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The
trigger that apparently caused the market meltdown was the ever-so-slight
suggestion from Standard & Poor's that the US government’s fiscal
health might not be all that it is cracked up to be.
This was not a case of the little boy noting
the emperor has no clothes. It is more like the little boy suggested that the
emperor's clothes, while beautiful, might have been more carefully tailored
to suit the imperial dignity. Hysteria followed, and the entire Obama cult
called for the kid to be stoned.
Finally the emperor himself spoke in defense
of his rainment. That’s when the market
crashed.
But the downgrading of a government’s
debt from AAA to AA+ can only have triggered a market avalanche if the truth
is in fact much worse, and most everyone knows it.
S&P doesn’t have clean hands, of
course. It holds a government monopoly, wants higher taxes, and rated crazed
housing bonds AAA. But imagine, for just a moment, that US government debt
were rated in the same way that municipal bonds or regular corporate debt
are. Imagine that government bonds, like normal bonds, carried a default
premium. Imagine, in other words, that the Federal
Reserve were not in a position to pay everyone from welfare recipients to banksters with newly created money.
Under such actual market conditions, federal
debt would not be rated as AA+. It would be worth even less than junk bonds.
In fact, it wouldn’t even qualify for a market rating at all, because
it would be utterly worthless and the institution that issued it would be in
default and the whole rotten apparatus of the state would be seen to be
bankrupt at its very core, in every sense.
We know this for one simple reason: There is
no way that the government can fund its debt on taxes alone. There would be a
revolution in this country in a heartbeat, and, probably, the entire American
empire, domestic and foreign, would come crashing
down, along with its banking and monetary systems.
If this actually happened, there would be no
more "ongoing negotiations" about the budget and the debt. The cuts
would be swift, extreme, gigantic. The federal
government would have to behave like state governments, balancing the budget
year to year. There would be no more plans for fake cuts in the planned
increases, gradually phased in over ten years. The federal government would
face actual market discipline. The S&P downgrade is only a slight taste
of what would follow.
And let’s not just look at the downside.
Hundreds of billions in resources would be freed from government control. The
private sector would experience a huge infusion of energy. Interest rates
would probably go through the roof, which means that people would actually be
rewarded for saving, and saving is exactly what people would do as hundreds
of banks went belly-up, large portions of the business sector had their
credit lines cut, and merchants of death had to close their bloody doors.
There would be wailing and gnashing of teeth,
but there would be no turning back. Within a few months, we would start
seeing massive resource shifts and pockets of growth would return. New jobs
would be available. New businesses would spring up. New financial firms would
displace the old ones. Within a year or 18 months, we would be on a growth
path, and this time it would be real and sustainable.
Of course this is not going to happen.
Instead, the powers-that-be will continue their long game of
"let’s pretend" as the economy sinks deeper and deeper,
incomes fall, and the US gradually heads toward 3rd-world basket
case status.
It’s not only the government that is
bankrupt, of course. It’s the entire ideological apparatus that backs
the state and its eternal expansion. The New York Times struggled for something to say about the obvious failure of
the second stimulus. All they could come up with was: "shift every
available resource toward jobs," "increased investment in
infrastructure," more relief for homeowners, and another extension of
unemployment benefits.
The only thing that this asinine editorial
left out was the need to lower interest rates. And that’s because
interest rates are already 0%, which has killed saving, terminated growth,
and denied the public the fundamental freedom to sock away money in time
deposits and let it earn something in exchange. The Federal Reserve is
completely out of policy options, unless it is ready to embrace the
Zimbabwe-Weimar solution.
Of course, the whole theory that the
government can stimulate through control and robbery is wrong and
counterproductive. It only ends up rewarding government and its friends while
the rest of us suffer. If we ever get out of this depression, it will be
because government is forced to stop this nonsense, and the economy really
stimulated by taking a meat axe to the planning-spending-inflating apparatus.
This is the underlying reality that informed
traders understand. The whole system is being propped up by the power to print, and that power alone. No matter how many miracles
some people think that paper money can accomplish, there is an underlying
realization that the whole system is a hoax.
But don’t take my word for it. Let
S&P and many more competitive rating agencies go to town on US bonds and
rate them as they would any bond in the private sector or even the public
sector not backed by a printing press. Let reality speak, and
let us listen
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