Inflation and the New World Order
by Richard C. Cook

The sunlight on the lake sparkles at dawn. As they have done for millions of years, the rounded tree-shrouded shoulders of the Green Mountains loom above the still waters. A loon calls from the next lake over. Who would guess that that not far from such serenity the world's most powerful nation was teetering on the brink of disaster? Though here in the bosom of nature one wonders why we should be surprised. Nations and empires come and then they go.

ARE THINGS REALLY THIS BAD?

Just before we left Washington, D.C., the Bush administration announced that it was expecting the largest federal budget deficit in history to be racked up in fiscal year 2009 starting September 1—$490 billion likely to be added to the national debt. This doesn't even count the "supplemental appropriations" during the coming year which are the preferred method for off-budget financing of the Iraq War.

Exiting the Washington-Baltimore metropolitan area we passed the gigantic rows of glass and steel office towers along the interstate highway corridors. Further in the distance were rows of McMansions thrown up in what once were corn fields. Built for an automobile culture, the viability of both towers and houses has been stretched to the limit by $4 a gallon gas.

We drive through rural Pennsylvania and southern New York state. Homes and businesses look seedy, run down. What was once a vibrant and prosperous small-town culture in this part of the country seems exhausted. When we stop in Oneonta, New York, the prices at a local restaurant are out-of-sight, and only the Walmart seems bustling.

We eat sandwiches at a Subway where at the table next to us a young man with his elderly parents is holding a book on black magic. The headline on a copy of the New York Post says, "N.Y. for Sale." The lead paragraph reads: "Warning of a looming economic calamity, Gov. Paterson yesterday called an emergency session of the state legislature—and raised the specter that New York may have to sell off roads, bridges, and tunnels to close a massive and still-growing budget deficit."

Are things really this bad? Our cottage on the lake has internet service, and the  next day I read the Washington Post's lead headline: "U.S. Economy Grows at Solid Pace in 2nd Quarter." The Post, despite its occasional liberal posturing on social issues, is the American Pravda, the closest thing we have to an official newsletter of the establishment elite.

But even the Post has to come clean a little, stating in its lead: "Much of the improvement came from the one-time bump from economic stimulus payments, raising prospects of weaker performance in months ahead." Matters would have been worse, the Post notes, except that the weaker U.S. dollar has caused a rise in exports and foreign tourism, though the trade deficit remains horrendous, having hit $711.6 billion in 2007.

Of course the weakening dollar also makes it easier for foreigners to buy American businesses at fire-sale prices. This happened with the recent purchase of Anheuser-Busch by the Belgian company InBev, adding to the $2 trillion spent by foreigners to acquire American companies since 1978. (EconomyInCrisis.org)

"SLOWDOWN" OR RECESSION?

The Post's ambiguity over the condition of the economy reflects the chasm between the official government gloss on events and the actual daily experience of people who work for a living. According to the Bush administration, we are in a "slowdown," not a recession. The GDP is still growing, they say, though at less than two percent annually.

Of course much of this "growth" reflects paper financial transactions, not the creation of wealth through production of new goods and services. But if someone makes money and the government can tax it, it's part of the GDP.

A better measure is the actual amount of money available to working men and women for everyday expenditures. The Federal Reserve calls it M1, cash-on-hand or money held in checking or NOW accounts. In fact, M1 has not increased appreciably since late 2003, hovering at any given time between $1.3 and $1.4 trillion.

This means that for the producing economy, we have been in a recession now for almost four years, because the real value of M1 has eroded due to inflation. And it's in the inflation statistics that the rift between the party line and daily experience is most striking.

According to the government, inflation is relatively low and has been for some time. The 2007 rate was calculated at about four percent, up from two percent in 2004. Yet we all know that the actual cost-of-living is skyrocketing. Gas costs twice as much as it did a year ago. The increase in food prices has been devastating to the family budget. Even with the bursting of the housing bubble, mortgages and rents are much higher than a decade ago, and the costs of medical care and higher education have continued to climb steadily. So what is going on?

It's been well-documented that the government's Consumer Price Index is not a true measure of what it takes to sustain life. For one thing, the methodology for measuring the CPI was changed in the 1990s to eliminate certain major items, such as the cost of home ownership. Other items, such as federal, state, and local taxes were never included. Finally, some items such as computer equipment have declined in price. So even though not everyone purchases such equipment in substantial amounts, the CPI is thereby moderated.

Why is this done? According to commodities analyst Danny Bannister:

The fact that consumers are going broke is recognized in a back-handed way by Fed officials such as Sandra Pianalto, president of the Federal Reserve Bank of Cleveland and a voting member of the Federal Open Market Committee. Pianalto said in a recent speech in Paris, "While sometimes devastating, these global relative-price pressures are not the same thing as inflation."

As writer Colin Barr explains in a recent article in Fortune, the Fed is reluctant to identify "relative price pressures" as inflation because it does not want to make the current recession worse by raising interest rates. What is the Fed's rationale? "It's because," Barr writes, "the Fed remains skeptical that high commodity prices will ripple through the economy, leading to broad price hikes and big wage increases." (Fortune, June 26, 2008)

Or, as Sandra Pianalto puts it, "As consumers spend more money for higher-priced petroleum and agricultural goods, they eventually have less money to spend on other goods and services. Other relative prices must then fall."

In other words, "Fed to consumers: 'drop dead.'" If you can't afford gas and food, stop buying other items, because while the income of whoever is benefiting goes up, yours will not.

So what should you stop paying for? Maybe your mortgage payment, credit card debt, or student loans? If you can't afford your real estate taxes, shouldn't you sell your house—if you can find a buyer in a depressed market? If you are elderly and have to choose between food and medicine, maybe eat dog food?

Also quoted in Barr's Fortune article is WarrenBuffett, the billionaire investor, who is at least honest about it. According to Barr, Buffet has "fingered 'exploding' inflation…as the biggest risk to the economy. 'I think inflation is really picking up,' Buffett said on CNBC. 'It's huge right now, whether it's steel or oil…We see it everywhere.'"

INFLATION AS CLASS WARFARE?

Then what is the cause of the inflation? On this subject, commentators are all over the map, often without citing any truly definitive data. Neither the government nor politicians offer any help at all, even as companies like Exxon-Mobil, BP, and Shell report quarter-after-quarter of record profits. What have we heard from John McCain or Barack Obama, for instance, on the subject? Answer: nothing.

So is it true, as Professor James Petras said in a recent article, that the causes are not accidental, but are "products of public policies which deeply affect markets, supply and demand, consumers, producers and speculators"? According to Petras, these policies result in "declining capitalist investment in the productive economy, the vast increase of capital flowing in the paper economy, the huge increases in profits and the grotesque salaries, bonuses and payoffs to senior executives, totally unrelated to 'performance.'" (James Petras, "Inflation and the Specter of World Inflation," Information Clearing House, July 20, 2008)

In this respect, inflation is a wealth-transfer mechanism that benefits the already-rich. Petras continues:

The situation in many developing nations is desperate in part because the International Monetary Fund, under the "Washington consensus," required them to give up their subsistence agriculture in favor of crops raised for export by agribusiness, while the people who once supported themselves on family farms have had to migrate to urban slums. The Western corporate-owned press calls it "free market reforms."

The devastation wreaked upon the world has been eloquently described by Dennis Brutus, a former South African activist, now Professor Emeritus at the Department of African Studies, University of Pittsburgh. Brutus writes:

Speaking of IMF's directors and economists, Brutus writes: