after all, the reason the German financiers like Schacht turned to Hitler.

The Cheney doctrine calls for a staged terror attack in the US using WMD, followed by an attack on Iran and the declaration of martial law under Bush’s many executive orders. As I pointed out on July 21 in my “Cheney Determined to Strike in US with WMD this Summer,” there are many signs that the neocon group is driving hard to implement the Cheney doctrine this summer.

Thom Hartmann has reported on Air America that lawmakers with whom he has spoken report that the US intelligence community continues to issue warnings to the Congress that a new terrorist attack is coming. According to one unconfirmed report, a US senator is reported to have told an impeachment activist that the Democrats could not impeach Bush-Cheney, because the senators were being threatened with “them blowing up seven US cities” -- a possible reference to statements by Juval Aviv, a veteran Israeli intelligence fixture. Aviv warned on August 2 that there would be a new terrorist attack on the US within no more than 90 days, with multiple targets: “What they're going to do is hit six, seven or eight cities simultaneously to show sophistication and really hit the public. This time, which is the message of the day, it will not only be big cities. They're going to try to hit rural America.”

The McClatchy newspaper chain is reporting that Cheney is continuing to push behind the scenes for an attack on Iran: “Behind the scenes, however, the president's top aides have been engaged in an intensive internal debate over how to respond to Iran's support for Shiite Muslim groups in Iraq and its nuclear program. Vice President Dick Cheney several weeks ago proposed launching air strikes at suspected training camps in Iraq run by the Quds force, a special unit of the Iranian Revolutionary Guard Corps, according to two U.S. officials who are involved in Iran policy.”(Warren P. Strobel, John Walcott and Nancy A. Youssef, “Cheney urging strikes on Iran,” McClatchy Newspapers, August 10, 2007)

A mirror for Cheney: The Führerkonferenz of August 22, 1939

What do Cheney’s closed-door arguments to Bush sound like? We cannot know for sure right now, but we can use historical precedent to get an idea of what the old reprobate is saying. To cite the obvious parallel at the beginning of the last world war, let us recall Hitler’s arguments in favor of the Nazi attack on Poland at the Führerkonferenz of Nazi bigwigs, government ministers, and top generals on August 22, 1939 -- almost 68 years ago this month. The reader will note from these excerpts how Hitler emphasized the prospect of economic breakdown as a key reason impelling him towards war:

“I have called you together to give you a picture of the political situation in order that you may have some insight into the individual factors on which I have based my irrevocable decision to act and in order to strengthen your confidence. . . . For us, it is easy to make the decision. We have nothing to lose; we can only gain. Our economic situation is such that we cannot hold out more than a few years. Goering can confirm this. We have no other choice, we must act. . . . The political situation is favorable to us. . . . All these fortunate circumstances will not prevail in two or three years. No one knows how long I shall live. Therefore a showdown, which it would not be safe to put off for four or five years, had better take place now. . . . I shall give a propagandist reason for starting the war -- never mind whether it is plausible or not. The victor will not be asked afterward whether he told the truth or not. In starting and waging a war it is not right that matters, but victory. Close your hearts to pity! Act brutally! Eighty million people must obtain what is their right . . . The stronger man is right! Be harsh and remorseless! Be steeled against all signs of compassion! Whoever has pondered over this world order knows that its meaning lies in the success of the best by the means of force. . . ." (Shirer, Rise and Fall of the Third Reich, pp. 529-532)

Acting out a Nietzschean creed, which he shared with today’s neocons, Hitler within a few days manufactured the Gleiwitz radio station incident. This operation was carried out by SS General Heydrich on the evening of August 31, and provided Hitler with the immediate trigger for war. SS provocateurs staged a raid on a German radio station near the Polish border and read an anti-German tirade on the air. Some drugged German concentration camp death row inmates were then delivered to the scene under Operation Canned Goods. These bodies, dressed in Polish uniforms, were riddled with bullets and left around the station to give the impression of the aftermath of a firefight. Goebbels, and the controlled media of the day, screamed unprovoked Polish aggression against Germany. This is the incident which Hitler then cited as the immediate pretext for war.

Neocon spokesmen are coming forward to glorify the coming slaughter. Among them is Stu Bykofsky of the Philadelphia Daily News: “One month before The Anniversary, I'm thinking another 9/11 would help America. Remember the community of outrage and national resolve? America had not been so united since the first Day of Infamy - 12/7/41. We knew who the enemy was then. America's fabric is pulling apart like a cheap sweater. What would sew us back together? Another 9/11 attack. It will take another attack on the homeland to quell the chattering of chipmunks and to restore America's righteous rage and singular purpose to prevail."

In the last week of July, congressional scoundrel Tom Tancredo announced that a new terror attack was imminent, and demanded that the US issue an ultimatum that such an attack would be answered by the destruction of the Islamic holy places in Mecca and Medina. The State Department invited Tancredo to shut up, which may actually signal some resistance there against the wider war.

On Friday, August 10, after the carnage of the day on Wall Street, CNN reported that there were unsubstantiated Internet threats of a radiological dirty bomb in truck bomb format which might be delivered in New York City, Los Angeles, or Miami. In New York, the attack was supposed to come on 34th street, where Macy’s department store and the Empire State Building are located. It then transpired that the only source for this absurd rumor was Debka File, a notoriously unreliable speaking tube for certain fringe elements in the Israeli intelligence community. Debka File claimed to have gotten this intelligence from intercepted al Qaeda communications, but the guess here is that it was simply made up out of thin air.

These incidents were part of a broader pattern: on the afternoon of August 8, one of the hottest days of the year, a mysterious package, probably somebody’s lunch, was found in the DuPont Circle metro stop on the red line. Three stations were ordered closed by the Homeland Security Department, and the entire rush hour was held up for three hours, causing an upheaval in the lives of tens of thousands of commuters. The mysterious package was then exploded, and found to be wholly innocuous. Chertoff would like to be the P.T. Barnum of terror stunts, but he seems to be falling short.

The urgent need was for a politician to stand up on national television and warn that any new terrorist WMD attack would come directly from Cheney’s office, and that the Cheney faction should be held criminally responsible, including under the Nuremberg Code.

Is a strike wave coming in the US?

Forty years of passivity, demoralization, apathy and defeat weigh heavy on the US population. But the mass strike may not be as far away as is generally supposed. A veteran organizer for the United Auto Workers observed in the 1980s that Americans were never going to rise up in mass action, because they were too concerned that one missed paycheck would result in eviction from their homes. Suddenly, 10 million or more have nothing left to lose, and they may soon be joined by many more. A mass strike cannot be decreed by bureaucrats, nor is it totally spontaneous. It requires thorough preparation, but it is likely to be detonated by an outside event, often of the most unpredictable type. The only thing to do is to keep up a campaign of mass political education about the vast possibilities of a general strike, especially in response to an illegal war and/or an unconstitutional dictatorship, of the type which Cheney’s controllers so ardently desire.