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America, Poverty and December 04

So, this is the crunch time, watch out for the elections. Watch out for November 2004. All that value that is being spent propping up an uncompetitive American economy, sucking in cash from foreigners and creating huge waves of debt is not sustainable, even in the medium term. Bits of it might be, like war or tariffs, especially war. But both the imbalance and the greed of the financial industries will mean that eventually Americans will pay it back. The poorest 95% that is.
America, poverty and December 04

Adam Porter, December 29, 2003

A year ago we wrote that it was time to cash in your chips. Relative security in the market place over the next twelve months would allow anyone who could do to get out. To do what the big boys are doing. Getting out of debt, getting out of dollars, getting into cash and gold. Secure your capital base and leverage it from there.

Now, senior economists are calling the same tune. Safe to say we said it first. So here is another shot at economic forecasting, after all the last one was right, maybe this one will be too.

You can expect the equities markets, especially Dow Jones, to contract (today, December 29 2003 it is at 10305) in the short term. To see some profit taking. Expect to see the Dow back at around 9270, the FTSE around 4050, somewhere between a five and ten percent hit. Possibly as early as New Year, maybe as late as Easter. With a possible rise again in the summer if the current administration looks like being re-elected. After all the Dow, and other equities markets, are now only an indicator of the values of the elite. It is not some kind of pseudo democratic market place where small investors can play with the institutional ones. That was a lie, obvious to some but not enough, created to extract the value of the small investor. Created to give the money of your Mum and Dad or brother or sister or self, to the banks. It worked well. Little people provided part of the liquidity to the super-elite, as did the huge gamble on internet-based and telecom technology. And of course liquidity is vital to the financial elites, how else do they get more stuff? They don't create wealth, that phrase is just for people who don't understand economics, they shift wealth. To themselves. They are not wealth creators they are wealth movers. And hoarders.

So more than ever now the Dow, (and the other equities markets around the world) really represent the aspirations of those elites, financial and otherwise. As you can see it has been quite a good year for them. Returns for them are generally running at around 5-15% depending on what trade they are in. That is reflected in the rises of the equities 'markets', year on year. The markets have been solidified somewhat. Those returns however are based on hacking away at ordinary people. First cost-cutting, redundancies and, in the main, under-employment spurred the spurious notion of 'economic growth'. Then of course there was the selling of debt to the public at record levels.

In the USA, which is the main focus of trade and equities, they have pulled out every stop to keep their economy liquid. They have interest rates at a dangerously low 1%. Dangerously low because when they go up American households are going to be slammed in the face with debt repayment, certainly the poorest 80% will be. A rise of 25 basis points (one quarter of one percent, the minimum possible raise) will mean a 25% rise in debt repayments. But there is gigantic liquidity for the elite from the debt they have sold. There are billions of dollars in `growth` for the banks and the financial institutions locked up in ordinary American homes. Eventually it will be taken back.

The low low interest rates could not work on their own of course. So the present U.S. administration has created a huge debt of its own, the public deficit. No one disputes that the deficit is unsustainable. It just depends who is going to pay for it in the end. Well, of course it is going to be the American public. However, that is certainly not going to happen before the next U.S. election.

As well as a huge debt and dangerous interest rates the present U.S. administration still could not introduce liquidity into the economy. So they have allowed, in fact pushed, the dollar to record lows against foreign currencies (today 1.24). This in order to boost manufacturing and exports, basically to preserve jobs. To suck in all the available liquid from foreigners. In turn they have stuck it to their own importers, brutally damaged those whose `profit` comes in dollars, but crucially dampening the effect of the price rise in oil (today it is at $29.40, beyond the $24-$28 benchmark set by OPEC: futures contracts for January are at $31.95).

As well as all these measures designed to prop up an economy that shows no sign of `creating` its own wealth there are also the protectionist measures this administration has created. Firstly steel tariffs. Illegal under any kind of international rules or regulations. The sanctions were created with the full knowledge that it would take many months to sort them out. Thus keeping some of that precious liquid until the WTO could slowly grind to a decision. But by then it was too late, this U.S. administration had already slapped more illegal tariffs on other countries. Notably China.

Then of course there is the war in Iraq. Providing huge subsidies from the U.S. taxpayer straight to elite industries, financial, military and energy related. This knocks though into different 'markets' creating further 'growth'. As we all realise now, this kind of 'growth' is nothing more than book-cooking of the highest order. That money has been taken from ordinary American's savings, or has been leant to ordinary Americans at interest by the banks. A double winner. Then that 'spend' is counted as forming 'growth'. Along the way of course those elite industries are 'skimming', taking a slice. Halliburton are the most extreme, charging the U.S. taxpayer way over the odds for petrol imports for the U.S. Army from the UAE. Halliburton charge $2.64 per gallon, the general going rate is 74c. Now that's what we call wealth creation! Joe Schmo fights and dies, has his legs blown off, his flesh ripped, shoots a few kids, has his Mum pay the bill, gets charged a 400% surcharge for petrol by the skimmers and when he gets home will find that his President has cut army benefits, to save money. But surely an increase in army benefits would be 'economic growth'? It would create extra liquidity? Hey, who cares when you make it up as you go along? Pay and die.

So, this is the crunch time, watch out for the elections. Watch out for November 2004. All that value that is being spent propping up an uncompetitive American economy, sucking in cash from foreigners and creating huge waves of debt is not sustainable, even in the medium term. Bits of it might be, like war or tariffs, especially war. But both the imbalance and the greed of the financial industries will mean that eventually Americans will pay it back. The poorest 95% that is.

However, to November, it will be mostly okay in the short term, for the next eleven months. We say mostly. Up to the elections for sure, this is the whole point. American votes are being bought because American voters are being cushioned against economic reality for the benefit of their elite.

They are being loaned giant wedges of cash, in various forms as we have mentioned above. Steel workers who kept their jobs for example. The thing about loans is that they only work because the person who loans the money makes cash when he takes it back. Or even better when he can grab assets. Now, either the Republican administration will reap the reward it desires after it wins the next election, crushing a further tranche of the American public into the mire. Or, on the outside chance that a Democrat wins, then they will have to return the money the Republicans snorted up their collective schnozzles. A Democrat administration will have to fix the huge deficits, just as Clinton did. Either way ordinary Americans are going to get it in the neck.

Slice by slice, quietly but efficiently, the American public are being herded onto poverty trains and are being sent straight to the ghetto, never to emerge. After all, the most socially mobile country in the world is not America, it is France. But American under employment and unemployment figures (so fictional they make a good bed time read) mask the reality of U.S. poverty and how it is encroaching further and further into the dying middle class. Meanwhile the dying middle class avoid complexities (helped in no small part by a media politically aligned to the elite) and become obsessed with the fear of the black man/the Hispanic man/the Arab/the "traitor academics" and are becoming fat on their own personal terrors. This whilst 15% of Americans go hungry sometime every year.

To paraphrase an incarcerated black man, Gil Scott Heron, this recession will not be televised. This recession will happen slowly, they will not jump from the trading floor windows, they will not know who to blame, they will not riot when black men are beaten to death, or shot whilst handcuffed, they will not care that Afghan children are vaporised, because they don't even know enough about their own situation at the bank to save themselves. This recession will go on for years, chip, chip chipping, until there is some kind of political will to embark upon the democratic revolutions the world needs now. That revolution, the democratic revolution, will be televised. But by the time the fear filled Americans switch on their sets and realise they have been duped, the American poor will be so very very angry.

Like we say, sell up and move to Marakesh.

Adam Porter is GNN's European correspondent.

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