A guest op-ed in the Washington Post yesterday regarding the prospects of the U.S. defaulting on its debt, reminded me of a comment I had made on DailyKos about a week ago. Which led me to polishing and expanding the comment and posting it a diary.
Writing in the conservative magazine The Weekly Standard a few days before Christmas, Christopher Caldwell, reviewed Treasury Secretary Henry Paulson’s and Fed Chief Ben Bernanke’s erratic responses to the collapse of the financial system – and defended them::
But the modern economic system interacts with the modern political system--democracy--in a rather uncomfortable way. . . .
there are limits to how accountable a central bank can be. Everyone is always hollering for clear rules and transparency. But a dirty secret of regulation is that it frequently influences conduct most effectively when it is capricious and opaque.
If you smell something foul here, read on, as we dissect what it is.
Caldwell is Senior Editor of The Weekly Standard, the magazine founded in 1995 by neo-conservative fraudmiester Bill Kristol, who yet retains his imperial perch as Editor. Fred Barnes is the other Editor. So, what Caldwell writes can be taken as ruminations rumbling round in the very bowels of the beast. Caldwell quotes approvingly from 1860s London Economisteditor Walter Bagehot's study of the Bank of England, which is often held up as the classic study and explanation of central banking. Then Caldwell summarizes:
In finance, once you can have leverage, you must have leverage. Once you have some leverage, getting more of it than your competitors is a matter of survival. And when governments and central banks debate whether to loosen or tighten up money, they face a constant clamor from the financial world to permit more leverage still.
So, the financial system did what it was supposed to do. Don’t blame the bankers, financiers, and hedge fund managers who brought home hundreds of millions of dollars, even billions, for simply doing what they are supposed to do.
That is why, even in democracies, the instruments of monetary policy tend to be kept far from the influence of voters, and even hidden from view. Otherwise, credit tends to spiral. Bubbles result.
In point of fact, in the U.S. system as it now exists, “the instruments of monetary policy tend to be kept far from the influence of voters, and even hidden from view” – the Treasury refuses to answer half the questions the Congressional Oversight Panel has asked about the Troubled Asset Relief Program - but we have had not just one, but a whole series of bubbles anyway. Maybe it's time we tried the exact opposite of what Caldwell prescribes and democratize the Fed.
Nothing could be more foolish than to assume that this process of spiraling speculation is unleashed by "greed," unless by greed you mean human nature. Credit spirals are a darker aspect of the world Adam Smith described in The Wealth of Nations and Bernard de Mandeville did in the Fable of the Bees.
Ahhh, there it is: the conservatives’ favorite assumption – greed is good.
Just as society can be improved by the uncoordinated action of the selfishly motivated, an economy can collapse for reasons having nothing to do with anybody's cupidity.
I challenge anyone to find a society that has been "improved by the uncoordinated action of the selfishly motivated." It simply does not exist:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed.(Emphasis mine).
But, of course, a society "improved by the uncoordinated action of the selfishly motivated" is that conservatives paradise of a society ruled by the "free market," the "magic of the marketplace," the "invisible hand."
Now, here's the real kicker. Here's what Caldwell writes at the very end, including a quote from Bagehot:
Because it is on Wall Street, alas, that "the state of credit" is to be determined:
The state of credit at any particular time is a matter of fact only to be ascertained like other matters of fact; it can only be known by trial and inquiry. And in the same way, nothing but experience can tell us what amount of "reserve" will create a diffused confidence.
To be blunt, credit is successfully reestablished when financial elites say, "When." Credit is close to a synonym for the mood of the ruling class. To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure . . . that is what the economy is made of. It is a rather terrifying thought. Viewed as Bagehot viewed it, from the perspective of a central bank in a crisis, an advanced economy looks an awful lot like a primitive economy.
Credit is close to a synonym for the mood of the ruling class. That's an oligarch telling you plebes to leave Wall Street and the City of London alone and just cough up the $700 billion or $7 trillion or whatever amount is required to save Wall Street and the City of London alone. (Remember, Jerome a Paris has repeatedly explained that the policies and practices that caused these financial crises are peculiar to American and British finance, and he has tried to launch the meme of calling it "the Anglo Diesease.")
