Sep 30, 2023
Sep 30, 2023
Cassandra, the daughter of Priam, King of Troy was given the gift of knowing the future and the curse of never paying heed to her predictions by her listeners. She shouted from the rooftops of Troy to avoid the war with the Greeks and foretold the fall of Troy, the death of Hector and the warning not to accept the gift of a wooden horse from the Greeks feigning retreat.
Lately sundry professors, economists, Nobel laureates and former Commerce and Treasury secretaries have written books and spoken at seminars that the US is headed for a fiscal train wreck. An Indian economic fellow at the Federal Reserve Bank of Cleveland, named Jagdeesh Gokhale with other collaborators, at the commissioning by former Treasury Secretary O'Neill, has calculated that the unfounded liabilities of the US government are nearly 45 trillion dollars, four times the annual GDP. Our debt is increasing by over half a trillion dollars a year and the interest on our national debt at current low interest rates is 318 billion dollars a year. Unlike Japan, which has a higher proportion of debt to GDP ratio, nearly a third of our debt is owed to foreigners. If interest rates go up by a large amount, 90% of our government tax receipts would go to cover the interest bill, leaving nothing for any other programs. This is why the Federal government is compelled to lie about the real inflation numbers and keep interest rates artificially low even at the cost of a precipitously falling dollar. Nevertheless foreigners may refuse to finance our current account deficit and dump the dollar. The SEC and Sarbanes-Oxley legislation are supposed to compel the CEOs to swear under oath the truth of company annual reports, yet the US government states it financial deficit at just over 500 billion dollars, when in reality it is over 900 billion dollars per year.
The other intended consequence of these low interest rates is reduced saving and devaluation of the retirement and savings accounts of the prudent and the elderly, by giving them an after tax return on capital less than the falsely stated inflation rate. This compels them to make riskier investments. On the other hand return on capital of the rich who own the bulk of dividend paying stocks is taxed at a lower rate than income generated by the sweat of labor of the average working stiff. Furthermore Draconian laws now categorize middle class workers as executive cadres, depriving them of overtime. The US, once a leading manufacturing economy has passed beyond a service economy into a casino economy. Momentum following money managers, buy overpriced stocks with the public money entrusted to them, while ignoring their fiduciary responsibility, only to garner higher percentage of management fees in hedge funds and private placements. Investment bankers, brokerage firms, insurance companies and innumerable CEOs and money managers have been caught red-handed doing illegal deals and favoring select customers. They accept no guilt, plead nolo contendre, sign consent decrees and pay a small fraction of their ill-gotten gains as fines and return to their previous high positions unscathed. In the meantime some poor petty thief in the Terminator State of California gets life imprisonment for recurrent shoplifting.
The purpose of markets is to promote commerce and spread risk. What happens now is huge sums of money sloshing around the world indulges in program trading and speculation that serves no commercial purpose. Much of the trading on the stock exchanges is meant to profit from small price disparities without any other purpose or benefit to the countries or their populations. The race to the lowest wage countries due to globalization and unrestricted movement of capital with drastic restrictions on movement of labor and people create third world disparities in income and wealth in all nations, with a clearly separated two tier society of haves and have-nots. This decimates the middle class and hence true democratic government and sets up a plutocracy with the politicians beholden to vested interests and moving through revolving doors from being lobbyists, government regulatory officials and elected politicians.
Candidates of both parties are pre-selected by the powerful to toe their lone, making a sham of democracy. The colluding, conniving and self-serving media abdicates its responsibility to be the guardians and become cheerleaders, sycophants or mouthpieces of the powerful. Important issues are given short shrift or swept under the rug and straw issues are created to arouse the passions of the stupid, uninformed and time-constrained electorate. Consent is manufactured as Chomsky and Herman document, and the population is regaled with bread and circuses, together with cheap consumer goods. Unfortunately the time is coming to pay the piper. The rising oil prices, falling dollar and the stock market, the threat of pricing oil in other currencies and the reluctance of other nations to fund our trade, current account and budget deficits and the quagmire of Iraq with alienation of allies leaves us with little time. If by 2008 the deficits are not reigned in and no credible plan put in place we will be careening down the slippery slope of the precipice by increasing our debts by nearly a trillion dollars a year and by 2013 we will go over the edge of the precipice into a free fall to perdition! So think before you vote lest we all sing 'Don't cry for me Argentina'!
More by : Gaurang Bhatt, MD