ARE CONDITIONS IN THE USA RIPE FOR A FASCIST TAKEOVER?

Populism Arising—but Will It Be the Killer Kind?, by Chris Hedges, truthdig.com (October 27, 2008)

Foreclosures Jump 57 Percent in Last 12 Months, by Lynn Adler, Reuters (April 15, 2008)

"New York - Home foreclosure filings surged 57 percent in the 12 month-period ended in March and bank repossessions soared 129 percent from a year ago, as homeowners struggled to make mortgage payments, real estate data firm RealtyTrac said on Tuesday.

    For the month of March, foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent, led by Nevada, California and Florida, RealtyTrac said.

    The rise in March to filings on a total of 234,685 properties followed a 4 percent decline in February, RealtyTrac reported.

    RealtyTrac said the peak has yet to be reached.

    "What we're really looking at is ongoing fallout from people overextending themselves to buy homes they couldn't afford and using highly toxic loan products to get into the houses in the first place," Rick Sharga, vice president of marketing at RealtyTrac, based in Irvine, California, said in an interview.

    "We're going to see quite possibly a record amount of foreclosure activity in the third or fourth quarter," reflecting sharp payment increases on adjustable-rate subprime mortgages in May and June, Sharga said.

    One in every 538 U.S. households living in single-family dwellings received a foreclosure filing in March. The single-family dwellings can include condominiums.

...."

"The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

    Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

    But the troubles are quickly spreading to bigger national companies, like Linens 'n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

    Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

    The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

....."

$3 Trillion May Be Too Low-Our original estimate of the cost of the Iraq war was too conservative: in reality the cost for the US will be much higher, by Joseph Stiglitz and Linda Bilmes (April 6, 2008)

"President Bush has tried to give the impression that the $3 trillion dollar estimate of the total cost of the war that we provide in our new book may be exaggerated.

We believe that it is in fact conservative. Even the president would have to admit that the $50 to $60 billion estimate given by the administration before the war was wildly off the mark; there is little reason to have confidence in their arithmetic. They admit to a cost so far of $600 billion.

Our numbers differ from theirs for three reasons: first, we are estimating the total cost of the war, under alternative conservative scenarios, derived from the defence department and congressional budget office. We are not looking at McCain’s 100-year scenario - we assume that we are there, in diminished strength, only through to 2017. But neither are we looking at a scenario that sees our troops pulled out within six months. With operational spending going on at $12 billion a month, and with every year costing more than the last, it is easy to come to a total operational cost that is double the $600 billon already spent.

Second, we include war expenditures hidden elsewhere in the budget, and budgetary expenditures that we would have to incur in the future even if we left tomorrow. Most important of these are future costs of caring for the 40% of returning veterans that are likely to suffer from disabilities (in excess of $600 billion; second world war veterans’ costs didn’t peak until 1993), and restoring the military to its prewar strength. If you include interest, and interest on the interest - with all of the war debt financed - the budgetary costs quickly mount.

Finally, our $3 trillion dollars estimate also includes costs to the economy that go beyond the budget, for instance the cost of caring for the huge number of returning disabled veterans that go beyond the costs borne by the federal government - in one out of five families with a serious disability, someone has to give up a job. The macro-economic costs are even larger. Almost every expert we have talked to agrees that the war has had something to do with the rise in the price of oil; it was not just an accident that oil prices began to soar at the same time as the war began.

We have been criticised, but for being excessively conservative, for including only $5 to $10 of the $75 to $85 increase in the price of oil since then. Money spent on the war - on a Nepalese contractor working in Iraq - does not stimulate the economy as much as money spent on hospitals or research or schools at home. These contractionary effects were temporarily covered up, hidden, by the flood of liquidity and lax regulations that led to a housing bubble and a consumption boom - with household savings plummeting to zero. But this simply postponed paying these costs - and increased them.

With the exception of a few lonely surviving supply-siders, most economists believe that deficits matter, and the huge deficits to finance the war will have their toll in the long run. Deficits matter in both the short run and the long. They help crowd out private investment that would have stimulated the economy far more than the war expenditures; and the reduced investments reduce long-run productivity. With 40% of the funds borrowed from abroad, Americans will be sending interest payments abroad - lowering living standards at home. Finally, even Fed Chair Bernanke (formerly the president’s economic adviser) admits that the deficits have reduced the room to manoeuvre - the ability of the government to respond to the looming economic crisis.

Spending so much on the war has economic consequences, even if you don’t think there is any connection between the war and the economy’s current woes.

In adding up the quantifiable costs of the war, it is hard not to come up with a number in excess of $3 trillion. In putting a $3 trillion price tag on the war, we believe we have been excessively conservative - a $4 or $5 trillion tag would be more reasonable. And remember - this is just the cost for America."

USA 2008: The Great Depression, by David Usborne, Independent/UK (April 1, 2008)

"New York - We knew things were bad on Wall Street, but on Main Street it may be worse. Startling official statistics show that as a new economic recession stalks the United States, a record number of Americans will shortly be depending on food stamps just to feed themselves and their families.

    Dismal projections by the Congressional Budget Office in Washington suggest that in the fiscal year starting in October, 28 million people in the US will be using government food stamps to buy essential groceries, the highest level since the food assistance programme was introduced in the 1960s.

    The increase - from 26.5 million in 2007 - is due partly to recent efforts to increase public awareness of the programme and also a switch from paper coupons to electronic debit cards. But above all it is the pressures being exerted on ordinary Americans by an economy that is suddenly beset by troubles. Housing foreclosures, accelerating jobs losses and fast-rising prices all add to the squeeze.

    Emblematic of the downturn until now has been the parades of houses seized in foreclosure all across the country, and myriad families separated from their homes. But now the crisis is starting to hit the country in its gut. Getting food on the table is a challenge many Americans are finding harder to meet. As a barometer of the country's economic health, food stamp usage may not be perfect, but can certainly tell a story.

    Michigan has been in its own mini-recession for years as its collapsing industrial base, particularly in the car industry, has cast more and more out of work. Now, one in eight residents of the state is on food stamps, double the level in 2000. "We have seen a dramatic increase in recent years, but we have also seen it climbing more in recent months," Maureen Sorbet, a spokeswoman for Michigan's programme, said. "It's been increasing steadily. Without the programme, some families and kids would be going without."

    But the trend is not restricted to the rust-belt regions. Forty states are reporting increases in applications for the stamps, actually electronic cards that are filled automatically once a month by the government and are swiped by shoppers at the till, in the 12 months from December 2006. At least six states, including Florida, Arizona and Maryland, have had a 10 percent increase in the past year.

    In Rhode Island, the segment of the population on food stamps has risen by 18 percent in two years. The food programme started 40 years ago when hunger was still a daily fact of life for many Americans. The recent switch from paper coupons to the plastic card system has helped remove some of the stigma associated with the food stamp programme. The card can be swiped as easily as a bank debit card. To qualify for the cards, Americans do not have to be exactly on the breadline. The programme is available to people whose earnings are just above the official poverty line. For Hubert Liepnieks, the card is a lifeline he could never afford to lose. Just out of prison, he sleeps in overnight shelters in Manhattan and uses the card at a Morgan Williams supermarket on East 23rd Street. Yesterday, he and his fiancée, Christine Schultz, who is in a wheelchair, shared one banana and a cup of coffee bought with the 82 cents left on it.

    "They should be refilling it in the next three or four days," Liepnieks says. At times, he admits, he and friends bargain with owners of the smaller grocery shops to trade the value of their cards for cash, although it is illegal. "It can be done. I get $7 back on $10."

    Richard Enright, the manager at this Morgan Williams, says the numbers of customers on food stamps has been steady but he expects that to rise soon. "In this location, it's still mostly old people and people who have retired from city jobs on stamps," he says. Food stamp money was designed to supplement what people could buy rather than covering all the costs of a family's groceries. But the problem now, Mr Enright says, is that soaring prices are squeezing the value of the benefits.

    "Last St Patrick's Day, we were selling Irish soda bread for $1.99. This year it was $2.99. Prices are just spiralling up, because of the cost of gas trucking the food into the city and because of commodity prices. People complain, but I tell them it's not my fault everything is more expensive."

    The US Department of Agriculture says the cost of feeding a low-income family of four has risen 6 percent in 12 months. "The amount of food stamps per household hasn't gone up with the food costs," says Dayna Ballantyne, who runs a food bank in Des Moines, Iowa. "Our clients are finding they aren't able to purchase food like they used to."

    And the next monthly job numbers, to be released this Friday, are likely to show 50,000 more jobs were lost nationwide in March, and the unemployment rate is up to perhaps 5 percent. "

"Driven by a painful mix of layoffs and rising food and fuel prices, the number of Americans receiving food stamps is projected to reach 28 million in the coming year, the highest level since the aid program began in the 1960s.
     The number of recipients, who must have near-poverty incomes to qualify for benefits averaging $100 a month per family member, has fluctuated over the years along with economic conditions, eligibility rules, enlistment drives and natural disasters like Hurricane Katrina, which led to a spike in the South.
     But recent rises in many states appear to be resulting mainly from the economic slowdown, officials and experts say, as well as inflation in prices of basic goods that leave more families feeling pinched. Citing expected growth in unemployment, the Congressional Budget Office this month projected a continued increase in the monthly number of recipients in the next fiscal year, starting Oct. 1 - to 28 million, up from 27.8 million in 2008, and 26.5 million in 2007.
     The percentage of Americans receiving food stamps was higher after a recession in the 1990s, but actual numbers are expected to be higher this year.
     Federal benefit costs are projected to rise to $36 billion in the 2009 fiscal year from $34 billion this year.
     "People sign up for food stamps when they lose their jobs, or their wages go down because their hours are cut," said Stacy Dean, director of food stamp policy at the Center on Budget and Policy Priorities in Washington, who noted that 14 states saw their rolls reach record numbers by last December.
     One example is Michigan, where one in eight residents now receives food stamps. "Our caseload has more than doubled since 2000, and we're at an all-time record level," said Maureen Sorbet, spokeswoman for the Michigan Department of Human Services.
     The climb in food stamp recipients there has been relentless, through economic upturns and downturns, reflecting a steady loss of industrial jobs that has pushed recipient levels to new highs in Ohio and Illinois as well.
     "We've had poverty here for a good while," Ms. Sorbet said. Contributing to the rise, she added, Michigan, like many other states, has also worked to make more low-end workers aware of their eligibility, and a switch from coupons to electronic debit cards has reduced the stigma.

American tourists with dollars turned away from currency exchanges in Amsterdam, by John Aravosis, americablog.com (March 28, 2008)

"I'd seen this article while I was Greece two weeks ago, and forgot to post it then. It's still relevant. The Republicans are destroying our international reputation. This is the dollar we're talking, not the peso. This kind of thing happens with developing country currencies experiencing hyperinflation, it doesn't happen with the US dollar. Until now. I really think this is an issue that Hillary, Obama and the Dems overall have dropped the ball on. It's frightfully embarrassing. And it so encapsulates what the Republicans have done to our country over the past 8 years. The almighty dollar is now no better than a third world currency you've never even heard of. From Reuters:

Imagine if Bill Clinton had done this. Imagine the Republican talking points. Come on, Democrats - think strategically. This is the kind of insult that regular Americans can appreciate."

Bankruptcies in America - Waiting for Armageddon, The Economist (March 27, 2008)

"CAPITALISM without bankruptcy, it is said, is like Christianity without hell. With recession looming, the air in America's bankruptcy courts is thick with brimstone and the coals are being heated in readiness for the many sad souls whose sin was to borrow too much. After several heavenly years, in which bankruptcies fell to record lows, going bust is back. How bad will things get?

If the debt markets are to be believed, companies could be in at least as much trouble as they were in the previous two downturns, in the early 1990s and at the start of this decade, after the dotcom bubble burst. A leading indicator is the spread between yields on speculative “junk” bonds and American Treasury bonds. A year ago, the spread was only about 280 basis points; the long-term average is around 500 points. This month the spread exceeded 800 points for the first time since March 2003, reaching 862 on March 17th.

.....

A big concern for company bosses will be the role of speculative investors, especially hedge funds. They can use derivatives to pursue complex strategies that may not be in the best interests of the firm that has issued the underlying debt, says Henry Hu, a law professor at the University of Texas, Austin. In a bankruptcy, a hedge fund could use the voting rights attached to different securities to maximise the overall value of its holdings in the firm at the expense of other investors.

Imagine, for instance, a hedge fund that owns debt secured against a company asset. It may prefer to force the firm into liquidation in order to win that asset rather than engage in a restructuring negotiation that will keep the firm alive. Meanwhile, it can boost its returns by short selling its unsecured debt and its equity. Or suppose that a hedge fund owns credit-default swaps as well as a firm's debt. If the fund makes enough money from the pay-out of the credit-default swaps, it may prefer to use the voting rights on its debt to ensure that the firm goes bust rather than negotiate a way to avoid bankruptcy.

So far there is little hard evidence that hedge funds are doing this. But in recent papers written with his colleague Bernard Black, Mr Hu reports credible rumours and other evidence of what they have dubbed “debt decoupling”, both in and outside of bankruptcy. Such activity is only likely to increase. “When there are more restructurings and bankruptcies, there is a lot more potential for mischief,” says Mr Hu. "

California freefall: Home prices down 26% in February, LA Times (March 26, 2008)

"Signs of distress are piling up in the California housing market, where prices are falling at three times the national rate of decline.

--Statewide, median sales prices fell by a stunning 26% from year-ago levels in February, with home prices dropping at a rate of nearly $3,000 a week, the California Association of Realtors reports. Further, the CAR says the Fed's interest rate-cutting campaign "will have little near-term direct effect on the housing market."

--In the San Fernando Valley, losing a home to foreclosure is now almost as common for families as buying a home. The L.A. Daily News: "During January and February, there were 1,084 foreclosures and 1,335 sales of houses and condos in Valley communities from Glendale to Calabasas, according to the San Fernando Valley Economic Research Center at California State University, Northridge."

"It's bad. It's really bad," market analyst Nima Nattagh told the Daily News.

The California Association of Realtors  reports median prices fell 27.2% from year-ago levels in the hard-hit Inland Empire east of Los Angeles, 30.9% in Sacramento, and 39.1% in Santa Barbara County.

On a percentage basis, the California price meltdown is more than three times as severe as the national decline of 8.2% in median prices reported this week by the National Association of Realtors. On an absolute basis, the California meltdown is even more severe: Nationally, prices fell over the past year at a rate of $338 per week; in California, prices fell at a rate of $2,788 per week.

....."

Qualified Borrowers Face Credit Squeeze, by Kimberly Blanton, Boston Globe (March 23, 2008)

"Lenders are rejecting more loan applicants with strong credit scores, the latest indication the nation's credit crunch is deepening and further depressing the housing market and the economy.

    Mortgage companies are growing more cautious and tightening lending standards for some of their most credit-worthy customers - from increasing down payments for home purchases to requiring higher credit scores for loan approvals.

    An applicant has to be a prime borrower to qualify for a mortgage or to refinance a loan, said Thomas Marroni, president of New Boston Mortgage Corp., a loan brokerage firm. Two months ago, one out of every 15 of his top-rated loan applicants was turned down. "Now, it's four out of 15," he said.

    Fifty-five percent of senior loan officers at US banks in January tightened lending standards to prime customers, up from 40 percent in October, according to the latest survey by the Federal Reserve Board. In recent weeks, the situation has deteriorated as mortgage companies worried about a recession have pulled back further on making new loans and refinancing existing mortgages, and have terminated home-equity lines of credit, said lenders, brokers, and borrowers.

    Last summer, lenders immediately cut off subprime borrowers - people with credit scores below 620 - when delinquencies on those loans increased. Now, prime customers with scores above 620 - and even those in the 700s - are finding it harder to qualify for loans. Every credit company has a slightly different range of scores for ranking borrowers based on their track record of paying back loans on time. But generally prime borrowers have scores from 700 to about 850. The top score available is 900, but very few borrowers have ever attained that number.

    Richard Perlmutter, a Suffolk University Law School professor, has a gold-plated credit history, no car loans, and no credit card balances. He and his wife, an executive at Harvard Business School, hold only a $280,000 mortgage on an upscale Charlestown condominium assessed at $600,000. Last month, Countrywide Home Loans terminated their $100,000 home-equity line of credit, which they tapped for emergency cash but paid off quickly.

    While it's legal for lenders to withdraw home-equity lines, it is rare. A loyal customer - the primary mortgage is with Countrywide - Richard Perlmutter was incredulous. Lenders, he said, have "lost any ability to discriminate" between good and bad borrowers.

