Categorical Aperitif

I'm busy as heck, but I finally had a chance to listen to Kevin Phillips on yesterday's Democracy Now! Now I know what chum feels like.

AMY GOODMAN: What do you think is one of the most serious signs of this overall global crisis of American capitalism?

KEVIN PHILLIPS: Well, not to single out just one, I have an approach I use to say that normally when a country is—United States is—heading into a recession, there are one or two, sometimes three, factors that you worry about. But at this point in time, the American economy, you can think of it as being kind of in a shark tank, and there are like six or seven sharks, and you don’t usually see anything like that number.

And just to skim the list quickly, we have a financialized economy in which we don’t make much anymore, and finance is up to 20 to 21 percent of the US GDP, and manufacturing down to 12. Finance dominates the US economy.

The second problem is that we have massive debt, both public and private. It’s gone up about 700 percent since the early 1980s, staggering numbers where there—we basically have $50 trillion worth of credit market debt, which is tradable debt. And people just have no idea of this. It’s not government debts that’s the problem, it’s private sector debt, both financial and corporate and then in the consumer sector with credit cards and then mortgage debt. We just have this extraordinary level of it. 340 percent of the gross domestic product, that’s how big debt is. And the last time something was close to this—and it was less—was in the late 1920s and early 1930s. So it’s enormously a vulnerable, dangerous thing.

Third shark in the tank is the collapse of home prices. They continue to follow the scary trajectory that has people predicting that there’s going to be a 15 to 20 percent decline in home prices, which would be the sharpest since the Great Depression.

Then you can go to shark number four, that’s global commodity inflation. Oil and food, people are as worried now about the price of milk as they are about the price of a gallon of gasoline. That’s a global problem, but it makes a mockery of the administration’s pretense that there’s no inflation.

The fifth shark is, frankly, lousy economic statistics. I don’t think the average American should believe either the inflation numbers, the GDP numbers or the unemployment numbers. And there’s a lot of complexity and technical terminology involved here, but the long and the short is that over thirty to forty years, we’ve seen a kind of Pollyanna Creep, and administrations of both parties have done this. They want the figures to be friendlier, not to get them in trouble. And we’re at a point now where the figures lie enough that foreign investors are starting not to believe them and, I think, with considerable justice.

Now, the next shark in the tank is obviously the price of oil. And it’s not just global commodity inflation, it’s the problem that we see of oil production peaking in the world sometime in the next ten to twenty years. And the advance signs of this are scarcity in peaking in certain countries. And the prediction just came out of Goldman Sachs a couple of days ago that within a fairly short period of time, probably this year, you’re going to see $150 or $200 oil.

And that’s because, partly at least, of the scarcity, but the US dollar has been tied historically since the 1970s to oil, because of a deal worked out when OPEC wanted a price increase. Henry Kissinger and others were involved in getting OPEC to commit that they would sell and buy oil only in dollars and that they would invest their petrodollars in the US, in Treasury debt. So we have a currency that’s profited from the connection to oil, which sustained it in many ways. But now oil has boomeranged on the United States.

We have to spend $400 billion a year to import the oil we need. We don’t have the basis for controlling oil anymore, after the idiocy in Iraq, which was partly put in motion to solve the oil problem, and instead you’ve got oil prices going up 500 percent in five years. So the dollar is on the ropes, and that’s the other shark in the tank.

There has never been a period in anybody’s memory, except very old people who remember the late ’20s and ’30s, where you had so many things converging. And that’s what makes it frightening. And every time the administration says it looks like it’s under control or it’s half-over, you start to get evidence that, no, it’s not under control, and maybe it’s not even a third over.

// posted by nash @ 2:26 PM