The US Economy: Designed to Fail

President Barack Obama showed a great deal of gumption in standing before Congress last night delivering his first speech to the joint assembly. All the trappings of power were on display as members of the House and Senate, the Supreme Court, the Joint Chiefs, the Cabinet, and the VIP guests hugged and waved at each other, radiant in their tailored attire only two nights after the Hollywood stars put on their own show on Oscar night.

Too bad neither the president, nor Vice President Joe Biden and Speaker of the House Nancy Pelosi applauding on the podium behind him, nor the jubilant Democrats with their solid majorities, nor the grumpy Republicans slouching in the minority across the aisle, know what they are doing as economic extinction stares the United States of America in the face.

Yes, it’s that bad. The day after the speech the Dow-Jones dropped to 7,271, almost 50 percent off its October 2007 high, with no bottom in sight. According to the Washington Post, the Big Three automakers are now facing a “bottom-up” collapse of their component supply lines if their vast network of suppliers doesn’t receive new federal loans within a week. Worldwide the situation is just as bad. The U.N.’s International Labor Organization reports:

“What began as a crisis in finance markets has rapidly become a global jobs crisis. Unemployment is rising. The number of working poor is increasing. Businesses are going under.”

President Obama’s speech was long on resolve but short on substance. He assured the nation:

“We will rebuild, we will recover, and the United States of America will emerge stronger than before.”

But accomplishing this depends entirely on one thing: more federal deficit spending to serve as the economic engine in an economy where bank lending has dried up because businesses and consumers can no longer repay their loans.

Unfortunately, the deficit is approaching the breaking point.

During fiscal year 2009 the U.S. Treasury is on-track to pay over $500 billion just in interest payments to finance the already-existing debt. New debt this year will likely exceed a trillion dollars. The total debt burden on the economy as a whole could reach $70 trillion by 2010, with annual interest payments for individuals, households, businesses, and all levels of government likely to reach $3 trillion out of a $14 trillion GDP that is now in sharp decline.

Financing the deficit continues to depend on whether China will still purchase Treasury bonds. This is why Secretary of State Hillary Clinton said frankly during last week’s trip to China : “We are relying on the Chinese government to continue to buy our debt.”

But at least President Obama is trying. He knows the economy can only recover if growth is rekindled. So he is focusing on the creation of jobs that translate into real worker income. But can he reverse a generation of job outsourcing and income stagnation? I don’t know of anyone who believes he can. Will the Republican nostrum of tax and spending cuts do anything? You jest. Not when unemployment is approaching Great Depression levels.

But neither President Obama, nor his Democratic supporters or Republican antagonists, should feel badly about what is happening. This is because the system they have been given to work with was designed to fail. The U.S. was saddled long ago with a debt-based monetary system, whereby the only way money can be introduced into circulation is through bank lending. It was the system that was instituted in 1913 when Congress gave away its constitutional power over money creation to the private banking industry by passing the Federal Reserve Act.

It was then that the catastrophe we are now facing became inevitable. It took nearly a century to get here but it finally happened. We should have known it was coming when Federal Reserve-created bubbles replaced economic growth from our disappearing heavy industry, starting with the recession of 1979-83. We could have seen it coming when the dot.com bubble collapsed in 2000-2001, and Fed Chairman Alan Greenspan worked with the George W. Bush administration to substitute the housing bubble for a real recovery.

The day of reckoning is here. So don’t worry, Mr. President. It’s not your fault. When the collapse takes place the international bankers who will take over might even let you keep your job.

Richard C. Cook is the author of We Hold These Truths: The Hope of Monetary Reform, scheduled to appear by September 2007. A retired federal analyst, his career included service with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is also author of Challenger Revealed: An Insider’s Account of How the Reagan AdministrationCaused the Greatest Tragedy of the Space Age. Read other articles by Richard, or visit Richard's website.

17 comments on this article so far ...

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  1. Gary Corseri said on February 26th, 2009 at 10:04am #

    This day of reckoning is not Obama’s “fault,” any more than our being in Iraq, Afghanistan and Guantanamo are his “faults.” But they are his “problems,” and they are “our” problems–even the most youthful among us. One of the “faults” with our “System” is that during presidential and other heated electoral campaigns, we focus on the “faults” on the other guy’s team and ignore the problems our team will inherit and have to overcome. (The old stye-in-his-eye while ignoring the beam-in-my-own routine!)

