Austerity wake-up call

Phony austerity doesn't work, says Bill Bonner.

"Jobs engine sputters again in April," reports the weekend Wall Street Journal.

What kind of humbug recovery is this? Bloombergadds:

Estimates for the jobless rate, derived from a separate survey of households, ranged from 8.1 percent to 8.3 percent. Unemployment has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.

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Of course, it's much worse than that. John Williams puts the real unemployment rate the people who want jobs and can't find them at 22%...the same as the unemployment rate in Spain. And just 3% points lower than in the Great Depression.

And what kind of humbug response is this? Reuters:

(Reuters) - The White House pledged on Wednesday to help lower-income youth find summer jobs in a move likely to appeal to younger voters crucial to President Barack Obama's re-election campaign.

The initiative is in partnership with the cities of Philadelphia, Chicago and San Francisco and is meant to add 110,000 jobs, internships and mentorships to the 180,000 summer work opportunities for 16-24 year olds that Obama has promised to create for 2012.

Yes, dear reader, now the feds are turning young people into zombies too... with make-believe jobs, many of them in zombie industries.

The report went on to tell us that the initiative does not require Congressional approval. Which leads us to another question:

What kind of crackpot system do we have... where the president can create jobs... like the Fed creates money... out of thin air? Of course, we know the answer, the new jobs are just like the new money; they're not real.

The programme, phony as it is, will not be examined carefully by anyone. Instead, it will 'feel good' to the voters. Obama is doing something. His heart is in the right place. Don't think about it anymore.

His initiative is right out of Franklin Roosevelt's playbook. Back in the 30s, our own father participated in something called the CCC, the Civilian Conservation Corps. He was a poor boy. His father was dead. He needed a way to support himself. So he joined the CCC.

"It was like the army", he recalled years later. "It was like a junior version of the Army Corps of Engineers. And it was hard work. I helped dig irrigation ditches in New Mexico."

Make work, perhaps. It may not have been a real job, but at least it was real work. A whole lot less phony that hanging our mid-level bureaucrats in an air-conditioned office at the Department of Education.

And more views:

Did you see our rant about education last week? Education, along with health care, finance, and the military are the big zombie industries of the late, degenerate imperial period (as future historians will describe it). They drain resources out of the productive economy... and waste them. To give you an idea of the scale of the waste, the 2009 Program for International Student Assessment gave tests to 15-year-olds in 65 different countries. The US spends far more than most countries on education, so you'd expect that it would come out on top, right? But nooo.

Instead, China came in first; Hong Kong second. Finland was third. In terms of educational 'investment' per student, the US spends 15 times as much as China. Even at the state level, educational 'investment' has little to do with educational return. Idaho spends only about $10,000 per student. Washington, DC, spends nearly four times as much. Which has better test results? Idaho, of course.

So, what do the zombies say? We need to 'invest' more in education!

We're always trying to connect the dots. Unfortunately, the dots won't stand still!

Last week, we were thinking about how democracy... or any government... operates on the basis of shared emotions, or feelings, rather than real ideas. We explored the public's contemporary narrative on the financial crisis. What we saw is that a common view of what is going on in order to be commonly shared has to be stripped so bare of nuance and paradox that it ceases to be an idea at all. It is just a feeling.

And sometimes, it becomes a grotesque, simpleminded fantasy that it is actually the opposite of the original thought or desire behind it. It becomes a zombie thought... actually harmful to the group that holds it.

If you follow the popular media, for example, you would think that the US is engaged in a war against 'terrorists'... bad people, who for a reason never explained, aim to do harm to Americans. These terrorists are so evil they must be stopped... at all costs.

"It's a war," says US Attorney General, Eric Holder. So, he explains, we can set aside the Constitution and the Bill of Rights the very things we're supposed to be defending to fight it.