To say an economy is based on credit is to say it is based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure . . . that is what the economy is made of.
"Animal mysteries" is a flat-out rejection of the innate divinity and worth of humanity, based on the divine spark of creativity latent in every human individual. It is the ability of every human being to aspire to and achieve the good that actually underlies the development and advance of human civilization, not the “greed” and “animal spirits” worshipped by conservatives. This is probably a deeper topic than we want to go into here, but I want to emphasize a point – Caldwell is faithfully reflecting the thinking of an oligarch: humanity is an unruly mob of greedy swine but we are above them and impose on them our systems of economics that brilliantly channel their base passions into a glorious, bountiful market, with plentiful opportunities for looting, speculation, and usury.
In reality, the economy is how a society organizes itself to gather, process, produce, and distribute the material and immaterial goods and services required to sustain and reproduce human life. That is the basis for all economic systems. Once you lose sight of this basic truth, you are vulnerable to all sorts of problems.
But of course, an oligarch has no regard for human life. So, to an oligarch, the economy is "based on animal mysteries. Glamour, prestige, élan, sprezzatura, cutting a figure." Appearances, not substance - guaranteed to end badly, every time, at least according to the history I've learned so far in my life.
There is currently a lot of worry about how the U.S. government is going to be able to afford to finance an infrastructure program while running a trillion dollar deficit. It is pretty much the same problem faced by Abraham Lincoln when he had to find a means of financing the war to crush the slave oligarchy and preserve the Union. When Lincoln’s government went to the bankers and financiers, they demanded interest rates of twenty percent or more. What Linccoln ended up doing was getting legislation authorizing the U.S. Treasury to directly issue legal tender. We can do the same thing now: simply print money and use it to pay contractors, vendors, and labor working on the infrastructure program: pay them in U.S. notes issued directly from the Treasury, usable as legal tender throughout the economy.
Interestingly, the London Times editorialized strenuously against the Lincoln Treasury issue at the time:
"if that mischievous financial policy, which had its origin in the North American Republic, should become indurated down to a fixture, then that Government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe."
I had posted the above as a comment over a week ago, but the guest op-ed in the Washigton Post yesterday, We're Borrowing Like Mad. Can the U.S. Pay It Back? by Greg Ip, economics desk chief of the U.S. for the British oligarchy’s intelligence/propaganda organ, The Economist - Bagehot’s old haunt - reminded me of Caldwell’s article again. Here is Ip’s conclusion:
So what's the moral of the story? The Obama administration should not focus on debt reduction now, which could actually undermine the prospects for a recovery in the real economy. With households and businesses trying to spend less and save more, the federal government must spend more and save less -- that is, borrow more -- in order to prevent a self-feeding downward spiral in economic activity. Once the recession is over, getting our debt burdens down will hinge on Obama's and Congress's willingness to confront the looming cost of Social Security and Medicare benefits for the aging U.S. population.
The chances of default remain pretty remote. But remote does not mean impossible. The best way to keep those chances remote is for policymakers to vow to get the deficit down once the recession is over -- and mean it.
And so, through the good offices of Greg Ip – the financial oligarchs of the City of London deign to tell us commoners what we must do with an economy that their depredations have crippled. First, we will be “allowed” a Keynsian stimulus to rebuild our ability to pay the debt they and their sycophants on Wall Street created - almost all of it without doing a single damn thing for the real economy of production and distribution. Then, once we’ve stopped the arterial bleeding from the various severed limbs of our economy, we are supposed to begin considering how best to “address” the “problem” of “entitlements.” I.e., how do we throw even more of our fellow citizens to the wolves.
Most of the world's offshore tax havens and hot money centers are colonies and protectorates of the British ruling oligarchy. The Cayman Islands, for example, according to the Bank for International Settlements, is now the fifth largest holder of bank deposits in the world. I'll bet that a large portion of American indebtedness is now held there, as well. So, one good way to shut down the offshore tax havens and hot money centers would be to repudiate all U.S. debt held in those centers.
I doubt it will ever happen, but push us too far, and you just never know. Something for the masters of the universe in the City of London to think about. . .