    Who spoke about the real problems that came with the creation of the Federal Reserve in 1913 during the campaign? Well, Ron Paul did, but who could hear his honest, squeaky voice amidst the uplifting rhetoric of “change we can believe in” or the ponderous “100 more years in Iraq”?

    We need explication, and instead, our winning candidates give us obfuscation. Now, whose “fault” is that? The media’s? The System’s? Yaweh’s?

  2. Doug Page said on February 26th, 2009 at 1:18pm #

    Thank you Mr. Cook for bringing up the topic of the Fed and our private creation of money. It is indeed a disaster, and a needless disaster. It is likely that President Obama and his academic advisors do not know what we are talking about. However, it is certain that the Wall Street Bankers understand perfectly well, and leave no stone unturned to conceal their extremely profitable scheme of creating money more or less out of thin air, then loaning it to our government and to us and charging us interest.
    As a starting point, I wish we could get President Obama to read the proposed American Monetary Act. It may or may not need a lot of further work, but it would at least give us and give him the knowledge that there are alternatives.

  3. Jeff said on February 26th, 2009 at 3:02pm #

    All of you are conspiracy theory maniacs. Yes, you all are. Private banks control America. What rubbish! And next your going to tell me that a NEW WORLD ORDER is in the works. Come on folks, man up. You all fell asleep at the switch. It is your fault. You left your responsibilities in another man’s hand willingly. Kiss your children tonight because you have left them the future that your parents decided not to let happen to you. Feeling duped yet. Who is your daddy now.?

    Have a great day.

  4. Suthiano said on February 26th, 2009 at 4:02pm #

    “What Rubbish!” has never been much of a rebuttal.

    If you don’t think that central banks (and the international bankers who run these organizations) have way too much power, then it is clear that you are either: a) ignorant of the system and its history, or b) have an interest in safeguarding said power.

    It’s not just the United States. So in that sense Americans shouldn’t view themselves as victims of a world conspiracy, but recognize that this is the RESULT OF A PYRAMID STRUCTURE IN SOCIETY.

    The Fed protects the pyramid structure, largely because it is part of a pyramid scheme. Wealth from the bottom is redistributed to those at the top. Hence all of these foreclosures where actual property goes to the bank even though the banks never had the capital they lent for mortgages… thus they receive true property in exchange for crafty bookkeeping.

    In Canada we got a central banking system in 1934 thanks to our British overlords. There was a vote on whether to create a central bank. Two of the people voting were Canadians, three were English, led by Lord Macmillon. The 2 Canadians voted against it, and the three Brits made their numbers count in favour… That’s democracy at work! And we thought Canada was a sovereign nation!

    So, in 1933, one year before the central bank, a loaf of bread cost 6 cents. That means you can buy about 16.7 loaves of bread for one dollar in 1933. In 2009 you can buy 0.45 loaves of bread for one dollar. That is an outstanding devaluation of our currency and thus of the Capital of our country (capital is savings, and inflation brings the value of savings down). In essence the Central Bank of Canada has taken the capital accumulated by the work of Canadians and redistributed it those higher up in the pyramid structure.

    This is not a “conspiracy theory” as there is no “theory” involved. Certainly people have “conspired” in the sense of the Latin “conspirare to be in harmony, conspire, from com- + spirare to breathe”, which means that people work together (in harmony) towards a common end. In that sense the members of the Fed conspire to bring about policies. To describe those policies is not to theorize… the “conspiracy theory” red herring should therefore be laid to rest.

  5. Earl Grey said on February 26th, 2009 at 4:52pm #

    @Jeff

    Um…The Federal Reserve is a ‘non-government, non-private’ entity, made up of 12 American private banks. This is who controls the prime rate, inflation and deflation, and LOANS EVERY DOLLAR IN OUR MONEY SUPPLY TO US AT INTEREST. This is outlined on THEIR WEBSITE and in “Modern Money Mechanics”, 1963, published by the FED. They control the corporations, which in turn control the government. If you dont think corporations greatly influence the government, you obviously don’t understand the relationship between Dick Cheney, former VP of the US, and CEO of Halliburton, and the war profiteering going on in Iraq, Afghanistan, and soon to be Iran, Pakistan and anywhere else we feel like expanding our empire.

    It is NOT a conspiracy theory, considering the top bankers ADMIT that this is what they are doing. They are not hiding it.

    “We shall have world government whether or not we like it. The only question is whether world government will be achieved by conquest or consent.”
    -Paul Warburg, Council on Foreign Relations / Architect of The Federal Reserve System.

