Reflecting On Paul Craig Roberts: What If The US GDP Was Only $12 Trillion?

Video Rebel’s Blog

Paul Craig Roberts in an interview with King World News said the US economy is nowhere near the $17 trillion GDP the administration is claiming. He said the government has been lying about inflation and unemployment since 1980. In particular he criticized Michael Boskin who headed the Congressional Advisory Commission on the Consumer Price Index better known as the Boskin Commission in 1995. Boskin had been a Republican appointee but was an acceptable Chairman to Clinton supporters. He supported NAFTA which has since its passage sent more than 12 million jobs overseas. He serves on the Board of Directors of Exxon and Vodafone which might explain why he was so trusted by Washington to do what they wanted.  

What Boskin did was to deliberately under report inflation. If total retail sales increases by 10% since year X, has the economy grown 10%? What if the cost of living as reported by the government was 5%? Then you could conclude the real growth was a modest 5%. But at least it wasn’t negative. What if the government lied and the real rate of inflation was 15%? That would mean retail sales actually contracted 5% since year X. Paul Craig Roberts said he wanted to go back to run the numbers on inflation since 1980 and particularly since the infamous Boskin Commission but that the American GDP might really only be $12 trillion and not $17 trillion. Even in today’s inflated world $5 trillion a year in extra incomes and jobs and sales every year would mean a lot to people struggling to get by. I think the US economy as measured by GDP is even less than $12 trillion but more about that later.

Roberts asks the audience to consider what it means if we have a $12 trillion dollar GDP and a nearly $18 trillion national debt? People around the world might ask themselves these questions: How will a poor nation of 330 million people and a $12 trillion GDP pay off $17.78 trillion in federal debt, more than $4 trillion in state and local debt plus more than $7 trillion in US debt guarantees for Government Sponsored Enterprises? Suppose interest rates went up to half of the real current inflation rate of 9%. Where would Washington get 4.5% of $18 trillion? Where would they find it other than Janet Yellen’s printing press?

Ponder this: The US Pension Guaranty Corporation insures pensions against bankruptcy. As of 2013 the maximum guaranteed amount was $4,789.77 per month per recipient. The US PBGC insures the pensions of 44 million Americans. In case of bankruptcy Janet Yellen’s printing press will pay those debts off too.

NAFTA sent 12 million jobs overseas. The US added 5.6 million jobs and 28 million people since 2000. But Native Born American lost 127,000 jobs in the past 14 years. Immigrants legal and illegal gained 5.7 million jobs. The US has doubled the number of Americans receiving Disability since 2007. That is one way to hide unemployment. Another way is to not count the unemployed. There are 25.3 million Native Born Americans of working age who are either a high school graduates or a drop out, 17 million with some college, and 8.7 million college graduates who are not in the work force. They can’t all be either on Disability or a woman married to a wealthy man.

If you are an investor overseas, you might wonder how those poor people in America will make their payments? You can see the the hordes of unskilled workers who do not speak English running across the border. Maybe they will pay the taxes? Maybe not. A lot of those illegal aliens are children too young to work. 40% of the kindergarten students in Fairfax Virginia do not speak English. Others are juveniles with Gang Tattoos. Doesn’t the federal government realize that most drug dealers, burglars, armed robbers and hired assassins do not declare their incomes on their taxes. Even when the American population passes 350 million, there would no increased ability to pay because there would be no more jobs producing real wealth.

Roberts was also critical of the way America’s GDP is calculated because it put value on things that ought not to be considered productive. This goes way beyond saying that they are fudging the inflation numbers. In 1947 10% of all corporate profits came from the Finance industry. Today it is half. Financial intermediation should be thought of as a cost of building houses and making cars not as a separate and legitimate end user consumer service like having your suit cleaned or your hair cut.

In 1870 Financializtion cost 2% of US GDP. Today it is 9%. Look at Credit Default Swaps as an example. They were invented by Blythe Masters of JP Morgan in 1995. They are not real insurance. The seller of a CDS can just take the fees from the sale of a Credit Default Swap and either pay off a bad investment or send out huge bonuses to Bank Executives. US banks positioned their CDS on their books so that if they go bad the taxpayers are liable for the losses. Though I do wonder what the public would think of this fiasco after they pay out the first trillion dollars in CDS claims and are asked to make a good faith payment on the next $10 trillion in losses. There are supposedly 1.5 quadrillion dollars out there in CDS obligations. Probably more than $200 trillion will be owed by America’s Too Big To Jail banks if nations like Greece, Italy, Spain, Portugal, Ireland and France default on their bonds or if US interest rates go back to their historic levels. Those Too Big to Jail Bank losses on $200 trillion in CDS losses would in theory be paid by taxpayers.

Another criticism of GDP is America’s constant wars and drone strikes all over the world. NATO launched 30,000 air strikes against Libya. Many of those American missiles used up nearly 500 ounces of silver each. Think of all the silver, electronics, casings, explosives and assembly that went in to making each missile. Most people are seriously questioning what we were doing in Iraq, Libya, Syria, Yemen and Afghanistan. So what value would we subtract from America’s GDP for the wars we do not want?

Then there is the question of the value of American weapons. The co-creator of the F-16 said the F-35 is not any better in combat than a Russian MIG from the 1950s. Boeing says the F-35 isn’t stealthy. The plane has persistent software problems. The fleet had to be grounded because of leaky engines. They clearly aren’t worth $300 million plus for each to the consumer. What value is it to taxpayers to pay for a plane that cannot defend their country?

There is always the question of fraud in government spending. Donald Rumsfeld admitted on 9-10-2001 on CBS Evening News that neither he nor his Comptroller Rabbi Dov Zakheim could find $2.3 trillion that had gone missing from the Department of Defense spending. He promised that he would set up better auditing in the future. That has not happened yet. The Department of Homeland Security has never been audited. Which brings up the point of the value of DHS to the economy. They have not made America a better country. Do we feel better after TSA has groped our genitals at the airport and handed us back our luggage with our valuables missing?

The point of this essay is to understand that this facade of Democracy and Prosperity will soon come to an end. We cannot say when this economy will collapse but this Rush to Amnesty is a sign to me that Wall Street does not think this government and the dollar will survive  to the end of 2015. We certainly will collapse by the end of 2016.

I maintain that the dollar’s collapse will be America’s last chance to change their government.

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