    Freddie Mac and Fannie Mae, the government-backed buyers of mortgages, are tightening standards even as they are investing up to $200 billion more into the loan market. Last week, for example, the agencies increased interest rates for borrowers with credit scores below 700 - previously, a 680 score triggered the higher rate. For borrowers seeking jumbo mortgages, the agencies increased the down payment required in some cases to 10 percent, from 5 percent, said Brian Koss, managing director of Mortgage Network Inc., a Danvers lender. "We call it jumbo light," he said.

" Cleveland - As hundreds of thousands of American home owners fall behind on their mortgage payments, more people are turning to short-term loans with sky-high interest rates just to get by.

    While hard figures are hard to come by, evidence from nonprofit credit and mortgage counselors suggests that the number of people using these so-called "pay day loans" is growing as the U.S. housing crisis deepens, a negative sign for economic recovery.

    "We're hearing from around the country that many folks are buried deep in pay day loan debts as well as struggling with their mortgage payments," said Uriah King, a policy associate at the Center for Responsible Lending (CRL).

    A pay day loan is typically for a few hundred dollars, with a term of two weeks, and an interest rate as high as 800 percent. The average borrower ends up paying back $793 for a $325 loan, according to the Center.

    The Center also estimates pay day lenders issued more than $28 billion in loans in 2005, the latest available figures.

    In the Union Miles district of Cleveland, which has been hit hard by the housing crisis, all the conventional banks have been replaced by pay day lenders with brightly painted signs offering instant cash for a week or two to poor families.

    "When distressed home owners come to us it usually takes a while before we find out if they have pay day loans because they don't mention it at first," said Lindsey Sacher, community relations coordinator at nonprofit East Side Organizing Project on a recent tour of the district. "But by the time they come to us for help, they have nothing left."

    The loans on offer have an Annual Percentage Rate (APR) of up to 391 percent -- excluding fees and penalties. All you need for a loan like this is proof of regular income, even government benefits will do.

    On top of the exorbitant cost, pay day loans have an even darker side, Sacher notes. "We also have to contend with the fact that pay day lenders are very aggressive when it comes to getting paid."

    Ohio is on the front line of the U.S. housing crisis. According to the Mortgage Bankers Association, at the end of the fourth quarter Ohio had 3.88 percent of home loans in the process of foreclosure, the highest of all the 50 U.S. states. The "Rust Belt" state's woes have been further compounded by the loss of 235,900 manufacturing jobs between 2000 and 2007.

    But while the state as a whole has not done well in recent years, pay day lenders have proliferated.

Spitzer and America's Perverse Ethics, by Rabbi Michael Lerner, consortiumnews.com (March 12, 2008)

"The cross-the-political-spectrum attacks on Elliot Spitzer and the intensity of the demands that he resign his office show just how far the right-wing sexual moralizing has been able to trump any other kind of ethical reasoning in American society.

Going to a prostitute is legal in some states and some countries around the world, and is often the very arrangement that saves families from splitting up whose sexual energies have diminished but whose love is intact.

It's not uncommon for men (and now increasingly women as well) who have  achieved great power in our society by adopting an outer show of ruthless pursuit of power and influence (even, as in Spitzer's  case, if the power is aimed at pursuing laudable ends) to feel a deep emptiness and loneliness that is not addressed by friends or spouse, and hence to seek some kind of outside connection, no matter how superficial, that is not bound by previous rules and roles.

Nevertheless, I and many others in the religious and spiritual world oppose that practice when it involves adultery or prostitution, because it depends on the objectification of another human being, so that sex is disconnected in ways that it should not be from a significant encounter with the spirit of God in the other or a deep recognition that is the only real way to overcome existential or situational alienation.

Moreover, the trade in women for sexual purposes has frequently led to rape and abuse and the kidnapping of young women who are sold into sexual slavery. All of these outrageous practices are abhorrent and should be challenged.

The flaunting of sexuality in the media, and the implicit message that the only real satisfaction comes from having the most physically attractive people as sexual partners, not only generates huge dissatisfaction, even as it allows corporate advertisers to become predators manipulating our personal sense of inadequacy to sell their products, but also generates desires that feed the sexual trade in women.

Given this larger social context, until sexual satisfaction is so broadly available in our society that no one has to pay for it and so deeply tied to love that no one is objectified in the process, this kind of exploitation of women and degradation of sex is likely to continue.

All of these practices foster the sexual predators of the contemporary world.

So Elliot Spitzer deserves to be critiqued and ought to be doing deep atonement for what he did. His previous moral arrogance and willingness when he had power to do so to prosecute others for their participation in creating prostitution rings makes him an easy target.

We, in turn, might practice the forgiveness that our religious and spiritual traditions preach, particularly those of us who have been willing to honesty face how flawed we ourselves are, and how at times we ourselves fail to embody in our actual practice with others the values that we publicly espouse.

Humility and compassion are also part of the path of a spiritual progressive.

Ethical Perversity

But the intensity of the critique of the New York governor, tied with the demand that he resign, shows more about American society's ethical perversity than about Spitzer.
   
The President of the United States and the Vice President, working in concert with several other high-ranking officers of our government, lied and distorted to get us involved in a war that has led to the death of over a million Iraqis, the displacement of three million more, the death of 4,000 Americans and the wounding of  tens of thousands more.

After token opposition in Congress, our elected representatives have overwhelmingly passed budgets funding this war, rather than refuse to fund any military projects until the President stopped the war and withdrew the troops.

Meanwhile, our government has overtly engaged in torture, wiretapping of our phones, and violation of our human rights and the rights of people around the world. Senator Dianne Feinstein and Senator Charles Schumer voted to confirm as Attorney General a right-wing judge who refused to repudiate these crimes.  
  
The U.S. government has rejected every attempt to implement the Kyoto environmental agreements or to work out new agreements sufficiently strong to reverse environmental destruction that is certain to lead to new levels of flooding particularly in several poor countries around the world. The consequence: tens of millions of deaths.
  
The Clinton Administration pushed, along with corporate support, a set of trade agreements that have devastated the farmers of many developing countries, forcing many off their farms and into city slums where their daughters and sons are often sold into sexual slavery.

The global economic system we have fostered has led to increasing gaps between the rich and the poor, so that over one out of every three people on the planet lives on less than $2 a day, 1.5 billion live on less than one dollar a day, and over 15,000 children die every day from malnutrition-related diseases and inadequate availability of medicine that is hoarded by the rich countries who can afford the prices made to ensure huge profits to the pharmaceutical industry.

Health insurance companies and private medical profiteers are doing all they can to ensure that there will be no health care for tens of millions of Americans, unless that is provided in ways that guarantee corporate super-profits and thereby guarantee that the cost of health care paid through taxes will be huge and create anger at all government social welfare and well-being programs, leading to their likely de-funding.

People in the U.S. have faced severe economic crises on a regional and soon on a national level because corporations move their centers of production to countries in Asia where they can exploit workers with less government or union interference and where they can destroy the environment with fewer societal restraints.

Wild to achieve greater profits, corporations and the rich have managed to support politicians who lower the taxes on the rich, in the process bankrupting the public sector or severely reducing its ability to provide enough funds for quality education, health care, libraries, public transportation, and social welfare.
   
That there is no outcry for these government officials and corporate leaders to resign immediately or be impeached, that there is no moral outrage at the entire system that produces this impact, is America's ethical perversity.

Instead, the only crime against humanity that the media takes seriously and the politicians fear is being exposed for personal sexual immorality.

While everyone basks in their own self-righteous demands on Spitzer, we all allow media and elected officials to fundamentally distort our ethical vision and play out our morality on the smallest of possible stages while ignoring the global and personal consequences of our larger ethical failures."
 

The $3 Trillion War in Iraq - Only two winners have emerged from the conflict: oil companies and defence contractors, by Joseph Stiglitz, Toronto Star (March 12, 2008)

"With March 20 marking the fifth anniversary of the United States-led invasion of Iraq, it’s time to take stock of what has happened.

In our new book The Three Trillion Dollar War, Harvard’s Linda Bilmes and I conservatively estimate the economic cost of the war to the U.S. to be $3 trillion, and the costs to the rest of the world to be another $3 trillion - far higher than the Bush administration’s estimates before the war.

The Bush team not only misled the world about the war’s possible costs, but has also sought to obscure the costs as the war has gone on.

This is not surprising. After all, the Bush administration lied about everything else, from Saddam Hussein’s weapons of mass destruction to his supposed link with Al Qaeda. Indeed, only after the U.S.-led invasion did Iraq become a breeding ground for terrorists.

The Bush administration said the war would cost $50 billion. The U.S. now spends that amount in Iraq every three months.

To put that number in context: For one-sixth of the cost of the war, the U.S. could put its social security system on a sound footing for more than a half-century, without cutting benefits or raising contributions.

Moreover, the Bush administration cut taxes for the rich as it went to war, despite running a budget deficit. As a result, it has had to use deficit spending - much of it financed from abroad - to pay for the war.

This is the first war in American history that has not demanded some sacrifice from citizens through higher taxes; instead, the entire cost is being passed onto future generations.

Unless things change, the U.S. national debt - which was $5.7 trillion when Bush became president - will be $2 trillion higher because of the war (in addition to the $800 billion increase under Bush before the war).

Was this incompetence or dishonesty?

Almost surely both.

Cash accounting meant that the Bush administration focused on today’s costs, not future costs, including disability and health care for returning veterans.

Only years after the war began did the administration order the specially armoured vehicles that would have saved the lives of many killed by roadside bombs.

Not wanting to reintroduce a draft, and finding it difficult to recruit for an unpopular war, troops have been forced into two, three or four stress-filled deployments.

The administration has tried to keep the war’s costs from the American public. Veterans groups have used the Freedom of Information Act to discover the total number of injured - 15 times the number of fatalities.

Already, 52,000 returning veterans have been diagnosed with post-traumatic stress disorder. The U.S. government will need to provide disability compensation to an estimated 40 per cent of the 1.65 million troops that have already been deployed.

And, of course, the bleeding will continue as long as the war continues, with the health-care and disability bill amounting to more than $600 billion (in present-value terms).

Ideology and profiteering have also played a role in driving up the war’s costs. America has relied on private contractors, which have not come cheap.

A Blackwater Security guard can cost more than $1,000 per day, not including disability and life insurance, which is paid for by the government.

When unemployment rates in Iraq soared to 60 per cent, hiring Iraqis would have made sense; but the contractors preferred to import cheap labour from Nepal, the Philippines and other countries.

The war has had only two winners: oil companies and defence contractors. The stock price of Halliburton, Vice-President Dick Cheney’s old company, has soared. But even as the government turned increasingly to contractors, it reduced its oversight.

The largest cost of this mismanaged war has been borne by Iraq. Half of Iraq’s doctors have been killed or have left the country, unemployment stands at 25 per cent and, five years after the war’s start, Baghdad still has less than eight hours of electricity a day.

Out of Iraq’s total population of around 28 million, 4 million are displaced and 2 million have fled the country.

The thousands of violent deaths have inured most Westerners to what is going on: A bomb blast that kills 25 hardly seems newsworthy anymore.

But statistical studies of death rates before and after the invasion tell some of the grim reality. They suggest additional deaths from a low of around 450,000 in the first 40 months of the war (150,000 of them violent deaths) to 600,000.

With so many people in Iraq suffering so much in so many ways, it may seem callous to discuss the economic costs.

And it may seem particularly self-absorbed to focus on the economic costs to America, which embarked on this war in violation of international law. But the economic costs are enormous, and they go well beyond budgetary outlays.

Americans like to say that there is no such thing as a free lunch. Nor is there such a thing as a free war. The U.S. - and the world - will be paying the price for decades to come."

Studies: Iraq Costs US $12 Billion per Month, AP (March 10, 2008)

"The flow of blood may be ebbing, but the flood of money into the Iraq war is steadily rising, new analyses show. In 2008, its sixth year, the war will cost approximately $12 billion a month, triple the "burn" rate of its earliest years, Nobel Prize-winning economist Joseph E. Stiglitz and co-author Linda J. Bilmes report in a new book.

    Beyond 2008, working with "best-case" and "realistic-moderate" scenarios, they project the Iraq and Afghan wars, including long-term U.S. military occupations of those countries, will cost the U.S. budget between $1.7 trillion and $2.7 trillion - or more - by 2017.

    Interest on money borrowed to pay those costs could alone add $816 billion to that bottom line, they say.

    The nonpartisan Congressional Budget Office (CBO) has done its own projections and comes in lower, forecasting a cumulative cost by 2017 of $1.2 trillion to $1.7 trillion for the two wars, with Iraq generally accounting for three-quarters of the costs.

    Variations in such estimates stem from the sliding scales of assumptions, scenarios and budget items that are counted. But whatever the estimate, the cost will be huge, the auditors of the Government Accountability Office say.

    In a Jan. 30 report to Congress, the GAO observed that the U.S. will be committing "significant" future resources to the wars, "requiring decision makers to consider difficult trade-offs as the nation faces an increasing long-range fiscal challenge."

    These numbers don't include the war's cost to the rest of the world. In Iraq itself, the 2003 U.S.-led invasion - with its devastating air bombardments - and the looting and arson that followed, severely damaged electricity and other utilities, the oil industry, countless factories, hospitals, schools and other underpinnings of an economy.

    No one has tried to calculate the economic damage done to Iraq, said spokesman Niels Buenemann of the International Monetary Fund, which closely tracks national economies. But millions of Iraqis have been left without jobs, and hundreds of thousands of professionals, managers and other middle-class citizens have fled the country.

    In their book, "The Three Trillion Dollar War," Stiglitz, of Columbia University, and Bilmes, of Harvard, report the two wars will have cost the U.S. budget $845 billion in 2007 dollars by next Sept. 30, end of fiscal year 2008, assuming Congress fully funds Bush administration requests. That counts not just military operations, but embassy costs, reconstruction and other war-related expenses.

    That total far surpasses the $670 billion in 2007 dollars the Congressional Research Service says was the U.S. price tag for the 12-year Vietnam War.

" Friday's employment report - which was so weak that it had many economists declaring that we're already in a recession - was bad news. But it was actually less disturbing than what's going on in the financial markets.

    The scariest thing I've read recently is a speech given last week by Tim Geithner, the president of the Federal Reserve Bank of New York. Mr. Geithner came as close as a Fed official can to saying that we're in the midst of a financial meltdown.

    To understand the gravity of the situation, you have to know what the Fed did last summer, and again last fall.

    As late as August the favorite buzzword of financial officials was "contained": problems in subprime mortgages, we were assured, wouldn't spread to other financial markets or to the economy as a whole.

    Soon afterward, however, a full-fledged financial panic began. Investors pulled hundreds of billions of dollars out of asset-backed commercial paper, a little-known but important market that has taken over a lot of the work banks used to do. This de facto bank run sent shock waves through the financial system.

    The Fed responded by rushing money to banks, and markets partially calmed down, for a little while. But by December the panic was back.

    Again, the Fed responded by rushing money to banks, this time via a new arrangement called the Term Auction Facility. Again the markets calmed down, for a while.

    But again, the respite was only temporary. Last month another market you've never heard of, the $300 billion market for auction-rate securities (don't ask), suffered the equivalent of a bank run. Last week two big financial companies announced that they had been unable to raise the cash demanded by their lenders. Even Fannie Mae and Freddie Mac, the giant government-sponsored mortgage agencies long regarded as safe places to put your money, are now having trouble attracting funds.

    One consequence of the crisis is that while the Fed has been cutting the interest rate it controls - the so-called Fed funds rate - the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that's sure to worsen the economic downturn.

    What's going on? Mr. Geithner described a vicious circle in which banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing "significant collateral damage to market functioning."

    A report released last Friday by JPMorgan Chase was even blunter. It described what's happening as a "systemic margin call," in which the whole financial system is facing demands to come up with cash it doesn't have. (A financial joke making the rounds, via the blog Calculated Risk: "Who is this guy Margin that keeps calling me?")

    The Fed's latest plan to break this vicious circle is - as the financial Web site interfluidity.com cruelly but accurately describes it - to turn itself into Wall Street's pawnbroker. Banks that might have raised cash by selling assets will be encouraged, instead, to borrow money from the Fed, using the assets as collateral. In a worst-case scenario, the Federal Reserve would find itself owning around $200 billion worth of mortgage-backed securities.

    Some observers worry that the Fed is taking over the banks' financial risk. But what worries me more is that the move seems trivial compared with the size of the problem: $200 billion may sound like a lot of money, but when you compare it with the size of the markets that are melting down - there are $11 trillion in U.S. mortgages outstanding - it's a drop in the bucket.

