Professor Steve Keen who champions Debt Cancellation told us that wages go down and unemployment goes up as total debts increase. In 1970 the total amount of debt in the US was less than 2 trillion dollars. Today it is almost 55 trillion. In 1950 more than 80% of all men in the US had jobs. Today that is less than 65%. The number of Americans “not in the labor force” rose by 17.9 million between 2000 and 2011. Since 2001 the US lost more than 56,000 manufacturing plants and is still losing 23 per day.Today 25 million American adults are living with their parents. Only 51% of last years college graduates have fulltime jobs with an average income $27,000 which is $12.27 an hour.
But suppose the Petrodollar system ended in 2013 and everyone had to buy oil with something other than dollars. Prices will double as the more than 50% of currency held outside the US is dumped. There are currently 100 million poor Americans. I estimate 280 million Americans will be at or near poverty before the end of 2013 id we do not reform the system..
Let me explain the rise and the fall of the Petrodollar.
After WW II the US dollar was as good as gold in international trade. But America was overpopulated by design and had to begin importing raw materials and now has to import 70% of its oil and is even a net importer of food. This means America has had declining wages at a time when it spends more and more overseas on wars it never needed. In 1971 America went off the gold exchange standard. Henry Kissinger organized the Arab-Israeli war of 1973 and the subsequent Arab oil boycott which quadrupled oil prices. But the Arabs had to agree to only take dollars for oil and to buy US Treasury bonds with those dollars. This increased demand for dollars though at a much higher price for gasoline. This allowed America to wage wars for Israel.
That system was challenged by Iraq and Libya and now by Iran. Iraq and Libya threatened the US dollar and are gone. Iran has no nuclear weapons program. The only threat they have made is against the dollar whose time has gone. Iran has formidable defenses and would destroy the Persian Gulf fleet, US Central Command and the US economy within 5 minutes of an attack. But even the United Arab Emirates and Saudi Arabia are selling oil for Chinese yuan. James Dale Davidson has been hyping the claim that the Petrodollar standard will collapse within 2 months. It might not be that quick. But this confrontation with Iran has been going on for too long. The entire world outside the US knows the clash is over dollars and not nuclear weapons. And the quickest way for the world to put an end to these wars is to dump dollars.
Ben Bernanke clearly is campaigning for Romney because he is not printing dollars by the tens of trillions to bail out Europe and to save Obama by boosting the domestic economy. I think Bernanke will print obscene amounts of dollars just before election day which will be in time to save European and London banks but not in time to help Obama. Of course Hyperinflation will begin soon after election day and everyone in the world will have to save themselves by dumping dollars. When the dollar does begin to go, it will take less than 90 days to disappear.
There are 113,146,000 households in the US. 20% have incomes above $88,000 but most of those are two income families. Clearly 80% of all Americans (248 million) will soon have pretax incomes below the poverty line. But let’s take a closer look at the after tax incomes of those top 20%. Recently the top 20% paid an average 23% in federal income taxes but that does not include state income taxes, property taxes and fees like car registration and mandatory car and now health insurance. So a two income family of four with a gross income of $100,00 pretax has a disposable net income after Social Security and Medicare deductions, federal and then state income taxes of $70,000. And from this net after tax income our married couple will have to pay property taxes, car registration, school fees, car insurance and increased health insurance fees. If they are lucky, they might have $62,000. Now let’s divide their after tax income by two to adjust for Hyperinflation. Not good. They are precariously near the poverty line with local, state and federal officials busily scheming to lay more fees on them to balance their budgets.
It can and will get a lot worse for those top 20% of income earners.
The Dallas Fed index of general business activity fell dramatically indicating that the U.S. economy is contracting. The US lost more than 220,000 small businesses in the recent recession. And a two income family will be hit hard if one parent loses a job. Total government (i.e., the sum of state, local, and federal) employment has decreased by over 580,000 jobs since the end of the recession, A lot of the people in that top 20% have government paychecks. Even they are losing jobs as the economy contracts.
And the economy will contract even further and faster than most imagine. The Gross Domestic Product measures the total output of an economy. The GDP = Consumption + Investment + Government spending or GDP _ C+ I + G. Currently the GDP is 15 trillion dollars. But, if foreigners stopped funding our deficit of 1.4 trillion dollars, we would have to balance the federal budget and contract GDP by 1.4 trillion overnight. To cut 1.4 trillion dollars just eliminate defense spending and Food Stamps and Medicare and you will be a few hundred billion dollars shy of your goal. To balance our trade deficit all we would have to do is to raise the price of a gallon of gas to twelve dollars and double the price of food. Of course that will put 80% of all Americans into abject poverty unable to buy imported oil, food, clothes, toys and anything at all for that matter.
You say these are nonsense numbers. I agree. My point is that you will have no future other than mass starvation, daily food riots and armed gangs roaming the streets of America unless you have Debt Cancellation. It was the increase in debt that lowered our wages and greatly increased unemployment. So it is past time that we ended the practice of allowing bankers to charge us interest on money they created from nothing,
Notes: These first two articles are about Debt Cancellation.
Video: Michael Hudson, Fictitious Capital And Debt Cancellation