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Dawn Bennett, Host of Radio Show "Financial Myth Busting," Interviews Paul Craig Roberts, Assistant Secretary of the Treasury Under Reagan


Washington, DC -- (ReleaseWire) -- 03/07/2016 --DAWN BENNETT: Paul Craig Roberts was Assistant Secretary of the Treasury under Reagan and is also a former editor and columnist for The Wall Street Journal and Business Week. Today he is the Chairman of the Institute for Political Economy, as well as the author of The Tyranny of Good Intentions: How Prosecutors and Bureaucrats Are Trampling the Constitution in the Name of Justice which came out in 2008, 2012's, How the Economy Was Lost: The War of the Worlds, and in 2013 The Failure of Laissez Faire Capitalism and Economic Dissolution of the West. President Obama on Friday gave a speech celebrating the 7th anniversary of the Stimulus Bill, which seems an odd thing to celebrate. Yet, Obama claim that no credible economists believe America's economy would have recovered where it not for the massive $800 billion Spending Bill. Paul, you are a credible economist. Did the stimulus save America? And by the way, welcome to Financial Myth Busting.

ROBERTS: Thank you. No, it didn't. It did not save America.

BENNETT: Obama is often talking about how the actions he's taken as the president saved the economy, but you've written about how what they did was to create the illusion of a recovery, when the actual economy never really recovered. Can you explain why? Why is it that the Fed shows us numbers that point to recovery, but every struggling person out there in the real world feels like things are just getting harder and harder?

ROBERTS: OK, I will. That's a very good question. First I'll preface it with pointing out that the American economy has been severely damaged by a couple of decades of offshoring middle-class jobs. They started with the middle-class manufacturing jobs, and then they added to that the offshoring of professional, skilled jobs, such as software engineering, information technology, design. And as a consequence, there's been no growth in the real median family income in the United States for a couple of decades. So when the income of the people is not growing, except for the 1%, there's no increase in aggregate consumer demand. And since the economy is driven by consumer spending, the inability of income to grow means that people don't have any gains in income to spend.

Initially, the gap was filled under Fed chairman Alan Greenspan, by greatly expanding consumer debt, particularly mortgage debt. But there's a limit to how far you can expand debt when income's not growing, and that limit has been reached, and we saw the blow-up in the end of 2007, during 2008. And now, in every sense, there's been nothing to drive the economy. The great increase in the Federal Reserve's balance sheet, the roughly 3.5 to 4 trillion dollars newly created, that all went into bank reserves; it didn't find its way into the economy, or not much of it did. And so what has produced the image of a growing, emerging economy? One thing is they no longer produce accurate measures of inflation. They use what's called a substitution principle, so that an item in the basket of goods that's used to measure inflation, that item goes up in price, they throw it out of the basket and stick in a lower priced substitute, so that the inflation index no longer measures a constant standard of living; it measures a falling standard of living. Well, if you underestimate inflation, then that means when you deflate the nominal gross domestic product figure to get a real number, the real growth in output, you overestimate the real growth. And so that's how they produce positive growth. The way they produced the fall in the unemployment rate is simply to exclude discouraged workers from being counted as unemployment. If you haven't looked for a job in the last four weeks, you're not considered to be in the workforce, and therefore are not counted as unemployed. That's how they get this 5 percent figure. There is a second government measure called U6 that measure short-term unemployed, and that rate of unemployment is 10 percent. There is a third measure, which includes long-term unemployment. The government once measured that; they no longer do, but some experts still do. And if you include long-term, discouraged workers, the current unemployment rate in the United States is 23 percent, which is clearly not a recovery.

BENNETT: The Wall Street Journal reported on Friday that in 36 states, the unemployment rate remains at elevated pre-recession levels. And Bloomberg said that Alaska, North Dakota, West Virginia, and Wyoming are already in a recession. Do you think the rest of the dominoes are about ready to fall?

ROBERTS: Well, actually they've been in a recession since the downturn, probably before. There's never been a recovery in the first place, so they've never gotten out of recession. You see, the absolute, total proof of this is the long-term, continuing decline in the labor force participation rate. It's been falling all during this period of recovery. This is an anomaly. When you have an economic recovery, the presence of jobs pulls people into the workforce, and so the labor force participation rate rises; it doesn't fall during a recovery. It never has. So that's just another indication that there's never been a recovery. I think what's happening now is the ability to hide the facts is running out. The Federal Reserve itself released a study a couple of months ago that 50 percent of American 25-year-olds had to live at home, in their childhood rooms, with their parents, because they can't get jobs, or they can't get jobs that pay sufficiently for them to live an independent existence. Well, if you've got half of the young generation that has to live at home with their parents, clearly there's not an economy there.