    The only way the Fed's action could work is through the slap-in-the-face effect: by creating a pause in the selling frenzy, the Fed could give hysterical markets a chance to regain their sense of perspective. And to be fair, that has worked in the past.

    But slap-in-the-face only works if the market's problems are mainly a matter of psychology. And given that the Fed has already slapped the market in the face twice, only to see the financial crisis come roaring back, that's hard to believe.

    The third time could be the charm. But I doubt it. Soon, we'll probably have to do something real about reducing the risks investors face.

    A plan to restore the credibility of municipal bond insurance would be a start (how crazy is it that New York State, rather than the federal government, is taking the lead here?). I also suspect that the feds will have to get explicit about guaranteeing the debt of Fannie and Freddie, which really are too big to fail.

    Nobody wants to put taxpayers on the hook for the financial industry's follies; we can all hope that, in the end, a bailout won't be necessary. But hope is not a plan."

Sharp Drop in Jobs Adds to Grim Picture of US Economy, by Edmund L. Andrews, NY Times (March 8, 2008)

"The worst fears of consumers, investors and Washington officials were confirmed on Friday, as deepening paralysis on Wall Street collided with stark new evidence of falling employment and a likely recession.

    In a report that was far worse than most analysts had expected, the Labor Department estimated that the nation lost 63,000 jobs in February. It was the second consecutive monthly decline, and the third straight drop for private-sector jobs.

    Even before the bad news on jobs emerged, the Federal Reserve was already racing to ease the latest crisis in the credit markets, where seemingly rock-solid companies have been caught short because the markets are devaluing the collateral they had posted to back billions of dollars in loans. Much of that collateral consists of mortgages.

    In a surprise announcement early Friday, the Federal Reserve said it would inject about $200 billion into the nation's banking system this month - with more to come after that - by offering banks one-month loans at low rates and in return letting them pledge mortgage-backed bonds and even riskier assets as collateral.

    Though monthly payroll data are notoriously volatile and subject to revision, the jobs report was so bleak that many of the few remaining optimists on Wall Street threw in the towel and conceded that the United States was already in a recession.

    "Godot has arrived," wrote Edward Yardeni, who had been one of Wall Street's most relentlessly upbeat forecasters. "I've been rooting for the muddling through scenario. However, the credit crisis continues to worsen and has become a full-blown credit crunch, which is depressing the real economy."

    The convulsions in the credit markets were spurred in part when Thornburg Mortgage, one of the nation's biggest independent mortgage lenders, and Carlyle Capital, the offspring of one of the country's largest private equity firms, failed to meet demands by lenders to post more cash or pledge other assets, also known as margin calls, on debts that had been backed by packages of mortgages.

    Fed officials said Friday that they were not pumping money into the system in response to the poor jobs data but rather to the growing unwillingness or inability of investors to finance even routine business deals. Fed officials have long feared that anxiety about credit losses would create a "negative feedback loop," or self-perpetuating spiral of rising unemployment, more home foreclosures and yet more credit losses.

    "You have big credit losses that make it harder to get new credit, which means the economy starts to slow down and foreclosures go up," said Nigel Gault, a senior economist at Global Insight, a forecasting firm. "Then you get even bigger credit losses, which makes banks even less willing to lend and you keep spiraling down."

    The Fed's problem is that its main weapons against a downturn - lower interest rates and easier money - are ill suited to a crisis that stems from collapsing confidence about credit quality.

...."

Low Home Equity, Record-High Foreclosures: a Limp Housing Market Looks Even Weaker, by J.W. Elphinstone, AP (March 6, 2008)

"Nervous homeowners and economic analysts have been wondering how much worse the housing market could get. On Thursday they got an answer: Plenty.

Foreclosures are at a record high. Home equity is at a record low. The housing market is spiraling down with no end in sight -- and taking people's sense of economic security with it.

For the first time since the Federal Reserve started tracking the data in 1945, the amount of debt tied up in American homes now exceeds the equity homeowners have built.

The Fed reported Thursday that homeowner equity actually slipped below 50 percent in the second quarter of last year, and fell to just below 48 percent in the fourth quarter.

And that was just one example in a day of dismal housing reports.

The Mortgage Bankers Association said foreclosures hit an all-time high in the final quarter of last year. And pending U.S. home sales -- those in the gap between when a buyer signs a contract and when the deal closes -- came in below analyst expectations for January and remained at the second-lowest reading on record.

"There is no sign that we're near the bottom in the housing market," said Douglas Elmendorf, a senior fellow at the Brookings Institution and former Fed economist. "Housing prices will probably fall for a year, two or three to come."

The trifecta of reports illustrates a housing market caught up in a "very negative, reinforcing downward spiral," said Mark Zandi, chief economist at Moody's Economy.com.

Home equity, the percentage of a home's market value minus mortgage-related debt, has steadily decreased even as home prices and homeownership rates jumped earlier this decade. That was due to a surge in cash-out refinancings, home equity loans and lines of credit and an increase in no-down-payment mortgages.

Now declining home prices are eating into equity, and economists expect the figure to drop even more.

Economy.com estimates 8.8 million homeowners, or about 10 percent of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households will be "upside down" if prices fall 20 percent from their peak. The latest Standard & Poor's/Case-Shiller index showed U.S. home prices plunging 8.9 percent in the final quarter of 2007 compared with a year earlier.

Experts believe foreclosures will rise as more homeowners struggle with monthly payments as the interest rates on their mortgages adjust higher. Problems in the credit markets and eroding home values are making it harder for people to refinance their way out of unmanageable loans.

The threat of so-called "mortgage walkers," or homeowners who can afford their payments but decide not to pay, also increases as home values depreciate and equity diminishes. Banks and credit-rating agencies already are seeing early evidence of it.

....."

The Federal Reserve's Rescue Has Failed, by Ambrose Evans-Pritchard, Telegraph/UK (March 4, 2008)

"The verdict is in. The Fed's emergency rate cuts in January have failed to halt the downward spiral towards a full-blown debt deflation. Much more drastic action will be needed.

Yields on two-year US Treasuries plummeted to 1.63pc on Friday in a flight to safety, foretelling financial winter.

The debt markets are freezing ever deeper, a full eight months into the crunch. Contagion is spreading into the safest pockets of the US credit universe.

It is hard to imagine a more plain-vanilla outfit than the Port Authority of New York and New Jersey, which manages bridges, bus terminals, and airports.

The authority is a public body, backed by the two states. Yet it had to pay 20pc rates in February after the near closure of the $330bn (£166m) "term-auction" market. It had originally expected to pay 4.3pc, but that was aeons ago in financial time.

"I never thought I would see anything like this in my life," said James Steele, an HSBC economist in New York.

No sane mortal needs to know what term-auction means, except that it too became a tool of the US credit alchemists. Banks briefly used the market as laboratory for conjuring long-term loans at Alan Greenspan's giveaway short-term rates. It has come unstuck. Next in line is the $45trillion derivatives market for credit default swaps (CDS).

Last week, the spreads on high-yield US bonds vaulted to 718 basis points. The iTraxx Crossover index measuring corporate default risk in Europe smashed the 600 barrier. We are now far beyond the August spike.

Sub-prime debt is plumbing new depths. A-rated securities issued in early 2007 fell to a record 12.72pc of face value on Friday. The BBB tier fetched 10.42pc. The "toxic" tranches are worthless.

Why won't it end? Because US house prices are in free fall. The Case-Shiller index for the 20 biggest cities dropped 9.1pc year-on-year in December. The annualised rate of fall was 18pc in the fourth quarter, and gathering speed.

As the graph shows below, US households are only halfway through the tsunami of rate resets - 300 basis points upwards - on teaser loans.

The UK hedge fund Peloton Partners misjudged this fresh leg of the crunch. After an 87pc profit last year betting against sub-prime, it switched sides to play the rebound. Last week it had to liquidate a $2bn fund.

Like many, Peloton thought Fed rate cuts from 5.25pc to 3pc (with more to come) would end the panic. But this is not a normal downturn, subject to normal recovery. Leverage is too extreme. Bank capital is too eroded. Monetary traction eludes the Fed. An "Austrian" purge is under way.

UBS says the cost of the credit debacle will reach $600bn. "Leveraged risk is a cancer in this market."

Try $1trillion, says New York professor Nouriel Roubin. Contagion is moving up the ladder to prime mortgages, commercial property, home equity loans, car loans, credit cards and student loans. We have not even begun Wave Two: the British, Club Med, East European, and Antipodean house busts.

As the once unthinkable unfolds, the leaders of global finance dither. The Europeans are frozen in the headlights: trembling before a false inflation; cowed by an atavistic Bundesbank; waiting passively for the Atlantic storm to hit.

International experts foresee collapse of U.S. economy, Belleville, Ontario, Intelligencer Editorial (February 28, 2008)

Markets Fall on Drumbeat of Grim Reports, by Vikas Bajaj and Michael M. Grynbaum, NY Times (March 1, 2008)

" An outpouring of negative economic and financial reports soured the mood on Wall Street Friday as banks and other lenders further tightened credit in their struggle to contain damage from losses on mortgages, business loans and related debt.

    Shares sank, and investors fled to the safety of Treasuries as the Standard & Poor’s 500-stock index fell 2.71 percent and the Dow Jones industrial average dropped 315.79 points, or 2.51 percent, to 12,266.39. Both indexes capped their worst four months since 2002.

    Prices of municipal bonds, bank loans and high-yield debt all fell as well.

    The markets for ultrasafe debt backed by the federal government and other nations were alone in posting gains. Some commodities, including gold, were also up.

    “The drumbeat of economic news has been unrelentingly bad,” said Edward Yardeni, a normally upbeat investment strategist. “The recession scenario is looking more and more credible.”

    Like so many days since the credit troubles erupted in August, Friday dawned on the East Coast with ominous financial signals. A.I.G., the large insurer, had reported its worst loss ever the evening before. Reports out of London overnight suggested that a large hedge fund, Peloton Partners, was being forced to sell nearly $2 billion in mortgage-related securities after it lost the backing of its lenders.

    By the time traders in New York were at their desks, economic reports issued in Washington showed consumer spending was flat in January after adjusting for inflation. Then a bellwether report on Midwestern business activity unexpectedly fell to its lowest level in more than six years, and a survey showed consumer confidence declined to a 16-year low.

    If that was not pessimistic enough, Wall Street’s attention was soon riveted by a report from analysts at UBS that estimated losses to the financial system from securities backed by mortgages and other debts would total $600 billion. Until recently, many analysts had been forecasting losses in the neighborhood of $400 billion - a figure that the dwindling band of optimists in the financial markets once dismissed as vastly overblown.

    “There is not any one news item that I can point to,” said Douglas Peta, chief investment strategist at J. W. Seligman & Company in New York. “We know that there is paper out there that we can’t trust. We don’t know exactly who owns it and how much. And we don’t know how they are valuing it.”

    The S.& P. fell 37.05 points, to 1,330.63, and the Nasdaq composite index declined 60.09 points, or 2.58 percent, to 2,271.48.

    For Mr. Peta and many others, the current turmoil in the financial system is at its core a crisis of faith and confidence.

    Problems are now appearing even in markets that were considered to be safe and staid like municipal bonds.

    Adding to the worries, hedge funds that borrowed billions of dollars through complicated transactions to invest in tax-exempt debt have been forced in the last few days to sell securities to meet margin calls from their banks, said Douglas A. Dachille, chief executive of First Principles Capital Management, a bond firm based in New York.

    An index that tracks the municipal bond market fell sharply in February. The yield, which moves in the opposite direction of the price, has jumped to 5.42 percent, from 4.81 percent at the start of February, according to The Bond Buyer, which compiles an index of 40 municipal bonds.

    “I have never seen anything like this in the 15 to 20 years that I have been involved in muni investing,” said Mr. Dachille, who said he was encouraging clients to buy at these prices.

    The problems in the municipal bond market highlight the increasing reluctance of banks to lend. Burned by their laxity during the housing boom and large losses from securities that were backed by subprime mortgages, lenders are tightening up and shutting out any borrower with a taint, real or perceived.

...."

Bernanke predicts bank failures, by Krishna Guha, Financial Times (February 28, 2008)

"Some small US banks are likely to fail in the months ahead, Ben Bernanke said on Thursday, warning that his country faced a more difficult situation today than in the aftermath of the dotcom bust in 2001.

“There will probably be some bank failures,” the Fed chairman told the Senate banking committee in his second day of biannual testimony to Congress.

He said the banks at risk were “small and in many cases de novo [new] banks that are heavily invested in real estate in localities where prices have fallen”.

But he said: “I do not anticipate any serious problems” at any of the big banks, which played the most important role in the US financial system.

The Standard & Poor’s financials index was down 3 per cent at noon on Thursday.

...."

Iraq War ""Caused Slowdown in the US"", by Peter Wilson, The Australian (February 28, 2008)

"The Iraq war has cost the US 50-60 times more than the Bush administration predicted and was a central cause of the sub-prime banking crisis threatening the world economy, according to Nobel Prize-winning economist Joseph Stiglitz.

    The former World Bank vice-president yesterday said the war had, so far, cost the US something like $US 3 trillion ($3.3 trillion) compared with the $US 50-$US 60 billion predicted in 2003.

....

Professor Stiglitz told the Chatham House think tank in London that the Bush White House was currently estimating the cost of the war at about $US 500 billion, but that figure massively understated things such as the medical and welfare costs of US military servicemen.

    The war was now the second-most expensive in US history after World War II and the second-longest after Vietnam, he said.

    The spending on Iraq was a hidden cause of the current credit crunch because the US central bank responded to the massive financial drain of the war by flooding the American economy with cheap credit.

    "The regulators were looking the other way and money was being lent to anybody this side of a life-support system," he said.

    That led to a housing bubble and a consumption boom, and the fallout was plunging the US economy into recession and saddling the next US president with the biggest budget deficit in history, he said.

    Professor Stiglitz, an academic at the Columbia Business School and a former economic adviser to president Bill Clinton, said a further $US 500 billion was going to be spent on the fighting in the next two years and that could have been used more effectively to improve the security and quality of life of Americans and the rest of the world.

....."

Nobel Laureate Estimates Wars' Cost at More Than $3 Trillion, by Kevin G. Hall, McClatchy Newspapers (February 27, 2008)

"When U.S. troops invaded Iraq in March 2003, the Bush administration predicted that the war would be self-financing and that rebuilding the nation would cost less than $2 billion.

    Coming up on the fifth anniversary of the invasion, a Nobel laureate now estimates that the wars in Iraq and Afghanistan are costing America more than $3 trillion.

    That estimate from Noble Prize-winning economist Joseph Stiglitz also serves as the title of his new book, "The Three Trillion Dollar War," which hits store shelves Friday.

    The book, co-authored with Harvard University professor Linda Bilmes, builds on previous research that was published in January 2006. The two argued then and now that the cost to America of the wars in Iraq and Afghanistan is wildly underestimated.

    When other factors are added - such as interest on debt, future borrowing for war expenses, the cost of a continued military presence in Iraq and lifetime health-care and counseling for veterans - they think that the wars' costs range from $5 trillion to $7 trillion.

    "I think we really have learned that the long-term costs of taking care of the wounded and injured in this war and the long-term costs of rebuilding the military to its previous strength is going to far eclipse the cost of waging this war," Bilmes said in an interview.

.....

 By any estimate, the Bush administration's predictions in March 2003 of a self-financing war have proved to be wildly inaccurate. Stiglitz cites operational spending to date of $646 billion for the wars in Iraq and Afghanistan, and, working off estimates from the nonpartisan Congressional Budget Office, presumes that spending on these wars over the next decade probably will amount to another $913 billion.

    Pentagon officials had no immediate comment on Stiglitz's book or his estimates.

    Stiglitz and Bilmes first estimated war costs of $1 trillion in January 2006. Their research proved controversial and sparked debate about the costs of replacing equipment used by the regular armed forces and National Guard. In the new book, they offer a figure of $404 billion for replacing equipment, planes and tanks and bringing military hardware back from Iraq and Afghanistan.

    In an interview, Stiglitz said that too much of the public debate had been over the wars' operational costs while the real budget strains would show up only years from now.

    "The peak expenditures are way out," he said, noting that the peak expenditures for World War II vets came in 1993.

    The pair estimated that future medical, disability and Social Security costs for veterans of the conflicts in Iraq and Afghanistan range from a best-case $422 billion to what they call a more probable long-term expense of $717 billion.

....."

Pennsylvania Student Loans Halted on Auction Failures, by Adam L. Cataldo, Bloomberg (February 27, 2008)

"The Pennsylvania Higher Education Assistance Agency, the second-largest seller of auction-rate debt for the past seven years, will stop making student loans next month after paying $24 million in extra interest.

