Wednesday, July 27, 2011
" In a free economy, the banks that invested trillions in risky mortgages and other fool’s gold would have taken the hit. Instead, however, what happened is that the American taxpayers took the hit, paid the bill, and cleaned up their mess – and were condemned to suffer record unemployment, massive foreclosures, and the kind of despair that kills the soul."
What's driving the debt ceiling debate
by Justin Raimondo
Everyone agrees the United States is in a crisis of momentous importance: we’re approaching bankruptcy [.pdf], millions are out of work, and the emotional leitmotif of our culture can be summed up in one word: demoralization.
Is there a way out?
Well, yes and no. Yes – if the solution comes from below: no, if we’re depending on our "leaders" to pull us out of the abyss.
Let me explain.
The problem is dramatically illustrated by our current debate over the "debt ceiling" crisis. In order to reassure themselves – and, more importantly, the public – that they aren’t just madmen, Congress imposed on itself a "debt ceiling" beyond which they are not supposed to go. In reality, however, they have raised the ceiling whenever they’ve felt like it. Now, however, as the imminence of America’s bankruptcy has impressed itself on increasing numbers of voters, there is some resistance to raising it – and, as a result, there is panic in Washington. Are the peons objecting to Washington’s assumption of absolute power, and actually challenging the elite’s ability to spend without limit? Horrors!
For months, the pundits and Washington think-tank know-it-alls have been in a tizzy: who do these unwashed peasants think they are? But of course we’ve got to raise the debt ceiling – after all, what about the "full faith and credit" of the United States? Don’t these denizens of flyover country realize they don’t have a choice in the matter? And now, with unmistakable finality, Wall Street has spoken in the form of Moody’s and S&P, the bonds rating agencies, which are threatening to downgrade US bonds if Congress fails to raise the limit.
This should give the ordinary American a clue as to what is at stake here, and who is on what side: it’s the Washington insiders and Wall Street versus the people of the United States – and the stakes are the fate of the nation.
Let’s recount a little history here: in the winter of 2008 the house of cards that is the American economy suddenly collapsed, and the Great Bubble of faux "prosperity" burst. A long orgy of malinvestment – spurred by bank credit expansion [.pdf] (i.e. the Federal Reserve printing gobs of "money") – came to an ignominious end. The housing market, already weak, imploded. It was a massive market correction, one that had to be endured before it could be cured – but the big boys weren’t going to take their medicine.
In a free economy, the banks that invested trillions in risky mortgages and other fool’s gold would have taken the hit. Instead, however, what happened is that the American taxpayers took the hit, paid the bill, and cleaned up their mess – and were condemned to suffer record unemployment, massive foreclosures, and the kind of despair that kills the soul.
How did this happen? There are two versions of this little immorality tale, one coming from the "left" and the other from the "right" (the scare-quotes are there for a reason, which I’ll get to in a moment or two).
The "left" version goes something like this:
The evil capitalists, in league with their bought-and-paid for cronies in government, destroyed and looted the economy until there was nothing left to steal. Then, when their grasping hands had reached the very bottom of the treasure chest, they dialed 911 and the emergency team (otherwise known as the US Congress) came to their rescue, doling out trillions to the looters and leaving the rest of America to pay the bill.
The "right" version goes something like the following:
Politically connected Wall Streeters, in league with their bought-and-paid-for cronies in government, destroyed and looted the economy until there was nothing left to steal. Then, when their grasping hands had reached the very bottom of the treasure chest, they dialed BIG-GOV-HELP and the feds showed up with the cash.
The first thing one notices about these two analyses, taken side by side, is their similarity: yes, the "left" blames the free market, and the "right" blames Big Government, but when you get past the blame game their descriptions of what actually happened look like veritable twins. And as much as I agree with the "right" about their proposed solution – a radical cut in government spending – it is the "left" that has the most accurate analysis of who’s to blame.
It is, of course, the big banks – the recipients of bailout loot, the ones who profited (and continue to profit) from the economic catastrophe that has befallen us.
During the 1930s, the so-called Red Decade, no leftist agitprop was complete without a cartoon rendering of the top-hatted capitalist with his foot planted firmly on the throat of the proletariat (usually depicted as a muscular-but-passive male in chains). That imagery, while crude, is largely correct – an astonishing statement, I know, coming from an avowed libertarian and "reactionary," no less. Yet my leftist pals, and others with a superficial knowledge of libertarianism, will be even more surprised that the founder of the modern libertarian movement, also an avowed (and proud) "reactionary," agreed with me (or, rather, I with him):
"Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.
"Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.
"Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs."
That’s Murray N. Rothbard, the great libertarian theorist and economist, in his classic monograph Wall Street, Banks, and American Foreign Policy. If you want a lesson in the real motivations behind our foreign policy of global intervention, starting at the very dawn of the American empire, you have only to read this fascinating treatise. The essence of it is this: the very rich have stayed very rich in what would otherwise be a dynamic and ever-changing economic free-for-all by securing government favors, enjoying state-granted monopolies, and using the US military as their private security guards. Conservatives who read Rothbard’s short book will never look at the Panama Canal issue in the same light again. Lefties will come away from it marveling at how closely the libertarian Rothbard comes to echoing the old Marxist aphorism that the government is the "executive committee of the capitalist class."