AMERICAN FINANCIAL CRISIS:14 questions

THE AMERICAN FINANCIAL CRISIS



After having been a doctor for 38 years who retired as a professor of medicine and dean, the author enrolled with the bar in 2001 and started his practice as a lawyer specialising in medico-legal cases. He is not an economist. The article was written by him in 2008 for his own understanding of the American financial crisis. It has been thoroughly revised in February 2012. The approach has been changed by adopting a question answer style for easy comprehension.

1--QUESTION—Is there a financial crisis in the USA? How does USA compare with Europe?

ANSWER—

a--This question should not have been here but has been necessitated by the views of a friend who is in USA for last six years. He wrote—“ I am presently living in USA and do not feel any financial crisis affecting the common people. All the malls, restaurants, movie theaters and even airlines are full and performing business as usual. However evryone does repeat the word " US is having bad financial Crisis" . For a layman like me who has spent 62 years in India it seems a total farce”.
b--The economists have no doubt that the USA is facing a financial crisis. Here are the facts.

i)--A country’s economy is usually measured in terms of its GDP (gross domestic product). The GDP represents a country’s economic production and growth. It is most commonly calculated by adding total consumption, investment, government spending and net exports.
http://www.investopedia.com/ask/answers/199.asp#axzz1lsKtPOMF


ii)--“Real GDP growth in the US bottomed out in the second quarter of 2009, and the subsequent rebound has been the weakest on average in more than 60 years. This will come as no surprise to any American.
Consequently, the anxiety over the country’s economic future has less to do with the financial crisis, than with a less agile US economy and broad changes in American society.
Many US citizens are unable or unwilling to accept what is obvious to the rest of the world. The US is gradually becoming an aging, slow-growing economic power with a citizenry seeking a wider social safety net and more distribution of public funds.
Even the staid Congressional Budget Office still assumes that US economy will eventually return to its “traditional” 3% rate of growth. It’s curious that people routinely believe that the US can achieve 3% growth in real GDP.
Perhaps the 1980s and 1990s left economists and investors with such fond memories that it’s difficult to let go of this notion. But the world changes. As we’ve said before, we’ve reached a watershed moment in history, when other countries will post faster and more sustained economic growth than the US.
During the next five years, the US, UK, and mainland Europe will experience subdued growth. A deflationary trend remains intact in the US, which explains the weak economic rebound since 2009.
Things aren’t any better in Europe. The continent’s saving grace is Germany, and the country will inevitably formally take the reins of the EU, spearheading the financial integration that will be necessary to preserve the EU and the euro.
Germany is one of the world’s most successful exporters, second only to China. Germany exported $1.3 trillion of goods last year, representing 8.3% of total global exports.”
http://www.moneyshow.com/investing/article/1/GURU-24081/US-Growth-Depends-on-Chi...



2--QUESTION—What are the views of American experts about their country’s economy?

ANSWER—

a--Investment analyst and entrepreneur Dr. Marc Faber concluded his monthly bulletin (June 2008) with the Following:

''The federal government is sending each of us a $600 rebate. If we spend that money at Wal-Mart, the money goes to China. If we spend it on gasoline it goes to the Arabs. If we buy a computer it will go to India. If we purchase fruit and vegetables it will go to Mexico, Honduras and Guatemala. If we purchase a good car it will go to Germany. If we purchase useless crap it will go to Taiwan and none of it will help the American economy.
The only way to keep that money here at home is to spend it on prostitutes and beer, since these are the only products still produced in US. I've been doing my part."

http://philip9876.wordpress.com/2008/09/11/marc-fabers-comment-on-the-us-economy...


b--It is important to note that Marc Faber said the above in June, 2008, about two months before the crisis actually hit hard. The latest news is that the largest US savings and loan bank, Washington Mutual, with assets worth 307 billion dollars, whose stock crashed to 45 cents on 25th September, 2008 was forced to be put up for sale. It was acquired the next day by J P Morgan.


3--QUESTION—What is the degree of budget deficit in USA?

ANSWER--

a--- Money does not grow on trees. Printing dollar bills in a printing press does not create money. It seems that is what USA, along with many other countries, has been doing. The federal deficit is the amount each year by which federal outlays in the federal budget exceed federal receipts. The deficit in 2011 was 1299 billion dollars which is about 8% of GDP. The two major peaks of the federal deficit in the 20th century occurred during World War I (about 17% of GDP) and World War II (about 28% of GDP). The federal deficit went over 10 percent of GDP in the aftermath of the financial crisis of 2008. It was 8% of GDP in 2011, equalling 1299 billion dollars.
http://www.usgovernmentdebt.us/federal_deficit_chart.html

b-- Smaller countries cannot have this luxury because it will lead to too much inflation. There were times when millions in national currencies were needed in certain countries to buy a pair of gloves. Even now there is a country, I think Zimbabwe, with that degree of inflation.