    “We are grateful to the Washington Post, The New York Times, Time Magazine, and other great publications whose directors have attended our meetings and respected their promises of discretion for almost 40 years. It would have been impossible for us to develop our plan for the world if we had been subjected to the lights of publicity during those years.”

    “But, the world is more sophisticated and prepared to march toward a world government, the supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries.”
    -David Rockefeller, Council of Foreign Relations

    I think it is you who have fallen asleep at the wheel, sir. I think it is your fault and everyone else’s who remains ignorant to the way the monetary system actually works. You leave your liberties and freedoms in the hands of bankers every time you show up to work, or pay taxes. Kiss your children tonight, because there is a good chance tomorrow they will be fitted with an RFID chip, and shipped to a U.S. “Civilian Prison Camp”. I do feel duped. By ignorant people who seek to establish dominance over their fellow man with such blatantly derogatory questions as, “Who’s your daddy?” without offering any insight as to how we are in error. For now, just let the big boys talk about the important stuff and you can go back to watching “Faux” News.

    Have a great day.

  6. Jeff said on February 26th, 2009 at 5:43pm #

    Suthiano & Earl Grey, for crying out loud, can’t you read between my lines. This just goes to show how much John C. Q. Public IS being manipulated. Of course the system they developed to control IS controlled by them, an elite. THAT IS MY F#$KING POINT!!!!!!!!!!!!!

  7. rg the lg said on February 26th, 2009 at 5:47pm #

    While the following doesn’t follow this thread very well, I am serious with my point. The issue regarding the FED is that while it is a quasi-public/private agency it has a huge amount of influence. That huge influence is (in my never so humble opinion) a result of the corporatizing of the United States … and thus when I hear suggestions of nationalization, implicit in the main article, I have to ask:

    Nationalize?

    Nah. That puts the idiots we put into office in charge. Not a good idea. Most of them are in politics precisely because they are irredeemably unproductive … and lying is about the only skill they have.

    So, let’s use the talent … rotten, corrupt, self-aggrandizing as it may be … in the banking industry, in the automobile industry, in all of the corporations and NOT nationalize … but rather …

    … are YOU ready for this? …

    … are YOU sure? …

    BUST UP THE TRUSTS … decorporatize, break GM down into the twenty or so companies they swallowed … break CitiBank into a thousand smaller banks … make Ford a single product car company with spin-offs on its other so-called models … turn the Bank of America into something about the size of the local bank in a small American Town … in other words …

    … well, use your imagination. And as far as corporation law is concerned … let’s do some reading and see just how things were before the American Civil War … when states were actively opposed to large corporations. As silly as his religious bs was (the Dayton Monkey Trial being what he mostly remembered for), William Jennings Bryan was correct when he suggested that banking interests were screwing the masses of Americans …

    Anyway, in cynicism and literacy,

    RG the LG

  8. amine said on February 26th, 2009 at 7:01pm #

    obama knows perfectly well that is is mission impossible …he was put in place and was not elected to shift the attention from the real criminals by putting a black man in power, i am not fan of obama because he deceived us by not telling the truth that we already know that we are headed for a serious depression, he was not honest and he will go down in history as a president that ruined this country and did nothing by being a hypocrite . it does not take a genious to figure the shape of our economy..walk into walmart home depot or circuit city..oops there latter is history already

  9. Max Shields said on February 26th, 2009 at 7:37pm #

    The Problem appears to be outside of the capacity of the US political system to solve. It is not because there’s no one who clearly understands the problem, but that the solution means an end to what is.

    Obama cannot speak to that. The role of POTUS does not address this. FDR may appear to have pushed the system, given some “perhaps”, BUT he did not transform the economics, he simply contained the problem, and left it to fester and grow for another time – Today.

    Mr. Cook states: “He knows the economy can only recover if growth is rekindled.” This statement confuses while explaining the problem as defined by the system, not by a viable alternative, but with “business as usual”.

    Growth is THE problem, it is NOT a solution. Jobs have meaning to the extent that they are integral to one’s life, family and community. We have built a world on uneconomic growth whereby meaningless “disempowering” jobs have consumed our lives while obliterating any sense of family and community and the relationships which are critical to our existence. (Certainly there are “jobs” which do not fit this description, but they are not the general fare.) We can “save” the auto industry through the continuation of Chaplin’s “Modern Times” or we can re-think a living economy that is sustainable and will match the earth’s capacity to “give”.

    So, Obama is simply struggling with a problem that cannot be solved with the tools at his disposal (it is possible that the lack of tools actually handicaps his ability to really see the problem).