The agency services and buys existing obligations and makes about $500 million in new loans annually, chief financial officer Tim Guenther said. Officials, who made 140,000 student loans in the 12 months through June 30, said they will halt making new ones on March 7.

``The decision was taken because with the auction rates resetting where they are, bringing on new loans is a guaranteed loss at this time,'' Guenther said.

The agency is telling its client schools to deal with banks with which it normally deals to arrange new loans for students. Those banks will charge the same amount for interest and fees as the agency. The effect of the disruption on students for now is ``probably nothing,'' Guenther said.

The agency sold $8.4 billion of auction-rate bonds from 2000 to 2007 and was the second-largest issuer during the period, according to Thomson Financial.

Problems may occur if the agency can't buy the loans that Pennsylvania banks make. If the institutions must retain those obligations, they may exit the market, Guenther said.

``We don't think that danger is imminent, but we don't know when that happens,'' Guenther said.

The failures are occurring as investor confidence wanes in the creditworthiness of insurers backing auction-rate debt of the type Pennsylvania authorities issued.

...."

U.S. Home Foreclosures Jump 90% as Mortgages Reset, by Sharon L. Lynch, Bloomberg (February 26, 2008)

"Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.

Repossessions rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.

``The most troubling thing is that we are seeing more and more of these properties actually going all the way through the process and going back to the banks,'' Rick Sharga, executive vice president of Irvine, California-based RealtyTrac, said.

Defaults among subprime borrowers and those unable to meet rising payments on adjustable-rate loans drove foreclosure filings to the highest since August and the second-highest since RealtyTrac started keeping records three years ago. About $460 billion of adjustable mortgages are scheduled to reset this year, raising minimum payments for borrowers, according to New York- based analysts at Citigroup Inc.

About $190 billion in subprime adjustable mortgages are slated to reset this year, according Mark Zandi, chief economist of Moody's Economy.com.

More than 233,000 properties were in some stage of default last month. Total filings increased 8 percent in January from December, RealtyTrac said today in a statement.

...."

FDIC to Add Staff as Bank Failures Loom, by Damian Paletta, Wall Street Journal (February 26, 2008)

"The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation's housing and credit markets continue to worsen.

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

FDIC spokesman Andrew Gray said the agency was looking to bulk up "for preparedness purposes." The division now has 223 employees, mostly based in Dallas.

...."

Citigroup May Post First-Quarter Loss, Whitney Says, by Bradley Keoun and Charles Penty, Bloomberg (February 25, 2008)

"Citigroup Inc., the biggest U.S. bank by assets, may post its second-straight quarterly loss and fall short of profit estimates for the year because of writedowns on home-equity loans and junk-grade corporate loans, Oppenheimer & Co.'s Meredith Whitney said.

Whitney, whose downgrade of Citigroup last year triggered an 8 percent decline in the company's stock price, said the bank may report a loss of $1.6 billion, or 28 cents a share, for the first quarter, compared with a profit of about $5 billion, or $1.01, a year earlier. Her prediction today compares with the 45-cent per- share average gain expected by analysts surveyed by Bloomberg. Goldman Sachs Group Inc. analyst William Tanona said Citigroup may have to take a writedown of as much as $12 billion.

The rate of loan losses is ``grossly underestimated by consensus estimates'' at Citigroup and other U.S. banks, Whitney wrote. ``Core fundamentals are rapidly deteriorating.'' She cut her per-share prediction for 2008 earnings by more than 70 percent to 75 cents. The New York-based company's shares could fall more than 36 percent to less than $16, she wrote.

Citigroup fell 38 cents, or 1.5 percent, to $24.74 at 4:10 p.m. in New York Stock Exchange composite trading. The shares have declined about 16 percent this year.

The lender posted a $9.8 billion loss for the fourth quarter, the widest in its 196-year history, after writing down subprime mortgage-linked collateralized debt obligations. The value of those securities plummeted last year as investors shunned debt linked to the least creditworthy borrowers. Vikram Pandit stepped in as chief executive officer in December, after Charles O. ``Chuck'' Prince was forced to resign.

....."

Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish, by Bob Ivry, Bloomberg (February 22, 2008)

"Joe Lents hasn't made a payment on his $1.5 million mortgage since 2002.

That's when Washington Mutual Inc. first tried to foreclose on his home in Boca Raton, Florida. The Seattle-based lender failed to prove that it owned Lents's mortgage note and dropped attempts to take his house. Subsequent efforts to foreclose have stalled because no one has produced the paperwork.

``If you're going to take my house away from me, you better own the note,'' said Lents, 63, the former chief executive officer of a now-defunct voice recognition software company.

Judges in at least five states have stopped foreclosure proceedings because the banks that pool mortgages into securities and the companies that collect monthly payments haven't been able to prove they own the mortgages. The confusion is another headache for U.S. Treasury Secretary Henry Paulson as he revises rules for packaging mortgages into securities.

``I think it's going to become pretty hairy,'' said Josh Rosner, managing director at the New York-based investment research firm Graham Fisher & Co. ``Regulators appear to have ignored this, given the size and scope of the problem.''

More than $2.1 trillion, or 19 percent, of outstanding mortgages have been bundled into securities by private banks, according to Inside Mortgage Finance, a Bethesda, Maryland-based industry newsletter. Those loans may be sold several times before they land in a security. Mortgage servicers, who collect monthly payments and distribute them to securities investors, can buy and sell the home loans many times.

....."

A Manchurian Candidate in the White House?, by Dave Lindorff, buzzflash.com (February 29, 2008)

"With a viral campaign underway via e-mail, right-wing radio, and on the street suggesting that Barack Obama is a black "Manchurian Candidate," secretly trained as a Muslim fanatic who will insinuate himself into the White House, thence to undermine all that we hold dear, perhaps it is time to look at the Manchurian Candidate we already have in the White House, who, together with his handler over in Blair House, has pretty much done all the damage already.

George Bush came to office in 2001 promising a new era of integrity, civility, and "compassionate conservatism," an era of humble American foreign policy, and a bipartisan approach to government. What did we actually get?

Once in office, this chameleon president almost immediately set out to embroil the country in a major war in the Middle East against the nation of Iraq. The game plan was laid out at the president's first National Security Council meeting, attended by Vice President Dick Cheney (the man holding Bush's controller), Donald Rumsfeld, Condoleezza Rice, and Treasury Secretary Paul O'Neill (who later spilled the beans about the session).

Bush also famously ignored all warnings about the imminent attack on the World Trade Center and the Pentagon. How much he and the rest of the administration knew about that attack in advance, or whether elements within the administration may have even helped it along, remains the subject of considerable interest and investigation and may never be answered, but it is clear that there were ample warnings about it, and he did nothing -- even rudely blowing off a briefer who tried to alert him to the danger.

Moreover, it is known that Israeli Mossad agents (who we know have close ties to both the U.S. intelligence apparatus and to the Neo-cons who infest the Bush White House) did indeed have advance knowledge, and were set up across New York Harbor with a video camera to tape the attack on the Twin Towers (they were subsequently arrested by New Jersey police, only to be later released and sent back to Israel, through intercession by the U.S. government). As well, we know that unidentified people made a killing by placing negative bets, called "puts," on the stocks, several days before 9-11, of the two airlines that were hijacked, American and United, and of two investment banks that would be seriously hurt by the building collapses, Merrill Lynch and Morgan Stanley. (The puts were placed through an investment bank, Alex Brown, which until a year earlier had been headed by a man who moved over to become the number three person in the CIA.) It's hard to escape the conclusion that the Bush/Cheney Administration, at a minimum, wanted an attack on American soil, and a national disaster that would put the country on a war footing.

Certainly instead of rallying the public and defending the nation's democratic traditions and its Constitution, Bush and his handlers after 9-11 immediately set in motion a concerted scare campaign to undermine both. While urging the public to buy sheets of plastic and duct tape to construct "safe rooms" in their homes, they rammed through Congress a deceitfully named measure, the so-called Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act), which effectively undermined most of the articles of the Bill of Rights (and which appeared, suspiciously, fully drawn up in bill form, only days after the attacks).

At the same time, the president, only one week after the attacks, obtained an Authorization for Use of Military Force for a military attack on the Taliban government in Afghanistan and on Al Qaeda forces in that country, which he subsequently interpreted broadly as an authorization for a global "war" on terror, which he then claimed made him effectively a dictator with absolute power both at home and abroad (the so-called "unitary executive" theory). Under this claim of absolute power as commander in chief in time of war, Bush went on to order the use of torture against captives, foreign and domestic, including U.S. citizens, to strip even U.S. citizens of the right of habeas corpus -- that is, the right to have their arrest and detention brought before a federal court -- and to establish secret torture centers around the globe and on military installations in Iraq, Afghanistan, and at Guantanamo Bay on the island of Cuba.

As well, even before the 9-11 attacks, the president began a sweeping program of electronic spying, run through the super-secret National Security Agency, on Americans' telephone and Internet activities. It was and remains a program that deliberately avoids seeking warrants and court approval even by the secret Foreign Intelligence Surveillance Act court -- a body that has only rejected some five requests for warrants out of hundreds of thousands sought since its establishment in 1978.

Finally, in a perhaps fatal undermining of the Constitution, the president after 9-11 began a practice of simply refusing to enact or obey laws passed by the Congress, effectively rendering the legislative branch an impotent debating club.

Not content to simply explode or dismantle the legal foundations of the American government and rule of law, Bush and his handlers also went about systematically destroying the country's basic institutions and even its economy.

The education system was fatally ensnared in a test-driven system called "No Child Left Behind," which has, in short order, dumbed down public education to an extent shocking even to this already anti-intellectual society, with many schools simply giving up the teaching of art, literature, or history, to focus desperately on math and reading that their students would do well enough on standardized tests to keep the schools from losing their funding.

The dollar has been cast adrift to become the new lira as the government has gone on an unprecedented borrowing spree to fund endless war and ever-larger military budgets, while erasing the taxes on the wealthy, the super-rich, and corporations. Banks were given free rein to enter into all manner of risky ventures, leading to the current collapse in credit. Corporations were encouraged to ship their production and jobs overseas. Homeowners were encouraged to spend, spend, spend and to mortgage their homes to the hilt and then some. Towns, cities, and pension funds were encouraged to invest in fantastic "structured" products that were actually towering card houses. Domestic car manufacturers were encouraged to build every larger, ever more voracious gas-guzzling vehicles, pumping out ever larger quantities of carbon into the already overstressed atmosphere.

The nation's infrastructure -- its roads, dams, bridges, levies, airports, veterans hospitals, etc. -- were left to decay with predictable results, the most dramatic of which was the loss of an entire city, New Orleans, to a routine Category 3 hurricane (after which, the president did nothing to rescue the survivors or fund a recovery).

Surveying at the appalling wreckage left after eight years of the Bush administration, it is hard to recognize the country that he started out with in 2001. A once proud nation -- one that only a few years ago was admired around the world and that now is viewed as a pariah and a rogue state -- today trembles before a handful of turbaned fanatics holed up in caves in the Hindu Kush, its trillion-dollar high-tech military colossus fought to a standstill in Iraq and Afghanistan by a few thousand brave men and women armed with RPGs, antique AK-47s, and home-made roadside bombs. A nation that once was the envy of the world for its free society now has scientists afraid to report their findings, university professors afraid to support outspoken colleagues, members of Congress afraid to defend their Constitution, citizens afraid of their neighbors, journalists afraid of government criticism, and lawyers afraid to defend clients.

Hey, this place starts to look and feel an awful lot like the China I lived in back in 1991!

Forget all the nonsense about Barack Obama being a closet Muslim. We already have our Manchurian Candidate in the White House, and he has largely accomplished what he was programmed to do: destroy the country.

The truth is this: If at the end of their second term, Bush and Cheney were to hop on a plane and fly off to a hideout in the mountains on the Afghan-Pakistan border, leaving a "Nya-nya!" note on the White House dining room table, few people would really be very surprised. "

New Data Show Rising Inflation and Slumping Home Values, by Vikas Bajaj, NY Times (February 26, 2008)

"Two worrisome trends for the economy - falling house prices and the rising cost of everything else - picked up speed in data reported on Tuesday, putting policy makers in an increasingly tough position.

    If they move too aggressively to cut interest rates and stimulate the economy, they might stoke inflation at a time when consumers are already squeezed by higher prices for food, energy, clothing and other goods. But if they choose more austere measures, the economy may weaken substantially faster.

    "The Fed is now having to walk a very fine line," said Jane Caron, chief economic strategist at Dwight Asset Management, an investment firm that specializes in bonds. "We have clearly seen an acceleration in inflation pressure in the last couple of months and the risk is that the markets are going to react negatively to aggressive easing going forward." Not surprisingly, a measure of consumer confidence fell to its lowest level in nearly five years. But the stock market was up slightly in midday trading after falling modestly at the open. Energy and technology stocks led the market higher after oil prices surged above $100 again and I.B.M. announced that it would buy back an additional $15 billion of its stock and improved its profit forecast. Treasuries moved slightly higher, indicating that bond investors were not overly fearful of inflation.

    Tuesday's data provided fresh evidence of the housing market's prolonged slump. A leading index of home prices in 20 cities fell by 9.1 percent in December from the same month a year ago. Using a three-month moving average, the index, the Standard & Poor's Case-Shiller, is falling at an annual pace of more than 20 percent. The index tracks repeat sales of single-family homes; it does not include condominiums.

    Another government index of home prices that covers more of the country but does not include loans above $417,000 fell 1.3 percent in the fourth quarter, after falling 0.3 percent in the third quarter. The index, compiled by the Office of Federal Housing Enterprise Oversight, showed prices declining in all states, except Maine.

    The Labor Department reported that wholesale prices, which exclude taxes and distribution costs, rose 1 percent in January, up from a drop of 0.3 percent. Compared with a year ago, prices were up 7.4 percent. Excluding volatile food and energy prices, the index was up 2.3 percent from a year ago, up from 2 percent in December.

    The latest inflation report appears to corroborate a broader trend of higher prices across the economy. Last week, the Labor Department reported elevated readings for consumer prices. The consumer price index was up 4.3 percent last month from a year ago, up from a 4.1 percent increase in December.

    To be certain, the core rate of inflation - which excludes food and energy - remains closer to the Fed's target of 1 percent to 2 percent. Core consumer prices were up about 2.5 percent in January, up from 2.4 percent in December.

    "Months of surging energy prices appear now to be trickling up the production chain to finished goods prices," Kenneth Beauchemin, an economist at Global Insight, a research firm, wrote in a note to clients.

    The drumbeat of negative economic data appears to be taking a toll on consumers - at least in the way they perceive the economy, if not in how they spend.

....."

Foreclosure Auctioneer's Lonely Task, by Nick Miroff, Washington Post (February 22, 2008)

"With an unhurried stride and a fresh stack of mortgage loans gone bad, Rick Crossley arrived at the small plaza outside the Prince William County courthouse on a bright, windy morning recently and found it deserted. He cleared his throat, opened a thick folder and, with little ceremony, began to read aloud.

"This is a trustee's foreclosure auction," he announced. "Any parties with interest, please step forward at this time."

The deliveryman unloading packages nearby paid no attention; a sheriff's deputy gave little more than a passing glance. Crossley continued.

"Qualified bidders will have certified funds," he called out, and proceeded to offer a house in Woodbridge at $380,515.28.

"Going once! Going twice!" he bellowed, raising his voice in the gusting wind. "Final call! Sold to Aurora Loan Services for $380,515.28."

There was nobody from Aurora Loan Services, a subsidiary of Lehman Brothers, for Crossley to shake hands with or congratulate on the deal. Really, there was nothing to celebrate. The company had become the default owner of yet another piece of sinking real estate that it would have to resell.

Crossley auctioned several more houses over the next 20 minutes. One in Woodbridge was offered for $178,000, and another in Manassas for $244,000. It didn't matter; no one showed up. And by the time Crossley was finished, seven more Prince William houses had fallen on the foreclosure pyre, reclaimed by banks.

"Lot of interest out here this morning," Crossley muttered.

It wasn't always such a lonely job. When Crossley became an auctioneer two years ago for Purcellville-based Nectar Projects, foreclosure sales were few, and they would regularly draw packs of investors armed with cash and eager to bid. Now it's rare for anyone to show up. In the past three months, Crossley has conducted auctions on some 200 properties in Northern Virginia, and he has sold one.

.....

State law also requires that lenders give notice of foreclosure auctions in newspaper ads before reclaiming a property. They determine the auction's opening bid based on the amount they're owed. If no one steps forward with a higher offer, they assume ownership.