c-- USA is able to camouflage the falling value of dollar by ensuring that it can get oil against dollar payments. Saddam demanded payment in Euros. This made USA panicky. What it meant was that USA would have to sell dollars and buy Euros in open market, for paying the price to Iraq. USA knew that the real worth of Dollar is low and Euros would not be available cheap. That way, the weakness of the US dollar would have been exposed to the whole world and people would start avoiding the dollar. Other oil producing countries were watching the game with interest and were just waiting to follow Iraq's example. USA was quite aware of this, hence the urgency to 'take out" Saddam by hook or by crook. USA was forced to create the bogey of WMD (weapons of mass destruction) for this purpose. It knew pretty well that legally, any country is within its rights to demand payment for goods in the currency of its choice. The day Saudi Arabia stops supply of oil against dollars and demands Euros, the USA would be finished. But, that would never happen. It is widely believed that it has a secret pact with SA to look the other way while human rights and democracy are trampled, so long as SA continues to supply cheap oil against dollar payment. That is how USA is able to camouflage its weak dollar. As a matter of fact, though USA / US President invaded Iraq on the ground that Saddam’s WMD endangered American security, Saddam’s only fault, in reality, was that he demanded payment for oil in Euros instead of dollars. This would have meant collapse of the artificially propped up US economy, as per reputed US economists [Dr. Krassimir Petrov: The Proposed Iranian Oil Bourse. http://www.informationclearinghouse.info/article11613.htm].


4--QUESTION—Has capitalism got anything to do with the American financial crisis?
ANSWER—

a—Before answering the above question, it is necessary to be clear as to what is meant by capitalism.

Definition of Capitalism

The essential and preferable definition of capitalism is--“Capitalism is a social system based on the principle of individual rights.”
Source: Capitalism.org

The above is a political definition. An expanded definition, including reference to economic aspects, is—“An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.”
Source: Dictionary.com


b—There is nothing wrong with capitalism as such. But I think the US model of capitalism is too much skewed towards guaranteeing individual rights. The problem arises when individual rights are given so much emphasis that the rights of the people as a whole are neglected. This is what is apparently happening in USA. In every society there is a category of people who are not empowered enough to exercise their rights and own property and to live a life on their own that meets the minimum needs in an acceptable manner. This category would include, among others, the following: the minors; the old; women; destitutes; physically disabled; mentally disabled; socially disabled; politically disabled; and, those who are victims of natural disasters and war / violence.

c--It is ironical that USA is the richest country in the world but is unable:

i)--To eradicate poverty (The U.S. poverty rate was 14.3 percent in 2009, the highest level since 1994). According to the U.S. Census Bureau, this means 43.6 million people, or one in seven Americans, were living in poverty in 2009. The poverty threshold for a family of four in 2009 was $21,954.
http://www.reuters.com/article/2010/09/16/usa-economy-poverty-idUSN1617702920100...

ii)--- To provide health cover to all. As per the the Census Bureau data, 16.7 percent of the US population was without health coverage.
http://www.reuters.com/article/2010/09/16/usa-economy-poverty-idUSN1617702920100...

iii)--To provide employment to all. (8.3% people were unemployed as in January 2012)—
http://www.bls.gov/news.release/empsit.nr0.htm


5--QUESTION—Is the US economic crisis related to the “global war on terror”?

ANSWER—

a--—First of all, I rather disagree with the euphemistic and misleading term
“global war on terror” which is a misnomer. A global war should have the following characteristics:

--It should be against terror worldwide, from an international perspective, not selective as per one’s limited and interested perspective.
--It should have global support, including support of the UN.
--It should have global benefits, not benefits centred towards an individual or a specific nation.

b—Irrespective of the above, the unnecessary, unwarranted and unilateral wars unleashed by USA upon Afghanistan and Iraq and its operations in Pakistan have cost USA dear. According a report released in February 2012 by Brown University, written by more than 20 economists, political scientists, lawyers, anthropologists and humanitarian personnel for Brown's Watson Institute for International Studies, the United States will have spent a total of $3.7 trillion on wars in Iraq, Afghanistan and Pakistan, costing 225,000 lives and creating 7.8 million refugees, by the time the conflicts end.

http://www.huffingtonpost.com/2011/06/29/cost-of-war-iraq-afghanistan_n_887084.h...
Such massive costs cannot remain superficial. If the wars hit the countries deep, they hit USA itself hard. The USA has none to blame but itself. The wars were fought on false premises. The world was told a blatant lie, repeatedly, that Iraq was hiding the so called weapons of mass destruction (WMD). This falsehood was cited as the reason for attacking a sovereign country and killing its president. Whether one believes in god or not (President Bush was an ardent believer. He even said that god had told him to attack Iraq), it is common sense that sin cannot remain unpunished. The punishment is being faced by USA in the form of one of the worst financial crisis in several decades.

c-- There are only limited ways, from a layman's point of view, to become economically strong: ONE, to save money (= minimise unnecessary consumption); TWO, to make money (= produce more marketable goods and services); THREE, to grab others’ money and resources; and, FOUR, to grab natural resources that mother Nature has given free to all, presumably equally. It is unfortunate that, instead of opting for the first two, the USA chose to adopt the last two means to become rich. The strategy boomeranged and left the country poorer.

d----USA does not want and does not know how to save money. It does not want to follow the first option, namely, to save money or to minimise unnecessary consumption). Its capitalistic model is built on a peculiar theoretical chain of reasoning as follows:

Encourage consumption [through credit card loans, for example] >>> This will lead to increased demand >>> This will lead to higher production to meet the demand.

Even this rather quaint model could be workable to some extent, if increased demand leads to increased production within the country. This model may have worked in USA in the past and may yet work to some extent in some other countries, but it is no longer practical in USA. In reality, what is happening in USA is this. Increased consumption IN USA is leading to increased demand IN USA, but such demand is being fulfilled by increased production in OTHER COUNTRIES, like China [all sorts of goods]; Germany and Japan [cars]; Mexico [farm produce] and India [outsourced services]. USA simply buys goods and services from these OTHER countries against payment by way of dollars printed in USA!

e--An example of the above mindset of USA is reflected in a news item in the New York Times dated on or around 1 February 2012 that the Federal Reserve Bank has decided to continue till 2014 the policy of giving minimal, almost zero, interest on bank deposits in an attempt to encourage spending and to punish those who save!


6--QUESTION—What is the outcome of the above mentioned US policies?

ANSWER-- The consequences of the above are very complicated, interesting and pathetic:

a-- USA gets others to work for it while the US society itself sits pretty, simply consuming and polluting, getting more obese, with its students consistently performing poorly in basic arithmetic and language skills, as revealed by various studies / surveys and the results of national spelling and mathematics marathons held annually in USA.

In 2005, Thomas Friedman of “The New York Times”, while delivering his keynote address at “TiECon conference, 2005”, said--"When we were young kids growing up in America, we were told to eat our vegetables at dinner and not leave them. Mothers said, 'think of the starving children in India and finish the dinner.' And now I tell my children: 'Finish your mathematics homework. Think of the children in India who would make you starve, if you don't.”

http://www.rediff.com/news/2005/jun/10sfocg.htm


Six years later, President Obama reminded the Americans--"Meanwhile, nations like China and India realised that, with some changes of their own, they could compete in this new world. And so they started educating their children earlier and longer, with greater emphasis on maths and science."

b—US consumes what others produce. Clothes, food, toys, cars, household appliances are all imported by USA. Everyone who shops in the Wallmart or Safeway knows that. US consumerism sustains other countries’ economies. If they stop exporting to USA, the country would have a serious problem. They would not do so because they need dollars. BUT, if the value of dollar declines, they will stop exports to USA. That will be a nightmare.


7-QUESTION –Can the dollar decline or collapse?

ANSWER—

a—Before answering the question, we must look at what is meant by the terms “dollar decline” and “dollar collapse”.

b--DOLLAR DECLINE—It means a decline in the value of dollar. There are two major currencies at present—the Dollar and the Euro. A decline in dollar means that if I want to sell 100 dollars, I get less Euros for it than earlier. That is already happening. The dollar declined 40% against the euro between 2002 and 2011. The reason was that U.S. debt more than doubled during that time period, from $5.9 trillion to $14 trillion. This increases the chance the U.S. will let the dollar's value slide, allowing it to repay the debt with cheaper money.

http://useconomy.about.com/od/criticalssues/p/dollar_collapse.htm

c--DOLLAR COLLAPSE-- Potentially, severe damage to US economy and mounting debt can lead to a “Dollar collapse”. Dollar collapse refers to a situation where the value of the dollar falls so fast that all those who hold dollars panic, and sell them at any cost, including foreign governments. Everyone wants to sell the dollar assets and no one wants to buy them, driving the value of the dollar down to near zero. If dollar sinks, Euro would rise. There is no imminent threat of dollar collapse but a day may come when decline turns into a collapse.

d--HOW CAN DECLINE TURN INTO COLLAPSE?--

i)--Altogether, foreign countries own $2.4 trillion in U.S. If, on a particular day, all these countries put for sale all of their dollar assets, there would be no buyer and the dollar will collapse in a day. But this will never happen. US has friends. The West, in general, would not allow their champion to go down. If the captain goes down, the team goes down. Simple.

ii)—Two non-West countries, China and Japan, own $ 1.8 trillion in U.S. Out of this, China’s share is 1 trillion and Japan’s share is 800 billion. These two countries account for three fourths of the total foreign ownership in USA. If they come together, they can, if they wish, cause the dollar to collapse. But that will be suicidal. Where will they sell their goods if the US economy collapses? The wise course for them would be to seek and develop alternate markets for their goods before they shut their doors to the US market. They are already trying to find markets in other countries.

e—ECONOMIC POWER VERSUS POLITICAL POWER—It is clear that USA is the world leader because it is richest of all. It is rich enough to buy any other country. It is rich because the dollar is rich. If dollar declines, US will find it difficult to retain its supremacy. This simple equation leads us to the next crucial question.


