California State Controller John Chiang announced on January 26 that California's bills exceed its tax revenues and credit line and that the state is going to print its own money known as IOUs. The template is already designed.
Instead of receiving their state tax refunds in dollars, California residents will receive IOUs. Student aid and payments to disabled and needy will also come in the form of IOUs. California is negotiating with banks to get them to accept the IOUs as deposits.
California is often identified as the world's eighth largest economy, and it is broke.
A person might think that California's plight would introduce some realism into Washington, DC, but it has not. President Obama is taking steps to intensify the war in Afghanistan and, perhaps, to expand it to Pakistan.
Obama has retained the Republican warmongers in the Pentagon, and the US continues to illegally bomb Pakistan and to murder its civilians. At the World Economic Forum at Davos this week, Pakistan's prime minister, Y. R. Gilani, said that the American attacks on Pakistan are counterproductive and done without Pakistan's permission. In an interview with CNN, Gilani said: "I want to put on record that we do not have any agreement between the government of the United States and the government of Pakistan."
How long before Washington will be printing money?
On January 28 Obama announced his $825 billion bailout plan. This comes on top of President Bush's $700 billion bailout of just a few months ago.
Obama says his plan will be more transparent than Bush's and will do more good for the economy.
As large as the bailouts are—a total of $1.5 trillion in four months—the amount is small in relation to the reported size of troubled assets that are in the tens of trillions of dollars. How do we know that by June there won't be another bailout, say $950 billion?
Where will the money come from?
Obama's bailout plan, added to the FY 2009 budget deficit he has inherited from Bush, opens a gaping expenditure hole of about $3 trillion.
Who is going to purchase $3 trillion of US Treasury bonds?
Not the US consumer. The consumer is out of work and out of money. Private sector credit market debt is 174% of GDP. The personal savings rate is 2 percent. Ten percent of households are in foreclosure or arrears. Household debt-service ratio is at an all-time high. Household net worth has declined at a record rate. Housing inventories are at record highs.
Not America's foreign creditors. At best, the Chinese, Japanese, and Saudis can recycle their trade surpluses with the US into Treasury bonds, but the combined surplus does not approach the size of the US budget deficit.
Perhaps another drop in the stock market will drive Americans' remaining wealth into "safe" US Treasury bonds.
If not, there's only the printing press.
The printing press would turn a deflationary depression into an inflationary depression.
Unemployment combined with rising prices would be a killer.
Inflation would kill the dollar as well, leaving the US unable to pay for its imports.
All the Obama regime sees is a "credit problem." But the crisis goes far beyond banks' bad investments. The United States is busted. Many of the state governments are busted. Homeowners are busted. Consumers are busted. Jobs are busted. Companies are busted.
And Obama thinks he has the money to fight wars in Afghanistan and Pakistan.
Except for the superrich and those banksters and CEOs who stole wealth from investors and shareholders, Americans have suffered enormous losses in wealth and income.
The stock market decline has destroyed about 45% of their IRAs, 401Ks, and other equity investments. On top of this comes the decline in home prices, lost jobs and health care, lost customers. The realized gains in mutual funds and investment partnerships, on which Americans paid taxes, have been wiped out.
The government should give those taxes back.
Americans who have seen their retirement savings devastated by complicity of government regulators and lawmakers with financial gangsters should not have to pay any income tax when they draw on their pensions.
The financial damage inflicted on Americans by their own government is as great as would be expected from foreign conquest. While Washington "protected" us from terrorists by fighting pointless wars abroad, the US economy collapsed.
How can President Obama even think about fighting wars half way around the world while California cannot pay its bills, while Americans are being turned out of their homes, while, as Business Week reports, retirees will work throughout their retirement (which assumes that there will be jobs), while careers are being destroyed and stores and factories shuttered.
Americans are facing tremendous unemployment and hardship. Obama doesn't have another dollar to spend on Bush's wars.
Taxpayers are busted. They cannot stand another day of being milked by the military-security complex. The US government is paying private mercenaries more by the day than the monthly checks it is providing to Social Security retirees.
This is insanity.
The banksters robbed us twice. First it was our home and stock values. Then the government rewarded the banksters for their misdeeds by bailing out the banksters, not their victims, and putting the cost on the taxpayers' books.
The government has also robbed the taxpayers of $3 trillion dollars to fight its wars. About $600 billion are out of pocket costs, and the rest is on the taxpayers' books.
When foreign creditors look at the debt piled on the taxpayers' books, they don't see a good credit risk.
Washington is so accustomed to ripping off the taxpayers for the benefit of special interests that the practice is now in the DNA. While bailouts are being piled upon bailouts, wars are being piled upon wars.
Before Obama gets in any deeper, he must ask his economic team where the money is coming from. When he finds out, he needs to tell the rest of us.
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan's first term. He was Associate Editor of the Wall Street Journal. He has held numerous academic appointments, including the William E. Simon Chair, Center for Strategic and International Studies, Georgetown University, and Senior Research Fellow, Hoover Institution, Stanford University. He was awarded the Legion of Honor by French President Francois Mitterrand. He is the author of Supply-Side Revolution : An Insider's Account of Policymaking in Washington; Alienation and the Soviet Economy and Meltdown: Inside the Soviet Economy, and is the co-author with Lawrence M. Stratton of The Tyranny of Good Intentions : How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice. Click here for Peter Brimelow's Forbes Magazine interview with Roberts about the recent epidemic of prosecutorial misconduct.