This explains one reason the auctions are so ill-attended: They no longer offer a reliably good deal. Banks typically set the opening bid at the amount they're owed, even though property values have plunged in some areas. For instance, a house in Manassas Park bought for $400,000 in 2006 might be worth $250,000 now, so an opening bid that doesn't reflect the reality of the market isn't likely to attract much interest.

"Banks bid what they're owed," said Bill Evans, a real estate lawyer in Manassas, "but once they become the owner, they'll sell it for less." This is because of legal requirements, obligations to other investors and other concerns that make it easier for lenders to cut their losses after the auction, he said.

....."

US banks borrow $50bn via new Fed facility, by Gillian Tett, Financial Times (February 18, 2008)

"US banks have been quietly borrowing massive amounts of money from the Federal Reserve in recent weeks by using a new measure the Fed introduced two months ago to help ease the credit crunch.

The use of the Fed’s Term Auction Facility, which allows banks to borrow at relatively attractive rates against a wider range of their assets than previously permitted, saw borrowing of nearly $50bn of one-month funds from the Fed by mid-February.

US officials say the trend shows that financial authorities have become far more adept at channelling liquidity into the banking system to alleviate financial stress, after failing to calm money markets last year.

However, the move has sparked unease among some analysts about the stress developing in opaque corners of the US banking system and the banks’ growing reliance on indirect forms of government support.

“The TAF ... allows the banks to borrow money against all sort of dodgy collateral,” says Christopher Wood, analyst at CLSA. “The banks are increasingly giving the Fed the garbage collateral nobody else wants to take ... [this] suggests a perilous condition for America’s banking system.

....."

Investors Shun Muni Bonds As Credit Crisis Worsens, CNBC (February 15, 2008)

"The credit crisis is spreading from Wall Street to Main Street.

Investors are starting to shun municipal bonds, the debt securities that states and cities issue to fund everything from sewer projects to new schools. Though muni bonds have long been considered among the safest investments, few are buying them because of worries about the safety of bond insurers that back the bonds.

On Tuesday, two muni auctions failed to find buyers, and experts said that was the first time this had ever happened. Conditions have only worsened since then, they explained.

As a result, states, counties, cities and towns around the nation now are being forced to pay sharply higher short-term interest rates, in some cases as much as 15 percent.

Investors, meanwhile, are flocking to U.S. Treasurys, which are backed by the U.S. government.

"In the financial system ... we are just getting hit from all sides here," said T.J. Marta, fixed income strategist with Royal Bank of Canada Capital Markets in New York. "That is adding to the positive tone for Treasurys."

...."

Auction-Bond Failures Roil Munis, Pushing Rates Up, by Martin Z. Braun, Bloomberg (February 13, 2008)

"Bonds sold by U.S. municipal borrowers with rates set through periodic auctions failed to attract enough buyers as banks including Goldman Sachs Group Inc. and Citigroup Inc. that run the bidding won't commit their own capital to the debt.

Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque and New York state's Metropolitan Transportation Authority also experienced failures, officials said.

What began three weeks ago with too few bidders for auction-rate debt backed by relatively small entities, such as Georgetown University and Nevada Power, has widened in recent days to include large issues of state governments, such as New York state's Dormitory Authority. The auction failures provide new indication of Wall Street's unwillingness to commit capital amid $133 billion in credit losses and asset writedowns.

``It's the beginning of the end for the auction-rate market,'' said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. ``Banks have stopped supporting the market.''

Investor demand for the securities has declined on waning confidence in the credit strength of insurers backing the debt, and on reluctance by banks to submit bids and risk ending up with too many of the bonds. Local governments that have borrowed in the $300 billion auction-rate market confront the prospect of higher borrowing costs as economic slowing trims tax revenue.

....."

Depression risk might force U.S. to buy assets, by John Parry, Reuters (February 12, 2008)

"NEW YORK (Reuters) - Fear that a hobbled banking sector may set off another Great Depression could force the U.S. government and Federal Reserve to take the unprecedented step of buying a broad range of assets, including stocks, according to one of the most bearish market analysts.

That extreme scenario, which would aim to stave off deflation and stabilize the economy, is evolving as the base case for Bernard Connolly, global strategist at Banque AIG in London.

In the late 1980s and early 1990's Connolly worked for the European Commission analyzing the European monetary system in the run up to the introduction of the euro currency.

"Avoiding a depression is, unfortunately, going to have to involve either a large, quasi-permanent increase in the budget deficit -- preferably tax cuts -- or restoring overvaluation of equity prices," Connolly said on Monday.

"If conventional monetary policy is not enough to produce that result, the government may have to buy equities, financed by the Fed," Connolly said.

Legal changes would be needed to give the Federal Reserve and the U.S. government the authority to buy stocks. Currently the Federal Reserve can buy only debt issued by the Treasury, as well as U.S. agency debentures and mortgage-backed securities.

While Connolly already sees some parallels with the 1930s, he expects that a more pro-active central bank and government will probably help avert a repeat of that scenario today.

......"

America’s economy risks mother of all meltdowns, by Martin Wolf, Financial Times (February 19, 2008)

“I would tell audiences that we were facing not a bubble but a froth – lots of small, local bubbles that never grew to a scale that could threaten the health of the overall economy.” Alan Greenspan, The Age of Turbulence.

That used to be Mr Greenspan’s view of the US housing bubble. He was wrong, alas. So how bad might this downturn get? To answer this question we should ask a true bear. My favourite one is Nouriel Roubini of New York University’s Stern School of Business, founder of RGE monitor.

Recently, Professor Roubini’s scenarios have been dire enough to make the flesh creep. But his thinking deserves to be taken seriously. He first predicted a US recession in July 2006*. At that time, his view was extremely controversial. It is so no longer. Now he states that there is “a rising probability of a ‘catastrophic’ financial and economic outcome”**. The characteristics of this scenario are, he argues: “A vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe.”

Prof Roubini is even fonder of lists than I am. Here are his 12 – yes, 12 – steps to financial disaster.

Step one is the worst housing recession in US history. House prices will, he says, fall by 20 to 30 per cent from their peak, which would wipe out between $4,000bn and $6,000bn in household wealth. Ten million households will end up with negative equity and so with a huge incentive to put the house keys in the post and depart for greener fields. Many more home-builders will be bankrupted.

Step two would be further losses, beyond the $250bn-$300bn now estimated, for subprime mortgages. About 60 per cent of all mortgage origination between 2005 and 2007 had “reckless or toxic features”, argues Prof Roubini. Goldman Sachs estimates mortgage losses at $400bn. But if home prices fell by more than 20 per cent, losses would be bigger. That would further impair the banks’ ability to offer credit.

Step three would be big losses on unsecured consumer debt: credit cards, auto loans, student loans and so forth. The “credit crunch” would then spread from mortgages to a wide range of consumer credit.

Step four would be the downgrading of the monoline insurers, which do not deserve the AAA rating on which their business depends. A further $150bn writedown of asset-backed securities would then ensue.

Step five would be the meltdown of the commercial property market, while step six would be bankruptcy of a large regional or national bank.

Step seven would be big losses on reckless leveraged buy-outs. Hundreds of billions of dollars of such loans are now stuck on the balance sheets of financial institutions.

Step eight would be a wave of corporate defaults. On average, US companies are in decent shape, but a “fat tail” of companies has low profitability and heavy debt. Such defaults would spread losses in “credit default swaps”, which insure such debt. The losses could be $250bn. Some insurers might go bankrupt.

Step nine would be a meltdown in the “shadow financial system”. Dealing with the distress of hedge funds, special investment vehicles and so forth will be made more difficult by the fact that they have no direct access to lending from central banks.

Step 10 would be a further collapse in stock prices. Failures of hedge funds, margin calls and shorting could lead to cascading falls in prices.

Step 11 would be a drying-up of liquidity in a range of financial markets, including interbank and money markets. Behind this would be a jump in concerns about solvency.

Step 12 would be “a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices”.

These, then, are 12 steps to meltdown. In all, argues Prof Roubini: “Total losses in the financial system will add up to more than $1,000bn and the economic recession will become deeper more protracted and severe.” This, he suggests, is the “nightmare scenario” keeping Ben Bernanke and colleagues at the US Federal Reserve awake. It explains why, having failed to appreciate the dangers for so long, the Fed has lowered rates by 200 basis points this year. This is insurance against a financial meltdown.

....."

Dumb and Dumber: Are Americans Hostile to Knowledge?, by Patricia Cohen, NY Times (February 14, 2008)

"A popular video on YouTube shows Kellie Pickler, the adorable platinum blonde from "American Idol," appearing on the Fox game show "Are You Smarter Than a 5th Grader?" during celebrity week. Selected from a third-grade geography curriculum, the $25,000 question asked: "Budapest is the capital of what European country?"

    Ms. Pickler threw up both hands and looked at the large blackboard perplexed. "I thought Europe was a country," she said. Playing it safe, she chose to copy the answer offered by one of the genuine fifth graders: Hungary. "Hungry?" she said, eyes widening in disbelief. "That's a country? I've heard of Turkey. But Hungry? I've never heard of it."

    Such, uh, lack of global awareness is the kind of thing that drives Susan Jacoby, author of "The Age of American Unreason," up a wall. Ms. Jacoby is one of a number of writers with new books that bemoan the state of American culture.

    Joining the circle of curmudgeons this season is Eric G. Wilson, whose "Against Happiness" warns that the "American obsession with happiness" could "well lead to a sudden extinction of the creative impulse, that could result in an extermination as horrible as those foreshadowed by global warming and environmental crisis and nuclear proliferation."

    Then there is Lee Siegel's "Against the Machine: Being Human in the Age of the Electronic Mob," which inveighs against the Internet for encouraging solipsism, debased discourse and arrant commercialization. Mr. Siegel, one might remember, was suspended by The New Republic for using a fake online persona in order to trash critics of his blog ("you couldn't tie Siegel's shoelaces") and to praise himself ("brave, brilliant").

    Ms. Jacoby, whose book came out on Tuesday, doesn't zero in on a particular technology or emotion, but rather on what she feels is a generalized hostility to knowledge. She is well aware that some may tag her a crank. "I expect to get bashed," said Ms. Jacoby, 62, either as an older person who upbraids the young for plummeting standards and values, or as a secularist whose defense of scientific rationalism is a way to disparage religion.

    Ms. Jacoby, however, is quick to point out that her indictment is not limited by age or ideology. Yes, she knows that eggheads, nerds, bookworms, longhairs, pointy heads, highbrows and know-it-alls have been mocked and dismissed throughout American history. And liberal and conservative writers, from Richard Hofstadter to Allan Bloom, have regularly analyzed the phenomenon and offered advice.

    T. J. Jackson Lears, a cultural historian who edits the quarterly review Raritan, said, "The tendency to this sort of lamentation is perennial in American history," adding that in periods "when political problems seem intractable or somehow frozen, there is a turn toward cultural issues."

    But now, Ms. Jacoby said, something different is happening: anti-intellectualism (the attitude that "too much learning can be a dangerous thing") and anti-rationalism ("the idea that there is no such things as evidence or fact, just opinion") have fused in a particularly insidious way.

    Not only are citizens ignorant about essential scientific, civic and cultural knowledge, she said, but they also don't think it matters.

    She pointed to a 2006 National Geographic poll that found nearly half of 18- to 24-year-olds don't think it is necessary or important to know where countries in the news are located. So more than three years into the Iraq war, only 23 percent of those with some college could locate Iraq, Iran, Saudi Arabia and Israel on a map.

    Ms. Jacoby, dressed in a bright red turtleneck with lipstick to match, was sitting, appropriately, in that temple of knowledge, the New York Public Library's majestic Beaux Arts building on Fifth Avenue. The author of seven other books, she was a fellow at the library when she first got the idea for this book back in 2001, on 9/11.

    Walking home to her Upper East Side apartment, she said, overwhelmed and confused, she stopped at a bar. As she sipped her bloody mary, she quietly listened to two men, neatly dressed in suits. For a second she thought they were going to compare that day's horrifying attack to the Japanese bombing in 1941 that blew America into World War II:

    "This is just like Pearl Harbor," one of the men said.

    The other asked, "What is Pearl Harbor?"

    "That was when the Vietnamese dropped bombs in a harbor, and it started the Vietnam War," the first man replied.

    At that moment, Ms. Jacoby said, "I decided to write this book."

    Ms. Jacoby doesn't expect to revolutionize the nation's educational system or cause millions of Americans to switch off "American Idol" and pick up Schopenhauer. But she would like to start a conversation about why the United States seems particularly vulnerable to such a virulent strain of anti-intellectualism. After all, "the empire of infotainment doesn't stop at the American border," she said, yet students in many other countries consistently outperform American students in science, math and reading on comparative tests.

    In part, she lays the blame on a failing educational system. "Although people are going to school more and more years, there's no evidence that they know more," she said.

    Ms. Jacoby also blames religious fundamentalism's antipathy toward science, as she grieves over surveys that show that nearly two-thirds of Americans want creationism to be taught along with evolution.

    Ms. Jacoby doesn't leave liberals out of her analysis, mentioning the New Left's attacks on universities in the 1960s, the decision to consign African-American and women's studies to an "academic ghetto" instead of integrating them into the core curriculum, ponderous musings on rock music and pop culture courses on everything from sitcoms to fat that trivialize college-level learning.

    Avoiding the liberal or conservative label in this particular argument, she prefers to call herself a "cultural conservationist."

    For all her scholarly interests, though, Ms. Jacoby said she recognized just how hard it is to tune out the 24/7 entertainment culture. A few years ago she participated in the annual campaign to turn off the television for a week. "I was stunned at how difficult it was for me," she said.

    The surprise at her own dependency on electronic and visual media made her realize just how pervasive the culture of distraction is and how susceptible everyone is - even curmudgeons."

Budget Deficit Running at Faster Pace, by Martin Crutsinger, AP (February 12, 2008)

America's Middle Classes Are No Longer Coping, by Robert Reich, Financial Times (January 29, 2008)

"It is an election year and the US economy is in peril of falling into recession or worse. Not surprisingly, Washington is abuzz with plans to prevent it. President George W. Bush has proposed a $150bn stimulus package and all the main presidential candidates are offering similar measures, including middle-class tax cuts and increased spending on infrastructure.

    Ben Bernanke and the Federal Reserve have reduced interest rates another three-quarters of a point. But none of these fixes will help much because they do not deal with the underlying anxieties now gripping American voters. The problem lies deeper than the current slowdown and transcends the business cycle.

    The fact is, middle-class families have exhausted the coping mechanisms they have used for more than three decades to get by on median wages that are barely higher than they were in 1970, adjusted for inflation. Male wages today are in fact lower than they were then: the income of a young man in his 30s is now 12 per cent below that of a man his age three decades ago. Yet for years now, America's middle class has lived beyond its pay cheque. Middle-class lifestyles have flourished even though median wages have barely budged. That is ending and Americans are beginning to feel the consequences.

    The first coping mechanism was moving more women into paid work. The percentage of American working mothers with school-age children has almost doubled since 1970 - from 38 per cent to close to 70 per cent. Some parents are now even doing 24-hour shifts, one on child duty while the other works. These families are known as Dins: double income, no sex.

    But we reached the limit to how many mothers could maintain paying jobs. What to do? We turned to a second coping mechanism. When families could not paddle any harder, they started paddling longer. The typical American now works two weeks more each year than 30 years ago. Compared with any other advanced nation we are veritable workaholics, putting in 350 more hours a year than the average European, more even than the notoriously industrious Japanese.

    But there is also a limit to how long we can work. As the tide of economic necessity continued to rise, we turned to the third coping mechanism. We began to borrow, big time. With housing prices rising briskly through the 1990s and even faster between 2002 and 2006, we turned our homes into piggy banks through home equity loans. Americans got nearly $250bn worth of home equity every quarter in second mortgages and refinancings. That is nearly 10 per cent of disposable income. With credit cards raining down like manna, we bought plasma television sets, new appliances, vacations.

    With dollars artificially high because foreigners continued to hold them even as the nation sank deeper into debt, we summoned inexpensive goods and services from the rest of the world.

    But this final coping mechanism can no longer keep us going, either. The era of easy money is over. With the bursting of the housing bubble, home equity is drying up. As Moody's reported recently, defaults on home equity loans have surged to the highest level this decade. Car and credit card debt is next. Personal bankruptcies rose 48 per cent in first half of 2007, probably even more in the second half, which means a wave of defaults on consumer loans. Meanwhile, as foreigners begin shifting out of dollars, we will no longer have access to cheap foreign goods and services.