8—QUESTION—Who poses challenge to US supremacy?

ANSWER--

a—China has started a slow but sustained campaign to dethrone the dollar. Shortly before the G20 London summit, China's central bank governor announced that the dollar should be replaced by SDRs. This was a shrewd approach. About half of China's foreign exchange reserves of $2 trillion are held as dollar denominated assets. This large exposure implies that any major depreciation of the dollar would severely erode the value of these assets. At the same time, large diversification of these reserves away from the dollar is not an option. Such a move itself would trigger a sharp depreciation of the dollar. But the exchange rate of SDR is a weighted average of a basket of convertible currencies, and a swap of dollars for SDRs at a pre-determined exchange rate would allow China, and other countries, to significantly reduce their dollar exposure without any erosion of the value of their reserves. Of course, it would also end the reign of the dollar.
http://articles.timesofindia.indiatimes.com/2011-04-28/edit-page/29478932_1_sdrs...


NOTE—SDR (Special Drawing Rights) is an international type of monetary reserve currency, created by the International Monetary Fund (IMF) in 1969, which operates as a supplement to the existing reserves of member countries. Created in response to concerns about the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies.

SDRs can be viewed as an artificial currency used by the IMF and defined as a "basket of national currencies". The IMF uses SDRs for internal accounting purposes. SDRs are allocated by the IMF to its member countries and are backed by the full faith and credit of the member countries' governments.
http://www.investopedia.com/terms/s/sdr.asp#axzz1lsKtPOMF

b—In April 2011, the BRICS countries agreed at their summit meeting in Sanya, China, to establish mutual lines of credit in local currencies. On the face of it, this is an innocuous effort by the world's fastest growing countries to strengthen their mutual relationship. However, in the context of the emerging global power relations, this is yet another important step in the Chinese initiative to end the reign of the dollar as the world's single reserve currency.
http://articles.timesofindia.indiatimes.com/2011-04-28/edit-page/29478932_1_sdrs...

c-- China has taken several strategic steps to carry forward its agenda through alternative routes. It has established currency swap arrangements with several developing countries, which protects their trade with China against the risk of their currencies depreciating. Russia has also adopted the same approach. China is also leading the initiative for an Asian Monetary Fund. The IMF vehemently opposed the idea when it was originally mooted by Japan during the Asian financial crisis. However, the idea finally became a reality when the fund was launched in 2009, this time with IMF support.

d-- BRICS are the most dynamic and fastest growing countries of the world today. Trade among them is growing much faster than the average rate of growth of global trade. This trade is not dollar based. The road map for these non-dollar trade and currency arrangements could eventually lead to a situation where virtually the whole of world trade ( barring trade with and among the countries of Europe and North America) is freed of the dollar. Were that to happen, the reign of the dollar would be over, and the question of whether or not it can be replaced by SDRs would no longer be relevant.
http://articles.timesofindia.indiatimes.com/2011-04-28/edit-page/29478932_1_sdrs...

e-- Such a scenario may sound quite implausible today, a bit of economic 'science fiction'. But we must remember that the basic institutional arrangements for such an outcome are already being put in place. In the early 20th century, when Britain was still the dominant imperial power, the pound sterling was the reigning reserve currency of the world. But Britain was already a tired imperial power. As its power waned, bled especially by two world wars, it didn't take very long for the US and France to end the reign of the pound. Is it then so unrealistic to imagine that as US power wanes, the reign of the dollar as reserve currency will be replaced by SDRs, non-dollar currency swaps, local currency credit lines for trade and other such arrangements?
http://articles.timesofindia.indiatimes.com/2011-04-28/edit-page/29478932_1_sdrs...


9—QUESTION—Why the US financial crisis can potentially turn into a world existential crisis?

