Economic and political analysis-Window on culture-Media criticism

Wednesday, September 23, 2009

Waist deep in the Big Muddy

"Waist deep in the Big Muddy,
and the big fool said to push on."

In Pete Seeger song, the Captain leads his soldiers into deeper and deeper water. Eventually the Captain drowns and his men turn back, led by their sergeant back to the safety of dry land.

The Captain is convinced they can cross the river despite not knowing its depth. As it turns out, a stream joined the river upstream, one that the Captain didn't know about when he crossed the river before.

In the Vietnam era, Seeger's popular folk song became a touchstone for those who opposed that war. The inclination to charge ahead despite not knowing what we were getting into was the big mistake.

The Captain's dogged determination keeps his troops going forward, even as the water rose to their necks. Without really knowing where he goes, or how dangerous the crossing, the Captain led his men on toward their deaths, an inevitable outcome avoided only by his death.

The parallel to VIetnam is striking, and the metaphor about pushing blindly into the unknown suits American overconfidence.

It's what we don't know about our ongoing occupation of Vietnam that hurt us. If we could see how badly the escalation would go--or how deep the water was--we'd surely have turned back.

Afghanistan is the new "Muddy." We don't know how deep the proverbial water is, yet the Captain--Barack Obama--urges us forward, calling for more men and escalation. These circumstances are virtually identical to Vietnam, with one possible exception: the Taliban's resurgence could theoretically set up a recurrence of 9/11.

Now if you buy into the Official Explanation that no governments other than the Taliban were involved, then I guess a future terror attack could come from al Qaeda if the Taliban return to power. Then again, I think it's equally possible an al Qaeda attack could come from anywhere, not just a cave in Afghanistan if that's where the attacks were devised. (Actually, the hijackers planned their attacks in Hamburg, Germany and Florida--not exactly governments friendly to their cause.)

So war proponents could argue we need to "win"and "get'r'done" but I don't know how possible it will be to eliminate the Taliban. Actually, rather than fight an endless counterinsurgency, it might actually be easier to encourage the Taliban to become a political force, allow them to win seats in the Afghan government, then have them govern.

And if any terrorists then happen to show up on our radar--like Atta did during the Army's Able Danger operation, only to be dropped--somewhere like flight schools in Florida, we can simply go arrest them if we know who they are.

If the Taliban's control of Afghanistan enabled the terrorist strikes, indirectly, then no Taliban should mean no terrorists? Not exactly. As it turns out, the Taliban had nothing directly to do with 9/11 so their control over Afghanistan, or existence as a insurgency, won't matter much to anti-terror efforts in the future.

Like Vietnam, we're caught supporting a puppet regime in Karzai, a former Unocal executive. EU monitors at the Afghan's most recent election found evidence of massive vote fraud.

Rather than take issues with inconsistencies in the Afghan's version of democracy's most fundamental right, to vote, we've chosen to stay quiet. Clearly, if we raise the issue with Karzai, we risk meddling with internal Afghan politics or, more significantly, we'd risk alienating Karzai, our man in Kabul.

Taking sides does reduce military effectiveness because the occupiers identify with the despotic regime by virtue of sharing a common enemy in the Taliban (and the will of the majority as expressed in the suppressed vote count.)

Investigating the fraud would make the Karzai regime harder for the US to manage. Karzai could likely make the US presence more of an issue if he chose to. So we cling on to "our guy" in Afghanistan, even if siding with Karzai means denying the democratic process which our liberation sought to bring--a gift from the West thought to be a panacea for many of the region's woes.

Just like Vietnam, we're in a no-win situation. We can meddle with internal politics, and risk alienating the incumbent regime, upon whose cooperation we depend to execute a war plan.

Typically our generals seek to be as independent of Afghan internal politics as possible but we do have ulterior motives and limits to obeying the popular will of the Afghan people. We do want the regime not to fail of course. Rather than see their role as an intermediary to building an independent Afghanistan, our military seeks to create a client state for American arms, one that will be dependent on US aid for decades.

In Vietnam, our military caught itself siding with corrupt regimes, who became such an embassment that we had no choice but to help arrange their defeat by military coup. Removing the corrupt Diem, President of South Vietnam, in 1963 led to an equally corrupt replacement.

Abdullah Abdullah, Karzai's competitor who's claiming foul of the elections, may not be the friend that we want in Kabul. Yet the more we appear to side with the incumbent Karzai, the less popular we are among Karzai's domestic political rivals, which makes legitimizing the occupation much harder should a new regime come to power, one that would likely be far less friendly to our interests.

The incumbent regime is likely to take on increasingly undemocratic characteristics as the occupation wears on and resistance builds. Collateral damage from bloodshed by US occupational forces translates into political fallout for the incumbents, who tend to turn increasingly towards authoritarian measures to repress the population, which of course amplifies resistance to the regime and bolsters support for the insurgency.

The movie Good Morning Vietnam depicts the growing disaffection of a young Vietnamese named Tran, who sees friends eliminated by the regime. So even if US soldiers are as pacifistic as a Robin Williams, and their hands squeaky clean, they become targets for the insurgency.

The decision crafted by the Washington establishment in the wake of 9/11 to invade Afghanistan has created an expanding war with no end in sight.

The escalation in Afghanistan means we'll spend a lot on our military, at precisely a time when we need the money at home, which creates a vivid contrast of interests. The Right Wing talk about keeping the nation secure through ongoing occupations abroad, and "winning" seems to have its fringe audience here in the U.S.. Still, the recent election victories show the American public has grown weary-recent polls on support for the war in Afghanistan have well over 50% opposed, a dramatic reversal from this spring.

The idea of fighting a counterinsurgency to stop terror is a twist logic that defies common sense as well as international protocols in dealing with terror. Yet while strong opinions are vociferously voiced, most Americans are ignorant about how to fight terrorism.

Political Hangover

With such short memories, Americans tend to forget recent past events, particularly in matters of foreign policy. This amnesia, coupled with militaristic fervor raised from 9/11, amplified by yellow journalism from the mass media, creates a political climate intolerant of weakness in the face of any threat.

The threat of another terror event also makes resistance to war more difficult within the political system. Should a strike occur after de-escalation, stopping the Afghan War will likely be given as a reason for the resurgent terrorism in the post-strike blame game.

We'll never be able to remove the possibility of a strike--whatever the effectiveness of our efforts in Afghanistan. Politicians have therefore consigned themselves to the ugly spectre of endless war against The Others, this time in southwestern Asia, rather than appear to have been doing nothing to stop the "threat" should it materialize into a strike against the Homeland.

Easier it is for a Washington politician to simply tow the War Party line, to go along with the the notion that continuing the occupation is the best way to reduce the risk of terror strikes against us.

Unfortunately, a terror strike could come from anywhere. As a mostly open society ( I don't think we'll ever be capable of shutting our borders, nor want to), we can't take comfort in the idea that if we get rid of so-and-so, that we'll be forever freed of the terror menace.

Now just because we don't know who specifically will strike us (just that sooner or later, it will happen), this isn't to say we shouldn't be going after certain people who hate us and would like to do us harm. Clearly we need to conduct extensive intelligence-gathering and monitoring of threats, and take steps to neutralize threats. I guess that role involves tasks beyond traditional law-enforcement or even counter-terrorism, into a realm considered a grey area under international law.

If for instance, someone in Somalia is planning to strike against a soft target in a friendly country, I don't think the Somali government can complain when we take the threat out (similar to an event that recently occurred, see link.)

First off, the Somali government lacks the resources to identify the terror threats within its borders. Secondly, their governemnt might be sufficiently compromised by radical Islamic forces as to make any interdiction impossible, at least without tipping off the target.

There's a legitimate reason to intervene when in the past what happened in Third World backwaters didn't seem to matter. Then again, it's suspicious how we seem so selective in deciding where to intervene: Afghanistan happens to sit on a much-coveted pipeline route and Iraq the world's second largest reserves of oil.

As much as our War on Terror might call for new strategies, the old game of overseas adventurism and colonialism has emerged as its prime methodology. If indeed terror poses a threat, a big argument could be made that we don't need to fight it conventionally, with thousands of troops trying to win hearts and minds.

Surely we can develop a rapid response capability that can find and destroy real terrorist, whether or not they happen to be plotting in some cave over there, or some apartment down the street. I don't know if we can achieve that by Predator drone hits directed from above, like those inflicted on people in Pakistan.

Lastly, there's a huge economic impact to running a major occupation or worse, trying to expand it. These effects don't show up overnight, but rather gradually start to drain vital cash from worthy expenditures.

Perhaps you've recently seen the closure of a family services agency, school group, or termination of help for the needy in your locality.

Here in Indiana, we just saw the closure of a crisis group that helps with abused children in Indianapolis, consigning those individuals to already overworked social workers. Vital expenses that must be paid like healthcare for veterans or Medicare will in time be reduced by the amount of money we're pumping into the Pentagon and its corporate benefactors.

How bad could it get? The decision to escalate in Afghanistan might even lead to the economic collapse of our country. How can I be so sure? Look at the economic facts.

Look at our debt: we've borrowed our way into poverty. I don't care if our debt belongs to us collectively, or that we might be able to print up dollars. In the end, we'll pay a price for borrowing so much.

If we print up the money to pay for the war, inflation will surely come. Too much spending on aircraft carriers and weapons systems creates illusory demand, as well as a contracting system loaded with bloat and inefficiencies.

Now if we don't just print up what we owe, taxes will have to go up. Recently, I've seen talk of a tax on uninsured as part of health care "reform," a tracking for vehicles designed to tax per mile travelled, and proposals for carbon taxes that will inflate household energy bills.

Assuming we don't inflate, we'll have to cut back, even in defense. Every year, we spend more than the rest of the world combined. A good chunk of military spending is therefore unsustainable, so whatever benefits increased spending brings will be transient.

Much of the response to our economic problems requires the capacity for acknowledging fault and making the prerequisite changes. Clearly, an approach that embraces change requires leaving the comfort zone behind, accepting the need for change, not unlike the process needed to confront addiction.

It's easier to ignore the reality when the ramifications of realizing the truth are so devastating. Easier it is to push on in our daily routines, consigned to our fate of permanent debt servitude--collectively and oftentimes personally.

Facing the economic truth is hard enough to do when credit is plentiful, and the consequences of borrowing now are so far-off. Perhaps one big benefit of the credit crisis is that many of us now know we've been living beyond our means and have started to save. Unfortunately, the way our monetary system works, we've become dependent on borrowing, so we're in a Catch-22: the less we spend and borrow, the slower we grow, and the less we have to spend and borrow.

The roots of our problems are clearly systemic--we've built a giant Ponzi scheme where the only way we can grow our economy is to burden ourselves with more debt, either borrowed from banks who exist by borrowing from the Federal Reserve, or from overseas.

And the status quo doesn't like being told it's wrong. The Establishment reacts to any facts that might contradict the Washington consensus--like the idea that the Taliban willfully hosted al Qaeda--are forcibly excluded from the media dialogue.

There's great risk in any change, a fact Obama now must see quite clearly from inside the White House, an institution at the heart of the system/Establishment/status quo. At some point it won't be enough to simply claim change in speeches and celebratory campaign appearances--something will need to be achieved.


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Wednesday, September 09, 2009

Unemployment: a hedge against inflation?

I started out this blog in hopes of averting disaster in America. Worst case was a Children of Men scenario, which consists of totalitarianism coupled with xenophobia, a sort of police state/Guantanamo everywhere.

A key component of the Children of Men scenario was a dysfunctional economy. We've gone since August of 2006 from a rapidly expanding economy to a state of economic decline.

Finding the exact starting date of the recession is a hard act--I remember absolutely no mention of a recession prior to the election last year. Then miraculously, virtually the day after Obama was elected, I'd learned what I'd suspected for months: we were in a recession. Then--I know because I was watching for this--after the election government statisticians revised the start of the recession backward, starting in January, 2008 then going back months--as far as they could go to blame Bush for "his" recession.

It's like Orwell's Memory Hole--historical truths are redefined whenever they differ with a new version of past events. With control over the economic statistics machine, incumbent presidents want to cover up ugly truths and cast blame on their predecessors. Perhaps we could take a cue from the past abuse of authority by wondering if the current unemployment rates are what we are told they are. Yet we Americans seem to be quite clueless, at least about economic statistics.

Look at where we are today, which reflects our collective inability to see what we've done to ourselves by overspending. Tax revenues have fallen dramatically. States are a combined $120 billion in the red. Can the budget deficits be sustained? Unlike the Federal Government, who can print up money from nothing, the states aren't so lucky.

Foreclosures have risen dramatically. Upside-down mortgages, where homeowners owe far more than their homes are worth, are common. People simply don't have sufficient employment security to handle their mortgages. And if the real estate market doesn't support the sale of a home, borrowers will simply leave, knowing it's better to avoid depleting their scarce resources in times of economic trouble than to try and get out from under mortgages.

Through a corrupt mass media, Americans remain ignorant not only about economic realities about also concerning a deep, dark alignment of corporate and government interests, though suspicions are rising about this. It doesn't take much to sense something is indeed wrong with our country and change is not need, nor really forthcoming, at least not at the fundamental (systemic) level where it's most needed.

The two-party system stifles change. Rather than blame Obama for the state of the nation's ills, many people should look to how they voted or wether they did at all, whether out of apathy or disillusionment. Until we put a political system in place that can change Washington, nothing will change in the way we're governed.

If we're going to solve our problems, we're also going to have to do it by participating in local government; Washington is simply too far away from most of us, geographically or philosophically. Maybe an Article V Convention, as outlined in the Constitution, is the way to go.

Benjamin Franklin said we'd have quite a Republic, if we could keep it. Momentum is clearly heading towards the negative, at least for the majority of Americans who can't improve their standard of living. Like all economic declines, poorer people will disproportionately bear the burden, in the rising foreclosure rate, higher energy costs, and inflation making everything they buy more expensive.

In the end, we will have none other than ourselves to blame for economic calamity. The Chinese have a saying, "No shade? Blame not the sun, but yourself for not planting the tree." By allowing wars to continue, health care costs to rise uncontrollably, and the Fed to go un-audited--making possible huge oversights which could well lead to another burst of the bubble--we've managed to make our own economic exploitation and the collapse of public resources not only possible, but inevitable.

Rather than vote for people who will bring change, we're content to vote for people who talk about change. The message has become more real than the actual results, leading to rhetorical dysfunction that dominates every political display.

Mass media brain waves

A massive game of illusion is played out on our TVs with our minds willing test subjects. Alpha waves from TV alter our brain receptors, with thought patterns going from the left side of the brain--the creative, critical, analytical--to the right side, which feeds off the emotional, and is easily stimulated. For the right side of our brains, news stories are presented like items on a smorgasbord, where they're either consumed or ignored if they fail to stimulate some sensory zone like the erotica or fantasia.

Nowhere is this media fixation on the mundane more evident than the selection of our President. His election is like a grand nightly pageant, where in the last scene the victor is crowned triumphant.

Presidents seem to be chosen on their marketability alone, as if getting elected President was equivalent to being qualified to lead the nation.

I can still remember the question Andrew Bacevich proposed on Bill Moyers: does the Presidency need to be at the center of our politics? Do we all need to judge the man's worthiness on a day-to-day basis? Can't the media just leave him alone, and not fixate on him like a celebrity?

It's as if the media believes we need to focus all our political energy on the sensationalism of the trivial, while real issues like Iraq, Afghanistan, health care, die. Instead of looking at issues in depth, and agreeing to disagree, people are roasted like Obama appointee Van Jones, who faced a grilling on Fox for wanting a more thorough investigation of 9/11. (Appealing to a more nationalistic crowd, Fox must see itself as gatekeeper to the 9/11 myth that no foreign governments were involved, and that planes alone could bring down the towers.)

Seeking to mire the public in battle lines designed to divide and distract, the press is these days fond of mentioning how partisanship has taken over, replacing what passed for substantive debate. I guess partisanship is bad, but what does that have to do with the issues? Rather than focusing on where America needs help, coverage is fixated on the personalities in the Capitol, and in-fighting well suited to celebrity gossip magazines churned out by the same media conglomerates.

The media was heavily consolidated under Republican leadership of the FCC, which allowed Murdoch and other media moguls to control what Americans see and heard

We could bring out any number of scandals not discussed in the mainstream media because they're simply too threatening to Myth-making Central which lies at the heart of managing public perception. It's the Rove-style, media-savvy character attacks like that on Van Jones have left their mark on Washington.

Of course all the media posturing triggers all kinds of bizarre reactions in people. For a number of years, the potent mix of 9/11 and corresponding crusade seemed able to ease fears over the rise of the State. The haze now lifted--probably by base instincts of entrusting the country to a Harvard-educated black "librul"--the antigovernment types are now out in droves, accompanies by screamers disrupting town hall meetings.

Rather than let the partisanship distract us--or the media--we should change the way we see our two party system, and the role the State plays in diminishing our civil liberties--in the guise of fighting a War on Terror, and one on Drugs--and the endless power wielded by the corporate lobby.

I'm much more of a mind that the two parties are in fact one, the War Party.

The Military Industrial complex wields immense power and control over the political class. Rather than serve our defense, or prevent terror, open-ended wars in Southwest Asia serve a domestic political constituency that profits off war. Our Pentagon budget has bloated to over $1 trillion a year, more than the rest of the world combined.

It is the Eighth Anniversary of 9/11, which is the reason we're given for the need to protect us by bombing The Others. What to say on that topic could go on a while. I'll limit it to the promise by Osama Bin Laden that 9/11 would destroy America economically. And it has, through borrowing for the wars.

Every dollar that we spend comes from borrowing needs to come from somewhere. Ultimately, the dollar invested in government securities is a dollar that doesn't go to fund corporate investment, "crowding" that money "out." The banks, who have to pay more to borrow, become reticent to lend. If our economy is based on consumer borrowing, government will have to become the lender of last growth in order to stimulate growth.

The federal government can continue to borrow simply by getting the Federal Reserve to buy its bonds. For us, the interest that the public must pay to the holders of those bonds could amount to $600 billion/year. For the bankers, these interest payment--routed through the IRS to the Federal Reserve's member banks--get the interest.

Now I've been down the debt road, as I'm sure many of my readers have. Out of personal experience I know that once interest payments begin to consume a certain portion of my income, paying off the principal becomes harder and harder.

Fortunately interest rates are low, for now. Eventually, the overabundance of US Treasuries will make them cheaper, which will push their yields up to a point they're attractive.

Already a lot of our foreign creditors are rejecting the dollar. This is hardly a surprise; imagine if any big-time borrower had a printing press and could legally produce any amount of currency. Just how long would it be before creditors stop lending to him? Once they realized the borrower intended to pay them back with newly minted paper money, they'd stop lending.

The reality is that any government spending not backed by capital inflows (i.e., taxes) will simply be borrowed, then printed up. This process is known as "monetizing the debt."

In the meantime, the monetary system does allow private purchases of US Treasuries without relying on foreign creditors. Being a wholly private entity, the Federal Reserve is now positioned to profit immensely by holding a vast sum of Treasuries. Now the principal may never be repaid but the interest could amount to much more, although the paltry yields on debt today might easily be consumed by inflation.

This action forestalls the day of reckoning but doesn't eliminate it. Too much spending by government will always end up causing inflation. Inflation is a hidden tax, one which erodes the spending power of money by being too freely spent.

Now technically the creation of money alone isn't inflationary. Dollars created out of nothing that simply get isolated in the vault of some Middle Eastern country don't necessarily have to be spent in the US, so they need not contribute to inflation. Should these petrodollars be sold, however, and enter circulation, they'd most certainly decrease the value of the dollar.

One theory for the invasion of Iraq in 2003 was that Saddam had begun to sell oil in Euros. As it was then, oil must be bought or sold in dollars or pounds. To maintain its monopoly over the global financial system, it is said, US/UK needed to make an example of Iraq or any other nation who dared to abandon dollars. In threatening to intervene, the idea was to stem the tide of defections and the rise of the currencies of strategic competitors. (A few years ago Iran opened an oil bourse that trades in other currencies.)

Keeping oil traded in dollars is a clear strategic goal, one that mixes economic priorities with national security. Of course there's a massive political and economic downside to military intervention.

Historically, there's been a constant villain in the creation of inflation: wars. Wars invariably corrupt the ability of government to control spending. Budgets swell uncontrollably. And the government spends in such a way as to encourage fraud and contract abuse. Eventually, the addition of so many dollars, without corresponding real growth in the economy, causes inflation.

Money spent by the private sector can be inflationary if wages rise too much or too fast. Rising productivity offsets inflation--if people produce more, their higher wages create real growth. If they simply sitting around getting paid--a lot--their higher wages will likely contribute to inflation.

Here's a scary reality--we're going through a deflationary episode that would likely be inflationary if more people were employed. It's as if Bernanke and Geithner waved a magic wand that would make enough people go unemployed to keep inflation from happening. (People not getting paid means there's less money entering circulation, and less demand.) Unfortunately, fighting inflation is a battle they will eventually lose, at least if federal spending continues up, which is more likely as the lower income brackets struggle financially and demand more help.

What really happened?

FIscal responsibility wasn't brought to this country by the so-called Conservatives, who as it turns out, oversaw the greatest expansion of post-war government prior to the arrival of Obama. As fiercely as reactionaries now protest the runaway federal spending, they were completely placid under Bush.

The macroeconomic reason for the present recession--is it a Depression?--remain to be understood. We can say falling home prices have contributed to the severity of the recession and this is true. But then again we can't assume that the US real estate market would grow forever. Part of the expectation inherent in investing is the notion that continuing to grow at 7-8% was possible indefinitely.

Lew Rockwell explains the misplaced optimism:
"A year ago this month, the whole country was in agreement that we had been living an illusion for the previous ten years and that the prosperity we thought we were enjoying was not sustainable. There was no dissent on this point. Even Obama admitted it. Today, the illusion is even more egregious than it was, and yet people are once again embracing it as if it will not end."(link.)

Perhaps a good chunk of our recent economic growth has been illusory-not just a year or two but for perhaps many more. Peter Schiff, interviewed on CNBC last month, explained the situation well. When asked if we'd escaped the bear market, Schiff replied that we're experiencing a correction (a short-term bull market) within a protracted bear market.

The most recent correction might not be showing that economic activity has ceased but rather that the economy had been growing less than we'd been led to believe. In the few years prior to the blowup, the portion of total GDP rose to a suspicious 40% purely from financial services "output."

By securitizing financial products, Wall Street could make more short-term profits and artificially inflate GDP.
Meanwhile easy money policies of the Federal Reserve made capital cheap and easy for Wall Street to borrow. Freed of cumbersome but well-constructed regulatory barriers, the bankers were free to use their access to cheap capital to inflate their balance sheets.

In exchange for loose regulatory standards and weak enforcement, banks were able to merge and speculate on Mortgage-Backed Securities (MBSs) packaged in derivative form. We saw in the longer-term that these private credit money transactions created a pool of derivatives so large there'd be no way to pay them back.

When a derivative is sold, the issuing company can create money from nothing in what is called a private credit money transaction. Nothing real is made, nor any real contribution to economic growth made when a financial entity sells a promise to be paid over time, like a mortgage-backed security.

No one can afford to ignore the reality that these derivatives are still on the books! Changes in accounting, like eliminating mark-to-market rules, amount to nothing more than chicanery--a Ponzi scheme wherein new investors are led to believe the financial companies into which they're encouraged to invest really are solvent.

With the supply of derivatives, with their indeterminate value, eclipsing by several times the total supply of currency, it's no wonder the government has a direct interest in maintaining the solvency of the banking system. In their greed to securitize every shred of debt and every asset several times over, the banks have so leveraged themselves that only a continuous flow of capital can keep them alive--like zombie banks.

Rather than usher in a new layer of competitiveness, the larger banks have seized on this opportunity in crisis (Klein's Disaster Capitalism) and bought out smaller competitors. The weakened state of competition will clearly allow them to fee their captive clients to death, especially considering our government appears to have sold out to the banking industry, at least the portion of it which was sufficiently damaged by its own excesses as to deserve aid.

Clearly there's a lot more to the growth of an economy than hedge funds, swaps, and the pushing of piles of paper and promissory notes around, however big a chunk of the real world economy gets attributed to those paper profits in government statistics.

Boomers aging

Current economic challenges clarify a negative demographic trend. The Baby Boomers have aged. The forces of demand for residential real estate that took the market so high have abated. Should it be a surprise that we can't supply any more housing, at least in some real estate markets? Prices were never going to go up forever, and the finite size of demand for residential real estate has been reached.

It's worth looking back to see how demographics impacted the economy. In the 50's, sales for newborn consumer products like diapers swelled with the birth of the Baby Boom generation. In the 60's, kid-friendly products like hula hoops and toys boomed as the size of the younger population surged. In the 80's, Baby Boomer incomes climbed and the first housing expansion began. The 90's saw an abundance of capital enter into the markets and the Dow advanced. Second homes were bought as the aging Boomers exercised their peak earning capacity.

Now they're retiring, downsizing from larger homes and tapping their savings. The sheer size of withdrawals from mutual funds will likely exceed their inflows--a bearish sign indeed. And the health care costs that will be foisted upon the government and future taxpayers will undoubtedly deprive younger millions of people the benefit of their toil as tax burdens climb, expressed in higher terms after inflation increases.

Far more politically palatable it is for politicians to allow prices to climb (like food up some 40% in two years) while feeding billions more to key corporate constituencies entrenched at the public trough. Cutting off the hungry entities feeding at the deep war troughs would be an act of extreme rebellion in a political system like ours, run out of the Capitol as it is, with the rewards of political patronage so plentiful. [Four of the top five highest income Zip Codes exist within the Washington, D.C. area.]

With such a big trough needed to pay for Social Security and health care, it's no wonder then nation is heading toward fiscal insolvency. There's not only too much debt on the books, but too many future liabilities.

I've heard this draining of our public coffers as a method of "starving the beast," but if we run out of resources, there will be many things people need out of government and won't be able to get. So better it is to simply print money to pay for things voters demand. At least that approach delays the problem until after the next election, although of course the burgeoning debt remains there and transcends the political.

The coming fiscal insolvency has its roots in changing demographics and corresponding levels of political participation. Senior citizens' higher voter participation will make cutting off benefits politically impossible.

Government's masters

We have a political system that functions not on behalf of the people but the government itself, in alignment with the corporations and their wealthy shareholders who feed off the public trough.

As long as corporate lobbyists continue to prowl the halls of Congress, wining and dining our so-called representatives, it's hard to imagine a political system much different from ours. Here at jbpeebles.blogspot.com, I've illuminated many examples of corporate benefits given by government policymakers in exchange for a veritable money train of corporate donations.

