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We begin with a parable: Driven to the streets after a run of relentless misfortune, a man took up station on a street corner holding a hand-lettered sign stating: "Will work for food."

Most pedestrians and motorists passed the desperate man without so much as a second's worth of thought. One exception was a well-dressed businessman, who read the sign while waiting for the street light to change. But burdened by thoughts of his own concerns, the businessman gave in to a moment of imprudent sarcasm.

"You 'work for food'? I work for Visa!" he exclaimed to the sign-bearing man. "I'm working for food I ate years ago!" After getting the green light, the businessman launched one last unworthy gibe: "You're not broke ? you're even!"

The homeless man eventually found a steady job paying just enough for him to get by and save a little money. His employer, a large and amoral conglomerate paying most of its employees subsistence wages, used its workers' savings (which the conglomerate controls) to make loans to spendthrifts like the heavily leveraged businessman ? people who continued to live well beyond their means by stretching their credit lines well past the breaking point. At the same time, the conglomerate quietly used its expanding financial holdings to buy up practically everything in sight.

Eventually, the loans were called in, the debtors were unable to pay, and the businessman found himself ? along with many of his fellow spendthrifts ? working for that same predatory conglomerate. His earnings and standard of living were "harmonized downward" to those of the homeless man whose plight he had once mocked.

Adapted from a stand-up routine broadcast on Comedy Central about a decade ago, this parable is not intended to inspire mockery of the homeless or other unfortunate people. It's intended to encourage a realistic appraisal of our national economic condition. Think of the homeless man as symbolizing the poor but industrious Chinese population, willing and eager to work for a fraction of what Americans earn, and the businessman as a stand-in for an American population whose prosperity is largely a debt-enhanced illusion.

The conglomerate, of course, is the entity upon which our nation and our government have become increasingly dependent to underwrite that pseudo-prosperity: the Communist Chinese regime, which is rapidly acquiring the means quite literally to buy our country out from underneath us.

Indeed, the process of selling off public assets to foreign interests is already underway.

In June, for example, a Spanish-Australian conglomerate paid $3.8 billion to lease the Indiana Toll Road. Transfer of electronic tolling equipment began in August, and by fall it is expected that the new foreign owners will be collecting tolls once paid by Indiana residents to their own state government. And similar deals are being struck by states and municipalities across the country.

"Roads and bridges built by U.S. taxpayers are starting to be sold off, and so far foreign-owned companies are doing the buying," reported the Associated Press on July 15. At present the main foreign players in these deals are companies based in Australia and Spain. But as China accumulates ever-increasing quantities of depreciating dollars, it will start looking for tangible goods in which to invest those dollars. And as we will see, some analysts in this country are suggesting that we should welcome Chinese "direct investment" in our country as a way of closing our imponderably huge "fiscal gap."

Beijing Buyout

"Without Chinese support, the dollar would have already collapsed, bond yields would have soared, and the U.S. economy would already be in a recession, if not a depression," observe Bill Bonner and Addison Wiggin in their study Empire of Debt: The Rise of an Epic Financial Crisis. "Where does the money come from? The Chinese get the dead presidents from selling products to live Americans, who seem ready to consume anything that comes their way. First, the dollars come rolling off U.S. printing presses, then they make their way into the hands of Chinese and other manufacturers, and finally, they are returned to their birthplace as loans. China is fast becoming America's 'company store,' to whom we owe our standard of living and maybe even our soul."

By accumulating hundreds of billions of dollars in their foreign-exchange holdings, the Chinese are acquiring the power to define our nation's economic destiny. At some point, perhaps very soon, Beijing will have the ability to decimate our currency by selling off its dollar-denominated bonds. But this would inflict severe damage on China's economy as well, making that option the economic equivalent of a suicide-bomb attack.

A better approach, from Beijing's perspective, would be to take its huge and expanding supply of depreciating dollars and invest them in tangible productive assets. In recent years, China has been following that approach in the Western Hemisphere. During his 2005 tour of Latin America, President Hu Jintao inked lucrative energy and resource deals with Brazil, Argentina, and Venezuela. In January, China completed a deal with Canada for joint development of Alberta's uranium mines and oil sands.