...."

Federal Deficits Soaring Higher, Menacing the Future, by Kevin G. Hall, McClatchy Newspapers (February 4, 2008)

"Washington - President Bush took office in 2001 with a budget surplus, but his final budget proposal envisions federal deficits of more than $400 billion a year for the next two years. As big as those numbers are, experts think that the administration is lowballing the deficits, and they put little stock in Bush's vow to balance the budget by 2012.

    "I think the promise that it will be balanced by 2012 is ridiculous," said Chris Edwards, the director of tax policy for the Cato Institute, a libertarian policy research group.

    Bush's estimates of a $410 billion deficit this fiscal year and $407 billion for fiscal 2009, budget experts said, rely on very low assumptions of war costs, unrealistic estimates on tax collection and spending cuts that won't sell politically, regardless of which party is in charge of Congress.

    "No sensible analyst takes this (budget) estimate seriously," said Robert Greenstein, the executive director of the liberal Center on Budget and Policy Priorities.

    Edwards pointed to $70 billion in emergency Iraq and Afghanistan war costs budgeted for the fiscal year that begins on Oct. 1, a figure he called "totally phony" because it could easily end up closer to $200 billion, as it has in recent years.

    Although Bush offers a one-year patch to keep the creeping alternative minimum tax from ensnaring millions of taxpayers, his budget would allow the tax to hit 38 million Americans by 2012. That would be tantamount to a huge tax increase.

    Late last year, Congress approved a one-year patch for the AMT, a tax that must be calculated in parallel to standard income taxes. This patch wasn't paid for, however, and so it added to the federal deficit, which will grow by roughly $150 billion once Congress passes an economic stimulus later this month.

    To balance the budget later, Bush envisions sharp spending cuts in popular programs for the elderly and a spending freeze on everything the government isn't required to pay for.

    Few expect Congress to make deep cuts in such programs as energy assistance to the poor, disease control and space exploration. And experts don't see Congress agreeing to Bush's suggestion to reduce Medicare spending by $556 billion over the next 10 years - just as politically active baby boomers - Americans born between 1946 and 1964 - begin retiring en masse after 2010.

    Once war costs and revenue lost to AMT patches are factored in, annual federal deficits are likely to exceed $500 billion, forcing the U.S. government to issue more debt.

    Gross federal debt accumulated through all U.S. history totaled $8.9 trillion at the end of fiscal 2007 last Sept. 30. That was up sharply from $5.6 trillion at the end of fiscal 2000. Even under the optimistic scenarios envisioned in the Bush budget, gross federal debt is still projected to rise to more than $12.2 trillion by 2013.

    At the end of 2007, foreigners held 44 percent of total Treasury debt held by the public, compared with 31 percent in 2000. Bridging budget gaps thus now depends on the kindness of strangers.

....."

The Greenback Is Losing Global Appeal, by Michelle Higgins, NY Times (February 3, 2008)

"The dollar used to be the universal tourist currency, accepted almost anywhere, from the streets of Hanoi to the plains of Africa. But the continued slide of the dollar against other currencies has led the greenback to be shunned in unexpected places, creating new problems for American travelers and pushing prices higher.

    The Taj Mahal has stopped accepting dollars for the entrance fee, under a new edict from the Indian Ministry of Culture that also affects other national tourist sites like the 13th-century minaret known as the Qutb Minar and Humayun's Tomb in Delhi. As a result, for entrance to the Taj Mahal, Americans must now pay 750 rupees, about $19, at the rate of 29.74 rupees to the dollar, compared with $15 previously.

    Some tour operators say they have encountered newfound resistance to dollars in parts of Vietnam and Peru, especially in villages that are off the beaten path.

    "It used to be a $100 bill was universal everywhere, from Moscow to Mozambique," said Peter Rudy, the North America director for KE Adventure Travel, a Denver-based outfit that books adventure trips throughout the world. "It's not now."

    Even in New York, some shops are encouraging payment in foreign currency. A recent article in The Villager, a Manhattan neighborhood newspaper, noted that East Village Wines, a liquor store at 138 First Avenue, accepts payments in euros as well as dollars.

    Over the last year through mid-January, the dollar has depreciated about 9 percent against the euro, 10 percent against the rupee and 12 percent against the Chilean peso, said Jay Bryson, global economist at Wachovia.

    In the past, savvy travelers could hedge against the weakened dollar by buying a prepackaged tour. Tour operators set prices as much as 18 months in advance, so they can be printed in brochures and other marketing materials. Those travelers were essentially getting a built-in discount during the last couple of years as the dollar fell against other currencies. But not this year.

    Some American tour operators are now tacking on so-called currency surcharges, in much the same way that airlines have bumped up fuel surcharges in the face of rising oil costs. Others are raising package prices to help make up the difference.

    Last month, Group Voyagers, the parent company of Globus, Cosmos, Monograms and Avalon Waterways, added a currency surcharge of about 5 percent to many of its European tours. For example, Globus's $1,699 Taste of Italy package starting on May 3 now includes a surcharge of $110 a person. Over all, travelers can expect to pay $20 to $190 extra a person for the European tours.

....."

US slides into dangerous 1930s 'liquidity trap', by Ambrose Evans-Pritchard, Telegraph/UK (January 25, 2008)

"The United States is sliding towards a dangerous 1930s-style "liquidity trap" that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.

"The biggest fear is that long-term bond rates won't come down in line with short-term rates. We'll have the reverse of what we've seen in recent years, and that is what is frightening the markets," he told the Daily Telegraph, while trudging through ice and snow in Davos.

"The mechanism of monetary policy is ineffective in these circumstances. I'm not saying it won't work at all: it will help the banking system but the credit squeeze is going to go on because nobody trusts anybody else. The Fed is pushing on a string," he said.

The grim comments came as markets continued to suffer wild gyrations, reacting to every sign of contagion spreading to Europe, Asia, and emerging markets.

Wall Street has begun to stabilize on talk of a rescue for the embattled bond insurers, MBIA and Ambac.

The Fed's 75 basis point rate cut allows the banks to replenish their balance sheet by borrowing at short-term rates and lending longer term, playing the credit 'carry trade', hence the 9pc rise in the US financials index yesterday. But confidence remains fragile.

Professor Stiglitz, former chair of the White House Council of Economic Advisers, said it takes far too long for monetary policy to work its magic. This will not gain much traction in the midst of a housing crash.

"People have been drawing home equity out of the houses at a rate of $700bn or $800bn a year. It's been a huge boost to consumption, but that game is now up. House prices are going to continue falling, and lower rates won't stop that this point," he said.

"As a Keynesian, I'd say the biggest back for the buck in terms of immediate stimulus would be unemployment assistance and tax rebates for the poor. That will feed through quickly, but set against the magnitude of the problem, even a fiscal stimulus package of $150bn is not going to be enough," he said

"The distress is going to be very severe. Around 2m people have lost all their savings," he did.

....."

The Dollar’s Reserve Currency Role is Drawing to an End, by Paul Craig Robert, Information Clearing House (January 27, 2008)

"It is difficult to know where Bush has accomplished the most destruction, the Iraqi economy or the US economy. 

In the current issue of Manufacturing & Technology News, Washington economist Charles McMillion observes that seven years of Bush has seen the federal debt increase by two-thirds while US household debt doubled. 

This massive Keynesian stimulus produced pitiful economic results. Median real income has declined.  The labor force participation rate has declined. Job growth has been pathetic, with 28% of the new jobs being in the government sector.  All the new private sector jobs are accounted for by private education and health care bureaucracies, bars and restaurants. Three and a quarter million manufacturing jobs and a half million supervisory jobs were lost.  The number of manufacturing jobs has fallen to the level of 65 years ago.

This is the profile of a third world economy.

The “new economy” has been running a trade deficit in advanced technology products since 2002.  The US trade deficit in manufactured goods dwarfs the US trade deficit in oil. The US does not earn enough to pay its import bill, and it doesn’t save enough to finance the government’s budget deficit.

To finance its deficits, America looks to the kindness of foreigners to continue to accept the outpouring of dollars and dollar-denominated debt.

The dollars are accepted, because the dollar is the world’s reserve currency.  

 At the meeting of the World Economic Forum at Davos, Switzerland, this week, billionaire currency trader George Soros warned that the dollar’s reserve currency role was drawing to an end: “The current crisis is not only the bust that follows the housing boom, it’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency. Now the rest of the world is increasingly unwilling to accumulate dollars.” 

www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/23/bcndollar123.xml 

If the world is unwilling to continue to accumulate dollars, the US will not be able to finance its trade deficit or its budget deficit. As both are seriously out of balance, the implication is for yet more decline in the dollar’s exchange value and a sharp rise in prices.  

....."

Home Prices Fell in ’07 for First Time in Decades, by Michael M. Grynbaum, NY Times (January 24, 2008)

"It was a notable year for the housing industry, and not in a good way.

In 2007, the median price of an American single-family home fell for the first time in at least four decades, according to the National Association of Realtors, a trade group.

The median price declined 1.8 percent to $217,800, the first annual decline since reliable records began in 1968. “It’s the first price decline in many, many years and possibly going back to the Great Depression,” said the group’s chief economist, Lawrence Yun.

Over all, sales of previously owned single-family homes fell 13 percent in 2007, the biggest drop in a quarter-century. Last month alone, home sales dipped 2.2 percent from November, to a 4.89 million annual rate. (The group’s survey excludes newly constructed homes.)

Inventories of single-family homes and condominiums remain elevated, as the housing industry struggles to climb out of its worst downturn since the early 1990s. Though the backlog of unsold homes ticked down slightly in December, at least one economist attributed the drop to discouraged homeowners “pulling their homes off the market in the face of continued weak demand and falling prices.”

“We still have a long way to go before prices sink to levels necessary to balance supply and demand in the housing market,” the economist, Joshua Shapiro of MFR, a research firm, wrote.

....."

Going Bankrupt: Why the Debt Crisis Is Now the Greatest Threat to the American Republic, by Chalmers Johnson, tomdispatch.com (January 22, 2008)

"The military adventurers of the Bush administration have much in common with the corporate leaders of the defunct energy company Enron. Both groups of men thought that they were the "smartest guys in the room," the title of Alex Gibney's prize-winning film on what went wrong at Enron. The neoconservatives in the White House and the Pentagon outsmarted themselves. They failed even to address the problem of how to finance their schemes of imperialist wars and global domination.

    As a result, going into 2008, the United States finds itself in the anomalous position of being unable to pay for its own elevated living standards or its wasteful, overly large military establishment. Its government no longer even attempts to reduce the ruinous expenses of maintaining huge standing armies, replacing the equipment that seven years of wars have destroyed or worn out, or preparing for a war in outer space against unknown adversaries. Instead, the Bush administration puts off these costs for future generations to pay - or repudiate. This utter fiscal irresponsibility has been disguised through many manipulative financial schemes (such as causing poorer countries to lend us unprecedented sums of money), but the time of reckoning is fast approaching.

    There are three broad aspects to our debt crisis. First, in the current fiscal year (2008) we are spending insane amounts of money on "defense" projects that bear no relationship to the national security of the United States. Simultaneously, we are keeping the income tax burdens on the richest segments of the American population at strikingly low levels.

    Second, we continue to believe that we can compensate for the accelerating erosion of our manufacturing base and our loss of jobs to foreign countries through massive military expenditures - so-called "military Keynesianism," which I discuss in detail in my book Nemesis: The Last Days of the American Republic. By military Keynesianism, I mean the mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.

    Third, in our devotion to militarism (despite our limited resources), we are failing to invest in our social infrastructure and other requirements for the long-term health of our country. These are what economists call "opportunity costs," things not done because we spent our money on something else. Our public education system has deteriorated alarmingly. We have failed to provide health care to all our citizens and neglected our responsibilities as the world's number one polluter. Most important, we have lost our competitiveness as a manufacturer for civilian needs - an infinitely more efficient use of scarce resources than arms manufacturing. Let me discuss each of thes

....."

Day of reckoning is almost here, by Patrick J. Buchanan, Miami Herald (January 17, 2008)

"Since it began to give credit ratings to nations in 1917, Moody's has rated the United States triple-A. U.S. Treasury bonds have been seen as the most secure investment on Earth. When crises erupt, nervous money seeks out the world's great safe harbor, the United States. That reputation is now in peril.

Last week, Moody's warned that if the United States fails to rein in the soaring cost of Social Security, Medicare and Medicaid, the nation's credit rating will be down-graded within a decade.

Our political parties seem oblivious. Republicans, save Ron Paul, are all promising to expand the U.S. military and maintain all of our worldwide commitments to defend and subsidize scores of nations.

Democrats, with entitlement costs drowning the federal budget in red ink, are proposing a new entitlement: universal health coverage for the near 50 million who do not have it -- another magnet for illegal immigrants. Moody's is telling America it needs a time of austerity, while the U.S. government is behaving like the governments we used to bail out.

Meanwhile, Washington drifts mindlessly toward the maelstrom. With the dollar sinking, oil surging to $100 a barrel, the Dow having its worst January in memory, foreclosures mounting, credit card debt going rotten, and consumers and businesses unable or unwilling to borrow, we appear headed into recession.

Higher unemployment

If so, tax revenue will fall and spending on unemployment will surge. The price of the stimulus packages both parties are preparing will further add to the deficit and further imperil the U.S. credit rating. This all comes in the year that the first of the baby boomers, born in 1946, reach early retirement and eligibility for Social Security.

To stave off recession, the Fed appears eager to slash interest rates another half-point, if not more. That will further weaken the dollar and raise the costs of the imports to which we have become addicted. While all this is bad news for the Republicans, it is worse news for the republic. As we save nothing, we must borrow both to pay for the imported oil and foreign manufactures upon which we have become dependent.

We are thus in the position of having to borrow from Europe to defend Europe, of having to borrow from China and Japan to defend Chinese and Japanese access to Gulf oil, and of having to borrow from Arab emirs, sultans and monarchs to make Iraq safe for democracy.

We borrow from the nations we defend so that we may continue to defend them. To question this is an unpardonable heresy called ``isolationism.''

And the chickens of globalism are coming home to roost.

.....

America, to pay her bills, has begun to sell herself to the world.

Its balance sheet gutted by the subprime mortgage crisis, Citicorp got a $7.5 billion injection from Abu Dhabi and is now fishing for $1 billion from Kuwait and $9 billion from China. Beijing has put $5 billion into Morgan Stanley and bought heavily into Barclays Bank.

Merrill-Lynch, ravaged by subprime mortgage losses, sold part of itself to Singapore for $7.5 billion and is seeking another $3 billion to $4 billion from the Arabs. Swiss-based UBS, taking a near $15 billion write-down in subprime mortgages, has gotten an infusion of $10 billion from Singapore.

Bain Capital is partnering with China's Huawei Technologies in a buyout of 3Com, the U.S. company that provides the technology that protects Pentagon computers from Chinese hackers.

This self-indulgent generation has borrowed itself into unpayable debt. Now the folks from whom we borrowed to buy all that oil and all those cars, electronics and clothes are coming to buy the country we inherited. We are prodigal sons, and the day of reckoning approaches."

According to Harold Bloom, “What We Are Seeing Is…the Fall of America", by Eva Sohlman, The Women's International Perspective (January 17, 2008)

"Harold Bloom, Yale literature professor and cultural critic, is one of America’s most prominent and provocative intellectuals. Unabashedly, he has always spoken up for what he calls “the fight for truth and beauty” making a lot of foes in the process, but also some friends. As one of the first critical voices against the Bush administration and the war in Iraq, Bloom landed in the hot seat with the satire “MacBush” in 2004. Lately, he sparked worldwide outrage by calling Harry Potter “garbage”. Speaking at his home in New Haven where he is recovering from a recent health scare, a pale and weak Bloom seems to have symbolically embodied what he calls the “poor state of the nation”.

“I am 77 years old and I have never seen this country in such a bad state. It is madness. What we are seeing is the fall of the Roman Empire, only now it is the fall of America, the glory of our Empire. This war is what Parthya was to Rome.

The horror of what is taking place in Iraq exceeds my worst fears five or six years ago (after Bush came to power). I am horrified at the disastrous mistake involved. Imagine the complete madness in trying to occupy a large Arab country in the middle of the Arab world, a culture we know precious little about, and who speaks a language only a handful of our specialists can speak, with armed forces which we have limited control of and with a large army of private soldiers… The whole thing is a scandal…a series of lies. I don’t understand the motivation for the war, but suspect the real reason for the war, which one would suspect of a country which is a third oligarchy, a third plutocracy and a third theocracy, is that it simply is a profitable machine.”

