The West's Fatal Overdose

[FarCenter]

By Gabor Steingart in Washington D.C.

The G-20 has agreed on plans to fight the global downturn. But its approach will only lay the foundation for the next, bigger crisis. Instead of "stability, growth, jobs," the summit's real slogan should have been "debt, unemployment, inflation."

Now they're celebrating again. An "historic compromise" had been reached, German Chancellor Angela Merkel said at the conclusion of the G-20 summit in London, while US President Barack Obama spoke of a "turning point" in the fight against the global downturn. Behind the two leaders, the summit's motto could clearly be seen: "stability, growth, jobs."

When the celebrations have died down, it will be easier to look at what actually happened in London with a cool eye. The summit participants took the easy way out. Their decision to pump a further $5 trillion (€3.72 trillion) into the collapsing world economy within the foreseeable future, could indeed prove to be a historical turning point -- but a turning point downwards. In combating this crisis, the international community is in fact laying the foundation for the next crisis, which will be larger. It would probably have been more honest if the summit participants had written "debt, unemployment, inflation" on the wall.

The crucial questions went unanswered because they weren't even asked. Why are we in the current situation anyway? Who or what has got us into this mess?

The search for an answer would have revealed that the failure of the markets was preceded by a failure on the part of the state. Wall Street and the banks -- the greedy players of the financial industry -- played an important, but not decisive, role. The bank manager was the dealer that distributed the hot, speculation-based money throughout the nation.

But the poppy farmer sits in the White House. And during his time in office, US President George W. Bush enormously expanded the acreage under cultivation. The chief crop on his farm was the cheap dollar, which eventually flooded the entire world, artificially bloating the banks' balance sheets, creating sham growth and causing a speculative bubble in the US real estate market. The lack of transparency in the financial markets ensured that the poison could spread all around the world.

There are -- even in the modern world -- two things that no private company can do on its own: wage war and print money. Both of those things, however, formed Bush's response to the terrorist attacks of Sept. 11, 2001. Many column inches have already been devoted to Bush's first mistake, the invasion of Baghdad. But his second error -- flooding the global economy with trillions of dollars of cheap money -- has barely been acknowledged.

No other president has ever printed money and expanded the money supply with such abandon as Bush. This new money -- and therein lies its danger -- was not backed by real value in the form of goods or services. The measure may have had the desired effect -- the world economy revived, at least initially. And US consumption kept the global economy going for years. But the growth rates generated in the process were illusionary. The US had begun to hallucinate.

The addiction to new cash injections was chronic. The US had allowed itself to sink into an abject lifestyle. It sold more and more billions in new government bonds in order to preserve the appearance of a prosperous nation. To make matters worse, private households copied the example of the state. The average American now lives from hand to mouth and has 15 credit cards. The savings rate is almost zero. At the end of the Bush era, 75 percent of global savings were flowing into the US.

The president and the head of the Federal Reserve, Alan Greenspan, knew about the problem very well. Perhaps the Americans even knew just how irresponsible their actions were -- at any rate, they did everything they could to hide them from the world. Since 2006, figures for the money supply -- in other words, the total number of dollars in circulation -- have no longer been published in the US. As a result, a statistic which is regarded by the European Central Bank as a key indicator is now treated as a state secret in the US.

<snip>

But the change of government in Washington has not brought a return to self-restraint and solidity. On the contrary, it has led to further abandon. Barack Obama has continued the course towards greater and greater state debt -- and increased the pace. One-third of his budget is no longer covered by revenues. The only things which are currently running at full production in the US are the printing presses at the Treasury.

<snip> http://www.spiegel.de/international/world/0,1518,617224,00.html

[malaise]

1. Good read

Meanwhile the same multilateral institutions, the so called guardians of free market capitalism, insist that the rest of us don't print money and have interest rates that stymie growth and development.

[fasttense]

2. I have alway marveled at Obama's constant comment that

we need to look forward instead of backward. (First brought up in the 2008 Presidential campaign by none other than that famous idiot Sarah Palin during the VP debates/talks.)

But how can you figure out which way to go if you don't know where you have been? It seems this requirement to always look forward will eventually have you walking around in circles.

And that is exactly what is happening now. The powers that be are circling around all the real solutions and re-using the same failed policies of people like Herbert Hoover, Milton "greed runs the world" Friedman, Greenspan, Rubin, Paulson, and anyone else who had a hand in creating the current economic crisis.

Until someone in power stops and looks behind them, we will continue to move in ever more disastrous circles.

Hang on folks, the real 2nd Republicon Great Depression is gonna hit at the end of the year.