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Editor, The Konformist
Is it time to bail out of the US?
By Paul Craig Roberts
Online Journal Contributing Writer
Jan 30, 2009
California State Controller John Chiang announced on January 26 that
California's bills exceed its tax revenues and credit line and that
the state is going to print its own money known as IOUs. The template
is already designed.
Instead of receiving their state tax refunds in dollars, California
residents will receive IOUs. Student aid and payments to the disabled
and needy will also come in the form of IOUs. California is
negotiating with banks to get them to accept the IOUs as deposits.
California is often identified as the world's eighth largest economy,
and it is broke.
A person might think that California's plight would introduce some
realism into Washington, DC, but it has not. President Obama is
taking steps to intensify the war in Afghanistan and, perhaps, to
expand it to Pakistan.
Obama has retained the Republican warmongers in the Pentagon, and the
US continues to illegally bomb Pakistan and to murder its civilians.
At the World Economic Forum in Davos this week, Pakistan's prime
minister, Y. R. Gilani, said that the American attacks on Pakistan
are counterproductive and done without Pakistan's permission. In an
interview with CNN, Gilani said, "I want to put on record that we do
not have any agreement between the government of the United States
and the government of Pakistan."
How long before Washington will be printing money?
On January 28, Obama announced his $825 billion bailout plan. This
comes on top of President Bush's $700 billion bailout of just a few
Obama says his plan will be more transparent than Bush's and will do
more good for the economy.
As large as the bailouts are -- a total of $1.5 trillion in four
months -- the amount is small in relation to the reported size of
troubled assets that are in the tens of trillions of dollars. How do
we know that by June there won't be another bailout, say $950 billion?
Where will the money come from?
Obama's bailout plan, added to the FY 2009 budget deficit he has
inherited from Bush, opens a gaping expenditure hole of about $3
Who is going to purchase $3 trillion of US Treasury bonds?
Not the US consumer. The consumer is out of work and out of money.
Private sector credit market debt is 174 percent of GDP. The personal
savings rate is 2 percent. Ten percent of households are in
foreclosure or arrears. Household debt-service ratio is at an all-
time high. Household net worth has declined at a record rate. Housing
inventories are at record highs.
Not America's foreign creditors. At best, the Chinese, Japanese, and
Saudis can recycle their trade surpluses with the US into Treasury
bonds, but the combined surplus does not approach the size of the US
Perhaps another drop in the stock market will drive Americans'
remaining wealth into "safe" US Treasury bonds.
If not, there's only the printing press.
The printing press would turn a deflationary depression into an
Unemployment combined with rising prices would be a killer.
Inflation would kill the dollar as well, leaving the US unable to pay
for its imports.
All the Obama regime sees is a "credit problem." But the crisis goes
far beyond banks' bad investments. The United States is busted. Many
of the state governments are busted. Homeowners are busted. Consumers
are busted. Jobs are busted. Companies are busted.
And Obama thinks he has the money to fight wars in Afghanistan and
Except for the superrich and those banksters and CEOs who stole
wealth from investors and shareholders, Americans have suffered
enormous losses in wealth and income.
The stock market decline has destroyed about 45 percent of their
IRAs, 401Ks, and other equity investments. On top of this comes the
decline in home prices, lost jobs and health care, lost customers.
The realized gains in mutual funds and investment partnerships, on
which Americans paid taxes, have been wiped out.
The government should give those taxes back.
Americans who have seen their retirement savings devastated by
complicity of government regulators and lawmakers with financial
gangsters should not have to pay any income tax when they draw on
The financial damage inflicted on Americans by their own government
is as great as would be expected from foreign conquest. While
Washington "protected" us from terrorists by fighting pointless wars
abroad, the US economy collapsed.
How can President Obama even think about fighting wars half way
around the world while California cannot pay its bills, while
Americans are being turned out of their homes, while, as Business
Week reports, retirees will work throughout their retirement (which
assumes that there will be jobs), while careers are being destroyed
and stores and factories shuttered?
Americans are facing tremendous unemployment and hardship. Obama
doesn't have another dollar to spend on Bush's wars.
Taxpayers are busted. They cannot stand another day of being milked
by the military-security complex. The US government is paying private
mercenaries more by the day than the monthly checks it is providing
to Social Security retirees.
This is insanity.
The banksters robbed us twice. First it was our home and stock
values. Then the government rewarded the banksters for their misdeeds
by bailing out the banksters not their victims, and putting the cost
on the taxpayers' books.
The government has also robbed the taxpayers of $3 trillion dollars
to fight its wars. About $600 billion are out of pocket costs, and
the rest is on the taxpayers' books.
When foreign creditors look at the debt piled on the taxpayers'
books, they don't see a good credit risk.