Sitting in the middle of his living room and in the brown leather armchair from which he has given most of his interviews in recent years, Bloom sighs deeply and a sad grimace spreads over his expressive face. It soon switches to anger, as he expands on the consequences of the war and, ultimately, of Bush at power: a growing national debt and a weakened dollar in tandem with a spiraling war budget, as well as America’s lost credibility on the international stage due to the Iraq war and the situation in Afghanistan. Not to mention Guantanamo Bay, the use of torture and humiliation at Abu Ghraib and the CIA’s rendition program.

“We have caused a monstrous mess. We don’t even count killed Iraqis. God knows how many Iraqi women, children and men have been killed by our accidental shootings, which we are such experts at, or by other Iraqis. No, ‘Benito Bush’ (Bloom’s pet name for President George Bush) deserves, if we had a functioning civil law in the world, to be condemned for crimes against humanity. Bush is ultimately responsible for this war,” Bloom says pointing angrily with his index finger in the air as his dark eyes burn below a pair of thick dark eyebrows and a crown of unruly white hair.

“It is bleeding our nation, and I can’t see a solution in the near future. We are obviously so deeply involved concerning blood, money and the situation on the ground that it will be very hard for us to pull out.”

But Bloom has no illusions that there is any real pressure from the Democrats to pull out of Iraq at the moment.

“The truth is that Nancy Pelosi, Harry Reid, Hoyer and the other Democrats who lead the Congress Party in the Senate, are far too cunning. They will talk about wanting to end the war and so on, but the truth is that they know they can’t do anything about it and it suits them as they can blame the Republicans for the war in the upcoming elections. But the ugly truth is that we can’t stop the war now. We are responsible for Iraq now. We have crushed it so now we own it. I have never seen this country (America) in such a bad state. But how big a percentage who actually cares, I don’t know.”

If the war in Iraq is the most palpable example of the decline of America under Bush’s reign, Bloom cites the U.S. media as another casualty.

“‘Media-ocrity’ is what I call it. It is awful what kind of media we have today. Nobody dared to stand up and criticize Bush when he unlawfully went to war on Iraq. It is depressing, and shows what direction this country has taken since he came to power - a power which did not rightfully belong to him. The media is not playing its role. The Bushites are bullies and for a long time nobody dared criticize them and just swallowed their propaganda and lies. People have become scared. In this kind of climate, nobody is interested in the critical voice. You ask about the role of the intellectual in America today and I have to say: What role? What intellectuals? There is no room for them in the simplified and dumbed down world of today’s media. We used to play a role, and there are still a few left, but we are a dying breed. Nobody seems to be interested in nuance anymore.”

This is where the real danger lies, he says.

“Democracy, whether in Sweden or the United States, depends on the voter’s capacity to think. If you have read the best of what has been thought and said, then your cognition and understanding is on a much higher level than if you have read Harry Potter or Stephen King. So what this decline into half-literature and mediocre media really means is de facto a self-destruction of democracy.”

“Political correctness is the death for the mind, for literature. I am terribly outspoken and don’t try to hide it. I care passionately and I say so. I want quality when it comes to everything, and insist on it. I believe in the aesthetics, the beauty of good literature and I believe in wisdom. People get angry because of that and think it is an attack on them.”
Harold Bloom has long been a central, yet lone, figure in the American cultural debate.

....."

Credit Card Debt Soars as House Prices Plunge, by Dean Baker, Center for Economic and Policy Research (January 9, 2008)

""The current rate of house price decline will destroy $2.2 trillion of wealth this year."

    The Federal Reserve Board reported yesterday that credit card debt rose at an 11.3 percent annual rate in November after rising at an 8.5 percent rate in October. By comparison, credit card debt rose at a rate between 2 percent and 4 percent from 2003 to 2005.

    The explanation for this surge in credit card debt is that millions of homeowners are losing the ability to borrow against their home. In the last Flow of Funds release, the Fed reported that the ratio of homeowners' equity to value stood at just 50.4 percent, down from 54.2 percent at the end of 2005, and 57.3 percent at the end of 2001. The ratio will almost certainly cross below 50 percent for the first time in history when the fourth quarter data is reported. This is a remarkably rapid decline, especially since the soaring home prices of recent years translated dollar for dollar into additional equity.

    This aggregate number conceals vast differences among homeowners. More than one-third of homeowners have completely paid off their mortgages and many others are close to having them paid off. This means that a large number of homeowners have little or no equity in their home. These people are now running up credit card debt at near record rates. Of course, credit card debt cannot offset the ability to borrow against home equity for long. Total outstanding credit debt is less than $940 billion; mortgage debt was increasing at a $730 billion annual rate in the third quarter. Millions of households will soon have little choice but to sharply curtail their consumption.

    The latest Case-Shiller indexes, which received little attention because they were released on December 26th, showed that house prices in the aggregate index were dropping at an annual rate of 11.7 percent in the three months from July to October. At this pace, households will lose more than $2.2 trillion in housing wealth over the next year. Some of the really big losers in the latest data were Las Vegas, where house prices were falling at an 18.9 percent annual rate over the last three months, San Diego, where they declined at a 20.3 percent rate, and Miami where they dropped at a 22.0 percent rate.

    Many homeowners in these formerly hot markets put little or nothing down when they purchased homes in the last two or three years. As a result, a large percentage of recent homebuyers will soon find themselves with negative equity. This is the reason that the foreclosure crisis is spreading from the subprime segment of the mortgage market to the Alt-A and prime segment. Homeowners who find themselves owing more than the value of their home have enormous incentive to default.

....."

Mortgage Crisis Takes a Bite Out of States and Cities, by Stephanie Simon, LA Times (December 31, 2007)

"Tax revenue is down considerably across the nation, creating budget shortfalls and forcing hard choices on what to cut.

    Denver - Dozens of states, counties and cities across the nation will enter the new year facing deep and unexpected budget holes as the widening mortgage crisis cuts sharply into tax revenue.

    Elected officials, scrambling to adjust, are trimming money for public schools, reducing grants to help the homeless, even asking police to dry-clean their uniforms less often.

    "We're talking about a pretty tough fiscal environment for the next four or five years," said Christopher W. Hoene, the director of policy and research for the National League of Cities. "Libraries, parks, after-school programs ... you'll see lots of questions raised about cities' abilities to fund them."

    What makes this all so painful is that up until a few months ago, many government officials felt certain they could weather the storm. They knew property values wouldn't soar forever. So they factored a downturn into budget calculations. They built up sizable emergency funds.

    But the rainy day they prepared for turned out to be a monsoon.

    "We had predicted a slowdown - but not this much," said Tim Nash, finance director for Greeley (population 90,000), a college town in a heavily agricultural region of north-central Colorado. Nash thought he was being prudent when he budgeted for 200 new housing starts in the city this year, down from 310 last year.

    He wasn't even close.

    Instead of the $2.6 million that Nash expected in sales taxes on new construction, Greeley will collect $1.2 million. As a result, Greeley has left vacant 49 city positions, most of them building inspectors whose services are, abruptly, no longer in demand.

    The effects of the housing slowdown are not being felt evenly across the nation; in states such as Wyoming, Alaska and Texas, they're more than offset by the boom in oil and gas prices. But in a recent survey, 24 states reported that their tax collections had taken a hit because of the housing crisis.

    The 10 most affected states, including California, Nevada and Arizona, will lose a combined $6.6 billion in tax revenue next year, according to a report prepared for the U.S. Conference of Mayors.

    "We're at the early stage of a problem that's going to get worse," said Corina Eckl, an analyst for the National Conference of State Legislatures.

......"

Wars Cost $15 Billion a Month, GOP Senator Says, by Walter Pincus, Washington Post (December 27, 2007)

Fatwa Against the Dollar?, by Ambrose Evans-Pritchard, Telegraph/UK (December 19, 2007)

"To all intents and purposes, the Wahabi religious establishment of Saudi Arabia has just issued a fatwa against the US dollar. This bears watching.

A message issued by 26 leading clerics warns that inflation has reached intolerable levels in the Gulf kingdom. 

While it does not vilify the dollar explicitly, the apparent political aim is to undermine the country’s dollar peg.

“The rulers should seek to try to remedy this crisis in a way that would ease people’s suffering.”

“We direct this message to the rulers and officials: we remind you of Prophet Mohammad’s words that you are shepherds who are responsible for your flock,” it said.

The statement was posted across the Islamic world. The background to this has been a raging debate in Gulf religious and economic circles about the destructive effects of the sliding dollar.

Among the lead-authors is Sheikh Nasser al-Omar, known for his fatwa against US-led forces in Iraq.

He has long preached the collapse of American-led capitalism, and now sees a perfect moment to plunge the knife. We can guess that al-Qaeda Inc is thinking along the same lines.

My own hunch is that the next al-Qaeda strike will not be a symbolic blow to a great building or city, but rather a carefully-timed economic blow: either by cutting – or trying to cut - the oil jugular, or by trying to precipitate a run on the dollar. 

....."

"The fallout from reckless real-estate investments could usher in an era of 'reverse colonization,' when former emerging markets turn the tables on Western bankers.

A new wave of loan write-downs by major banks early this week was greeted by a big yawn in the stock market.

Even so, every new revelation from Washington Mutual (WM, news, msgs), UBS AG (UBS, news, msgs) and the gang makes it clearer that top U.S. and European bankers have acted much more like drunken sailors on shore leave than captains of industry over the past few years.

It's not too harsh to conclude now, in fact, that bankers essentially threw away their families' life savings on reckless real-estate gambles and that with their shares down 50%-plus and their capital bases in tatters, they're now lying in the proverbial gutter begging for a hand from passers-by. Brother, can you spare a billion?

With the Fed and the European Central Bank practicing tough love -- witness the Fed's paltry quarter-point rate cut Tuesday -- the banks are wide open to a blitzkrieg of life-changing investments and buyouts by the only parties in the world that seem to have the guts, foresight and cash to help: sovereign funds in Singapore, China and the emirates of the Persian Gulf.

Make no mistake, this is a significant moment in world financial history. Seen from the vantage point of textbooks written 20 years from now, it's possible that we will view this as a time of "reverse colonization," an era in which nations that were once the poor, remote recipients of Western largesse have managed to turn the tables and dictate the terms of global finance.

....."

National Debt Grows $1 Million a Minute, AP (December 3, 2007)

" Washington - Like a ticking time bomb, the national debt is an explosion waiting to happen. It's expanding by about $1.4 billion a day - or nearly $1 million a minute.

    What's that mean to you?

    It means almost $30,000 in debt for each man, woman, child and infant in the United States.

    Even if you've escaped the recent housing and credit crunches and are coping with rising fuel prices, you may still be headed for economic misery, along with the rest of the country. That's because the government is fast straining resources needed to meet interest payments on the national debt, which stands at a mind-numbing $9.13 trillion.

    And like homeowners who took out adjustable-rate mortgages, the government faces the prospect of seeing this debt - now at relatively low interest rates - rolling over to higher rates, multiplying the financial pain.

    So long as somebody is willing to keep loaning the U.S. government money, the debt is largely out of sight, out of mind.

    But the interest payments keep compounding, and could in time squeeze out most other government spending - leading to sharply higher taxes or a cut in basic services like Social Security and other government benefit programs. Or all of the above.

    A major economic slowdown, as some economists suggest may be looming, could hasten the day of reckoning.

Who is loaning Washington all this money?

    Ordinary investors who buy Treasury bills, notes and U.S. savings bonds, for one. Also it is banks, pension funds, mutual fund companies and state, local and increasingly foreign governments. This accounts for about $5.1 trillion of the total and is called the "publicly held" debt. The remaining $4 trillion is owed to Social Security and other government accounts, according to the Treasury Department, which keeps figures on the national debt down to the penny on its Web site.

    Some economists liken the government's plight to consumers who spent like there was no tomorrow - only to find themselves maxed out on credit cards and having a hard time keeping up with rising interest payments.

    "The government is in the same predicament as the average homeowner who took out an adjustable mortgage," said Stanley Collender, a former congressional budget analyst and now managing director at Qorvis Communications, a business consulting firm.

    Much of the recent borrowing has been accomplished through the selling of shorter-term Treasury bills. If these loans roll over to higher rates, interest payments on the national debt could soar. Furthermore, the decline of the dollar against other major currencies is making Treasury securities less attractive to foreigners - even if they remain one of the world's safest investments.

Impending Destruction of the US Economy, by Paul Craig Roberts, Information Clearing House (November 28, 2007)

Hubris and arrogance are too ensconced in Washington for policymakers to be aware of the economic policy trap in which they have placed the US economy.  If the subprime mortgage meltdown is half as bad as predicted, low US interest rates will be required in order to contain the crisis.  But if the dollar’s plight is half as bad as predicted, high US  interest rates will be required if foreigners are to continue to hold dollars and to finance US budget and trade deficits.  

Which will Washington sacrifice, the domestic financial system and over-extended homeowners or its ability to finance deficits?  

The answer seems obvious.  Everything will be sacrificed in order to protect Washington’s ability to borrow abroad.  Without the ability to borrow abroad, Washington cannot conduct its wars of aggression, and Americans cannot continue to consume $800 billion dollars more each year than the economy produces.

A few years ago the euro was worth 85 cents.  Today it is worth $1.48.  This is an enormous decline in the exchange value of the US dollar.  Foreigners who finance the US budget and trade deficits have experienced a huge drop in the value of their dollar holdings.  The interest rate on US Treasury bonds does not come close to compensating foreigners for the decline in the value of the dollar against other traded currencies.  Investment returns from real estate and equities do not offset the losses from the decline in the dollar’s value. 

China holds over one trillion dollars, and Japan almost one trillion, in dollar-denominated assets.  Other countries have lesser but still substantial amounts. As the US dollar is the reserve currency, the entire world’s investment portfolio is over-weighted in dollars.

No country wants to hold a depreciating asset, and no country wants to acquire more depreciating assets.  In order to reassure itself, Wall Street claims that foreign countries are locked into accumulating dollars in order to protect the value of their existing dollar holdings.  But this is utter nonsense.  The US dollar has lost 60% of its value during the current administration.  Obviously, countries are not locked into accumulating dollars.

The reason the dollar has not completely collapsed is that there is no clear alternative as reserve currency.  The euro is a currency without a country.  It is the monetary unit of the European Union, but the countries of Europe have not surrendered their sovereignty to the EU.  Moreover, the UK, a member of the EU, retains the British pound.  The fact that a currency as politically exposed as the euro can rise in value so rapidly against the US dollar is powerful evidence of the weakness of the US dollar.

Japan and China have willingly accumulated dollars as the counterpart of their penetration and capture of US domestic markets.  Japan and China have viewed the productive capacity and wealth created in their domestic economies by the success of their exports as compensation for the decline in the value of their dollar holdings. However, both countries have seen the writing on the wall, ignored by Washington and American economists:  By offshoring production for US markets, the US has no prospect of closing its trade deficit.  The offshored production of US firms counts as imports when it returns to the US to be marketed. The more US production moves abroad, the less there is to export and the higher imports rise.  

Japan and China, indeed, the entire world, realize that they cannot continue forever to give Americans real goods and services in exchange for depreciating paper dollars.  China is endeavoring to turn its development inward and to rely on its potentially huge domestic market.  Japan is pinning hopes on participating in Asia’s economic development. 

The dollar’s decline has resulted from foreigners accumulating new dollars at a lower rate.  They still accumulate dollars, but fewer.  As new dollars are still being produced at high rates, their value has dropped. 

If foreigners were to stop accumulating new dollars, the dollar’s value would plummet.  If foreigners were to reduce their existing holdings of dollars, superpower America would instantly disappear. 

Foreigners have continued to accumulate dollars in the expectation that sooner or later Washington would address its trade and budget deficits.  However, now these deficits seem to have passed the point of no return.  

.....

....."

Black Friday Die Die Die-America’s most obscene shopping day meets its doom in an oily nightmare hell. All true!, by Mark Morford, San Francisco Chronicle (November 28, 2007)

"Is this why they hate us? Why we hate ourselves? Is this why we seem to have no real idea who the hell we are anymore, or what it means to have a humane and thoughtful national identity, and therefore we happily scratch and claw and fight our way into giant fluorescent-lit hellpits for a chance at a $29 DVD player and some crappy plasma TVs and a pallet of heavily discounted spatulas?More broadly: Is this why we’re suffering such a general feeling of ennui and disgust and apathy in the culture right now, the nagging feeling that we have no center and God has abandoned us and we therefore simply cannot consume enough goods and technology to try and fill the void? The answer seems rather obvious.

