In reading about the last decades of the Western Roman Empire (“The Fall of the West” – Adrian Goldsworthy), I was struck at the unprincipled, makeshift and stopgap measures undertaken by the state as it attempted to stave off oncoming disaster. Myriad superficial and quick-fix band-aids were deployed to patch the façade. Everything, including the kitchen sink, was thrown at the fissures. However, the centuries-long accumulation of problems, which were at its roots moral, just overwhelmed even the best of a pathetic bevy of generals and their figurehead Emperors.
Reading that book in 2009/2010, it would not be unexpected to equate the futile political machinations of 5th Century Rome with the U.S. Fed and Federal Government policies deployed to prevent another Great Depression. Emergency measures, lacking any conformity with existing economic theory and principle, might have justification in times of peril and distress. However, we are in the 4th year of the economic gloom. Unprincipled innovations have now become the rule at the Fed as Chairman Bernanke is devising new clever contraptions (Quantitative Easing 3 – QE3) to prod the economy. Meanwhile, the politicos in Washington are ideologically deadlocked into continuing the existing regime of trillion dollar deficits as far as the eye can see. There is terror in ending the indebtedness addiction through austerity programs, less the economy collapse and social unrest and civil conflagration ensue.
At the time of the Financial Crisis, I thought and expressed my belief that if America was prudent and moral, it would take a decade for their economy to return to normalcy. In order for normalcy to be declared, the American economy would have to recover to normal GDP growth of 2-3%, REAL unemployment of 6-7% and low to moderate inflation against the enormous crosswinds of deleveraging at both private and public levels and a return of interest rates to sounder and normal levels.
I don’t believe that America is prudent and moral; although it might not be particularly worse than any other nation on the face of the earth. In order to turn the ship around, it would require the higher noble virtues of patience and fortitude in a nation that has even lost the basic virtues. A period of moderate austerity and deleveraging would result in a long-term desultory economic environment with high structural unemployment for the first many years. It takes considerable time to turn a large ship around and there is no apparent advance during the turn. A period of draconian austerity would result in a debt and deflationary vortex that the world experienced in the first years of the Great Depression (for the U.S. and Canada – 1929-1933). (In those years, it wasn’t the public institutions that were conducive to this spiral. The complaint made by Keynes and Friedman was that the public institutions didn’t do sufficiently to arrest it.)
Any attempt at austerity, and the United States at the public level has yet to commence that program, would be quickly choked off by the voices of folly (i.e. Paul Krugman), which predominate in this Age of Folly. The European populace is beginning to shake and rattle their displeasure. The timidity of leaders is beginning to cower and retreat before the threat of social upheaval. (It is perhaps prudent timidity from the perspective of personal welfare of the civic leaders.) And one cannot blame the populace. They have the victims of a disguised impoverishment over these last many decades.
I expected and have seen fulfilled, a renewal of myopic, short-term expedient measures which attempt to further the continuance of the façade of economic health, while the overwhelming threats remain unattended. Indeed, I doubt that many civic leaders, the intelligentsia and other elites are even aware of the particulars of the underlying crisis. The current state of the U.S. economic and fiscal condition is that; with public deficits, which are at the threshold of creditor’s tolerance, and an interest and money supply policy, which cannot go much more expansionary without currency crisis; the U.S. is vulnerable to any even moderate extraneous shock. There exists little cushion for error or crises. They are on the ropes.
Fed and Federal Government policies are merely repeating the underlying conditions that repeatedly lead to financial crises (Asian Flu (1997), Long Term Capital Management (1997), Dot-Com Bubble and Panic (2000- 2002), American Housing Market collapse and ensuing Financial Crisis 2006-8). The bond and commodity market appear to be the next vulnerability by which monetary expansionism will lead to puncture, panic and crisis. While these futile and foolish policies exacerbate existing and create new problems, the underlying socioeconomic and moral problems remain unattended and worsen. The early 1930s, witnessed a surfeit of ideas to resolve the crisis, many outlandish to be sure. But there is nowadays, a deafening dearth of creativity and imagination in resolving both superficial and subterranean issues. Perhaps political correctness has truly taken its toll on the risk of promoting unorthodox and potentially unpopular notions. And I still expect the second shoe of this Financial Crisis to drop at the public level.
One need not believe in the Book of Revelation to anticipate an economic apocalypse that it foretold
Babylon the great is fallen, is fallen “‘Woe! Woe, O great city,
Alas, alas that great city Babylon, that mighty city! for in one hour is your judgment come. And the merchants of the earth shall weep and mourn over her; for no man buys their merchandise any more: The merchandise of gold, and silver, and precious stones, and of pearls, and fine linen, and purple, and silk, and scarlet, and all thyine wood, and all manner vessels of ivory, and all manner vessels of most precious wood, and of brass, and iron, and marble, And cinnamon, and odors, and ointments, and frankincense, and wine, and oil, and fine flour, and wheat, and beasts, and sheep, and horses, and chariots, and slaves, and souls of men. And the fruits that your soul lusted after are departed from you, and all things which were dainty and goodly are departed from you, and you shall find them no more at all. The merchants of these things, which were made rich by her, shall stand afar off for the fear of her torment, weeping and wailing, And saying, Alas, alas that great city, that was clothed in fine linen, and purple, and scarlet, and decked with gold, and precious stones, and pearls! For in one hour so great riches is come to nothing. And every shipmaster, and all the company in ships, and sailors, and as many as trade by sea, stood afar off, And cried when they saw the smoke of her burning, saying, What city is like to this great city! And they cast dust on their heads, and cried, weeping and wailing, saying, Alas, alas that great city, wherein were made rich all that had ships in the sea by reason of her costliness! for in one hour is she made desolate.
(Revelation 18:2, 10-19)
I highly doubt that the Babylon depicted pertains to New York City or America in general. However, there is now rational basis for anticipating an economic cataclysm in the United States, contributing to civil unrest and conflagration, an end to civil governance and an implosion of the American Empire. As much as I do not like Chris Hedges’ politics (socialism) and take on his predictions (Capitalist-Christian Reconstructionist coalition of tyranny), his premonitions are similar to my own. (My own belief since the early 1980s after reading Francis Schaeffer, is that the sociopolitical consequences of foundationally (civilization-level) different worldviews within the U.S. would naturally and invariably lead to the type of civil conflagrations that the Founding Fathers warned about (i.e. Washington – Farewell address, Madison – The Federalist Papers #10 concerning the problem with factions) warned about.) (See – Philosophical Sectarianism) Economic crisis and catastrophe could be the catalyst for factional fratricide.
I am gloomy and doomy, as all social prophets must cloak themselves in. Even if I had equity, I would resolutely refrain from owning American assets. I can see that our Canadian P.M. is racing against the clock to pursue other trading partners before the elephant collapses. I am not even that confident that even a wealthy man may escape considerable loss to his wealth, regardless of how prudent and shrewd he navigates the upcoming storms.
Like Douglas MacArthur, in his post-Japanese-surrender radio address (1945), I suggest the problem is spiritual and moral. Although I can imagine economic, social and political solutions, they would be undermined by the folly and immorality (in the largest senses of the word) that pervades this Age. However, some analysis and ideas will be forthcoming in the next several weeks and months.