Ayn Rand’s opus Atlas Shrugged opens with a beautiful metaphor prescient of modern America. Eddie Willers, one of its main characters. Eddie is an allegorical reference to the body politic of America, everyman. Eddie gazes at a massive oak tree, a pillar of strength, a living thing that has taken hundreds of years to pass from the improbable seed to the end stage denizen of a climax forest.
On closer inspection Eddie realizes that the great tree has been hollowed out. Its strength has become an illusion; it still stands only because the vicissitudes of life have not seen fit to blow it over. So it is with America, the beacon of liberty, and the unlimited potential of Human Action to create wealth to satisfy the world’s wants and needs, has become a hollow oak, a fragile shell of what it once was. The only power the tree has is one last destructive blow as it falls crushing whatever happens to be underneath.
America was created from a vision of the possibility of what man could become in a free society, divorced from the strife, grudges and sclerotic misery of the common man in the old world.
The Founding Fathers imagined a continent and a system of government where the common man would rise ascendant, free to enjoy the fruits of his labor, secure in life limb and property, the state a mere vestige of its monstrous, murderous self.
In 1776 when liberty was declared, and the chains of the old world were thrown off, Thomas Paine imbued the wisdom of Founding Father’s genius into the vernacular of the common man. At that time he was the widest-read author on the continent. Something like 1 in 4 Americans owned one of his publications, the equivalent today would be more than 80 million copies sold.
Sadly the dream did not last. No sooner than the British capitulation, the tendrils of the state took root in fertile ground, rich with possibility. In only 75 years the dream was crushed as Abe (cannot tell the truth) Lincoln shattered a generation of the best and the brightest, so his cynical masters could enjoy the fruits of taxation without the pain of labor.
New England bankers would go on to spend the taxes paid by southern planters, and the War of Northern Aggression was off and running. It was never to end slavery, but to keep union, specifically the revenue generating part.
The genocide of Native Americans quickly followed so the robber barons could loot the public fisc via low-grade bonds, thanks to a complicit Congress, and a desire for expansion on rails that were falling apart as soon as they were built.
Ongoing operational costs and maintenance were to be picked up with the public purse. Abraham Lincoln was a railroad bond lawyer long before he was a politician and he never failed to repay his masters.
In no time at all America was defeated by Spain taking on the mantle of Empire in the swamps of the Philippines. Anglophile devotees of the state soon got America into the Great War.
The Federal Reserve and an Income tax were necessary prerequisites to give the statist monster the sustenance required. The Great War, parts I and II saw America partner with the Socialist Brits and the Communist Soviets. This unholy trinity caused the unnecessary death of more than 50 million people.
The Germanic people’s only crime was to become a more productive society than the other European powers. The Anglophile Morgan Bank was not about to allow the Chase/Rockefeller investments in Germany to bear fruit at their expense. Woodrow Wilson admitted to this very fact after his Presidency was over. It is not an accident that German GDP passed British GDP in 1913. Germans are the largest ethnic group that migrated to America, America is more German than British! The solution to this u2018problem’ killed millions, wasted billions and led to the Rise of a German Corporal Adolph Hitler to power in less than 2 decades. All so the Morgan Anglophiles could have private profits and socialized losses. At the end of the bailout what do we have the Morgan Bank, and Goldman Sachs back in power at the expense of the average American. Undeterred they have already announced record profits and huge bonuses for their staff. Still we cannot blame these bankers; they are just playing by the rules. The problem lies with the rule makers, our leaders, the Congress. We would all do well to harken back to the advice of Tennessee Hero Andrew Jackson:
"Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves."
In spite of all these catastrophes America remained a relatively free, diverse, and vibrant nation. Still the war machine did not stand down; it occupied Europe and Japan and cast their envious eyes on other conquests.
The Korean and Vietnam War’s were sideshows designed to send messages from one set of corrupt leaders to another set using body language; dead bodies that is. The Korean War provided several new territories to occupy, Vietnam saw us secede control over a nation most Americans new nothing of.
By 1990 America was consuming a quarter of the world’s oil by 5% of the population. The oil was bought and paid for under market conditions, and was a voluntary transaction. Oil producing countries had little use of it themselves and were glad to sell for hard currency. Still our “leaders” began to worry about being cut off from what they viewed as an essential resource.
Saddam Hussein attacked Kuwait with provocation. The Kuwaiti’s were drilling sideways into Iraq. A much more legitimate reason than the Bush-Cheney junta used to occupy and systematically devastate an ancient and secular society in the Middle East. Iraq, a former ally, was the only secular state in the region.
