The United States comprises approximately 4.5% of the world’s population and consumes 25% of the world resources. According to the US department of Commerce, the 2008 deficit on international trade in goods and services was $677.1 billion. This is down from $700.3 billion in 2007 but still 4.7 percent of GDP. In order to cover the deficit of past years US has borrowed $ 11.338 Trillion from international sources. According to IMF report US Per Capita income for 2008 was estimated to be $ 47,000 compared to Congo with $328.
In an ideal world, with 4.5% of world’s population US should be consuming same amount or at the most 5% of world resources. Higher consumption of world’s resources was justified because of higher GDP and Per Capita income. In fact it was not the real wealth which pushed the US Per Capita income and GDP. It was result of manipulation by creating money which does not involve production of goods or provision of services and still adds up the GDP and Per Capita figures. The very basis of a capitalist economy!
For decades US has been cheating the world with shadow economic system in order to keep consuming more then it produces. The World was made to believe that Capitalism and so called free market economy is the engine behind prosperity. US did produced good, provided services and traded domestically and internationally. But the wealth generated through these activities is not that huge to bring its GDP that high. Based on real businesses their GDP might not sustain the repayment of $11.39 Trillion debts alone.
The US trade deficit being calculated as 4.7 percent of GDP might swell to 50% or even higher, in case calculated on basis of real business. What has sustained this manipulation is genius gambling on their indices. The Super rich, who run the scams like stock markets, hedge funds, currency exchanges and commodity markets managed to inflate the size of GDP and added in Per Capita. They are truly rich; they own private jets and islands. They earned huge profits and also earned big for their depositors to spend. This money is created without producing any goods or providing services. The money made through these activates is real and available to spend, thus adding to GDP.
Money earned from stock market has nothing to do with the real business of the corporation. Still one can make huge profits trading stocks. In fact 300 out of top 500 rich in US in 2007 were ‘traders’. The dividend paid to investors is very small, if the money is invested in real business. If a stock is trading at $ 1 a 10% dividend would be 10 cents. But if stock prices rises due to higher demand and goes to $10, the investor earns huge profits of 900%. Very easy to manipulate if you have money to do so – system provides the opportunity. The money earned from that activity does not involve any economic activity; it is simply a result of artificially created demand or supply or gambling. A stock selling 40 times the price of company’s projected profit is still thought to be normal. The size of markets is several times higher than the real value of the companies listed on stock market.
The fluctuation in stock price has nothing to do with real business being done by corporation. The markets are another type of casinos’. This gambling continuously ‘creates’ money and is available to spend. The money created from these ‘non business’ tactics keeps GDP and per capita figures higher. Hedge Funds are the major players manipulating markets. Around 8,000 Hedge Funds manage a total of $620 TRILLION. With such huge funds in their hands they can manipulate the prices and earn huge profits, thus returning their investors even up to 100% profits. The tax havens exempt them from submitting the accounts of their shady ‘businesses’. The whole system is basically crafted for rich to become super rich on expense of starving weak and poor around the world.
Banking system allows Hedge Funds to borrow 30 times more than the money their investors have deposited with them. Even after paying bank interests, the earnings from 30 times more than the real investor money earns them huge profits. Their investors would not be able to earn with their own money. Banks are allowed to lend more than they actually posses. Sometimes it is ten times more than their deposits money. This enables them to earn much more money than their investor’s deposits. The extra money earned is not real as it is ‘created’ by Banks and hedge funds. As the real wealth would involve the goods and services and economic activity which makes wealth circulate in society like blood circulates in body.
Similarly, banks would lend 30 times for currency trading, another non-business contributor in to GDP of US. This involves trading ‘non-existent’ money. The huge lending enables traders to manipulate price and create huge returns. In a real business the profit s would not be that great. The currency trade is estimated to be 30 times of world trade, so are the profits and manipulation. Then there are pyramid schemes like ENRON and Bernard Madoff, who was only exposed after $ 50 Billion were lost. They pay returns to investors’ money, actually without any business activity. However these ‘profits’ also add in to GDP.
Hedge Funds and Currency Traders can borrow 30 times more than investor deposits they earn huge profits. But so are the losses. The present crisis began when Hedge Funds were out of money as they lost many time more than their assets but were continuously paying their investors with huge returns to get more deposits and borrow 30 times more from banks. The extra losses were from the money borrowed from Banks. The Banks had lent several times more money for gambling than their depositor’s money. This pushed Banks in to Bankruptcy. The insurance companies which used to provide insurance cover to these banks on various instruments also became the victims as the losses exceed their total assets.
This entire cycle of ‘creating money’ out of thin air and adding to Per Capita income and GDP has created a ‘fake demand’ for goods and services. If the profits from these ‘artificial’ money schemes (several times the real GDP) are deducted from GDP figures, per capita income would be considerably lower. Since these profits ‘created’ out of no real activity are disappearing, there is less money available to be spent. This is pushing the legitimate production base to layoffs, which are further adding in to less demand. The entire infrastructure built on ‘plastic money’ through credit cards, which itself is not the money available with banks also fueled the demand. Since it is shrinking, it will further push down the ‘real-business’ as demand shrinks.
In ‘real-business’ world US economy might less than half the stated figures. The Deficit would be more than half of GDP. Since the money ‘creating’ apparatus has come to halt, there cannot be enough lending to cover such huge deficit while US keeps on consuming 1/4th of world resources. With the real GDP, the size of economy might not support debt servicing. Ultimately the manipulated GDP and free market economy is to collapse as it has no real basis. The rescue package might not helpful because of the size of disaster. Change in system might the only alternate, if proposed GM takeover by Workers Union and Chinese corporate succeeds, it might help people to think for a People’s Republic of United States