Quo Vadis, America?


Contemporary America is rather like an overdosed crack addict sprawled face-down in the gutter. For decades, our economy has been smoking the heady drug of cheap credit, which served to "stimulate demand" and produce pleasurable but artificial booms. Unfortunately, each boom was followed by an inevitable bust as the credit-fueled bubbles burst — first in internet stocks, and now in real estate.

Like every addict who finally "hits the bottom," America now faces a stark choice: Do we suffer through a violent, shaking withdrawal, or do we turn away from the painful rigors of "going clean" and reach for the bong one last time?

America’s addiction to cheap credit has ridden the nation into a box-canyon of sky-high debt and misallocated investments. The collapse of the sub-prime mortgage market has sent the balance sheets of our major banks into a sea of red ink. Strapped to a gurney and screaming for another hit, bank executives are now demanding a massive infusion of government (read: taxpayer) capital to re-inflate the bubble.

But this would only serve to "throw good money after bad" by perpetuating the ever-expanding mountain of malinvestments.

A better, "tough love" approach would be to simply allow the rotten structures to fall. This would liquidate bad investments and save precious capital for the rebuilding process.

Unfortunately, the folks with the most to lose by "going clean" are the ones with the power. The daisy-chain of collapsing financial structures has laid bare a horror-show of cronyism and corruption at the very heart of our financial and political system. The revolving door between quasi-governmental financial entities (like Fannie Mae and Freddie Mac) and the Washington power circuit has created a dysfunctional New Class that is determined to keep the racket going at all costs. If left to their own devices, this clique will eventually transform America into a giant plantation, with the vast majority of the population reduced to toiling under a lifetime of indentured servitude.

As I watched this circus of preposterous bailouts unfold last week, two distasteful ideas came to mind:

First, the quaint notion that America has a free market economic system is gone. In reality, our government is manipulating nearly every aspect of our economy in an inefficient and horribly unjust manner. Market forces, which normally function to sort out winners and losers, have been largely replaced by arbitrary government diktats.

For instance, our government is straining every fiber of its regulatory muscle to raise real estate prices (in a vain attempt to re-inflate the housing bubble). But this is not a socially neutral endeavor. After all, for every person who sells a house, there is also a buyer. When the government manipulates housing prices upward, the practical effect is to steal money from buyers and give the loot to the sellers.

Or consider our interest rates. The Federal Reserve has been holding interest rates at absurdly low levels (even below the inflation rate) for years, because easy credit policies give a short-term "stimulus" to the economy (and help to keep the bankrupt federal government from paying higher finance charges).

But for every borrower, there is a lender. If the government uses its influence to lower interest rates, it is essentially stealing money from lenders for the benefit of borrowers. Thus, folks who buy bonds or CDs are getting a far lower return on their investments because of the interventionist policies of their own government.

Another example is the carefully orchestrated campaign to keep stock prices inflated. It is a poorly-kept secret that our government maintains a "plunge protection team" whose main duty is to prop up the Dow and prevent any major downturns in stock prices.

Aside from the issue of whether stock prices are any of the government’s business at all (they aren’t), the government’s actions are again unfair and confiscatory. If a hypothetical investor analyzes the market and decides that stocks are overpriced, his most logical strategy is to sell short. If this assessment is correct and the market falls, he’ll make money. But government intervention to re-inflate stock prices steals wealth from the short sellers and gives it to long buyers.

In essence, our government has implemented a series of massive interventions in the marketplace which harm certain individuals for the unearned benefit of others.

By what right does the government do this? Why should a person who buys a house, or lends money, or short-sells stocks have his financial livelihood undermined by his own government? Are not lenders also citizens of our republic? Don’t short sellers pay taxes too?

And why should those who sell houses, borrow money, or take a "long" position in stocks be the beneficiaries of arbitrary government interventions? Is the world somehow a better place because these individuals make money at the expense of those on the other side of the trades?

The answer to these questions brings me to my second observation: The events of last week should make it abundantly clear — beyond any possibility of denial — that America is now a one-party state.

The great political division in this society is not conservative vs. liberal, or even Republican vs. Democrat. The great division is between a small group of plutocrats on one side, and the rest of the population on the other.

Time and again, high-powered, closed-door meetings were held to address the deepening crisis. Almost every major decision was made by people — like Fed Chairman Bernanke and Secretary of Treasury Paulson — who were never elected to anything and who are in no way accountable to the taxpayers for their decisions.

On the other hand, our actual elected officials were reduced to mere bystanders. Almost to a man (and woman), congress offered little, if any, objection to the plans hatched by the moneymen — even though trillions of taxpayer dollars were at stake. Despite some grousing and posturing, Barack Obama and John McCain were united in their support for a government bailout. Not even the heat of a presidential campaign could elicit a hint of disagreement or debate between them.

So the fix is in, and nothing is left for us but to watch events unfold.

By engineering a multi-trillion dollar bailout of the financial system, our ruling elites have decided to save themselves at the expense of main street America. They have elected to shun the rigors of free market economics, opting instead to reach for the enticing crack-pipe of government largesse.

And our bipartisan political class condoned this heist without any major objections.

When the day of reckoning finally arrives, the results will not be pretty.