Thus is the US military industry is set to the task of protecting against 'terrorists'... with the solid support of the American people. An announcement at the Ft Lauderdale airport on Friday told us that "military personnel can board at their leisure." They got the treatment normally given to paying business class passengers! On one plane, a stewardess invited military personnel to take the vacant seats in the business class section. And it was reported last week that of all America's public and private institutions only the military retains the confidence of the general population.

But if you bother to study the situation at all you quickly realise that it is not terrorists who pose a threat to the US, it is the US military itself. The Pentagon has gone rogue... now is it a danger to the nation.

Terrorists are insignificant. Trivial. You could fit all of them in a mid-sized movie theatre. And half of them like Osama bin Laden himself are so infirm, insane or incompetent that they are completely incapable of doing any real damage to the world's only super-power.

The US military along with its suppliers, security agencies and all the rest of the lethal establishment meant to protect America is big. And very expensive. Like a parasite, it drains energy and resources from its host the productive US economy. The total cost, fully loaded, is about 8% of GDP.

America is, of course, no normal nation. It is an empire. The cost of running an empire is high. But empire is supposed to be a paying enterprise. An empire takes tribute from its vassal states in exchange for providing protection. That's how all empires worked.

The US empire, on the other hand, loses money. It conquers foreign nations... but it fails to make money at it. Instead of sucking resources from its vassal states, it takes resources from the American public. It is no longer protecting the nation; it is endangering it.

Let's look at the economy. The financial news yesterday was dominated by alarming reports from Europe.

"Backlash," said the Financial Times...referring to an "anti-austerity wave" that washed over Europe in weekend voting.

If the FT doesn't mind mixing metaphors, we don't either. But our metaphors are a bit different. What has happened is not a backlash but a wake-up call. It comes as voters realise that the placebo medicine phony, half-hearted austerity measures peddled by the Euro elite don't work. They want an elixir with more of a kick to it. That's why the leftists are gaining so much ground.

In Greece, support for leftwing parties has trebled since the last elections. But what do you expect? The typical family has lost almost a third of its real income since the recession (which continues) began. Youth unemployment is at 50%. Young Greeks fear being a lost generation' that must emigrate in order to find jobs.

In France, Franois Hollande promises to be reasonable. But he won the election by attacking Sarkozy's austerity moves. He won't make Sarkozy's mistake. Instead, he'll go after the rich with a top marginal tax rate of 75%...and promise growth,' not austerity.'

The trouble with the austerity proponents is that they didn't go far enough. Budgets were cut. But not enough. The average deficit is still about 5% well above the Maastricht 3% limit. This left the deficit nations in tough spots. They cut spending, which angered the leftists and the layabouts. But they still were beholden to lenders to cover their deficits. And whenever their unemployment rates rose... or the GDP growth rate fell... they had to pay more for their borrowed money.

Real austerity with deep cuts and balanced budgets could work. But it contradicts the whole idea of government, which is to transfer as much wealth from the outsiders to the insiders as possible. Besides, such deep cutbacks would probably trigger a zombie revolution.

And by the way, austerity' is coming to the US too if Congress doesn't stop it. Economists are calling it the 'fiscal cliff'. The nation is scheduled to run off the edge on 31 December ... Mohammed El-Erian explains:

Economists are rightly starting to warn that the United States faces a worrisome "fiscal cliff" at year's end. The blunt spending cuts mandated by the 2011 compromise on the debt ceiling and the failure of the "super committee" that followed along with across-the-board tax increases would derail the U.S. recovery and undermine the well-being of the global economy. We should be avoiding the edge of this cliff and politicians should not believe that they have until the end of this year to act.

The austerity show has been playing in Europe for the last two years. That's why half of Europe is in recession... with the other half not far behind. Europeans are tired of it.

So, now the Europeans seem to be giving up on phony austerity and turning to phony growth. They are going to spend more borrowed and printed money. This will look vaguely like 'growth'. There will be more jobs and more incomes. But there will be precious little real prosperity going on.

Of course, going for growth is precisely what got the developed world into such a jam in the first place. Too many people spent too much money they didn't have on too many things they didn't need.

