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We are led to believe by the actions of the Euro and U.S. leadership
that defaulting on the debt of institutions and countries that are deemed
“too big to fail” would result in an economic meltdown from which
the world likely would not soon recover. Such institutions are deemed thus
precisely because they’re disintegration might/could/would precipitate
such a long dark economic winter.
We are
taught, however, that all debts must be reconciled, and that extending
further credit to a delinquent debtor is not only foolish; its
self destructive to the lender.
Yet here
we are, in the 21st century, extending more credit to delinquent debtors,
nurturing institutions whose sheer size render them cancerous to the system,
all kept afloat by the appearance of solution by the world’s leaders,
and the continuous expansion of the money supply where no such expansion is
justified, except of course, to perpetuate the illusion of sustainability of
the aforementioned economic behaviours.
Fortunately
for humanity, nature has a way of insinuating its laws upon the conduct of
humanity when humanity’s behaviour becomes
harmful collectively to its future as a viable species, and to the planet as
the host of such a feckless breed. Indeed, it is the laws of nature,
immutable and irrefutable, that differentiate true “laws” from
the rules fabricated by humanity’s leaders to take advantage of one
another.
Nature’s
intervention in the case of the terminally debt-addicted human race at this
juncture is most simply comprehended in the discipline of mathematics.
Reducing a nation’s debt load to 120% of GDP is contemporarily regarded
as sustainable, yet that is true only as long as economic growth proceeds at
a rate superior to the interest rate that a nation must pay to continue
access to capital. Given that the crisis level of yield (to a lender) or
interest (to the debtor) would appear to be anything above 6%, and given that
only China and certain Latin American economies are expected to deliver that
kind of economic growth in the foreseeable future, mathematics is going to
enforce the reality that the delusional path can not
long be travelled.
And so,
instead of tearing the bandaid off, we’re
peeling it back excruciatingly slowly, exacerbating the livid economic flesh
in the process, by extending credit, and soon, printing money American style.
At the end
of the slow tortuous path equivalent to water torture is the same outcome as
letting the “too big to fail” institutions and countries go the
way of the dodo. There will be a collapse of countries and institutions, and
that will indeed be followed by a long, cold and dark economic winter. But
because of the absence of vision and courage required by what would amount to
real leadership, we have the incessant buck passing and check kiting that is
going to render that winter much longer, much colder, and much darker, than
it have been had we not adopted the attitude of “let the chips fall
where they may”, in regard to TBTF institutions.
But the
more sinister effect of all this bumbling and stumbling and groping for a
solution, when the solution is, as ever, before our very eyes (let the weak
fail), is the effect on risk capital in the real economy (as opposed to the
Disney economy brought to you by Finance Ministers, Prime Ministers,
Treasurers, and Presidents. The deflationary effect of sidelined capital that
correctly assesses an excessive level of risk in the world marketplace
undermines future economic growth – the only thing that can reverse the
negative economic course enforced by weak banks and insolvent countries.
Extending
credit to delinquent creditors is the process by which the crisis spreads
upward and outward. The only way to protect one’s self from a
gangrenous limb is to sever the limb. Wrapping it in bandages only promotes
systemic contagion.
Meanwhile, in the U.S., the Senate Supersquabble on
the debt ceiling is coming to a head, with the November 23 deadline just days
away, and no accord in site. While the largest debt in the history of the
world continues to grow at lightspeed, the next
time the U.S. is going to bump its head against the national ceiling is only
a year away. In the absence of an agreement by the supercommittee,
$1.2 trillion in spending cuts are theoretically going to kick in, largely
targeting the Pentagon and unemployment insurance. However, there is already
a good deal of speculation that the cuts will not be allowed to kick in,
either through direct presidential intervention or some other layer of
congress managing to sidetrack the cuts.
John
Chambers of Moody’s has stipulated that while the absence of a deal by
the supercommitte to reduce spending would not
necessarily result in a further downgrade of U.S. credit, thwarting the
automation of the $1.2 trillion spending reductions almost certainly would.
Not only
would a credit downgrade transpire, but the U.S. would essentially have no credibility
left in the eyes of the world, and for all intents and purposes, would be
reclassified in many minds as a rogue economic nation.
It is the
absence of credibility among the leaders of nations that is undermining the
credibility of democratic government in general. The evolving model from the
standpoint of economic history is that capitalism and democracy are failing
in terms of systems of government. And that paves the way for revolutionary
thinking.
Thus,
Occupy Wall Street.
What is
most conspicuously absent from the Occupy Wall Street movement is a coherent
message or any direction that can be brought to bear in any meaningful way on
the current political structure. “Stop Corproate
Greed” or “End Economic Inequality” are
noble ideas, but they ultimately demonstrate the youthful naïveté
of the movement’s spokespersons. The call it a “leaderless
revolution”, yet never has any revolution succeeded in the history of
humanity that did not have a very charismatic and powerful leader. Its more like a “rudderless
revolution”.
While they
claim to represent the “99%”, they don’t even come close.
I’m not in the top 5% economically, and I’m not in the lower 50%
either. I’d say I’m in the 70-80% range, and, speaking strictly
for myself, Occupy Wall Street not only doesn’t speak for me, but they
have become an impediment to change. By demonstrating raucously in support of
idealogical slogans, and absent leadership or
political agenda, they successfully appease the indignant and disenfranchised
youth, and they are pacified by a sense of accomplishment. Yes the movement
seems to be gaining momentum, but there’s a limit to how far it can go.
I see the
need for revolution, and Wall Street is an appropriately symbolic venue, but
the real changes must occur in Brussels and Washington, London and Beijing.
What needs to change is the political infrastructure that accommodates the
pillaging of the lower 95% by the top 5%. This process can be initiated by
popular protest, but it can only be accomplished by progressive negotiation,
and the continuous identification of the true culprits of the current
compromised global political system.
These
people are easy to see. They’re the ones who move from roles as bankers
and economists into roles in government, transferring the required regulatory
framework into the political system so that complex financial instruments
like securitized debt and credit default swaps and index futures can be
successfully foisted onto the public. The profits are privatized (bonuses)
and the losses socialized (bailouts).
Absent the
self-discipline on the part of leadership to balance a checkbook and let too
big to fail become too big to exist, the revolutionary tendencies of a
growing disenfranchised youth are certain to grow and spread.
If the
weak countries and banks were allowed to fall without taxpayer bailouts,
there would indeed be a period of economic contraction and a
deterioration in the standard of living of a large swath of the global
citizenry. But economy-driving risk capital investment will not materialize
until all that rot is out of the system anyways. The leaders of the United
States and Europe need to get that through their numb skulls if they want the
current condition of slow, tortuous, drop-by-drop global economic deterioration
to reverse.
James West
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