The Rude Awakening
Wall Street, New York
Tuesday, June 28, 2005
------------------------- - Ben Bernanke; frighteningly modern in his economic
theory,
- Plummeting savings and paper-powered profits and,
- America is leading the world to financial ruin, so
says Dr. Richebacher…
------------------------- Eric Fry, dashing off a few notes before dashing off to a
Cream concert at Madison Square Garden… Ben Bernanke is a modern American economist, and that's
precisely why he may be a very dangerous selection as the
next Chairman of the Federal Reserve. Modern American
economists are the most dangerous sorts of economists on
the earth, according to Dr. Kurt Richebacher, and old-
school German economist. Bernanke holds a B.A. in economics from Harvard University
and a Ph.D. in economics from the Massachusetts Institute
of Technology. He also roamed the halls of Princeton
University as a Professor of Economics and Public Affairs. And if those credentials don't scare you, remember that
Bernanke also served on the FOMC under Alan Greenspan. In
short, Bernanke is a thoroughly modern central banker. He
is so modern, in fact, that he holds personal savings in
low esteem. The U.S. current account deficit, he theorized
earlier this year, results largely from a global "savings
glut." Is it our fault that the rest of the world doesn't
know how to spend its money? And since foreigners won't spend theirs, we Americans will
borrow and spend it for them. This is the new world order.
Even Bernanke admits that some of his theories are
"unconventional." Dr. Kurt Richebacher calls them "insane."
Indeed, Dr. Kurt thinks that much of what passes in America
for cutting-edge economic theory is insane…and this
widespread insanity is only serving to speed our
downfall…Read on. --- Advertisement ---
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------------------------- MEET THE DOCTOR - PART II
By Eric J. Fry Richebacher: You Anglo-Saxons know no limits at all! And no
one complains about it. We Europeans impose fiscal limits
on ourselves and have difficulty keeping them under
control, which is understandable. But when Americans double
and treble their deficits, that is okay, because there are
not limits. The Anglo-Saxons have two different sets of
rules: One for the Europeans and one for the Anglo-Saxons.
The Anglo-Saxons can do whatever they like. The normal economic condition for a developed industrial
country is to have an export surplus, and this surplus
becomes the basis of its capital formation…That was basic
macroeconomics, yah. All of a sudden, the virtue of an industrial country is not
to export, but to over-consume…to save the world through
over-consumption. Fry: That's because consumption feels so much richer, even
if it impoverishes. Consumption is easier. Richebacher: The European economies, for example, always
had investment and export as a key driver of growth. And
that is what you would expect from an industrialized
economy, that is invests and that it exports…But
Americans just borrow and consume. Fry: Yes, but we are very good at borrowing and consuming.
Nobody does it better. Richebacher: Yah, that's right, but because your
consumption has grown so far out of proportion to
production, capitalist America relies on the generosity of
communist China. The Americans don't even realize how
ridiculous and absurd this is. It's so absurd I can't
believe it. I think this is the worst sign that I could
imagine. It means that net investment is collapsing. Consumption produces the least desirable kind of growth.
And the simple thing to know is that it is unsustainable.
It is unsustainable because real incomes are not growing.
In America you're having a fiasco in employment and income
growth. The average income of the American middle-class is
declining in real terms. And they have debts and debts and
debts and zero savings. They have no reserves. In America, it is no secret, the manufacturing sector is
shrinking. That's THE big problem. In every economy, the
manufacturing sector has the biggest multiplier effect. Fry: What about the financial sector in the United States?
It is a service sector, but it is also a major employer.
And one could argue that many parts of the financial sector
provide a value that is as tangible as the value of a
manufactured product. It performs a necessary function. Richebacher: Yes, but let's not forget that manufacturing
is a sector that uses all the intermediate goods. That's
part of its multiplying effect. The growth of financial
services is fine, but not when the manufacturing sector is
disappearing at the same time…When you look at capital
goods production in the United States, you can see what has
collapsed is investment. And with the collapse of
investment you have a collapse of employment in the
manufacturing sector… 
There are two kinds of assets; those that you produce, and
those that you simply trade. In America today, you have an
inflated service sector trading inflated assets. The assets
that you trade do not produce any widespread wealth. They
simply produce wealth for the individuals who trade them.
The great failure in America is in investment, employment
and income growth…and that is tied to manufacturing.
Fry: Most American politicians would agree with you, but
most American economists would not. Richebacher: Okay, but we're living in a world where
Greenspan and his associates have told the world that all
of America's massive imbalances do not matter. But for any
economist who has a little something in his head, the
structure of the American economy is one of the most
alarming of all time. For a developed economy it is
scandalous.
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