We are living through history in the making. Not the good kind of history. More like Nero-fiddling-while-Rome-burned history.
The kind of history we are seeing now is an empire in terminal and rapid decline. As the greatest single nation in history disintegrates, like Rome and hundreds of other empires before it, the public spectacles and orchestrated circuses for the masses keep getting bigger.
Public spectacle number one: Lies, lots of them.
“We’ll see the recession coming to an end probably this year,” predicted Federal Reserve Chairman Ben Bernanke on March 14. The recovery will begin in 2010 “and it will pick up steam over time,” he said.
President Obama confidently added, “We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
But what else are they supposed to say?
That the Fed slashed interest rates to less than 2 percent in 2002, knowing it would create a massive bubble, but doing it anyway to make politicians happy? That the resulting pop and debt deflation is sucking the economy into a black hole? That the Fed’s proposed cure, the only one left in its arsenal—fiat money creation—will destroy the life savings of its responsible citizens, the people who tried to invest for their retirements?
Bloated government and unsustainable deficit spending has saddled the nation with gargantuan debts that will never be repaid. Social Security is a busted bank, robbed by politicians who spent the trust fund money. Medicare and Medicaid benefits will be slashed because politicians made unsustainable promises to buy votes. Taxes will probably be doubled—then tripled when foreign creditors cut America off. America soon won’t be able to provide the level of services that Americans have come to look upon as constitutional rights.
Is that what you say?
That we are on our way to becoming a nation of beggars?
You won’t hear these words come out of any public officials—not because they are not true, but because the truth would cause panic among a populace that has been wooed to sleep by the sweet lullabies of politicians.
Public spectacle number two: Outrage, and lots of it.
President Obama is outraged. Ben Bernanke is outraged. Treasury Secretary Timothy Geithner and Senate Committee on Banking, Housing and Urban Affairs Chairman Chris Dodd are both outraged. Congress is outraged. Journalists are outraged. The Baltimore Sun reports: “A Financial Outrage.” The Washington Post: “Outrage Over AIG.” The Financial Times: “Summers ‘Outrage’ at AIG Bonuses.”
A recent Gallup poll found that almost 60 percent of Americans said they were personally “outraged.” America is outraged.
Yes, politicians have stirred up a hornet’s nest of rage. But what is all the rage about?
Most recently, it is the fact that aig is paying $165 million in bonuses to its employees—after accepting taxpayer money to stay afloat because some of those employees got greedy and irresponsible.
A little outrage goes a long way in distracting from the lies, and from the bigger issues.
That $165 million is only 0.09 percent of the $180 billion in taxpayer money that politicians forked over. And aig was contractually obligated to pay it. The government knew about the bonuses when it gave aig its first bailout; it could have legally stopped them then. It had the chance again after the second bailout. And the third, and the fourth. Now, all of a sudden, comes outrage! And don’t forget the multibillion-dollar bonuses over at Goldman Sachs, Morgan Stanley, Citigroup, Bank of America and other companies that have taken taxpayer money to stay afloat.
Flying beneath all the rage were three bombshell news items that should have ignited outrage, but were lost in the big media commotion over an amount of money equivalent to a rounding error in the recent pork-laden, self-interest spending fest also referred to as the federal budget.
Amid the hubbub, aig conveniently disclosed where all the taxpayer money it had received disappeared to. Surprise, surprise: aig turned out to be a front for funneling more taxpayer money into the big Wall Street and foreign banks in what essentially amounts to a second stealth backdoor bailout: $12.9 billion to Goldman Sachs, $11.9 billion and $4.9 billion to France’s SocGen and bnp Paribas respectively, $11.8 billion to Germany’s Deutsche Bank, and $8.5 billion to Britain’s Barclays. And so on. Why are U.S. taxpayers bailing out foreign banks?
Also lost in the tumult was the fact that the national debt hit a record $11 trillion last week. It only took 5½ months for politicians to add $1 trillion to the debt—the fastest jump in U.S. history. It took all of America’s history until 1982 to run up the first trillion in debt. The next two trillions only took four years each. President Bush then added the most debt by a single president in the history of the nation: $4.9 trillion. If President Obama’s projections are correct, he will run up as much debt in four years as President Bush did in eight.
The current federal budget projects that the debt will soar to $16.2 trillion—100 percent of gross domestic product—by 2012. But it will probably be even higher, because as Bernanke indicated, the government is projecting the economy will be out of recession by next year.
The debt numbers are getting so huge that China recently demanded that America guarantee it will not renege on its debts. On Saturday, President Obama was forced to issue the statement: “Not just the Chinese government, but every investor, can have absolute confidence in the soundness of investments in the United States.”
But perhaps the biggest news that got lost in the aig-bailout noise was the fact that the Federal Reserve announced that it was beginning to monetize the debt. This is huge, gigantic, almost-impossible-to-overstate news.
The Fed announced it would begin literally creating money out of thin air to purchase U.S. treasuries—$300 billion worth. It is an admission that things are so bad that the federal government might not be able to find enough foreign lenders to give it money. Therefore the Federal Reserve will just create it.
“It is a step in the dark,” says Ian Shepherdson of High Frequency Economics. “We simply do not know how this will play out because there is no prior experience to use as a road map.”
Shepherdson is wrong. There are hundreds of precedents. History is littered with the wrecks of fiat paper money experiments. In 1716, the rogue John Law created the Banque Generale to buy up the debt of France. Four years later, the bank paper was worthless. John Law’s money-creating experiment became known as the Mississippi Bubble. But the livre is not alone. The Argentine peso, Russian ruble, French assignat and frank, German mark, U.S. continental and Zimbabwean dollar are just some of the more famous failed currencies.
“Bernanke has sent a giant sell signal to the rest of the world to sell their treasuries to the Fed,” confirms Peter Schiff, one of a handful of economists who predicted America’s current crisis. “This is going to be a currency crisis. That’s what is coming.”
When France went bankrupt following John Law’s fiat money experiment, Law commented: “Last year I was the richest individual who ever lived, today I have nothing, not even enough to keep alive.”
The only difference this time is that the Fed is creating fiat digital money as well as paper money.
Public spectacle number three: National naivety, and lots of it.
With catastrophe plainly staring it in the face, America plunges head first into the shallow waters. It’s as if the powers-that-be actually believe that borrowing and spending can get America out of a problem caused by too much borrowing and spending. It is as if they believe that creating money out of thin air can actually make people richer. And to top it off, it is as if they actually believe that no one else can see the public spectacle that America has become.
Unfortunately, the exhibitions and circuses are only beginning, because that’s what empires become when they are going down and politicians don’t want people to know it. •