With Beijing using its dollar hoard to buy up assets in both South America and Canada, what's to stop it from buying up the U.S.A. ? a debt-plagued country with vast natural resources, the world's best transportation system, and a huge (and increasingly idle) manufacturing base?

Horrifying as the prospect of a Beijing buyout would be to most Americans, the concept is being discussed, in principle, by some policymakers as a solution to our impending ? and all but inevitable ? national bankruptcy.

How Big Is the Deficit?

"The federal government keeps two sets of books," noted USA Today for August 3. "The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005." An "audited financial statement produced by the government's accountants following standard accounting rules" discloses that the actual deficit for 2005 was $760 billion," continues the paper. And if the costs of Social Security and Medicare were included in the total, as any honest accounting would require, "the federal deficit would have been $3.5 trillion."

That's the annual deficit ? not the national debt. In what sense is a deficit of nearly one-third of a trillion dollars "healthy"? In roughly the same sense that congestive heart failure is "healthier" than a sucking chest wound: Both are lethal if untreated, but the latter will kill much more quickly.

"We're a bottom-line culture, and we've been hiding the bottom line from the American people," complains Rep. Jim Cooper (D-Tenn.), a former investment banker who offered a draft resolution ? supported by congressmen on both sides of the aisle ? to require the president to include audited spending and deficit numbers in his budget proposals. "It's not fair to [the people], and it's delusional on our part." That Washington has invested heavily in the preservation of that delusional system is illustrated by the fact that Rep. Cooper's proposal for honest accounting wasn't even considered by the Senate.

Official Washington remains determined to conceal the size of the "fiscal gap" ? a figure that includes not only the existing national debt, but also future commitments, such as Medicare and Social Security. A 2005 report compiled for the National Bureau of Economic Research by economists Jagadeesh Gokhale and Kent Smetters concluded that the fiscal gap is $65.9 trillion, and growing.

The "fiscal gap," explains Professor Laurence J. Kotlikoff of Boston University, offers the most telling measure of a country's solvency. If the "fiscal burdens facing current and future generations ... exceed the resources of those generations, get close to doing so or simply get so high as to preclude their full collection, the country's policy will be unsustainable and can constitute or lead to national bankruptcy."

By any rational reckoning, the United States has already reached that point.

The estimated fiscal gap of $65.9 trillion "is more than five times U.S. GDP and almost twice the size of national wealth," Kotlikoff continues. "One way to wrap one's head around $69.5 trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143 percent."

Beijing as "Savior"?!

These details are offered by Dr. Kotlikoff in Is the United States Bankrupt?, a recently published paper commissioned by the Federal Reserve Bank of St. Louis. To begin closing the fiscal gap, Kotlikoff urges imposition of a national sales tax to replace existing income, payroll, and estate taxes; phasing out the existing Social Security Program in favor of a Personal Security System into which all workers would be required to give 7.15 percent of their wages into an investment fund managed by the Social Security Administration; and abolishing Medicare and Medicaid in favor of a "Medical Security System," under which Americans would receive "an individual-specific voucher to be used to purchase health insurance for the following calendar year."

Kotlikoff believes that these radical reforms would dramatically reduce the level of current federal spending ? which is, at best, a debatable assumption. In any case, a fiscal gap still remains that can only be closed through additional revenues. How is it to be overcome?

Some relatively optimistic commentators insist that increased productivity ? working smarter, rather than harder ? will lead to consistent growth in the U.S. Gross Domestic Product. Kotlikoff, after crunching the numbers, doesn't buy into this assessment.

"Were productivity growth a certain cure for the nation's fiscal problems, the cure would already have occurred," Kotlikoff points out. "Assuming the United States could restrain the growth in its expenditures ... is there a reliable source of productivity improvement to be tapped? The answer is yes, and the answer lies with China."

