The First Great Depression of the 21st Century

Published on February 13, 2005 on Brazzil magazine.
Original title: “The First Great Depression of the New Millennium”

Brazzil's editor changed the title to:

It’s 2008. The U.S. Has Dragged the World into a Depression.
By Ricardo C. Amaral
http://www.brazzilmag.com/component/content/article/20/1424-its-2008-the-us-has-dragged-the-world-into-a-depression.html

Today, Brazil and most South American countries in general are disconnecting from the United States economy, and at the same time they are making new strong connections to the economies of such countries as China, India, and Russia.

Since I wrote a letter to the president of the European Central Bank in December 2001 giving him the reasons why Brazil should adopt the Euro as its new currency, most of my predictions came to past, and since then the US dollar has declined in value against the Euro by 67 percent. (Brazzil magazine published that letter in 2002)

Today, wealthy Brazilians still have billions of dollars invested here in the United States.

Most of these investors probably will lose a large part of their investments in the coming years, because they will not take their money out of the US, and they refuse to believe in the coming melting down of the US dollar and US economy. Following is an example of the type of newspaper article that they will be reading at the time of the next United States presidential election in November of 2008.

Headlines - October 31, 2008

Here we are one week away from the 2008 United States presidential election. What a ride Americans, and the rest of the world had in the second term of the Bush administration. Some people did not believe it was possible for George W. Bush to do a worse job on his second term, than he did in his first.

A number of events came together to form the perfect storm that pushed the globe into a worldwide depression. The current worldwide depression is getting worse by the day, and it is having a more profound impact than the depression of the 1930’s. Today, some mainstream economists have identified George W. Bush and his administration as the culprits responsible for setting the spark that caused the meltdown of the global economy.

The entire fiasco started in November of 2000, with the conclusion of the American presidential election, when the US Supreme Court selected George W. Bush as the new president of the United States. If there were a similar election in any country in Asia, South America, or in Africa, I am sure that the United States mainstream media would characterize the event as a “coup d'état.”

A Major Turning Point in US History

The terrorist attack of September 11, 2001, had a profound impact in the United States.

The attack did not destroy only some property, and over 3,000 human lives; it also destroyed the soul of the American system.

The Constitution of the United States with its Bill of Rights were the soul of the American system, and had served well the needs of the American people for over 220 years. But during the years of the Bush administration, I was sorry to see the American people allowing the destruction of such a great document in the name of fighting terrorism.

Benjamin Franklin, one of the founding fathers of the US nation, once said: "Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety." But over time Americans forgot the teachings of this great American, and since September 11, 2001 the US government took many measures that destroyed the American soul—including the adoption of the US Patriot Act, and the formation of Homeland Security with its special powers.

Osama bin Laden - A New Living Legend

Before September 11, 2001, most people had never heard of Osama bin Laden and Al-Qaeda. After 9/11 he became a legend, and a hero to the Arab world in a similar way that the revolutionary Ernesto Che Guevara (1928-1967) became a legend in the Americas.

Osama bin Laden had fought against the Russians, and he had helped the Afghan people destroy, and discredit the Soviet war machine – in the Afghanistan War – soon after that the Soviet Empire collapsed. Many people also admired him for his daring planning and spectacular implementation of the September 11, 2001 attacks inside the United States. (That kind of event is supposed to happen only in Hollywood movies.)

When Actual Performance – Doesn’t Count

In November of 2004, the world was shocked to find out that the American people had re-elect George W. Bush. Among other things George W. Bush and his close circle of advisers had placed the United States on a very delicate international position when the United States attacked Iraq. The reasons given to the international community of why the United States had to go to war against Iraq, turned out to be completely wrong. After looking for two years, the Americans never found the “Weapons of Mass Destruction” that they claimed Saddam Hussein had at the time of the invasion in March of 2003.

Remember the American people (59 million Americans, about 27 percent of the total eligible voters in the US) voted to keep George W. Bush in power despite his terrible performance during his first term. They also gave him complete control of the American government with a Republican majority in the House of Representatives and in the Senate. That was history repeating itself, and it was the 1920’s all over again.

George W. Bush followed the footsteps of two other prior Republican presidents - Ronald Reagan, and of his father George H. W. Bush. The Ronald Reagan years established a new mindset for the Republican Party: the level of “Debt Doesn’t Matter,” and they thought the US government could get away with a reckless policy of large deficit spending with no end in sight.

During the years of the Bush administration - from 2001 to 2008 – the United States finances were completely out of control, and the United States had been borrowing around 89 percent of the savings of the entire world - year after year.

For anyone to understand what the US government was really doing in terms of its finances during the Bush administration, you had to study what happened in similar cases to corporations such as: Enron, WorldCom, and Global Crossing – massive administrative mismanagement, and deception.

The Money Pit

To put the American fiasco in perspective, we have to put the spotlight on the United States government’s cumulative national debt. The cumulative US national debts were only $ 930 billion dollars as of December 31, 1980 - right before Ronald Reagan became president of the United States. Since then, the US national debt has increased to an estimated $ 13 trillion dollars as of September 30, 2008 – that figure does not include all the other US government unfunded outstanding liabilities conservatively estimated at US$ 70 trillion dollars.

