On this Labor Day I got up before dawn, turned on CNBC and watched an hour long, free-wheeling discussion moderated by Maria Bartoromo among Jack Welch [GE CEO for decades], Fink [CEO and Chm. of Blackrock], Pandit [CEO of Citigroup] and about seven other major people at the top of U.S. Finance and Big Corps. They all agree we face many years of grim financial and economic and probably political developments. They off-handedly agreed with Bernanke’s Big Prediction that we might manage 1% to 2% GDP growth a year, but did not discuss why. Faith Healing, I assume. Near the end several spoke with dread in their voices of the “fact” that last fall we were staring financial “Collapse” and possibly Armageddon in the face, but now we are not. Everyone seemed to agree with that. I don’t think any of them said so at the time, though I am not sure. I doubt that any of them said publicly before the Crash, as so many of us did, that we were in a Great Global Bubble that would Crash and produce a Great Global Crisis.
No one, not even Larry Fink, the most knowledgeable and honest and open of them [with Welch in a near tie and most of the others obviously feigning being tongue-tied about the risks we face], raised the simple and obvious question: WHAT HAPPENS IF THIS $28TRILLION SALVATION PROGRAM OF THE U.S. AND LESSER PROGRAMS AROUND THE WORLD FAILS? Fink had noted very pointedly that “the system [of credit creation] is broken,” there is a loss of confidence and trust, and the leverage of reserves is down to no more than 10 to 1 [versus 40 he opined during the build-up of the Bubble with its anemic income and GDP growth], so 1% GDP growth seems the most we can hope for. With the explosion of government debt in perpetuity and all the problems he says are coming, how do you avoid sinking back into CRASHING with the system broken and so on? No one asked. The older, more knowledgeable of them all know that a slight recovery, or pop in inflation, can be followed quickly by a much worse CRASH. That happened several times in the 1930’s when the credit creation system was not broken but had a Fed-produced liquidity crisis. That’s what happened in the “W” shaped small recession-small recovery-BIG recession of the early Reagan years, 1980—1982, even though the credit system was not broken and we had not been staring Armageddon in the face and the small S&L System was de facto bankrupt but did not go under for ten more years. They know that. They know how long and slow the recovery from the 1990 recession was and the 2000 one.
So why did none of them raise the obvious question: SINCE OUR FINANCIAL, ECONOMIC AND POLITICAL PROBLEMS ARE SO MUCH WORSE THIS TIME THAN IN THOSE RELATIVELY HALCYON DAYS, WE KNOW THE RISK OF A GREATER CRASH AHEAD IN THE NEAR FUTURE IS GREAT, SO WHAT HAPPENS IF THAT COMES TO PASS?
The answer seems obvious. No one wants to think of the unthinkable? Why? Because there is no way out.
I should say, they assume there is no way out if that happens, so it’s best not to think of the awful scenario we are now facing. I agree it is unlikely there will be a way out if this Keynesian Salvation fails. But the one way to guarantee that, it seems to me, is to assume that is true.
My own preference would be to try everything we need to do to try to prevent the Implosion and possible Armageddon. We need to quickly cut all unnecessary government spending, such as the trillion dollars a year we pay to slaughter innocents around the world. We need to free finance from the stranglehold of the totally corrupt Big Banks by putting reserves into the healthy banks lower down which are not broken and not corrupt and are still financing businesses. We need to increase incentives for investing in the real world, not in fraudulent Big Bank “securitized assets” as the Fed is trying to do right now. These people know those things and said some of them, but they cannot dare to say how vital it is that we do all of this and much more NOW while there might still be a chance of avoiding Implosion. Keynesianism today is a Monstrous Fraud. Keynes’ ideas are not relevant to this vastly different and worse situation we face today, including the ghastly total corruption at the top of the System. IF they could gently — not in terrorizing terms such as Paulson used last fall — tell people we face a grim GREAT CRISIS and we must ACT NOW TO REVITALIZE FREE AND MORAL MARKETS, NOT CREATE A VAST DESPERATION COMMUNIST SYSTEM OF CENTRAL PLANNING, TO AVOID A FAR WORSE CRASH, it might help to give us a chance for realistic action in this ghastly situation.
It would also help if they would tell the people the truth of our present situation. All of the major “green shoots of recovery” the officials are seeing are figments of their vast distortions of the markets and pouring $28Trillion into holding them up and financing make-work programs and first time home owner down payments, and car clunker programs, and appliance clunker programs, and Big Bank Clunker Programs on an immense scale, and…. These programs pay Corps. to keep on employees who are not being productive, pay states to hire workers not needed, pay people to buy a house they cannot afford before the program runs out in November, pay people to buy a new car now to keep down unemployment figures in the auto and related industries…and so on. There has been a relief and consumer inventory replacement slow down in the rate of decline, but the decline continues and such temporary variations in up-ticks and declines are normal — markets oscillate, move up and down in the short run on longer run, trend movements. Markets fluctuate at all times, as everyone playing markets knows.
The fact is that most intelligent Americans do not believe the hap-hap-happy chatter of Bernanke and all the other pop-Keynesians. They are saving their money and not investing in new production assets because they know there are huge risks staring us in the face now and for years to come. Certainly one must not panic them, but realistic, hard-nosed, honest talk about the real world risks and what we need to do to try to resolve this Great Crisis will help mobilize realistic action.
Jack D. Douglas [send him mail] is a retired professor of sociology from the University of California at San Diego. He has published widely on all major aspects of human beings, most notably The Myth of the Welfare State.