(Conspiracy Nation, 08/14/05)
-- Almost incidental to Ravi Batra's latest book, Greenspan's Fraud, are
revelations about the economic situation during the past 25-or-so
years. The common thread is Sir Alan Greenspan of the "Federal"
Reserve, harshly criticized by Batra in contradistinction to Bob
Woodward's fawning Maestro.
To mature persons who lived through these times and were affected by
them, the true economic picture of what was going on provides insight
into how their lives were shaped by financial legerdemain. While the
business press cheerleaded, the robbery of Americans was not especially
noticed. Your hardships and those of your children paved the way for
Greenspan's fraud.
From 1885 through 1982, the Dow Jones average had been under 1000.
Then, in just 20 years, the Dow skyrocketed past 11,000. Along the way,
on October 19, 1987, occured the worst crash in the history of the
New York Stock Exchange.
The ratio of drop was 22.6 percent, twice the ratio of the 1929 crash.
Just
two months previously, Alan Greenspan had been chosen as the new chief
of "the Fed." He is now the longest-reigning "Fed" chair in history.
Those worried about "the sky is falling" can ponder what Greenspan's
retirement next year will mean.
Say's Law, named after French economist Jean-Baptiste Say, had
proposed, "Supply creates its own demand." Along came John Maynard
Keynes, who proposed, to the contrary, "Demand creates its own supply."
Keynes advocated budget deficits to stimulate demand. Demand would
increase with a rise in debt, since money is borrowed for the purpose
of spending it. Of course, one had to pay off the debt when prosperity
returned; deficit spending obviously could not continue indefinitely.
Some are confused about deficit vs. debt. They hear about
"government
budget deficit" and "government debt," and they wonder, "What's the
difference?" The deficit is yearly. Each year, contrary to Keynes'
overall advice, the government runs a deficit. That is like the
borrowing on a credit card, which gets added to the total debt. The
debt is total, an accumulation of past years' deficits.
In 1975, annual inflation was 9 percent and the unemployment rate
was
8.5 percent. By 1980, annual inflation had risen to 13.5 percent.
President Jimmy Carter went on television, shrugged his shoulders, and
said, "This nation is in trouble." For his honesty, Carter was widely
ridiculed. Along came Ronald Reagan, in 1980, and he said, "No, no, we
are not in trouble. It is morning in
America." Carter, in his classic "spiritual crisis" address, had
said, "It is mourning in America," but
many people didn't want to face facts. Instead, the nation began a
borrowing binge. It would be like you having credit cards of which
someone else would have to pay the bills, later, after you were gone.
Like with credit cards, as debt accumulates there are interest
payments
one must pay. Each year's budget deficit added to the total debt, and
interest payments on that debt increasingly ate away at government's
annual revenue. Somehow, more money had to be obtained. In the 1960s,
the state sales tax burden averaged at 2 percent. That crept slowly
upward until now the average sales tax is over 7 percent. There began
to be a "tax revolt," in the 1980s, with citizens up in arms about
being "taxed to death." Ronald Reagan's "voodoo economics" somehow
promised to increase military spending yet lower taxes. How could that
be done? By borrowing massively and sending the bill to the future.
Another bit of voodoo magic involved Social Security. In 1983,
Reagan's
budget director David Stockman warned, "Social Security is about to
face the most devastating bankruptcy in history." So the Social
Security taxes were raised. Once at 2 percent, shared by employer and
employee, FICA now takes over 15 percent, of which you pay half.
"Suppose your financial adviser earnestly told you some 25 years ago to
invest more money in his brokerage firm, so you could enjoy a decent
living upon retirement," suggests Batra. Then, years later, this same
adviser tells you the money is gone. He has not invested it, he has
spent it on other things. "Believe me," writes Batra, "something like
this has happened to the Social Security Trust Fund." The Social
Security money, hard-earned dollars from working people, was not
invested but was frittered away as a prop for a debt bubble.
In 1983, as a member of the Council of Economic Advisers, Alan Greenspan had "persuaded lawmakers to overtax the American worker in advance and create a surplus in the Social Security Trust Fund that would meet the pension needs of baby boomers, who were expected to retire in large numbers around 2010." However this money was not left to sit, but was used to mask budget deficits. The money was hauled from Social Security and IOUs were left in its stead.
Political irresponsibility, allowed by both parties, Democrat and
Republican, affected the U.S. dollar. If you have huge credit card
debt, there begins to be doubt whether you will finally pay. Your
credit rating may suffer and/or you may find the interest charges on
your monthly bill have risen. In 1969, the dollar/yen ratio was 1/360.
One dollar bought 360 yen. In 1980, the dollar/yen ratio had sunk to
1/226. Now that ratio is about 1/110, with a dollar equal to 110 yen.
This pattern is the same relative to other currencies.
"Not to worry," say some. As the dollar devalues, the balance of
trade
improves. American exports become less expensive abroad, this causes a
rise in sales, increased demand, a boost to U.S. manufacturing and an
increase in jobs. Except there is no U.S. manufacturing to speak of,
since the factories have relocated. Why is it, for example, that Mexico
devalues its currency and her trade balance improves, yet the same does
not happen for the United States? Answer: lack of manufacturing in the
U.S.
The economy had been sandbagged in the 1970s, due to deficit
financing and tremendous rises in oil prices. Carter pleaded for
sanity, but his was not a happy message and folks changed channels. On
the Happy Channel was Ronald Reagan, a rooster crowing about sunshine.
But the sunshine was artificial, energized by debt. To pay for the
illusion, average Americans worked harder. The productivity climbed. A
new mode of life, the "two-income trap," was a necessary adjustment for
many. At first, both spouses working ameliorated the situation. Slowly
however that stopgap eroded. Now, "even two earners" (the "liberated"
female and her mate) "cannot do today what a sole provider could do for
the family in the 1950s and the 1960s." The real productive wage peaked
in 1973 at $331/week then declined. By 1995 it was $258/week.
All this has influenced your life, especially if you are of mature
years. The manufacturing jobs evaporated. Sneakily, your taxes climbed.
Your money was also robbed from you in a different way, through
inflation, precipitated by a borrowing binge benefiting the well-to-do.
You have had to work harder, since productivity would rally Gross
Domestic Product and massage creditor confidence. Your wages,
unfortunately, have trailed your productivity, leading you into debt
which benefits the bankers. The productivity has risen but the wages
have not. Since the market crash of 1987, and exacerbated by the Nasdaq
crash of 2001, debt bubble pressure has been building. And it all
occured during the "maestro's" -- Greenspan's -- reign. Greenspan,
sneers Batra, is the "poster boy for free debt."
(Further info at http://www.ravibatra.com)
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