Washington is so accustomed to ripping off the taxpayers for the
benefit of special interests that the practice is now in the DNA.
While bailouts are being piled upon bailouts, wars are being piled
Before Obama gets in any deeper, he must ask his economic team where
the money is coming from. When he finds out, he needs to tell the
rest of us.
Paul Craig Roberts was Assistant Secretary of the Treasury during
President Reagan's first term. He was Associate Editor of the Wall
Street Journal. He has held numerous academic appointments, including
the William E. Simon Chair, Center for Strategic and International
Studies, Georgetown University, and Senior Research Fellow, Hoover
Institution, Stanford University. He was awarded the Legion of Honor
by French President Francois Mitterrand. He is the author of Supply-
Side Revolution : An Insider's Account of Policymaking in Washington;
Alienation and the Soviet Economy and Meltdown: Inside the Soviet
Economy, and is the co-author with Lawrence M. Stratton of The
Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are
Trampling the Constitution in the Name of Justice.
Q4 GDP down 3.8 percent, biggest drop since 1982
Friday January 30, 2009
WASHINGTON (Reuters) - The economy shrank at its fastest pace in
nearly 27 years in the fourth quarter, government data showed,
sinking deeper into recession as consumers and business cut spending.
The Commerce Department on Friday said gross domestic product, which
measures total goods and services output within U.S. borders,
plummeted at a 3.8 percent annual rate, the lowest pace since the
first quarter of 1982, when output contracted 6.4 percent. GDP fell
0.5 percent in the third quarter. These were the first consecutive
declines in GDP since the fourth quarter of 1990 and the first three
months of 1991.
Analysts polled by Reuters had forecast GDP contracting 5.4 percent
in the fourth quarter. The U.S. economy slipped into recession in
December 2007, driven by the collapse of the housing market and
resulting global credit crisis.
For 2008, GDP rose 1.3 percent, the slowest pace of growth since
2001, when the economy expanded 0.8 percent.
The advance report from the Commerce Department showed consumer
spending, which accounts for two-thirds of U.S. economic activity,
fell 3.5 percent in the fourth quarter after declining 3.8 percent in
the third quarter, also the first consecutive drops since the last
quarter of 1990 and the first quarter of 1991.
Spending on durable goods like cars and furniture plunged 22.4
percent, the steepest decline since the first quarter of 1987.
In response to the slump in demand, investment by business slumped
19.1 percent for the sharpest pull-back since the first quarter of
1975. Residential investment plummeted 23.6 percent.
The sharp economic downturn is putting a lid on inflation pressures,
with the personal consumption expenditures price index plunging a
record 5.5 percent after rising 5 percent in the third quarter.
Excluding volatile food and energy items, core prices grew at a muted
0.6 percent, the slowest rate since the fourth quarter of 1962. Core
PCE rose 2.4 percent in the third quarter.
Analysts polled by Reuters had forecast the PCE index falling 5.4
(Reporting by Lucia Mutikani; Editing by Neil Stempleman)
Sarkozy Faces His Biggest Protest Yet on French Economic Plan
By Helene Fouquet
Jan. 29 (Bloomberg) -- President Nicolas Sarkozy faced the biggest
public protest since his election in 2007 as more than a million
people marched across France complaining about his government's
The police said 1.1 million people demonstrated, while Confederation
Generale du Travail, the second-biggest French labor union, put the
total at 2.5 million. This is the biggest protest since the 2006
marches against a disputed youth-work law that forced the government
to scrap it.
The nation's eight largest unions joined forces in the strike, saying
Sarkozy's 26 billion-euro ($34.4 billion) economic-stimulus package
is inadequate. They want the government do more to counter rising
unemployment and weakening purchasing power as the French economy
enters its first recession in 16 years.
"The target is won, thanks to the massive presence of private sector
workers," Francois Chereque, head of Confederation Francaise
Democratique du Travail, France's biggest union, said at the end of
the Paris demonstration, adding that today "is the biggest workers'
action day in about 20 years," according to his press office.
The strike resulted in train delays, closed schools and jammed roads
as more than a million public sector workers and thousands of others
from companies including France Telecom SA and Renault SA took part
in the work stoppage.
Bank of France
Participation in the strike today ranged from 25 percent at the Bank
of France to more than 60 percent in primary schools. The Public
Service Ministry reported that 26 percent of its staff walked out, or
about 900,000 people. That's more than the 20 percent strikers in
"This crisis imposes on the government a duty to listen, to engage in
dialogue," Sarkozy said in an e-mailed statement in response to the
day's events. "The concern is legitimate" as citizens "are losing
their jobs" he said, adding that he plans to meet with labor unions
and employers next month to discuss reforms planned for 2009.