Here is the detail of the additions to the US national debt by president:

Ronald Reagan (8 years in office) added to US debt $ 1.7 trillion dollars.

George Bush Senior (4 years in office) added to US debt $ 1.5 trillion dollars.

Bill Clinton (8 years in office) added to US debt $ 1.6 trillion dollars.

George Bush Junior (first term, 4 years in office) added to US debt $ 1.8 trillion dollars.

George Bush Junior (second term, 4 years in office) added to US debt $ 5 trillion dollars.

Since December 31, 1980 the Republican presidents added $ 10 trillion dollars to the cumulative US national debt, and the Democratic president added $ 1.6 trillion dollars.

The Republican administrations added 87 percent of the new US national debt, and the Democratic administration added only 13 percent of the new debt.

All Republican presidents starting with Ronald Reagan have had a complete disregard for sound long-term economic policy, and how their current policies would affect future generations. All these Republican presidents had one thing in common: they did run a very large credit card bill during their administrations, and they were leaving all these debt to future American generations to pay. Since December 31, 1980 the United States had only one fiscally responsible president - former president Bill Clinton - a democrat.

History Repeats Itself

During George W. Bush’s presidential campaign for the 2004 election no one in the US mainstream media brought to the attention of the American people that: “the United States had a Republican president, and Republicans had a majority in the House of Representatives, and in the Senate during the years 1921 to 1930. And we all know the result of the Republican policies during these ten years - The Great Depression of the 1930’s.”

Today, looking back from our point of view in October 2008, we should not be surprised that Americans had learned nothing from their prior history. The Republicans policies and complete control of the US government from 2001 to 2008 resulted in a major meltdown of the US economy - and the first “Great Depression” of the new Millennium.

The Iraq war was completely out of control by December of 2004, and it was clear to the rest of the world that the Iraq war had become an all out civil war. The American army had become irrelevant, and served only as target practice for the insurgency in the Iraqi civil war – but the American casualties, and the costs of the war were piling up sky high.

Death of the Last Superpower

The idea of the Soviet Union being a superpower died in Afghanistan in the late 1980’s.

The idea that the USA was the lone superpower in the world died a fast death in Iraq in the years 2003 to 2006. By the end of 2004, it was clear to most people around the world that Iraq had immersed into a nasty civil war - and the Americans had lost another war - just as they had lost the Vietnam War in the 1970’s.

The American population was very angry with George W. Bush, and members of congress had started impeachment proceedings to get him, and his vice president Dick Cheney out of office. These men had caused massive damage to American prestige and credibility all around the world, by starting the Iraq war against United Nations approval, and also against accepted principles of international law. What was the most hurtful thing for the American people was that the Iraqi fiasco had been broadcasted live to the rest of the world, and signaled the end of the line for the last superpower.

The First Great Depression of the New Millennium

During the second term of George W. Bush’s presidency, finally all the American mismanagement and mistakes did catch up with the American economy, and a number of trends merged into a perfect storm causing the final meltdown of the US economy.

The American economy went through a downward spiraling out of control implosion.

Massive US government budget and trade deficits forced the Federal Reserve Bank to raise interest rates to try to stop the steep decline of the US dollar in world markets against other currencies.

Soon after September 11, 2001 the US dollar started sinking in world markets like the Titanic. The Economist had a Special Report regarding the US dollar on its December 2004 issue – “The disappearing dollar.” The article said: the decline of the US dollar in the last 3 years makes the United States responsible for the biggest international monetary default in the history of the world. The US dollar had declined by 67 percent versus the euro from US$ 0.82 in November 2001 to US$ 1.37 in December 2004.

The world lost its confidence in the US economy because they realized that the US economy was over leveraged, and would not have the necessary cash flow to pay its bills in the future. The US economy was outsourcing its good paying jobs by the millions to other countries - in the last four years the US economy had exported over 10 million jobs. A flood of US corporations started reincorporating in tax havens to avoid paying US corporate taxes.

To compound the US economic problems, US corporations started repudiating the benefit payments of their pension and health plans. Everybody wanted to pass their pension responsibility to the US government – the trend started with the steel industry, then the airline industry, the major auto manufacturers, and after that, every company with a substantial pension plan. The US government had no choice other than to swallow approximately US$ 600 billion in new pension liabilities.

After a number of new terrorist attacks inside the United States, the market dynamic of all these events combined to cause a major institutional collapse in the derivatives market, and that started a domino effect in the entire financial system causing a massive meltdown.

Panic among the major holders of US dollar also contributed to the stampede like we had never seen before - and at the end, Chernobyl looked like nothing when compared with the final meltdown of the US dollar, and US economy during the summer of 2008.

Copyright © 2005 All rights reserved

Ricardo C. Amaral - Author and economist

He can be reached at:
brazilamaral@yahoo.com

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