“Those who do not learn the lessons of history are doomed to repeat them. ”
The primary government response on the table thus far to the unfolding financial crisis is to dump money from helicopters all over Wall Street. Supposedly, this is to prevent a financial collapse of our economy. Bad debt is being moved from the balance sheets of financial institutions onto the government’s balance sheet, which means, “distributed among the entire population.”
Nice work if you can get it. Which you can, if you are a member of the financial aristocracy.
The entire corrupt bail-out was pushed through by a shock and awe campaign — “the ATMs will stop working”, and “there will be civil disorder”.
The bad debt on balance sheets was blamed for the credit freeze, but we have due cause to wonder if that is really true.
One issue with the credit freeze is lack of transparency. Potential lenders can’t be sure of the actual financial condition of the borrowers at their doors. Without total transparency and accurate accounting, there will be no credit. Government policies and rules are in place that prevent full transparency and accurate accounting.
A second question is whether the United States is about maxed out on debt. If so, it isn’t a surprise that credit is drying up. Suppose a family gets in debt to the point where their payments equal 125% of their income. Will anyone loan them any more money? No, they won’t.
Now think about that at a national level.
That’s a bigger oops.
While these are difficult questions that are hard to discern, the answer to the problem of bad debt is not at all hard to understand: bad debts must be written off, and if that leads to a bankruptcy, then that is the price of the bad financial decisions that led to the problem in the first place. Moving them from the balance sheets of financial institutions to the government’s ledger only expands the problem — instead of being a problem for those financial institutions and their stockholders, officers, and emploees, they become the problem of the entire population. This is not a step in the right direction, but it sure is saving the financial bacon of a number of very wealthy institutions from the consequences of their greed and incompetence.
Note that one option was simply to help out the homeowners who were in financial trouble. If they don’t default on their mortgages, then the loans aren’t bad, but that option was never on the table. The financial aristocracy looks after itself, families with mortgages in foreclosure can be left behind for the wolves to devour, for all that the Wall Street parasites care.
If these big institutions had gone into bankruptcy, their assets would be evaluated by the marketplace and bought. Business would have gone on, but the originators of the problem would probably not be carrying on that business. That would be good, since we obviously have a surplus of greedy and corrupt and incompetent people at the top of our very large financial institutions.
Writing off these debts forces transparency on the financial system. With transparency comes accountability, and with accountability comes change.
Instead, we got a financial coup that has stolen hundreds of billions of dollars and put that money in the worst place possible, in a way that is virtually guaranteed to cause an even worse situation in the months and years to come.
You don’t just create trillions of dollars out of thin air without affecting the entire economy. The people who get that money first get the most value, since it has not depreciated yet. But as it works its way through the economy — more money chasing a stagnant supply of goods and services — its value declines.
So we’re throwing money, which will ignite inflation, and since the money thrown thus far won’t be enough, even more money will be thrown. . . and then somewhere along the line we get something like the Weimar Republic after World War I. In my stamp collection, I have a first class stamp from the Weimar Republic that originally cost someone five BILLION marks. Before WW I, there were maybe 3 or 4 German marks to the dollar, and the dollar was defined by law as 1/20th of an ounce of gold. So we see what happened to the mark under that hyperinflation.
What did the Germans get out of it? The Nazis.
History suggests that the German experience is typical — the most common social and political response to a collapse of a monetary system is a nasty authoritarian regime. The rapid inflation and collapse of the French revolutionary currency in the 18th century led directly to the Reign of Terror.
What’s to be done? Well, the long shot is to get the goobermint to change course and as I have recently written about, mandate transparency, reduce leverage, and basically force a giant house-cleaning of the financial masters of the universe cozy little aristocratic club.
And it’s true, if that could happen, we would be in much better shape. But if the French aristocracy had gotten their act together and reformed themselves, they wouldn’t have lost their heads in the Reign of Terror. If the Czar had been smart, there would not have been a Bolshevik revolution. If the Allied Powers and the Weimar Republic had had competent leadership, I wouldn’t have a 5 billion mark stamp in my collection and we might never have had the Nazis.
And so six million Jews and millions of others would have lived instead of being cruelly exterminated in the death camps.
That’s the price we are looking at, if our financial system continues its present path.
One thing we have is foreknowledge and thousands of years of history from which we can learn desperate lessons in a time of grave need.
We cannot let ourselves be pushed around by our political and economic aristocracies. We must empower ourselves, our households, and our communities to not only stand against the gathering economic storm, but create new structures in the midst of the collapsing ruins of the old.
If we don’t do this, then we will make an inevitable detour into a likely violent and chaotic period of authoritarian rule.
Every person’s preparation begins at home, as we get our own house’s in order. Next come our communities, which includes our actual geographic locations, but also expands to include our civil society networks (clubs, religious associations, civic groups, etc.), our economic relationships (workplaces, businesses), and cyberspace (social networking, discussion groups, websites, etc.)
Many tools are available, one of them is my list of 20 tasks now that the election is over, which is also available as a PDF that can be downloaded, reprinted, published, copied, and redistributed at will without permission. Make copies for friends, family, co-workers, people at your church, hand them out door to door, put them on windshields in parking lots, hand them out on street corners, leave them in public literature racks at stores, libraries, schools, wherever.
The time to build creative local economic alternatives is before the economic system collapses. Since that collapse has begun and is unfolding before our eyes every day, there is no time to waste.