The Paris march ended with violence at the Garnier opera square. Riot
police fired tear gas as protesters burned trash bins. CGT said
300,000 walked in the capital city and authorities reported 65,000
While France has a history of street protests, the global financial
crisis has sparked similar demonstrations and unrest in countries
from China and Greece to Iceland. France's most disruptive transport
strike in over a decade in November 2007 cost as much as 400 million
euros a day, according to finance ministry estimates.
About 69 percent of the French people backed the strike, according to
a poll by CSA-Opinion for newspaper Le Parisien on Jan. 25. Forty-six
percent support the strike, while 23 percent "sympathize," with the
union call, Le Parisien said. Of those interviewed, 12 percent were
opposed or hostile to the strike.
It's the first time in Sarkozy's presidency that a "social movement"
has had such public approval, Stephane Rozes, head of CSA-Opinion
told the daily.
Ten percent of the flights at Paris's Charles-de-Gaulle airport were
canceled and third of those at the city's second airport Orly were
scrapped. In Marseille, Lyon and Toulouse, most public transport was
canceled. The aviation authority said flight operation will return to
Output at French power plants operated by Electricite de France,
Europe's biggest electricity producer, fell by 14,000 megawatts
because of strikes, a "record amount," according to the CGT union.
To contact the reporter on this story: Helene Fouquet in Paris at
Exxon Mobil sets record with $45.2 billion profit
Exxon Mobil shatters US record with $45.2 billion annual profit
despite year-end oil plunge
John Porretto, AP Energy Writer
Friday January 30, 2009
HOUSTON (AP) -- Exxon Mobil Corp. on Friday reported a profit of
$45.2 billion for 2008, breaking its own record for a U.S. company,
even as its fourth-quarter earnings fell 33 percent from a year ago.
The previous record for annual profit was $40.6 billion, which the
world's largest publicly traded oil company set in 2007.
The extraordinary full-year profit wasn't a surprise given crude's
triple-digit price for much of 2008, peaking near an unheard of $150
a barrel in July. Since then, however, prices have fallen roughly 70
percent amid a deepening global economic crisis.
In the fourth quarter alone crude tumbled 60 percent, prompting
spending and job cuts in an industry that was reporting robust, often
record, profits as recently as last summer.
With piles of cash and diversified operations, the majors like Exxon
Mobil have fared better than many smaller oil and gas companies, but
Friday's results show no one is completely insulated from the ongoing
Irving, Texas-based Exxon said net income slid sharply to $7.8
billion, or $1.55 a share, in the October-December period. That
compared to $11.7 billion, or $2.13 a share, in the same period a
year ago, when Exxon set a U.S. record for quarterly profit. It has
since topped that mark twice, first in last year's second quarter and
then with earnings of $14.83 billion in the third quarter.
Revenue in the most-recent quarter fell 27 percent to $84.7 billion.
On average, analysts expected the company to earn $1.45 per share in
the latest quarter on revenue of $69.1 billion.
Shares rose $1.14 to $78.14 in premarket trading.
Roubini Sees Global Gloom After Davos Vindication
By Simon Kennedy
Jan. 30 (Bloomberg) -- At the World Economic Forum two years ago,
Nouriel Roubini warned that record profits and bonuses were obscuring
a "hard landing" to come. "I really disagree," countered Jacob
Frenkel, the American International Group Inc. vice chairman and
former Israeli central banker.
No more. "Roubini was intellectually courageous, and he called the
shots correctly," says Frenkel, whose AIG survives only on the basis
of more than $100 billion of government loans. "He gained
credibility, and he deserves it."
This week, New York University's Roubini returned to the WEF and the
Swiss ski resort of Davos as the prophet of the worst economic and
financial crisis since the Great Depression - - joining the ranks of
previous "Dr. Dooms" who made their names through contrarian calls
that proved correct.
Even as he wins plaudits for his prescience, Roubini, 50, says worse
lies ahead. Banks face bigger credit losses than they realize, more
financial companies will require state takeovers and the world
economy will keep shrinking throughout 2009, he says.
"The consensus is catching up with me, but it's still behind,"
Roubini said in an interview in Davos. "I don't know what some people
As long ago as February 2007, Roubini was writing on his blog
that "the party will soon be over," and warning of "painful
consequences for the U.S. and the global economy." By last February,
his tone had become apocalyptic, raising the specter of
a "catastrophic" meltdown that central banks would fail to prevent,
triggering the bankruptcy of large banks with mortgage holdings and
a "sharp drop" in equities.
The next month, Bear Stearns Cos. failed, to be taken over by
JPMorgan Chase & Co. in a government-backed deal. Then, in September,
Lehman Brothers Holdings Inc. went bankrupt, prompting banks to hoard
cash and depriving businesses and households of access to capital.