BENNETT: Right. Earlier this week, Obama spoke at the White House and was asked about the debt and the 14 million jobs he created. And after explaining his view, saying deficit spending is needed to save economies during crises, Obama went on to say he's cut the deficit two-thirds, thanks to spending cuts and growing economy, and I want to get your take on this. Have a listen:

[clip starts]

OBAMA: "The good news is that since I came into office, we've reduced the deficit by two-thirds. That is a combination of the recovery, which brought in more tax revenue, raising taxes on the top 2 percent, which everybody claimed was going to be a jobs killer, but we've now had 14 million jobs created, or more, essentially over the last six years. And we've made some cuts in spending, and all of that has led to a two-thirds reduction..."

[clip ends]

BENNETT: And then he ends up by saying that's how our budget is going to reflect this two-thirds reduction. What do you think of that type of commentary coming from Obama this week?

ROBERTS: Well, there's a contradiction between saying that the deficit caused the recovery and that they are reducing the deficit, a contradiction in terms of the traditional change in demand management policy over the post-World War II era. So since we have a smaller labor force, it's kind of hard to say we've had 14 million new jobs. But, of course, the population grows monthly. I think the last figure I saw was economists of the traditional type say it takes about 130,000 new jobs every month just to stay even with population growth. So when you take the job figures he announced and you adjust them for staying even with population growth, they don't look so good anymore. And moreover, increasingly these jobs are part-time jobs. And one of the reasons for the number of jobs is that, for example, retail stores, say, department stores, they want to add regular, full-time employees, but now they eliminate those, because it removes the cost of benefits, and they replace them with multiple part-time employees. So what's really happening, and part of this jobs growth, is that you're losing full-time jobs that sustain an independent existence and some benefits, and you're replacing them with part-time jobs that people have to hold two or three of.

BENNETT: If the economy continues to slide, and a painful recession becomes the dominant story of 2016 across America, how do you actually see that affecting American voters and the presidential race?

ROBERTS: Well, I think we're headed for social instability, because you have to take into account also the retired element of the population has had no income on their savings for seven years. When you have near zero or zero interest rates, or actually negative—if you have proper measures of inflation, interest rates are negative—and no one can supplement their retirement income from income on their savings, then they have to draw down their capital. And if these same grandparents are having to support children and grandchildren, grandchildren who can't get jobs, children who've lost jobs or have been downgraded, then what you see leaving the system is all the fat or the surplus that provided adjustment capabilities for families. So as that's used up, as people are forced to consume savings, private savings, then the instability becomes sudden and very bad. Suddenly there's no support within families for members of families.

BENNETT: Does it feel like, to you, that the day of reckoning in our economy and our market place is almost imminent? We don't have the anchor of a gold standard anymore to our dollar. We've got a lot of financial imbalances, and debt creation is still growing. Do you think a kind of historic crash is just around the corner?

ROBERTS: Well, I think that it's a house of cards. There has not been a recovery, as far as I'm concerned, from the downturn in 2008, and so the recession continues, and I think we're about to have another leg of that. Wherever you look, you see shipping is stopped, rail traffic, trucking. And the jobs that they report, these payroll jobs, they're largely artifacts of what they call the birth-death model, which adds in, arbitrarily, every month, anywhere from 50,000 to 100,000 jobs. They add those based on the assumption that more jobs that are unreported are created by new business start-ups than are lost by unreported business failures, and so they add that number in. And then they also play all kinds of games with the seasonal adjustment numbers, and produce jobs in that way. It's entirely possible that none of those jobs are really there, because people don't find it easy to get a job.

BENNETT: That's right.

ROBERTS: And we see that with the decline in the labor force participation rate. So what they're doing is fooling people. They issue fake inflation numbers, fake employment numbers, fake job numbers, and then the Federal Reserve uses the economic policy to keep the financial markets up and to keep big banks stable. The whole point of quantitative easing and all that money creation was not to help the economy.

BENNETT: Thanks, Paul.

For over a quarter century, the experienced advisors of Bennett Group Financial Services, LLC have been successfully guiding clients through the complexities of wealth management. Bennett Group Financial Services provides individual investors, corporations and foundations with holistic investment strategies using unique portfolio solutions across a breadth of asset classes. Our unique vision and insight into market trends makes Bennett Group Financial Services a much sought after expert resource with regular appearances on Fox News Channel, CNBC, Bloomberg TV, and MSNBC as well as being featured in Business Week, Fortune, The NY Times, The NY Sun, Washington Business Journal in addition to our highly regarded weekly talk radio program - Financial Mythbusting. Through attentive service and prudent, thoughtful advice, Bennett Group Financial Services, LLC strives to consistently provide its clients with the highest quality of guidance and personalized service available.

About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program called Financial Myth Busting

She discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included rock legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN a as well as take podcasts on the road and forums for interaction.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett.