Paul Craig Roberts defends the "Real Economy"

Roberts argues that the crisis has hardly begun and that we better get our priorities in order:

GM’s divisions in Canada and Germany are asking those governments for help. It will be something if Canada and Germany come through for the American automaker and the American government doesn’t.

Conservative talking heads are saying GM is a “failed business model” unworthy of a $25 billion bailout. These are the same talking heads who favored pouring $700 billion into a failed financial model.

The head of the FDIC is trying to get $25 billion--a measly 3.5 percent of the $700 billion for the banksters--with which to refinance the mortgages of 2 million of the banksters’ victims, and Bush’s Secretary of the Treasury Paulson says no. Why aren’t the Democrats all over this, too?

Apparently, the Democrats still think they are the minority party or else their aim is to supplant the Republicans as the party of the rich.

Any bailout has its downsides. But if America loses its auto industry, it will lose the suppliers as well and will cease to have a manufacturing sector. For years no-think economists have been writing off America’s manufacturing jobs, while deluding themselves and the public with propaganda about a New Economy based on finance.

A country that doesn’t make anything doesn’t need a financial sector as there is nothing to finance.

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Budget deficits from 6 years of pointless wars and from unsustainable levels of military spending have helped to flood the world with dollars and to drive down the dollar’s exchange value. Consumers themselves are drowning in debt and can provide no lift to the economy. Millions of the best jobs have been moved offshore, and research, design, and innovation have followed them.

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Paulson should rethink the automakers’ and FDIC’s proposals. A bank produces nothing but paper. Automakers produce real things that can be sold. Occupied homes are worth more then empty ones.

Paulson’s inability to see this is the logical outcome of Wall Street thinking that highly values deals made over pieces of paper at the expense of the real economy.

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He was Associate Editor of the Wall Street Journal editorial page and Contributing Editor of National Review. He is coauthor of The Tyranny of Good Intentions.