    What he can do is begin to take down the hyper militarization industry and the industrialization of our food and the world created by fossil, and work to put in place a foundation which is not a “return” to a market based on needless, and uneconomic consumption. He can be bold where his position allows him to be bold and do what a nation-state leader can do.

    He could look at the problem by NOT taking half-way measures doomed to failure – fight for single payer healthcare if you want to take the broken, worthless healthcare system on. Be bold, have a spine. If politics will NOT let him do this then he has no power, he is nothing but a fancy-pantsy orator with NOTHING to say. And soon no one will listen because empty slogans can be gotten elsewhere and the reality of this collapse is just to pressing to allow for television distractions.

  10. Barry said on February 26th, 2009 at 8:34pm #

    Obama announced today that he would be pulling the US out of Iraq as promised, but not till 8/2010 – except for the 50,000 troops he is leaving in – so in fact, he is not pulling out of Iraq as promised. He also announced a slight increase in the defense budget. And a cap and trade emissions policy. So if there is anyone left who thought Obama was going to be the nation’s/world’s savior, he just put the kabosh on that.

  11. Tennessee-Chavizta said on February 26th, 2009 at 9:08pm #

    Jeff: critical revolutionary thinking and protesting is not conspiracy theory. You know what conspiracy-theory is? UFOs, The Loch Ness Monster, Chem Trails, The UFO secret base, the Moon Landing etc.

    Not even 9-11 falls into the conspiracy-theory, because 9-11 was an inside job, because that’s more clearer than water.

    .

  12. Brian Koontz said on February 27th, 2009 at 7:05am #

    One aspect of the ridiculousness of 9/11 being an “inside job” is that many of the people killed that day were wealthy and employed by financial companies. 658 of the people killed were employed by Cantor Fitzgerald, an equity trading firm.

    In contrast, the destruction of parts of New Orleans following Hurricane Katrina were much more of an “inside job”, as governmental negligence (intended negligence) in conjunction with the hurricane caused the flooding.

    The elite are not going to kill their own people, at least when they have a choice. If 9/11 was an “inside job” the targets would not have been high finance and the Pentagon, but more of the same people killed in the New Orleans disaster.

    Yet virtually nothing is said about Hurricane Katrina being an “inside job”, which speaks volumes about the classism and racism found within the “9/11 movement”.

  13. Tennessee-Chavizta said on February 27th, 2009 at 8:31am #

    Brian: how about the NORAD stand down? And the *motive* and *beneficiary* of 9-11, doesn’t really point to any muslim terrorist groups. But to Israel and USA as the main beneficiary of 9-11. Besides credible sources state that Al Qaeda is a created organization that works for neocons. Al Qaeda is not linked to any muslim resistance insurgent group of the Middle East, it is not linked to any muslim-government. Al CIADA is really a mossad US government organization.

    .

  14. Tree said on February 27th, 2009 at 8:37am #

    How do you explain the first attack on the world trade center in ’93?
    How do you explain that there were people who warned of the strong possibility of attack and urged the companies (like Cantor Fitzgerald) to move out of the WTC and into New Jersey in buildings that were low to the ground?
    How has the US benefitted from 9/11?

  15. mcthorogood said on February 27th, 2009 at 4:26pm #

    A person is labeled a conspiracy theorist, if he/she is wont to declare that the emperor doesn’t have any clothes, much as a person is labeled an anti-Semite, when he/she speaks out against the Israeli Lobby.

    Just like RFK Jr. said, “Americans are the most entertained and the least informed on the planet.” President Kennedy said essentially the same thing much earlier in his speech before the American Newspaper Publishers Association.

    You can call me WTF you want, but this article is spot on.

  16. Beverly said on February 27th, 2009 at 8:30pm #

    I’m sure RFK wasn’t complaining toooooo much about Americans being the most entertained and least informed. Said ignorance and bliss allowed RFK and JFK to wreak havoc abroad with lethal, imperialist policy towards foreign lands such as Latin America and Asia. Here at home, the Kennedys foot dragged on early civil rights actions. This included JFK’s oppostion to the Freedom Riders and the March on Washington. MLK’s playing hardball with MLK and TV footage of police brutality against civil rights workers forced the Ks to get serious about this issue. As for economic policy, many of the neoliberal theories of today wouldn’t be rejected by Jack or Bobby.

  17. mcthorogood said on February 27th, 2009 at 9:31pm #

    Beverly, that’s RFK Junior.