Among economists, academics and political scientists there seems to be a debate emerging about the current economic turmoil. The central issue being: does debt matter?
The Keynesians don’t seem to think it does. Other people disagree. I think it matters for the following reason: it has mattered for the last 8 centuries, every single time a sovereign nation has defaulted. There is a long history of sovereign defaults we can look to and an even longer history of collective denial amongst intellectuals who simply cannot envision a world radically different from the one in which they exist. This phenomenon of collective delusion is referred to by psychologists as the normalcy bias. A great deal of Jews stayed in Germany because they simply could not envision anything like the Holocaust actually happening. This belief was predicated on the sober and seemingly logical conclusion that there was no historical precedent for such an event.
Ironically, today it is those who advocate alternatives to the current model of neo-liberal state-capitalism who seem completely unable or unwilling to acknowledge that the status quo is actually threatened. Leo Panitch, an editor of the Socialist Register and professor at York University appeared on The Real News Network after the largely contrived and manufactured “debt ceiling debate” to point out that a reaction to a Standard and Poor’s downgrade to US sovereign debt wasn’t a run on treasury bonds but a run to them. Dean Baker, co director of the center for economic and policy research (a progressive lefty, think tank) echoed these sentiments, dismissing concerns about global debt saturation as right wing fear mongering. The type of fear mongering that can be channelled into attacks on welfare state policies.
The Left has conditioned itself into irrelevance. They are so used to occupying the historical position of righteous underdogs fighting the big-bad establishment; they are actually over-estimating the sustainability and power of US global Hegemony. Those who actually work in finance or economics seem to be far more sceptical of all the optical backstops and institutions of global power which the Left has spent the last generation fighting against.
Kyle Bass, a highly respected Hedge Fund manager who successfully predicted and profited from the 2008 financial crises said the following in a recent panel discussion:
“This is not a cyclical rebound from a crisis we had two years ago and you should NOT be buying stocks because a P/E ratio is low relative to historical S&P behaviour because the E is wrong. We are going to see declines and people don’t know how to position themselves for declines. We are at peak earnings now! Earnings only look good because we… took all the bad assets and put them on the public balance sheet”
Many parts of the globe are reaching what is now being called “the Keynesian endpoint”. This is succinctly defined as the point when interest on sovereign debt exceeds central government revenues.
Noam Chomsky and Joseph Stiglitz were among the first in the academic world to point out the natural consequences of capital controls being lifted in the post Bretton Woods economy. The “moment by moment” referendums on government policies which will be carried out by a “virtual senate” are manifesting themselves in the CDS (credit default swap) spreads on Sovereign debt. Every day, the large pools of capital “vote” on whether or not to endorse government policies by either purchasing sovereign debt or purchasing insurance on that debt. A margin of several basis points is all it took to plunge Italy into a liquidity crisis. The barbarians are at the gate. Bondholders must be appeased. The only question is how much austerity can be imposed on working people before banks simply HAVE to take a haircut.
And this underlines the key issues at the core of modern oppression; the privatization of the issuance of credit and currency. As long as governments are willing to tolerate the parasitic status quo of private banks using central bank loans to purchase government debt and finance deficit spending; the existence of a functioning social welfare state will be impossible. When forced to choose between full employment and moderate inflation or high unemployment and low inflation, banks will always choose the latter. Private institutions are simply not incentivized to care about regular people. Rising wages hurt banking institutions. Banking institutions own the planet, etc.
According to Michael Hudson, author of Super-imperialism “What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment” and this leads to situation where “finance has become the new mode of warfare – less ostensibly bloody, but with the same objectives as the Viking invasions over a thousand years ago, and Europe’s subsequent colonial conquests: appropriation of land and natural resources, infrastructure and whatever other assets can provide a revenue stream”.
Now what happens when this new model of economic warfare is directed against the United States? What happens when China stops purchasing Treasury Bonds? Or when extensive money-printing to re-capitalize insolvent banking institutions sends developed nations into hyperinflation?
The answer is frightening; there is no playbook for what happens next. We are currently experiencing the largest peace-time accumulation of debt in human history. Historically, debt to GDP ratio’s have only reached their current levels to finance hegemonic wars. To the victor goes the spoils and the loser goes defeat and default. This is uncharted territory and the main centres of dominance and control are responding accordingly.
In a lecture about his new book “Currency Wars” Jim Rickards pointed out that the Pentagon is already war-gaming potential scenarios concerning an economic collapse and the implementation of martial law. The operation is called “Unified Quest”. In addition to this, the passage of the national defence re-authorization act now allows for the indefinite detention of US citizens for “suspected“ ties to terrorists. This should be viewed in the context of what we know about Homeland Security from declassified and leaked documents like the Miac Report, which claims the main objective of homeland security is not to target spooky Muslims but to clamp down on the domestic population. Banks are over-playing their hand, governments are much more nervous than they let on and domestic populations are literally in the streets demanding reform.
A great deal of smoke and mirrors has been concocted by the public relations industry to disguise or obscure what are essentially more sophisticated, technocratic forms of wage-slavery which have been in existence for centuries. When governments borrow money from private banks, the collateral on the debt is essentially YOU. The only reason governments can borrow money at such low interest rates is because they possess the ability to levy taxes. Their ability to repay loans to bondholders is predicated on your hard work. The oppression is nothing new, nor is the response to it. It’s not merely an ironic coincidence that factory girls in Lowell Massachusetts (who had never heard of Socialism) during the Industrial Revolution just assumed that people who work in the factory ought to own the factory. The ideas behind participatory economics are just natural extensions of human fairness and common sense.
As long as the profit generated by the interest on credit is monopolized by financial oligarchs, governments and their domestic populations will be at the mercy of private banks. For all its faults, the occupy movement at least directed their anger to the right place. So much time and energy has gone into creating a system where people routinely alternate between blaming either liberals or conservatives. We’re all encouraged to blame political parties and focus on everything except what’s REAL. What’s real is the power of corporations, banks and financiers. I truly hope the Occupy movements around the world recognize that the forcible evictions from Tahrir square-like public spaces were actually opportunities; the opportunity to grow and evolve into bigger and more organized forms of political expression. People often ask what the Occupy people managed to accomplish (besides changing the national conversation, getting banks to retract new service fees, forcing Obama to cancel the Keystone pipeline and stalling the foreclosure process) and the answer is simple; they correctly identified The Man Behind the Curtain. And that’s a good first step.