"Not only is China supplying capital to the rest of the world, it's increasingly doing so via direct investment," he points out. "For example, China is investing large sums in Iran, Africa, and Eastern Europe." Given that China holds hundreds of billions of dollars in its foreign exchange reserve, the question for the United States "is whether China will tire of investing only indirectly in our country and begin to sell its dollar-denominated reserves. Doing so could have spectacularly bad implications for the value of the dollar and the level of U.S. interest rates."

Another possibility presents itself, however: China could use its dollar hoard to buy valuable assets within the United States. In other words, rather than dumping its dollars, China could use them to buy up the United States.

"Fear of Chinese investment in the United States seems terribly misplaced," Kotlikoff writes soothingly. "With a national saving rate running at only 2.1 percent ? a postwar low ? the United States desperately needs foreigners to invest in the country. And the country with the greatest potential for doing so going forward is China." In fact, China could emerge as "the world's saver and, thereby, the developed world's savior with respect to its long-run supply of capital."

The Buyout Begins

Unlikely as it may seem that foreign interests could buy our country out from beneath us, the process is already underway.

"On a single day in June," reported the AP on July 15, "an Australian-Spanish partnership paid $3.8 billion to lease the Indiana Toll Road. An Australian company bought a 99-year lease on Virginia's Pocahontas Parkway, and Texas officials decided to let a Spanish-American partnership build and run a toll road from Austin to Seguin for 50 years. Few people know that the tolls from the U.S. side of the tunnel between Detroit and Windsor, Canada, go to a subsidiary of an Australian company ? which also owns a bridge in Alabama." These are just a few examples of how roads and bridges built with U.S. taxpayer dollars are starting to be sold off, and so far foreign-owned companies are doing the buying.

State and local governments are strapped for cash and relatively limited in the financial tools at their disposal. (While they can float bond issues, for instance, they cannot simply write blank checks that are covered by new money printed by the Federal Reserve.) Thus many of them, lured by the prospect of a quick influx amounting to billions of dollars, have put public assets ? highways, airports, utilities, and even state-run lotteries ? on the auction block.

While this approach offers a short-term remedy for state and local governments, it leaves the public facing the worst of both worlds: the prospect of increased taxes to cover rising local expenses, plus paying fees and tolls to foreign companies that are, in effect, absentee landlords over what had been locally controlled infrastructure. Referring to the sale of a 75-year lease over the Indiana Toll Road to an Australian-Spanish consortium, Democratic state Representative Patrick Bauer summarized the lose-lose proposition: "In five, maybe 10 years, all that money is gone, and the tolls keep rising and the money keeps flowing into the foreign coffers."

Last winter, much of the United States was figuratively up in arms over the prospect of an executive branch deal to permit Dubai, one of the United Arab Emirates (UAE), to operate U.S. port facilities. This was seen, with just reason, as a potentially disastrous breach of national security, since it would put our port security in the hands of a company owned by a government cozy with al-Qaeda. Yet less than six months later, Congress enacted a "free-trade" agreement with Oman ? which borders Yemen, Saudi Arabia, and the UAE ? that would permit government-controlled companies in that Arab nation to own and operate U.S. ports.

Not surprisingly, China ? which now controls the most crucial port facilities in the hemisphere, the "anchor ports" to the Panama Canal ? is looking to build on that advantage, and it has cash-hungry politicians across the country lining up to help.

In late July, three members of the Dallas City Council ? Ed Oakley, Bill Blaydes, and Ron Natinsky ? traveled to China to discuss a possible joint venture involving building and operating a shipping, storage, and distribution facility located inland for the purpose of relieving congestion at seaside entry ports, called the "Inland Port of Dallas," described by Traffic World as the "linchpin of a new NAFTA corridor." (The nascent Dallas port facility already has a working relationship with the Chinese-controlled Panama Canal Authority.) "Dallas hopes to become the place where East meets West ? literally," notes the publication. "It seeks Asian imports in containers shipped from Los Angeles and Long Beach and intermodal freight moving north from Mexico on the proposed $180 billion Trans-Texas Corridor, or 'TTC.'"

