Written by Felix Minderbinder
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Topics: Police, Washington

Tuesday, 26 July 2005

image for Alan Greenspan Charged With Killing Off Middle Class, Setting Stage for Economic Collapse
Greenspan resists arrest before being handcuffed

WASHINGTON-Alan Greenspan was arrested on Monday at the US Federal Reserve and formally charged with killing off large sections of the American middle class after police read the new book "Greenspan's Fraud" by best-selling author and Economics Professor Ravi Batra.

"I have no regrets," snarled Greenspan as he was led away in handcuffs. "I was only following orders." Yet the Fed Chairman later broke down and confessed to the crimes, pleading guilty.

Greenspan has been killing off the middle class under a succession of US presidents from Ronald Reagan to George W. Bush, according to the new book. He helped extract trillions of dollars from the middle class to sharply enrich the rich and big business. Greenspan catered to the rich and powerful to maintain his lavish appointment as Chairman of the Federal Reserve, helping them shape government and economic policy in their favor.

Batra explains how Greenspan's policies on Social Security, income tax cuts, and the minimum wage are reducing the middle class and leading toward perilous times.

Strangely, even as he harmed the middle class and created many economic crises, Greenspan has been worshiped like an oracle or wizard, and adored because he was seen as saving America from various economic crises.

Although overall taxes have been reduced since Ronald Reagan, taxes have increased on the poor and been greatly reduced on the wealthy, in a robber baron taxation policy.

"Greenspan's fraud" is mainly a social security fraud which started in 1983 and continues until this day. It was based on Greenspan's desire to raise revenues for the government without raising overall income taxes, which had been cut sharply mainly to benefit the rich in 1981. Instead of building up a trust fund with money invested on behalf of retired folks, it was used to reduce the Federal deficit.

From the beginning, the surplus from the social security trust fund was used to fund the operating expenses of the government, but that was not the intent of the original legislation. These funds were to be collected for retirement, not for the government's expenses, but the government looted the Trust Fund surplus the moment it appeared. So Greenspan's fix for social security was a fraud because the public was convinced that the money would be saved in the trust fund while his intentions were to use additional social security revenues to balance the budget.

Greenspan also cut interest rates and sharply expanded credit and debt. Wages are the main source of demand. Productivity is the main source of supply. So when wage growth lags productivity growth, there is inadequate demand. And so to shore up demand, debt must be created. Wages can be raised or debt can be created, but raising wages is something the establishment hates, and so they create more and more debt.

Thus people borrow huge amounts of money. The debt culture is so strong that despite wages lagging behind productivity, there is an explosion of demand, and so demand is ahead of supply, and that causes the enormous trade deficit in America. But in addition to the wage gap, the big reason for the US trade deficit is that the manufacturing base has been destroyed in the US, and one reason for that is Greenspan's program of financial deregulation.

This financial deregulation enables foreign countries, particularly China and Japan, and foreign nationals to send money into America without any problems, which they couldn't do in the past. All that money coming into America finances the trade deficit, and allows foreigners to buy government debt, making it possible for Americans to keep on consuming as much as they want. But in the process, because of the trade deficit, US manufacturing is destroyed. And since the US doesn't manufacture much in America now, this trade deficit is really going to grow over time until there is some major disruption.

This process leads to sharply rising corporate profits initially, and such a profit rise creates a stock market bubble, which eventually crashes because one day debt growth slows down. After the recent stock market crash, Batra claims that Greenspan went back to his old machinations to create even more debt. He did that by slashing interest rates drastically.

The end result was the economy did stabilize but a real estate bubble developed in the process, and he thinks this bubble will also burst in the next two or three years or maybe even sooner. It is bound to burst because since wages continue to lag productivity, exponential growth in debt is needed for demand-supply balance, and that is simply impossible. So he thinks the next bubble to pop will be the real estate bubble.

Batra believes the Iraq war has helped keep the economy going by way of increased spending. He thinks that the US government has now used almost all its defenses against a credit collapse. The 2000 stock market crash occurred because of the falling government deficit. The government began to create a surplus in its budget, and because it shifted from a deficit to the surplus, there was a big fall in debt growth. There is a time when debt growth falls and then there is a crash.

Now they have re-inflated the market to another dose of debt creation. In fact there could soon be an inflationary depression resulting from a credit collapse all over the world. It would start out as a recession, but then quickly evolve into a depression because of the bursting of the real estate bubble as well as the Dow.

Real estate is now a very serious problem, and Batra believes there is a real estate bubble now. In order to support the economy in the aftermath of a stock market crash,

All the increase in the price of houses has enabled households to borrow a lot more money on the basis of their home equity. They are digging themselves into more debt, which means that a larger and larger portion of the income they are going to have to devote to servicing that debt is going to have to continue to rise.

What is more likely according to Batra is that there will be a housing default. There will be a crunch in the economy and the politicians will want debt forgiveness but the banks will not go along with that. A depression could be worse than the 1930s. Because every market, every area is in an imbalance.

Batra thinks an inflationary depression is a bigger possibility than a major deflation. Inflation is picking up now. Consumer prices are rising at the rate of 4% or 5% per year, and so inflation is coming back. The dollar is under pressure, so he thinks we are likely to see inflation along with a stagnant economy for the rest of this decade.

Batra doesn't think there is going to be a deflation, at least not prior to the collapse. He believes oil prices are going to stay high. Money supply will keep expanding because of Greenspan's policies, so he doesn't foresee a deflationary scenario.

But he does think a housing collapse could lead to a deflationary collapse in the economy, two years or so after the housing collapse perhaps, but not right away.

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