Ultimately, our government can't represent the interests of both common people and the rich. The political contradiction of the conflict of the interests is really a class war though Americans shun that idea. Social mobility is ebbing for the middle classes, who are typically victimized in crises like these (the poor were already poor.)

Can Washington just leave us little people alone? Clearly there are higher taxes that will come out of higher spending. Even if we were to ignore the Feds and the consequences of irresponsible monetary policies, there'd always be the ability to tax. We are only as safe from higher taxes as we are from Washington's ability to control its spending: not at all. Now the Feds could go after corporations, but I guess we're an easier target considering we little people don't spend millions in Washington lobbying.

On the plus side, for government, inflation means more taxes. The more people make, the more they are taxed. Also, inflation makes debt--our government is the biggest debtor in the world--easier to pay off.

Unfortunately it's people living on a fixed income and in low-earning service jobs that suffer the most from inflation. With many in competition with undocumented workers, they simply can't expect raises that are needed to keep up with the rising cost of living.

An argument exists in many business schools that maybe the economy is plagued by too many people. If everyone were employed, they reason, inflation would be a consequence. Yet one consequence of running high levels of unemployment is lowered government tax receipts, which should cause a contraction in spending if budgets are to be balanced--which they haven't been, meaning the lower receipts are likely to cause overspending, especially when politicians have to return to the depressed economies of their home districts.

The economic rationale for keeping people out of work and poor has appeal among the ruling elite, who see them not so differently as an aristocracy might a peasant class. If total employment isn't attainable anyway, people like Bernanke and free market economists might rationalize, what's so bad about high unemployment? Bernanke, Summers, and Geithner have no constituency other than the bankers to face. As a professor, Bernanke studied the Depression and surely knows of its deflationary benefits.

High unemployment does allow economic weakness to persist as a kind of inflation hedge. Could it be that the Fed took the role of the serfs a step farther--turning them into inflation-fighting/involuntary demand-reducing cogs, throwaway people in a paper economy, with its "jobless" recovery?

Clearly the unemployed are not meant to be beneficiaries of any monetary policies.

Could our political leaders be at war with our people? This kind of thinking undersells the advantages of the American workforce, the world's most productive. American workers have been greatly demeaned as corporations raced to down-size and globalize. I guess it's possible that a nation's elite could sell its own people short. Such would be the lesson from 9/11 if indeed the Official Explanation is considered final and beyond all criticism.

I guess if our representatives really have sold out, they'll be forced out of office once the economic consequences manifest themselves (assuming of course the people whose lives are impacted stay informed and participate politically.)

It won't be long before access to credit--given as the rationale for government intervention in the credit markets--dries up. There's a great deal of risk involved in lending during precarious economic times. With 70% of the economy consumer-driven, it's no wonder that we can't have growth without lending, as consumers are tapped out, and saving, as they should.

It's only by saving that Americans can live within their means. Perhaps the trend towards lower growth is in fact worthy if it means American borrow less.

We've entered a precarious state where the stability of our monetary system depends on continued bailouts. Our fiscal and monetary system are under dire stress, while our financial system still lies in grave danger.

In my writing I exposed financial services companies like Goldman Sachs who've made massive amounts of money despite the collapse of the credit bubble. To have received billions in TARP money, then emerge with gigantic profits is typical of a special relationship between Wall Street and Washington.

If this Robin Hood in reverse has accomplished anything positive, it's to alert the American public of the need to control private banking. A large majority supports an audit of the Federal Reserve under a bill in the House, H.R. 1207, sponsored by Ron Paul and cosponsored by Barney Frank and 281 other Representatives (see an article on this bill, and its Senate equivalent here.)

People in power will get away with as much as they can. With no change in our political system, economic consequences are bound to manifest themselves before long, including the collapse of our fiat currency predicted by the Austrian School of Economics. Rather than look forward into the unknown for an idea of what will happen, look instead to history to see what has happened to every empire that launched long-lasting wars and couldn't stop spending.

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