The horror on Wall Street, in London, Moscow, Tokyo, and Hong Kong shows no end in sight as the re-valuations push stockholders equity into the ground and mortgage borrowers find themselves prisoners of their McMansions servicing loans significantly above "market value."
Thanks to the intervention of our political leaders and a complicit Federal Reserve System, all these bastions of economic strength became hollow, just like the oak tree in the opening scene of Atlas Shrugged.
Unlike Eddie Willers we do not need to wonder how the hollowing happened, it was just as Ludwig Von Mises predicted in 1922 with his epic tome Socialism. In a socialist society it is impossible to properly set prices.
Please re-read that again, America is becoming a socialist society and with government bailing out and taking over more and more this façade becomes thinner and thinner. A free society has no need for the Patriot Act, only a prison society based upon Socialism does (America has more prisoners than any other country in the world). The government cost to American society is closing in on 50% of the gross domestic product, and that sounds a lot like socialism to this American Patriot.
Socialism has always been the product of a privileged elite fostered on the gullible proletariat because they are too busy getting on with their lives to pay attention to what is going on at their expense. The poor are lured into the trap with promises of free goods and little work.
A new domino theory has emerged this week. The excess credit binge that Austrian Economist’s have been decrying for decades has finally come to pass. Bear Stearns fell, followed by Fannie Mae and Freddie Mac. Lehman Brothers followed over the weekend when no one would throw good money after bad by purchasing the debt soaked monster. Merrill Lynch was put on life support being purchased by Bank of America (known as the Bank of Italy for those with long memories). AIG tottered and fell on the taxpayer.
These debt-soaked and poorly managed enterprises are starting to fall like dominoes and like earlier domino theories this one is spreading around the world. This process threatens to make America, with the largest GNP on the planet, a fragile colossus, like Spain was in 1896.
Valuation and worth are always subjective. They depend upon the desire of the consumer’s valuation, and as such, are not amenable to any analytic measure. They also change with time and circumstance. This was beautifully illustrated by the collapse of Merrill Lynch’s stock price since 2007, it has fallen by 2/3 thirds. Bear Stearns, Lehman Brothers, Merrill-Lynch have all seen their value asymptotically approach zero.
The bloodletting will not stop because the debt mountain of the last century still exists, and will not be paid off, so massive devaluations will continue.
The Federal Reserve Bank is the culprit here. The credit orgy of the last century is their only product. It is what it does, even if they try to justify their existence with a cadre of paid shills, I mean, research economists. They do not even bother to print money anymore (no wasting valuable commodities like paper and ink); it is just 1′s and 0′s on a secret government hard drive.
Every time the system burps out more "liquidity" (I use this money term loosely), it passes first to the hands of the favored: big banks and finance companies for free. When these boys have money, cash on hand, it is a liability, and only becomes an asset when it is loaned out. One of the biggest recipients of this seepage has been the mortgage industry. They were quick to loan anything that could sign the documents, and cash the check for the fees.
Americans went of a drunken credit binge like never before: housing mortgages, home equity loans, and a plethora of other clever financial instruments hit the streets as equity instruments that were quickly tranched into Mortgage Backed Securities and spread around the globe. SUV’s and plasma TV’s in every room of your 4000 square foot monument to you. The only spender to rival consumers has been the Department of Defense.
Several trillion dollars later and America is up to its eyeballs in debt. Inflation since 1913 has devastated American’s ability to save for their future, to provide capital for growth. Growth now largely comes from debt laying off large chunks of America’s future to whoever will buy it.
The leadership does not care, for the same reason that the burglar does not care. There is no return on assets for a thief, since everything is pure profit from the sale of stolen goods!
Since confiscatory malinvestment is driven by the Federal Reserve, those first in the queue of freshly printed money get it at its maximum value, those who follow later get a smaller and smaller share. As the value of our currency is driven asymptotically to zero, the common man gets less and less for his labors.
Inflation is a deliberate impoverishment of the benighted masses, by the political elites. It is an unlegislated tax, confiscation of capital. The Fed would have us believe inflation is like cosmic rays or a hurricane something out of their control, but that would be mendacity, i.e. a lie. It is a deliberate policy and always has been it is an unlegislated tax, nothing more.
The result of this process is twofold: more and more employers depend upon printed money for growth and this makes them supplicants of the great Federal cash teat. The housing industry: the building trades, building products suppliers and legions of mortgage brokers, title companies, insurance companies, and escrow lawyers come to mind here.
Malinvestment occurs as capital moves to market areas where it would not otherwise go. Defense contractors largely have no market for their products absent a Federal Reserve and a warfare state, and thus depend as well.
Austrians have been decrying the Federal Reserve for almost a century. They are ignored and marginalized because they send one message and one message only: government is a destroyer, and in a free society there is NO place for it and its toadies in all forms.
America has a billion weapons, and trillions of rounds of ammunition in private hands, it will never be invaded by foreigners. We have no need of a War Department (DOD, HSA, TSA or DEA). They only serve as occupiers, and occupying us they are. At what cost?
The fragility of America comes to be as malinvestment pushes capital and essential skills elsewhere. Malinvestment causes the financial service industry to seek high returns in speculative and risky ventures. Because the “bankers” are a federally sponsored entity, they can largely do as they please with funds given to them. Taxpayers desperate to keep a portion of their earnings flock to tax shelters, providing a steady stream of funds to “the smart guys of finance," who then invest it recklessly. Another click on Leviathan’s ratchet occurs.
The War Department bloats consuming manpower and capital, building monstrosities that are an abomination to both God and man. Giving them a dollar has the effect of removing a dollar of capital from circulation and possibly taking a productive life(s) and wrecking many dollars of someone else’s capital. The leverage of destruction occurs as one dollar can wreck many more: a terrible waste of a dollar.
Austrian Economics tells us what will happen, not how or when. The financial unwinding underway is both inevitable and tragic. Gresham’s Law will always be observed: bad money drives out good. The bad money is a tsunami sloshing over the entire world and the Federal Reserve is the culprit. The solution is to print more of it.
The American economy reels from these effects. The great unwinding of the Federal Reserve Gordian knot of finance is stealing the productive efforts of millions of people. Stocks, bonds, housing prices, and savings are being decimated. All the Fed offers in return is a stern promise to debase the currency more.
There is another name for this, it is an extortion scheme. High Level Government bullies and their supplicant are cowards; bullies that break your leg metaphorically and demand you be grateful for the crutches they provide, and be quick hobble back to work so you can make the minimum payment due. More than 70% of America was against the bailouts of 2008 yet they went ahead anyways. The insane logic of working men and women bailout the rich and the super rich did not wash in Middle America. This should have been prosecuted as high crime and treason. When we weaken America we strengthen our overseas enemies. We borrow around the world and hobble ourselves in the process; this is madness.
This is the fragility that is the theme of this monologue: more and more domains of society become political. Politics is all about lying and deception, fleecing the unwitting and the powerless. The poor management techniques of government intertwine with more and more of the world’s commerce for less and less efficient usage of scarce resources.
Only government pays a high price for low value, which is the opposite of what an acting man does. The malinvestment stratifies and ossifies the body politic. Jobs and capital are lost. The inevitable shocks of life: natural disasters, crime, normal variations in supply and demand, plus foreign intrigue push at the hollow tree of America.
Our leadership response to the problems of their own creation is the bizarre application of more of the techniques of destruction and the inexorable Hobbesian death spiral as they try more and more of what has hollowed us out.
Sooner or later the final impact comes and the great tree falls over and becomes a rotten log.
As William Graham Sumner so beautifully pointed out late in the 19th century that Spain has conquered the United States, not with a military battle but with a mountain of red ink as the taxpayer is forced to grossly overvalue things so the favored can skim off their vigorish.
In the meantime our military has been stretched to the breaking point “winning” a war that makes absolutely no sense by any strategic model. We have replaced someone else’s goons with our goons, but goons they are. Sadly we have paid a mountain of treasure plus 4 thousand precious American lives and untold others and still we keep counting.
The Bush/Cheney junta has wasted the equivalent of 200 Bill Gates and 50 John D. Rockefeller fortunes in order to test the nation-building theory of a bunch of cowards and draft dodgers. America has a deficit of these creative geniuses and surfeit of political hacks like Obama et al. We have tripled the national debt in just 9 short years, and in the process weakening the fabric of this Great nation.
“And when they ask how much should you give? The only answer is more, more, more.”
~ John Fogerty Fortunate Son
"Libertas in praesenti, libertas in infinitum”
Res Ipsa Loquitur
George Giles [send him mail] is the founder of the Gonzo School of Economics, the radical branch of Austrian Economic Theory. He was the youngest Republican ever elected in 1972 at age 17. You could be elected at age 17 if the office was not assumed until after age 18. It only took 3 months of local GOP meetings to become a virulent Libertarian ever after.