ANSWER—

a--The only goods that the USA is expert at producing are bombs and weapons and fighter planes and missiles and nuclear reactors. It is in US interest to let other countries fight amongst themselves, so that they keep on buying US arms to kill each other. This suits USA because it keeps on selling its obsolete arms to others and keeps on developing more sophisticated arms for itself, which come handy when scuds have to be fired upon Iraq or napalm bombs dropped in Vietnam or atom bombs in Japan. The pitiable example of both India and Pakistan buying US arms to fight each other, with US connivance and instigation, is there for all to see. In the circumstances, it makes eminent sense for USA to let there never be peace in the Indian subcontinent. In 1947, India was partitioned for this very purpose—to create a stooge Pakistan and, through it, to have a foothold in the Indian subcontinent. [Just as Israel was created / supported by USA to have a foothold in oil producing Arabia].

b—Major financial interests in USA have always favoured going to war as a means of making financial profits. Examples of the keenness of USA to enter or start a war are many. Some are given below.

c--Just sample this in the background of the first world war (28 July 1914 – 11 November 1918) in which the USA entered in 1917 despite public postures that it would remain neutral:

i)--“History books record that World War I started when the nations went to war to avenge the assassination of the Archduke Francis Ferdinand, the heir to the Habsburg throne, on June 28, 1914.
This is the typical explanation. But the "revisionist historian" knows just what caused and what the purpose was of the conflagration of World War I.
Up until America's entry into this war, the American people had followed the wise advice of President George Washington given in his farewell address, delivered to the nation on September 17, 1796. President Washington said: "It is our true policy to steer clear of permanent alliance with any portion of the foreign world.... Why, by interweaving our destiny with that of any part of Europe, entangle our peace and prosperity in the toils of European ambition, rivalship, interest, humour or caprice?'
President Washington attempted to warn the American people about getting embroiled in the affairs of Europe. But in 1914, it was not to be. There were those who were secretly planning America's involvement in World War I whether the American people wanted it or not.
The pressure to involve the American government started in 1909, long before the actual assassination of the Archduke.”
http://www.threeworldwars.com/world-war-1/ww1.htm

ii)----It was known that the very wealthy were interested in involving the American government in that war, and Secretary of State William Jennings Bryan was one who made note of this. "As Secretary [Bryan] had anticipated, the large banking interests were deeply interested in the World War because of wide opportunities for large profits. On August 3, 1914, even before the actual clash of arms, the French firm of Rothschild Freres cabled to Morgan and Company in New York suggesting the flotation of a loan of $100,000,000, a substantial part of which was to be left in the United States, to pay for French purchases of American goods."
http://www.threeworldwars.com/world-war-1/ww1.htm

iii)---- A key appointment made during the pre-war period was the appointment of Franklin Delano Roosevelt as Assistant Secretary of the Navy by President Woodrow Wilson.
Roosevelt is also on record as concluding that there was a conspiracy, at least in the United States. He once wrote to Colonel Edward Mandell House: "The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the government ever since the days of Andrew Jackson, and I am not wholly excepting the administration of W.W. (Woodrow Wilson.) The country is going through a repetition of Jackson's fight with the Bank of the United States—only on a far bigger and broader basis."

iv)-- Even though Wilson proclaimed America's neutrality in the European War, in accordance with the prior admonitions of George Washington, his government was secretly plotting to involve the American people by having the Lusitania sunk. This was made public in the book The Intimate Papers of Colonel House, written by a supporter of the Colonel, who recorded a conversation between Colonel House and Sir Edward Grey of England, the Foreign Secretary of England:
Grey: What will America do if the Germans sink an ocean liner with American passengers on board?
House: I believe that a flame of indignation would sweep the United States and that by itself would be sufficient to carry us into the war.

On May 7, 1915, the Lusitania was sunk off the coast of County Cork, Ireland by a U-boat after it had slowed to await the arrival of the English escort vessel, the Juno, which was intended to escort it into the English port. The First Lord of the Admiralty, Winston Churchill, issued orders that the Juno was to return to port, and the Lusitania sat alone in the channel. Because Churchill knew of the presence of three U-boats in the vicinity, it is reasonable to presume that he had planned for the Lusitania to be sunk, and it was. 1201 people lost their lives in the sinking.
This sinking has been described by Colin Simpson, the author of a book entitled The Lusitania, as "the foulest act of wilful murder ever committed on the seas."
But the event was not enough to enable President Wilson to declare war against the German government, and the conspirators changed tactics. They would use other means to get the American people involved in the war, as the "flame of indignation" did not sweep the United States as had been planned.
Robert Lansing, the Assistant Secretary of State, is on record as stating: "We must educate the public gradually — draw it along to the point where it will be willing to go into the war."

NOTE—
The sinking of the Lusitania enraged Americans and hastened the United States' entrance into World War I.
On board were 1,959 people, 159 of whom were Americans.


Of the 1,959 people on board, 1,198 died. Of the 159 Americans, 128 died.
http://history1900s.about.com/cs/worldwari/p/lusitania.htm

v)----"The war, in brief, provided an unparalleled opportunity for the richest families to grab [exorbitant profits] at the expense of the public and, without exception, they made the most of this opportunity. The rich families, to be sure, wanted the war to be won, but they took care that the victory was expensive to the common taxpayers. They uttered no cries for government economy... so long as the public treasury was at their disposal."