This explains the pilgrimage of Dallas councilmen to Beijing to court China's favor. Houston's city government has also made a pitch to China. Both Houston and Corpus Christi are reportedly offering Beijing access to ports on the Gulf of Mexico, and China is reportedly in negotiations to lease Kelly Air Force Base, which was converted into an industrial park about five years ago.

But these developments in Texas are just "part of a larger battle that involves cities such as Kansas City, Missouri; St. Louis; Memphis, Tennessee; and even Indianapolis, all of which hope to use transportation and logistics assets to become the next big North American Gateway for Asian imports," concludes Traffic World.

Beijing, U.S.A.

But we're not just talking about importing inexpensive Chinese-made consumer goods. Remember the process described by Bonner and Wiggin in Empire of Debt: dollars are printed by the Federal Reserve, which are spent on Chinese-made goods, and end up being sent back to the United States as loans, which are used to buy more Chinese-made goods.

We've reached the point in this process where American politicians are literally begging Beijing to be taken on as business partners. And if Laurence Kotlikoff's recommendations prove attractive to policymakers, our government will come to embrace "direct investment" from China as the key to staving off utter insolvency.

What this could mean, in practical terms, is that the debt-wracked American middle class would suffer the fate of the businessman in our parable.

Serf's Up
by William Norman Grigg

During the late 1990s, abetted by the Federal Reserve's loose money and easy credit policies, an unprecedented number of Americans invested money in the stock market, many of them seeking a quick fortune in "dot-com" tech stocks. The Fed continued its inflationary policies following the 2000 bursting of the "dot-com" bubble, which wiped out trillions of dollars in speculative wealth.

The result was a nationwide housing and mortgage refinancing bubble, with artificially low interest rates permitting millions of borderline or unqualified borrowers to get mortgage loans on almost concessionary terms. Escalating demand for new homes drove home prices skyward, permitting debt-plagued households to take out second or even third mortgages against the inflated value of their homes in order to pay off high-interest debt, such as credit cards and car payments.

After the Fed reversed course and raised interest rates, the Hindenburg-sized real estate bubble backed into a nest of porcupines. Mortgage foreclosures surged 72 percent in the first quarter, as compared to a year ago. Last February, Wayne County, Michigan, financially crippled by the ongoing demise of General Motors, was the site of a spectacle out of the Great Depression: a Wednesday foreclosure auction of 379 homes in 35 minutes. During one 60-second stretch, 11 houses were auctioned away.

In June, reported the August 7 Wall Street Journal, "total single-home sales fell 8.7% from a year earlier." This was the sharpest decline since April 1995, when the Fed began its recent inflationary binge. While some analysts insist that the housing/mortgage industry will enjoy a "soft landing," Ian Shepherdson, chief U.S. economist at High Frequency Economics, is more realistic: "It's a 15-year bubble unwinding in two years. It's going to hurt."

And because our consumer economy now effectively rests on the housing/mortgage refinancing bubble, its collapse will inflict greater hurt on more people than any similar financial catastrophe in our nation's history.

"Never before have so many Americans gone so deeply into debt so willingly," warns Dr. Michael Hudson of the University of Missouri-Kansas in "The New Road to Serfdom," published in the June issue of Harper's. "Housing prices have swollen to the point that we've taken to calling a mortgage ? by far the largest debt most of us will ever incur ? an 'investment.'... In the odd logic of the real estate bubble, debt has come to equal wealth."

Hudson points out that right now "more people owe more money to banks than at any other time in history. And that's not just in terms in dollars ? $11.8 trillion in outstanding mortgages ? but also as a proportion of the national economy. This debt is now on track to surpass the size of America's entire gross domestic product by the end of the decade."

Tens of millions of Americans have been lured into mortgages by artificially low interest rates and the perverse notion that over-valued homes can serve as ATMs. Now that rates are rising and values are falling, those who bought into the bubble because of "the promise of 'economic freedom' almost certainly will end [up] ... locked into a lifetime of debt service that absorbs every spare penny," predicts Dr. Hudson. Rather than enjoying financial security, they "will find out that what they really signed up for was the hard servitude of debt serfdom."