The U.S. took over AIG, Fannie Mae and Freddie Mac, and the Standard
& Poor's 500 Index suffered its worst year since 1937.
"I was intellectually vindicated," Roubini says. "But I was
vindicated by having an economic disaster which has political and
Roubini's predecessors in the role of economic nay-sayer include some
well-known names: Joseph Granville, publisher of the Granville Market
Letter, who forecast the stock-market declines of 1976 and 2000;
Henry Kaufman, who as a managing director at Salomon Brothers
projected rising interest rates that led to a U.S. recession in the
early 1980s; Marc Faber, publisher of the Gloom, Boom & Doom Report,
who predicted the 1987 stock crash; and Yale University's Robert
Shiller, a former colleague of Roubini's, who forecast the end of the
dot-com bubble in his 2000 book "Irrational Exuberance" and said in a
second edition in 2005 that the U.S. housing market had undergone the
biggest speculative boom in U.S. history.
Granville, 85, says the key to being an outlier is not to doubt your
"I don't have anything to do with emotion," says Granville, who's
based in Kansas City. "Keep your head, follow the numbers and ignore
Roubini was born in Istanbul, the son of an importer- exporter of
carpets, and spent his childhood in Israel, Iran and Italy. It was
while living in Milan from 1962 to 1982, he says, that he became
attracted to economics: "Economics had the tools to understand the
world, and not just understand it but also change it for the better."
After a year at the Hebrew University of Jerusalem, he earned an
economics degree at Milan's Universita' L. Bocconi and then his Ph.D.
at Harvard University in 1988, where he specialized in international
Jeffrey Sachs, he says, became his "role model" at Harvard by
demonstrating that economists could shape public policy -- as Sachs
did by lobbying for poor countries to have their debts relieved by
richer governments. Sachs is now a professor at Columbia University.
"You sensed there was something beyond academia, that you have to
figure out the big issues of the global economy," says Roubini. "You
have to be engaged, and can't just be in an ivory tower."
For much of the 1990s, Roubini combined academic research and policy-
making by teaching at Yale and then in New York, while also spending
time at the International Monetary Fund, the Federal Reserve, World
Bank and Bank of Israel.
By 1998 he had attracted the attention of President Bill Clinton's
administration, joining it first as a senior economist in the White
House Council of Economic Advisers and then moving to the Treasury
department as a senior adviser to Timothy Geithner, then the
undersecretary for international affairs and now Treasury secretary
in the Obama administration.
Roubini returned to the IMF in 2001 as a visiting scholar while it
battled a financial meltdown in Argentina. He co-wrote a book on
saving bankrupt economies entitled "Bailouts or Bail- ins?" and
opened his own global consulting firm, which now employs two dozen
economists and publishes a popular Web site and blog.
"Nouriel has a rare combination of economics and the real world, and
so has great insight because of that," says Shiller. "He looks into
the details and rolls up his sleeves."
Roubini says working on emerging-market blowouts in Asia and Latin
America allowed him to spot the looming disaster in the U.S. "I've
been studying emerging markets for 20 years, and saw the same signs
in the U.S. that I saw in them, which was that we were in a massive
credit bubble," he says.
Still a Pessimist
With that bubble now popped, Roubini remains more pessimistic than
economists elsewhere. The IMF forecasts global growth of 0.5 percent
this year and bank losses from toxic U.S.- originated assets of $2.2
trillion. By contrast, Roubini sees the global economy shrinking this
year, and banks writing down at least $3.6 trillion -- compared to
the $1.1 trillion disclosed so far.
While the U.S. government is resisting nationalizing its biggest
banks, Roubini says it will have no choice because they are
now "effectively insolvent." And the outcome may be even worse than
even he anticipates if governments fail to take aggressive steps to
recapitalize banks and revive their economies, he says: "The risk of
a near-depression shouldn't be underestimated."
Roubini, who's now working on a book about the crisis, says he takes
no particular pleasure in his role as Dr. Doom or the attention it
"I'm not a permanent bear," he says. "I'll be the first to call a
recovery, but I just don't see it yet, and it's getting uglier."
Charts Predict: Oil May Whip Back up to $100
02 Feb 2009
Oil prices could bounce back toward $100 a barrel as the huge decline
over the past twelve months looks set to give back up to half of its
fall, Robin Griffiths, technical strategist at Cazenove Capital, told
"After a major fall like that you would expect it to retrace a
quarter, a third or a half of the previous fall and as that was an
enormous fall, quite a decent bounce is likely to come," he said.
Oil has fallen well over $100 a barrel since the high of above $147
hit in July. If prices were to regain half of their declines, oil
could be back up in the $90-$100 range, according to Griffiths'
The "downtrend has now come to an end," he said. "There is in fact a
well-established seasonality to the oil price and the lows tend to
form around now," he added.