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| (German woman, burning Weimar Reichsmarks - 1930's) |
Since 1978, we have allowed our government to deregulate our banking system - this means that there's no government-oversight for loans, reserves, or much else.
The 'miracle' of the economic recoveries from the twin recessions of the early '80's and early '90's was a near-300% increase in the national debt. (No, it wasn't 'trickle-down economics' - Reagan and Bush literally printed the money, by virtue of selling American debt-paper to the Chinese and the east Indians).
The U.S. currency is now worth 23% less than it was in 1995.
These three alone are bad enough - but it gets worse.
The 'Perfect Storm' I mentioned yesterday - the deregulation of the banks, coupled with low interest-rates -- allowed the banks to write loans to anyone, for anything. We should understand that money has no value unless it's 'working' - that is, unless it's put in the hands of people who use it to generate more wealth. However, with no regulation, we allowed the banks to shove all of this 'new' money into the hands of some pretty irresponsible people - mortgage 'brokers' (who, two weeks before were teaching High School social-studies, or working in a computer store); securities 'traders' (who promptly used it to buy 'derivatives' and other worthless paper) - along with a lot of other similarly-behaved people who are outside the purview of this post.
The result was that we allowed them to create a 'bubble' -- actually, several of them -- mainly in housing and securities - as all of this money went chasing obvious places for a quick-turn and a profit for the people who were doing the 'pushing'.
Loan officers everywhere operated on the same morals as 1960's-era drug-pushers -and the whole country was addicted to artificially-cheap money.
A few of us said it couldn't last. We were shouted down.
By the time the cracks started to appear in the plaster toward the middle of '06, it was already too late to do much about it. When the bubble began to burst in the most-oversold regions of the country, the train had left the station for good.
Now, we're in a bad way.
How bad?
-- The United States is, for all intents and purposes, a colony of China and east India. We sell them raw materials (and money which, ironically, we borrowed from them in the first place) and import finished goods.Put another way, the U.S. no longer exercises any control over its financial affairs. With Hillary Clinton going to China to beg them to fund Obama's bailout as her first official trip overseas, a clear message was sent to those who cared to see it -- without Chinese money, the U.S. economy cannot be revived. The twin collapse of housing and employment is a self-reinforcing act. Without jobs, foreclosures increase - without production, jobs cannot be created. The only trend, at least for now and absent any miracles - is down.
-- The unfunded liabilities of the United States (amounts promised by the government to the people in the form of transfer payments like Social Security, Medicare, and the like), now exceed $60 trillion dollars - this is an amount which can, in the view of Lawrence Kotlikoff, a Federal Reserve economist and professor of economics at Boston University, never be paid. (His actual statement is that the U.S. is 'actuarially bankrupt'. His full article is here).
-- Total public and private debt is now 300% of our GDP - half again as high as it was in 1929.
-- 10,000 homes go into foreclosure every day.
-- 20,000 jobs are lost every day.
Where does this all end?
First, Obama's efforts in shoving more borrowed money at the economy is akin to fighting a fire with gasoline. Lowering interest rates in the face of what we now see is probably the worst thing the Fed could have done - but Bernacke studied the Great Depression, and is eager to use his theories to prove himself right.
There are larger forces at work here, however, than the Federal Reserve and Obama's efforts to bail out industries.
The forces we should really study are the ones which caused the problem in the first place. You see, America is facing its very own "Weimar Moment" (in the words of author Robert Freeman - his recent article is here - and while I don't agree with all of his conclusions, there are some which bear scrutiny).
First, the basic tenets of Neoconservatism - -that the free-market is sacred, and that those who run those segments of the market which deal with finance are operating in the best interest of everyone - are bogus.
We've learned that when government (1) deregulates banking, and (2) lowers interest rates, the people who are charged with loaning the money will do so not responsibly, but in a manner which generates short term profits and which leads to 'bubbles' in the economic fabric. They make money. Everyone else suffers eventually. (This, by the way, is the real reason why AIG, GM, BofA and so many others are requiring 'bailouts').
Secondly, we've learned that when the people exercise their last remaining right - the vote - our choices are limited by a political machine which is also self-perpetuating.
Thirdly, we've learned that the party and philosophy which was ousted will not go gently - they'll do everything they can to prevent the success of those who were elected (if you believe that's not true, just go visit some of the Neocon and right-wing 'groups' on any of the social-services like Facebook and Multiply, or elsewhere on the 'net).
Insanity, I'm told, is doing the same thing and expecting different results. We're in the process of doing that, right now. I'd only point out some things before we get too carried away:
-- Obama is a man. He's not the Savior-in-Chief. He's not going to be able to put the toothpaste back in the tube.
-- What we're seeing here is a lot of pet-theories being skewered by ugly facts; a whole batch of paradigms shifting without a clutch -- I'll say it here -- the bailouts will not work; if they are 'successful' at all, they will only be successful in taking the problem and shifting it forward another decade or two, just as we did in '01.
-- Unless we take our 'medicine' now, curing the 'disease' will be that much worse, further on. Debt doesn't go away. It just adds interest.
-- The old axiom is true - once you're in a hole, stop digging. (This is going to mean that we look at what caused the problem - cease the activity - and put forces in place to prevent it from happening again.
That's going to mean re-regulating the banks and reining-in the securities-traders and other suchlike who got us here in the first place).
This process will take years. There is no quick fix. There will be massive upheaval in every facet of American life - everyone will wind up moving down a notch in one form or another; there will be large numbers of everything, from furniture to cars to housing - going unsold for years and perhaps even decades.
We might also, if we're not careful, wind up with that Most Ugly of Outcomes - a change of government.
Neocon fascism isn't dead, folks. Not by a long shot. Remember Rush Limbaugh -- "I hope he fails", in reference to Obama - and remember that subverting the Weimar government was how Hitler came to power.
This would probably lead to a REAL war (not like the sideshow in Iraq).
Don't say I didn't warn you.....