One of the families who reaped the exorbitant profits were "the Rockefellers, who were very eager for the United States to enter World War I, [and who] made far more than $200,000,000 from that conflict."
http://www.threeworldwars.com/world-war-1/ww1-2.htm


d—Some samples regarding the second world war are reproduced below from
http://www.threeworldwars.com/world-war-2/ww2.htm

The date of September 1, 1939, when Germany invaded Poland, is remembered as the date the war started.

i)--Even with all of these efforts of the American businessman to construct the German war machine with the full knowledge and approval of President Roosevelt, he kept repeating that the nation would continue its "neutral" position: it would remain out of the war. On September 1, 1939, when the war started, he was asked by a reporter whether America would stay out of the war and Roosevelt replied: "... I believe we can, and every effort will be made by the Administration to do so."

Others did not believe Roosevelt's claim that America would remain neutral. On September 12, 1939, Hans Thomson, the German charge d'affaires in Washington, cabled the German government: "... if defeat should threaten the Allies (Great Britain and France), Roosevelt is determined to go to war against Germany, even in the face of the resistance of his own country."

ii)--But as the war in Europe continued, America's leaders were attempting to get America involved, even though the American people didn't want to become part of it Roosevelt, the presidential candidate, was promising the American people that the Roosevelt administration would remain neutral should he be re-elected. Others knew better. One, for instance, was General Hugh Johnson, who said: "I know of no well informed Washington observer who isn't convinced that, if Mr. Roosevelt is elected (in 1940), he will drag us into war at the first opportunity, and that, if none presents itself, he will make one."

iii)--Roosevelt had two opportunities to involve America in World War II: Japan was at war with China, and Germany was at war with Great Britain, France and other countries. Both war zones presented plenty of opportunities to involve the American government in the war, and Roosevelt was quick to seize upon the opportunities presented.

iv)--His first opportunity came from the war in the Pacific. It was in August, 1940, that the United States broke the Japanese "purple" war-time code. This gave the American government the ability to read and understand all of their recoverable war-time messages. Machines were manufactured to de-code Japan's messages, and they were sent all over the world, but none was sent to Pearl Harbor.

v)--Roosevelt's public efforts to involve America, while ostensibly remaining neutral, started in August, 1940, when the National Guard was voted into Federal service for one year. This was followed in September by the Selective Service Act, also for one year's duration.

But the key to America's early involvement occurred on September 28, 1940, when Japan, Germany and Italy signed the Tripartite Treaty. This treaty required that any of the three nations had to respond by declaring war should any one of the other three be attacked by any of the Allied nations. This meant that should Japan attack the United States, and the United States responded by declaring war against Japan, it would automatically be at war with the other two nations, Germany and Italy.

Roosevelt now knew that war with Japan meant war with Germany. His problem was solved.

He had made secret commitments to Winston Churchill and the English government to become involved in the war against Germany and he knew that the only way he could fulfill his secret commitments to Churchill to get us into the war, without openly dishonoring his pledges to the American people to keep us out, was by provoking Germany or Japan to attack.

Roosevelt moved towards the Pacific theater first, knowing that, if he could provoke Japan to attack America first, America would automatically be at war with Germany as well. He also knew that, should Germany attack America, Japan would have to declare war on America. So Roosevelt attempted to get either nation to attack the United States first. Japan was to get the first opportunity.
It is important to remember that, in November, 1940, just after this incident, candidate Roosevelt told the American people: "I say to you fathers and mothers, and I will say it again and again and again, your boys will not be sent into foreign wars."


vi)--The American Ambassador to Tokyo, Joseph C. Grew, was one of the first to officially discover that Pearl Harbor was the intended target of the Japanese attack, as he corresponded with President Roosevelt's State Department on January 27, 1941: "The Peruvian minister has informed a member of my staff that he had heard from many sources, including a Japanese source, that, in the event of trouble breaking out between the United States and Japan, the Japanese intended to make a surprise attack against Pearl Harbor...."

In March 1941, President Roosevelt was still hoping for an incident involving the United States and Germany, according to Harold Ickes, Roosevelt's Secretary of the Interior. He reported: "At dinner on March 24, he [Roosevelt] remarked that 'things are coming to a head; Germany will be making a blunder soon.' There could be no doubt of the President's scarcely concealed desire that there might be an incident which would justify our declaring a state of war against Germany...."

Roosevelt and Churchill had conspired together to incite an incident to allow America's entry into the war. According to Churchill:

The President had said that he would wage war but not declare it, and that he would become more and more provocative. If the Germans did not like it, they could attack American forces.

The United States Navy was taking over the convoy route to Iceland.

The President's orders to these escorts were to attack any U-boat which showed itself, even if it were two or three hundred miles away from the convoy....

Everything was to be done to force "an incident".


vii)--The next step was to assist other countries, the English and the Dutch, to embargo oil shipments to Japan in an attempt to force them into an incident that would enable the United States to enter the war.

Japan, as a relatively small island, and with no oil industry to speak of, had to look elsewhere for its oil, and this was the reason for the proposed embargo. It was thought that this action would provoke Japan into an incident. Ex-President Herbert Hoover also saw the manipulations leading to war and he warned the United States in August, 1941: "The American people should insistently demand that Congress put a stop to step-by-step projection of the United States into undeclared war... ."

But the Congress wasn't listening.


e--Whenever US economy goes into depression, USA engineers a war. According to economists, the oiling of the war machinery is a time-tested means of boosting US economy. One can be sure that the third WW too, like the previous two, would be maneuvered by USA. The USA knows how to find an excuse to fight with others. The Pearl Harbour incident, which enabled the USA to enter the fray called the second world war, was knowingly manouvered by it. In more recent past, the WMD were an imaginary creation of the USA. They never existed and President Bush knew this. Yet, shamelessly, he attacked a sovereign country and caught and humiliated another President, Saddam Hussein, and got him killed after a stage managed judicial show. Other countries lined up for similar treatment are Iran and Syria.

f—It would not be too unrealistic to imagine that if the current economic crisis in the US persists, it may yet again fall upon the time tested device—oiling up its war machinery. USA already seems to be itching to declare a war on Iran.


10—QUESTION—If USA is having dollar crunch and is hugely dependent on oil imports, why does it not develop alternate sources of energy?

ANSWER--

a--USA is no fool. By the time Saudi Arabian oil stores dwindle, which may be 30-40 years from now, USA, using INDIAN scientists [30% NASA scientists are Indian], will most likely have developed commercially viable technology to harness solar energy, and would patent it and the Senate would pass a law imposing harsh conditions for its transfer to other countries, especially outside the WCW [White Christian West] fold. This law could be easily patterned on the 123 Agreement. (Section 123 of the United States Atomic Energy Act of 1954, titled "Cooperation With Other Nations", establishes an agreement for cooperation as a prerequisite for nuclear deals between the US and any other nation. Such an agreement is called a 123 Agreement). It is notable that, as believed by many experts, the USA is consciously restricting funding for research and development in the area of alternative sources of energy because of vested interests of a few who are currently making millions and bilions through oil trade.

b--By the way, USA has been very keen to enter into a 123 agreement with India. Under this agreement, nuclear reactors are being given to India under much fanfare for 40 billion dollars or so to be paid over next 15 years, when the FIRST reactor is supposed to become operative! The fact is that that not a single nuclear reactor has been built in the West over last 2 decades or so because it has been found that a nuclear reactor is not in fact the goose that lays golden eggs. Would USA have been as enthusiastic for the Indo-US nuclear deal if India (like Saddam Hussein as regards the oil sale transaction between Iraq and USA) had insisted that the Indo-US transaction for nuclear technology should be paid for in Euros instead of dollars? The answer is obvious.


11—QUESTION—did the US economic crisis happen suddenly, without warning?

ANSWER—

No. Paul Krugman who had warned much in advance about the impending economic crisis, though many did not listen to him. In fact, Paul Krugman attributes most of the present housing crisis leading to an overall economic slowdown entirely to the decisions made by the Bush administration.
(Paul Krugman is the recipient of "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2008" for "his analysis of trade patterns and location of economic activity". The Royal Swedish Academy of Sciences said the award recognised his analysis of trade patterns and where economic activity takes place.")


12—QUESTION—What, in simple words, is the origin of the current US economic crisis?

ANSWER--The genesis of this crisis, in simple words, is as follows:

a-- Eight years ago, mortgage companies in USA, in order to increase their business, started giving easy loans to people against houses pledged as security, without making prudent verifications and without ensuring their loan repaying capacity. The trade experts coined the name sub-prime sector / market for this activity. Now they reveal that the term sub-prime sector means that sector which has a high risk (of non-repayment).

b-- Many of the loans were taken for buying houses also. Easy loans, just for the asking, raised the number of house buyers and the demand for houses, thus raising their prices.

c-- While granting loans against house mortgage, this increased price of houses was considered as the security for the loan advanced. In many cases, the loan repayment schedule was such that initial instalments were very light, but became quite heavy later on.

