Summary: a look at what our leaders are saying today, where we are going (with an ominous comparison with the past), what we can expect to hear from them in the future if America’s citizens continue to slide along, and a (not the) solution.
After 12 years of obscure gibberish from Chairman Greenspan and two years of happy-talk by Chairman Bernanke, listen closely and you can hear a faint note of reality from our leaders about the US economy. This is progress in tiny steps, but a change in direction from a government addicted to lies.
Chairman Ben S. Bernanke’s Semiannual Monetary Policy Report to the Congress (27 February 2008):
Chairman Frank, Ranking Member Bachus, and other members of the Committee, I am pleased to present the Federal Reserve’s Monetary Policy Report to the Congress. In my testimony this morning I will briefly review the economic situation and outlook, beginning with developments in real activity and inflation, then turn to monetary policy. I will conclude with a quick update on the Federal Reserve’s recent actions to help protect consumers in their financial dealings.
The economic situation has become distinctly less favorable since the time of our July report. …
As understatements go, this is far from the record set by Emperor Hirohito of Japan in his first radio broadcast (15 August 1945), with ” the war situation has developed not necessarily to Japan’s advantage.” But this economic downturn has just begun, and we might yet hear Bernanke or our President say that we have worked hard, that unexpected and undeserved events have occurred, and therefore shocking and extraordinary measures must be taken.
While few are aware of the cataracts ahead, they are clearly visible. Already major figures are calling for reactivating Depression-era measures, such as large-scale government purchases of home mortgages. What will they be advocating in 2009?
- Senator Chris Dodd advocates creation of a Federal Homeownership Preservation Corporation as part of a large economic stimulus package (22 January 2008)
- “Reestablish the Home Owners’ Loan Corporation”, Representative Mark Kirk (R- IL), Press Release (23 January 2008)
- “From the New Deal, a Way Out of a Mess“, Alan S. Blinder, New York Times (24 February 2008)
- Others, like the Office of Thrift Supervision and former Treasury Secretary Lawrence Summers, advocate radical changes to our home finance and bankruptcy laws.
Hedge fund manager Bill Fleckenstein goes to the heart of matters when describing our situation (27 February 2008):
In any case, the determination to suppress the destructive downside of capitalism and insure permanent prosperity will not work. Permanent prosperity, after all, is what socialism was supposed to be about, and we’ve all learned that that doesn’t work. I continue to find it a sad irony that Wall Street — the alleged bastion of capitalism — would cling so dearly to the hope of socialism.
Of course, that’s exactly what the Fed is all about. Its central planners think they can pick the right interest rate with which to run the world, even as the evidence indicates that what their efforts over the last 20 years have produced are two epic bubbles. This story would strike any sane person as the stuff of nightmare. Sadly, it’s our waking reality.
A full analysis of our situation is beyond the scope of this little note, but here some highlights.
- Politicos will describe the bubble in home prices (and consequent over-building) – like that of commercial real estate in the late 1980’s and stock in the late 1990’s – as resulting from insufficient government regulation. This is clearly false. In all three cases there were large regulatory organizations (many!), with adequate power.
- The regulators failed to act because too much money was being made by politically powerful groups. The regulators were “captured” by their subjects. Anyone familiar with the Department of Defense and its contractors knows how this works.
- This fits nicely into a Marxist analysis (as so many things do, if one throws away Marx’s theory and “cures”). In a society run by capitalists (a plutocracy, in classic terms), it does not help to give capitalists’ minions governmental power in addition to their economic power (no help, that is, to the wider society).
- There are solutions to this problem, but they are not the kind of policy changes and programs so loved by technocrats. This is speculative, but I effective reform requires changing the relationship of citizens to the regime. That is, changes in how we think and act, seeing ourselves as citizens, not consumers.
- Not only might technocratic fixes not work, they might exacerbate the underlying problem. For I suspect we are sliding in the other direction – from citizens to subjects. For a look at where that might go, I recommend Christian Meier’s “Caesar”. He describes how by late Republic times the Roman people had lost the will to govern themselves. As always, volunteers appeared to take on the job.
A look at the past in order to see a possible future for America
To our good and loyal subjects:
After pondering deeply on the general trend of the world and the actual conditions pertaining to our Empire today, we have decided to effect a settlement of the present situation by resorting to an extraordinary measure.
Although the best has been done by everyone — the gallant fighting of the military and naval forces, the diligence and assiduity of our servants of the state, and the devoted service of our hundred million people — the war situation has developed not necessarily to Japan’s advantage, while the general trends of the world have all turned against her interests.
Emperor Hirohito of Japan speaking to his people for the first time (15 August 1945)
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For more information about this subject
A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.