In America, the Fed encouraged it with low rates... then after the private sector debt bubble blew up, the feds made up for the missing spending by spending more themselves.

In Europe, the euro-feds made a debt bubble possible by establishing a single currency bloc... with harmonised interest rates. All of a sudden Greece and Ireland could borrow as easily and cheaply as France and Germany. And so they did; they borrowed their way to the brink of bankruptcy.

Now, Franois Hollande has a plan. He wants to make Europe more like America... with a central bank that lends to government directly and 'mutualisation' of credit risk. In other words, he wants to do what Alexander Hamilton did to the US in 1791, make the states collectively responsible for each other's debt. And then he'll let the ECB print the money to buy sovereign bonds directly.

Yes, dear reader, the trend towards centralisation continues... with central financial planning... central bank counterfeiting... and everybody going broke together.

In Europe, as in America, it's one for all... and all for one...

... and every man for himself.

The Obama administration deserves credit. What other government ever reached such staggering achievements?

On the home front, as we reported last week, over the last four years more people have been declared disabled than have found jobs.

And overseas, an American soldier shipped out to serve in Afghanistan is more likely to be killed by himself than by the enemy. That is, the suicide rate is higher than the rate of combat losses.

Which raises a question. What kind of military force would fight a war in which its soldier's worst enemy was himself?

Answer: one that has gone rogue.

What happens when a military establishment goes rogue? Simple, it stops serving the country and begins serving itself. Instead of protecting the nation from war, it deliberately causes wars. Instead of defending the country's most sacred principles, it overturns them in the interests of national security. Instead of holding expenses to those that are actually necessary and appropriate, it sucks up so many resources it weakens... and ultimately destroys... the economy it is meant to serve.

Typically, as the nation becomes more financially desperate, it also becomes more disorganised and unhappy. Strikes, mob violence, terrorist attacks increase. Then, to the noise of cheering crowds, the military makes its move.

That is what happened, for example, in Argentina in 1975. Isabelita Peron was making a mess of the economy. Her chief economist was a fellow named Celestino Rodrigo, who believed he was the Archangel Gabriel reincarnated. No kidding.

Rodrigo knew no more about economics than, say, Ben Bernanke. On 17 July, 1975, he devalued the peso... yes... by 'more than 100%'. Which proves our point about money from 'out of nowhere'. Take away 100% of something and what do you have left? Nothing. So, what do you take away the 'more than 100%' from? The same place you got the money in the first place.

At first, the crowds were delighted with Rodrigo. Then, he raised prices and the fickle mobs of Buenos Aires turned on him. They coined the term "rodrigazo" to describe the fiasco. He was gone in a few weeks. So was Isabelita, who had to be rescued from the roof of the presidential palace by helicopter.

Then what happened? Another election? Nope. Robert Cox tells us:

"... the armed forces, encouraged by the establishment, the media and public opinion, not to speak of the guerrilla/terrorist organisations, preferred another military dictatorship... "

When economic policies fail, people soon get sick of the politicians. They want a more muscled form of leadership. Uri Avnery describes what happens:

In some countries, they arrest the president, occupy government offices and TV and annul the constitution. They then publish Communique No. 1, explaining the dire need to save the nation from perdition and promising democracy, elections etc.

In other countries, they do it more quietly. They just inform the elected leaders that, if they don't desist from their disastrous policies, the officers will make their views public and precipitate their downfall.

Such officers are generally called a "junta", the Spanish word for "committee" used by South American generals. Their method is usually called a "putsch", a German-Swiss term for a sudden blow. (Yes, the Swiss actually had revolts some 170 years ago.)

What almost all such coups have in common is that their instigators thrive on the d emagoguery of war. The politicians are invariably accused of cowardice in face of the enemy, failure to defend national honor, and such.

Don't expect a military coup in America. It won't be necessary. The security industry already gets 8% of GDP about the same amount as America's deficit. With that kind of money to spend, there is barely a single member of Congress or a single corporation that the Pentagon can't buy.

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