In a recent interview, Dr. Paul Craig Roberts, former an Assistant Treasury Secretary in the Reagan administration and a Wall Street Journal columnist warned that the current economic system is “rigged” in favor of the big banks and that “It will definitely collapse; knowing exactly when, that’s the hard part.” He sees the potential for gold and silver prices to “explode.”

Roberts said there has been a “huge increase in the quantity of dollars as result of QE.” Normally if you print dollars, their value will fall. But Washington has the Europeans and Japanese print money, so the supply of all three increases, leading to no real change in the status of the dollar relative to other currencies. Most of the money stays in the banking system, not entering the economy, so we don’t get higher inflation. The dollar is stabilized, but how long can that go on?

In terms of the real economy, he said, there is “little of it left.” Most of the US manufacturing base has moved offshore, mostly to China, and now technology and information jobs are following suit. The erosion of middle-class jobs, Roberts said has “Dismantled the ladders of upward mobility.” With that erosion, income and wealth distribution is now worse in the US than in about half the Third World. It also destroyed the consumer economy, since consumer income can’t grow because “College graduates can’t find middle class jobs.” One indication of this erosion of the middle class is that 50% of 25-year-old Americans are living with their parents.

Roberts charged that the unemployment rate is rigged, because “it does not contain a single discouraged worker.” There are huge numbers of such workers and the labor participation rate has been declining for years. “That is not consistent with recovery,” he said. If there was a recovery, people would be entering the workforce seeking jobs. The jobs that have been created are part-time jobs and low paid. “The situation,” he said, “is really horrific.”

The last job report, he said, showed that “all of the increase in employment went to the age group 55 and older. Whereas the people in the prime working group. . .lost 180,000 jobs.” He said older people have to take such low-paying jobs because with interest rates so low, they have no income on their savings.

When this phenomenon first appeared, Fed Chair Alan Greenspan substituted consumer debt for consumer income. With a credit boom, people refinanced their homes, taking out equity created by Greenspan’s low interest rates, which led to a debt-based consumer demand; but that demand “ran out of steam,” because you can’t increase debt indefinitely.

Roberts explained that the Fed can print all the money it wants to buy bonds to keep interest rates low and it can print money to buy S&P futures when stocks begin to fall. But the Fed can’t print foreign currencies to stop a falling dollar. If the Fed loses the support of foreign banks and they end swap agreements, the system “will collapse.”

Roberts predicts that the crisis will come when the Chinese, BRICs and other countries cash in their bonds for dollars, but what do they do with their dollars? If they dump the dollars on the foreign exchange market, Robert asked, “How can the Fed maintain the dollar’s value? It can’t.”

Foreigners dumping US dollars will not want to buy dollar-denominated stocks. If foreigners buy gold or silver, the Fed can handle that, because they can control the price through paper contracts in futures market. The Fed has trader’s print endless contracts of uncovered short contracts, which they dump into the gold and silver markets to drive down the price. Roberts said, “The rest of the world is accumulating gold and silver hand over fist.” The US and Canadian mints have rationed or suspended delivery because there is such a shortage of gold and silver. But, “If all the Chinese and Indian dollar holdings go into gold and silver,” Roberts predicted, “the price will explode.”

Roberts charged that “The authorities are in cahoots with the big banks.” The secretaries of the US Treasury, members of the Fed and the heads of federal regulatory agencies are all ex-big bank executives. He said, “It is a situation run for the benefit of the big banks,” which has resulted in massive financial concentration. “The economy is run for them, not for the people. That is why there’s no recovery.” In 2004, Roberts predicted the US would be a Third World Country in 20 years, and “We’re a lot closer to it already than I ever thought.” He already sees Third World characteristics in the US, such as a collapsing infrastructure. It has been a slow process, so people have become accustomed to it, and don’t think that there might be another way, nor do they see who is responsible.

By Patrick MontesDeOca