Money as a Political Tool

Richard C. Cook is a retired federal analyst, whose 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. His articles on monetary reform, economics, and space policy have appeared on Global Research, Economy in Crisis, Dissident Voice, Atlantic Free Press, and elsewhere. He is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” His website is at www.richardccook.com.

The immediate triggers are being described quite well: the collapse of the U.S. subprime mortgage market; the vulnerability of the rest of the economy to the subprime undertow, due to the “efficiency” of the markets in spreading risk; the worldwide overextension of cheap credit; the failure of large institutional investors and Wall Street brokerages to behave responsibly; and the long-term effects of the U.S. trade and fiscal deficits which are now coming home to roost.

Amazingly, some commentators have been asking “if the monetary crisis will affect the producing economy,” and whether a recession lies ahead. In reality, the U.S. producing economy has been in a recession for the last year. This is shown most clearly by the decline in M1, the portion of the money supply immediately available to people for making purchases.

The causes of the M1 decline are two-fold. One is the weak purchasing power of American consumers, at least half of whose decently-paying manufacturing jobs have been eliminated by the outsourcing, mergers, and productivity improvements during the past two decades. The other is that while many of the U.S. corporations not connected to housing have been doing all right, their success has been tied to overseas investments and sales, such as GE and GM who are heavily invested in China.

This type of business activity props up the stock
prices of these global corporations but does little for the working
American. The presumption that overflow earnings from stockholders will
benefit the rest of our domestic economy is the essence of
“trickle-down,” supply-side economics and is part of the justification
for the system that makes the rich richer and the poor poorer.

But as Barron’s reported earlier this year, much of
the profits from the global corporations are being held as retained
earnings for future growth, rather than being passed on to stockholders
as dividends. Because of the heavy debt load corporations carry today,
they are all in a grow-or-die mode. Again, the result is deficient
purchasing power which works to negate the already dubious trickle-down
effect.

The recession has been masked by four factors: 1)
the government’s phony GDP numbers, where the “churning” of financial
transactions masquerade as production; 2) the froth on the stock market
that took the Dow Jones Average (DJA) from a little over 11,000 to a
record-breaking 14,000 during a one-year period that ended with the
decline that began in mid-July; 2) the propensity of the American
consumer, which is now ending, to continue to buy goods and services on
credit, including necessities of life like health care; and 3) modest
growth in low-paying service economy jobs, which also may be coming to
an end. More