d-- The smart financial wizards repackaged these individual house mortgages into bundles of complicated financial packages / instruments which they traded with insurance companies and other financial institutions, which were not able to properly assess the risk inherent in such bundle transactions. As a matter of fact, the US government, in a way, must share a bit of the blame. Freddie Mac and Fannie Mae, the financial institutions established by the Government, were forced by it to buy mortgages from banks and sell them to other banks or people at low interest rates, so as to inject rapid house buying and thus artificially inseminating the economy with a buying trend. Right now, both the institutions are at the center of every housing crisis debate in the country. Quoting Wikipedia: "Freddie Mac's primary method of making money is by charging a guarantee fee on loans that it has purchased and securitized into mortgage-backed security bonds. Investors, or purchasers of Freddie Mac MBS, are willing to let Freddie Mac keep this fee in exchange for assuming the credit risk, that is, Freddie Mac's guarantee that the principal and interest on the underlying loan will be paid back regardless of whether the borrower actually repays."

e-- As time passed, individual loan takers, who were a risky group to start with, could not meet the loan repayment obligations and faltered. As a result, the mortgage companies / issurance & finance companies were saddled with a large number of houses which had been pledged as securities. Thus the market was suddenly flooded with a large chunk of houses, now owned by the banks / financial institutions, for which there were no buyers. The result: banks etc. had a liquidity crunch. They were not able to give further loans, nor were they able to persuade others to give them loans to maintain liquidity. Banks even refused to give loans to each other, though this is, in normal times, a very common activity.

f-- Non-availability of loans / credit to manufacturing companies and business houses meant a roadblock in their activities, thereby forcing them to lay off and retrench employees. Nonavailability of credit meant lack of money to buy things, hence there were goods but no buyers. This is what is classically a slump or depression in economy.

g-- There is a saying that when a giant sneezes, the nearby insects and animals are blown away. When the American economic giant convulsed, the ripples were felt globally.


13—QUESTION—What is the role of the American banks in the causation of the economic crisis?

ANSWER--

a—Banks are basically in the business of borrowing and lending. They pay interest on the money that they borrow and charge interest on the money they lend. Thus lending means earning for the lender. Banks control money and if they are not regulated, they can create havoc. The economic havoc which has been caused in the USA is because of its excessive reliance on the capitalist system where controls on individual enterprises, including banks, are frowned upon.

b--American private banks, in order to make money by lending, started encouraging people to take easy loans by mortgaging their houses. Steeped in a consumerist culture characteristic of a capitalist economy, the American people started mortgaging their houses to procure easy loans beyond their paying capacity. They threw caution to the winds and forgot what William Shakespeare said in Hamlet—“Neither a borrower nor a lender be”.

c—In order to make still more money, American banks also started giving easy loans for buying houses. As more and more people started buying houses (on borrowed money), the demand for houses increased and, as a result, the price of houses increased. This artificially increased price was used for assessing the market value of a house when the owner wanted to mortgage it to procure a loan from the bank. The banks had no qualms about using this artificially high market price as the basis for giving loans. After all, the more the price calculated, the more the worth of the property mortgaged and hence more the loan given against it. After all, banks earn interest on the money loaned.

d—Artificial dreams don’t sustain for long. When the notional market prices of the houses increased, the house owners started selling them to make money. To their horror, they found one day that there were no buyers. The notional market value of houses crashed.

e—When the market value of the houses crashed, the banks discovered that they had given more money as loan against the lesser value of the houses held in mortgage. They wanted their money back (by whatever means, including the obvious means of insisting on timely payment of interest and instalments by those who had mortgaged their houses. They were unable to pay because, as per the consumerist habits of the capitalist world, they had eaten and drunk and enjoyed beyond their means and spent the money they had taken as loan. They could not pay the interest and instalments due and were dispossessed of their houses.

f—The result was that while people lost their homes and the banking system and the American economy collapsed, the bank managers still managed to reserve for them selves hefty million dollar packages in bonuses! That is capitalism at work.

g—To me, a non-economist, it is still a mystery why, even at this stage, the US Federal Reserve Bank wants to punish people for saving their money and encourages them to spend money.


14—QUESTION—What are your over-all thoughts and apprehensions about the US economic crisis?

ANSWER -- The US financial institutions threw caution to winds, for selfish business interests, while granting loans to people with poor repayment capacity. The consumerist culture of the West ensured that people continue to indulge in wasteful expenditure. One dangerous consequence of this is the current economic melt-down in the USA. During the past two years (2010 and 2011) European countries, especially Greece and Italy, have been facig severe economic crunch. On the other hand, the thrifty countries like China and India, where the people are culturally prone to save for the rainy day and not to spend beyond their means, have not suffered any significant economic melt down.

The present economic crisis must be managed prudently. If it persists, the USA, may be tempted to coin another clone of WMD and reward the world by another world war in order to oil its war machinery which has saved it in the past from economic depression. The only worry is that the war may turn into a world war, engulfing all.



M C Gupta
MD, LL.M.
27 September 2008; thoroughly revised, 10 February 2012