I don’t even know what Kohl’s is. I’m guessing some sort of mass-crap superstore, like Best Buy or Target or T.J. Maxx or a weird amalgam of all of those and it doesn’t really matter because last Friday they opened at 4 a.m. for the mad rush of Black Friday shoppers, because if there’s one thing you want to do when your body is groggy and sleep tugs at your heart and your dreams have turned vacant and sad, it’s grope cheap waffle makers before sunrise.

Wal-Mart opened at 5. Target opened at 6. Across America, gluttony ruled. There were stores that had nothing whatsoever to do with gifting or holiday largess, stores with names like Cabinetry and More or Rug Depot that nevertheless opened at 6 or 7 a.m. on that now-ominous, insane, fateful day, if for no other reason than to capitalize on the fact that there were so many franctic zombified credit-carded bodies swarming about and it would be foolish not to take advantage.

Some say Christmas day most accurately captures the true nature of the American spirit. Some say it’s Easter. Or the Fourth of July. They are all wrong. Black Friday has become, far and away, the most glorious expression of the true American idea, the gleaming capitalist leviathan at its most violent and orgasmic. Deny it at your peril.

Every year, there are new layers, new strata of absurdity. This year, retailers were reportedly angry that there are now a few blogs dedicated entirely to Black Friday sales, and those blogs were posting secret inside info on which particular items the various stores had marked down for the supersale, those bait-and-switch items on which the shops willingly take a huge loss in order to lure in shoppers in the hopes they will grab not only the $8 electric skillet but also an expensive digital camera and what the hell, a new stove and a drill set and a car.

Which reminds me of the nice discussion I had over Thanksgiving dinner about oil. My dinnermate’s belief was that, as oil prices creep up and gas prices inch toward four, five, 10 bucks a gallon in the U.S. over the next decade, one of the first things to suffer will be the megastores, the Wal-Marts and the Targets and their Black Friday-promoting ilk, and not merely because their transportation costs will skyrocket and it will be increasingly unfeasible for them to ship their sweatshop crap over from China and then truck it from the docks to the individual stores.

No, he suggested Wal-Mart and its rapacious brethren will begin to fade because people in the more rural parts of America will refuse to pay the 10 or 15 bucks in fuel costs for a round-trip drive to the nearest big box mega-outlet just to get some crackers and shampoo and some nails. Instead, they will return to shopping locally, in their own neighborhoods and downtowns, where the shops are smaller and the hardware store owner knows them personally. They might still haul ass to Wal-Mart once a month for a serious shopping excursion, but that won’t be enough for the big boxers to stay in business for long. And lo, the world will improve. A little.

I am not so certain. Firstly, I do not underestimate the power of Wal-Mart, et al to viciously alter the time/space continuum for their own benefit, and to figure out a way around the transport issue, perhaps by cutting the pay of their sweatshop workforce from eight cents a month to four and by strapping enormous pallets of crappy ink-jet printers and porcelain Jesus figurines to the backs of trained dolphins and send them over from Shanghai. They are just that kind of malevolent.

More importantly, I also just read the disturbing piece in the New Yorker about the massive new oil boom, how the petroleum titans are right now stampeding into Canada to lay claim to the land and build massive facilities for the extraction of a heavy hydrocarbon called bitumen from the enormous deposits of tar sand found there, in order to convert it into synthetic crude oil.

....."

America's Days of Reckoning, by Paul Craig Roberts, Counterpunch (November 26, 2007)

....

These Are Perilous Days for the US, by Hamish McRae, Independent/UK (November 14, 2007)

"I don’t think Americans get it. I don’t think they realise quite how serious the collapse of the dollar is for the global economy, nor the long-term consequences of this decline for the position of the US in the world. Sure, they grumble about prices in London and find it odd that US lawyers want to be transferred to the UK because they can earn more money here. But at a fundamental level, to judge by the conversations I have had in recent weeks, I don’t think the US financial community appreciates quite what peril it is in.

There have been periods of dollar weakness before. The most notable marked the end of the fixed exchange rate system in the early 1970s. There have been periods of excessive dollar strength too, one of which led to the Plaza Accord in 1985 - so called because the agreement by the US and other major economies that the dollar needed to be capped was reached in the Plaza Hotel in New York.

Now it may be that in another five years the dollar will be strong again and Britons who used this age of the pound above $2 to buy property in the US will feel rather smug. Maybe. At some level, the dollar will become good value again and while currencies do overshoot their true long-term values, they do bounce back.

But there seems to be at least half a dozen reasons why what is happening now to the dollar is very serious indeed. Most obviously, the present fall is going further than previous declines. The most marked collapse is against the euro but if you measure even against sterling, a rate of $2.10 cannot be justified by the relative purchasing power of the two currencies. It may not happen, but you hear talk in the City that the rate may go to $2.40, which would be back to the old dollar/sterling rate under the fixed exchange rate system. The greater the decline, the greater the disruption to the world economy.

Why such a large fall? That leads to the second feature that distinguishes this bout of weakness: the US current account deficit is much larger both in absolute terms and as a percentage of GDP than in previous dollar cycles. Every year, the US has to borrow around 6 per cent of its GDP just to pay for its imports. Until a few months ago it was able to do so. Foreign investors were impressed by the sales pitch they got from the US banking community: buy these sophisticated financial instruments our brilliant maths experts have created and you will get a higher return than you can get from anywhere else. Now those US bankers don’t look so smart and more than one non-US investor has indicated to me they felt they have been stuffed with rubbish. They won’t trust those bankers again.

So, the third new element: trust in US financial sophistication has been shattered. The problem is not just the dollar; it is the integrity of US financial institutions. The pitch that the US has more transparent and more resilient markets than other countries is no longer credible.

The fourth element is that there are other places to invest. I was at a Middle East fund management conference last month and everyone wanted to talk about opportunities in Asia. This year, for the first time ever, China is adding more demand to the world economy than the US. It is still a smaller economy and will be for another 20 years at least. But the direction is clear, with China set to pass Germany to become the world’s third largest economy some time next year. India is also extremely attractive to Middle Eastern investors, thanks in part to the physical proximity of the sub-continent and the cultural links between the two regions. Anyone who invested in India five years ago will have done wonderfully well, far better than they would have done had they invested in the US.

Connected with this, point five, is the deterioration in the cultural relationship between the US and the rest of the world in the past few years. The US no longer appears quite the safe haven for investments that it used to, for a variety of reasons. One has been resistance in Congress to foreign takeovers. Another has been the change in visa requirements - why invest in the US if it is awkward to visit your investment? Can you really trust the US legal system to be dispassionate in a dispute between a foreigner and a national? At a low enough price, US assets will still be attractive, but they do carry a handicap and will continue to do so.

Finally, and this is perhaps the most important thing, there are now alternatives to the dollar. There is the euro, of course, and foreign central banks are building up their reserves in euros. The pound is now being held much more widely in central banks too. Most important, there are a basket of other currencies, including the Chinese yuan, which international investors feel they should hold. A decade or more ago, the options were much narrower.

So what is going to happen? Well, it is true that a very weak dollar creates problems for other countries as well as the US. It is not just that any non-American investor will have seen a large fall in the value of their investment; any foreign company trying to sell into the US or compete against US exporters will find it harder to do so.

That does not mean that US companies will always win. It was interesting that Airbus managed to secure a huge order this week from Emirates, against Boeing’s more established competitor. But a weaker dollar does create problems for the rest of us.

The problems for the US, though, will be more serious, for it needs to import, amongst other commodities, half its oil. The high dollar oil price is already increasing inflation elsewhere - here in the UK for example - but the burden on the US is relatively worse. The more the dollar weakens, the greater the difficulty the US Federal Reserve will have cutting interest rates, for to do so would make the dollar weaker still.

......

There may need to be, however, an international rescue of the dollar. The world’s central banks, including, crucially, the Bank of China, would come together and agree a package of measures to support it.

Were that to happen, it would be a mark of the way economic power is shifting in the world. It is slowly and inexorably shifting away from the US and that will, to many Americans, come as a shock."

Recession fears grow as inventories swell, by Emily Kaiser, Reuters  (November 12, 2007)

"WASHINGTON (Reuters) - Unsold goods are piling up in warehouses as the housing meltdown and soaring oil prices strain consumers, raising fears that already glum fourth-quarter growth prospects may tip toward recession.

Federal Reserve Chairman Ben Bernanke warned last week that economic growth would slow from the third quarter's surprisingly strong 3.9 percent annual rate. But recent data on inventories suggests the slowdown may be even more severe than the central bank has anticipated.

Wholesale inventories rose 0.8 percent in September, far greater than the 0.2 percent gain that analysts had expected, according to government data released last week. That will likely boost third-quarter growth even more, but take a toll on the current period as businesses work off the unsold goods.

.....

Ordinarily, an inventory build-up is seen as a temporary imbalance that the world's biggest economy can quickly digest. But with consumer confidence sliding and recession fears mounting, this inventory spike raises questions about demand.

....."

Bankruptcy Law Backfires as Foreclosures Offset Gains (Update1), by Kathleen M. Howley, Bloomberg.com (November 8, 2007)

"Nov. 8 (Bloomberg) -- Washington Mutual Inc. got what it wanted in 2005: A revised bankruptcy code that no longer lets people walk away from credit card bills.

The largest U.S. savings and loan didn't count on a housing recession. The new bankruptcy laws are helping drive foreclosures to a record as homeowners default on mortgages and struggle to pay credit card debts that might have been wiped out under the old code, said Jay Westbrook, a professor of business law at the University of Texas Law School in Austin and a former adviser to the International Monetary Fund and the World Bank.

``Be careful what you wish for,'' Westbrook said. ``They wanted to make sure that people kept paying their credit cards, and what they're getting is more foreclosures.''

...."

Invasive insects intercepted at port, by Kristen Millares Young, Seattle Post-Intelligencer (November 4, 2007)

"The containers pulled aside at the Port of Seattle were supposed to be full of only slate, granite, tiles and tractor parts.

But snuggled into the wood packing material inside were fat larvae from longhorned beetles, bark beetles and wood wasps. Those alone could have spread havoc akin to the hundreds of millions of dollars in damage the Asian longhorned beetle has wreaked in New York, New Jersey and Illinois since 1996.

Some may remember -- and mourn -- the 1,000-plus fruit and hardwood trees that had to be cut down in Tukwila in 2002, after a nursery owner found a tree-devouring citrus longhorned beetle on one of his imported bonsais.

.....

"Obviously, we can't look at every container that comes into the country; that is why we are selective of what we choose to look at," Johnson said. "We're going to target certain commodities from certain countries because of the history of past problems."

The Asian longhorned beetle, which attacks and kills healthy trees, is native to China and thus has few natural enemies in the U.S. It also prefers trees favored by urban gardeners, such as maples, horse chestnuts, willows and elms. It also will attack commercial fruit trees such as pear and plum.

The U.S. Department of Agriculture estimates that the Asian longhorned beetle and other Chinese woodboring insects could cause as much as $138 billion in damage to the U.S. economy. There are no Environmental Protection Agency-approved pesticides effective at controlling the pest."

Sinking Currency, Sinking Country, by Pat Buchanan, Creators Syndicate (November 2, 2007)

"The euro, worth 83 cents in the early George W. Bush years, is at $1.45.

The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century.

Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.

Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years?

Nope. The dollar has plummeted in value, more so in Bush's term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

Is it all Bush's fault? Nope.

The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

The prime suspect in the death of the dollar is the massive trade deficits America has run up, some $5 trillion in total since the passage of NAFTA and the creation of the World Trade Organization in 1994.

In 2006, that U.S. trade deficit hit $764 billion. The current account deficit, which includes the trade deficit, plus the net outflow of interest, dividends, capital gains and foreign aid, hit $857 billion, 6.5 percent of GDP. As some of us have been writing for years, such deficits are unsustainable and must lead to a decline of the dollar.

A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

What does this mean for America and Americans?

As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War.

.....

The oil-producing and exporting nations, with trade surpluses, like China, have also begun to take the stash of dollars they have and stuff them into sovereign wealth funds, and use these immense and growing funds to buy up real assets in the United States — investment banks and American companies.

Nor is there any end in sight to the sinking of the dollar. For, as foreigners demand more dollars for the oil and goods they sell us, the trade deficit will not fall. And as the U.S. government prints more and more dollars to cover the budget deficits that stretch out — with the coming retirement of the baby boomers — all the way to the horizon, the value of the dollar will fall. And as Ben Bernanke at the Fed tries to keep interest rates low, to keep the U.S. economy from sputtering out in the credit crunch, the value of the dollar will fall.

The chickens of free trade are coming home to roost."

Dollar's Demise Can Be Seen Even in the Maldives, by William Pesek, bloomberg.com (October 29, 2007)

"Oct. 29 (Bloomberg) -- Bargaining while buying some trinkets in the Maldivian capital, Male, recently, I heard most unexpected words: ``You can keep your dollars.''

This tiny nation of 1,200 islands has long accepted U.S. currency out of convenience for visitors and financial sobriety. The dollar tended to do better in global markets than the local monetary unit, the rufiyaa. That may be changing and it's a bad omen for the world's reserve currency.

``My dollars aren't as popular here as they've been in the past,'' says Moyez Mahfouz, 51, who has visited the Maldives from Bahrain with his family once or twice a year for a decade. ``More and more on this trip, I'm being asked for rufiyaa.''

Why does it matter what happens in the Maldives? Its $1 billion economy is worth 1/59th of Microsoft Corp. co-founder Bill Gates's wealth and 1/27th of Sri Lanka's output. While it's an amazingly beautiful place, the Maldives is a rounding error on the global economic pie chart. Yet it may be a microcosm of a tectonic shift in finance: the demise of the dollar.

These things start out slowly, and in recent months I have had similar experiences from Mexico to Vietnam. In markets, restaurants, taxis and tourist shops that long accepted dollars, many are opting for local currency. The reason: concerns the dollar plunge that analysts have predicted for years is afoot and that the U.S. is uninterested in halting it.

Transformational Event

There's also a nascent realization that something transformational may be happening in global markets. Some states that long pegged their currencies to the dollar are scrapping the policy -- like Kuwait -- while others are quietly considering it. A survey by HSBC Holdings Plc found that twice as many Gulf businesses see benefits from dropping currency pegs to the dollar as those that see negative consequences.

....."

Bomb Iran, majority of Americans says in new poll, by Nick Julian, rawstory.com (October 30, 2007)

"Despite President Bush's perpetually abysmal approval ratings, it appears his increasingly hostile rhetoric against Iran has drummed up enough fear of a "nuclear holocaust" or a World War III that a majority of Americans are in favor of a US strike against the country aimed a curtailing its apparent nuclear ambitions, a new poll shows.

The Zogby International survey shows 52 percent of Americans would support a strike on Iran, while 53 percent expect President Bush to launch such an attack before the end of his second term. Democratic candidate Hillary Clinton is voters' No. 1 choice to deal with Iran, with 21 percent saying they would like to see her take on Tehran from the White House. Republican Rudy Giuliani was voters' second choice, with 15 percent.

Just 29 percent of Americans think the US should not attack Iran, with one in five people unsure about military action. Of those who would support a strike, 28 percent believe military action should wait until the next president is in office, while 23 percent want to see Bush let lose US missiles against Iran.

The poll results were viewed with a "Here we go again" attitude from bloggers chagrined at the apparent lack of lessons learned by Americans as the war launched against another hostile Middle Eastern regime stretches towards its fifth year.

"It is utterly stunning that, after the great difficulties we have clearly faced in Iraq (a situation far from finished, by the way), that an absolute majority would favor a strike on Iran at this time," writes Dr. Steven Taylor at PoliBlog. "Even if we assume that the die-hard 25%-30% who still approve of the way the President is doing his job also are in favor of such a strike, where do the other 27%-22% come from to get the pro-strike total to 52%?"

....."

On Track for U.S. Collapse, by Michael S. Rozeff, lewrockwell.com (October 29, 2007)

"Bush and Cheney are steering the U.S. into a collapse. Only strong public voices by influential people can prevent the coming disaster. We desperately need for men and women who are known to the public and have credibility to speak up in the critical period ahead to avoid catastrophe.

	A few weeks ago, Israel bombed a alleged nuclear facility in Syria. This is a warm-up for an attack on Iran.
	In the last few days, the U.S. unilaterally tightened sanctions on Iran. Russia and China do not support this move.
	A week ago Bush warned Iran that its attainment of nuclear arms would lead to World War III.
	Russia, which has been assisting Iran in its nuclear construction program for decades, regards Western military action against Iran as unacceptable.
	China has been arming Iran with missiles. Its relations with Iran have been improving for years.