Hide It - The United States Is Broke
By Chris Powell
Publishing" -- -
Even leading Republicans in Congress, including presidential
nominee Sen. John McCain, recoiled from Treasury Secretary Henry
M. Paulson's proposal to take absolute power over $700 billion
to be borrowed by the federal government and used to purchase
every sort of bad debt without ever having to answer for it -
not to the courts, not to regulatory agencies, and only
occasionally and incidentally to Congress itself.
The bad-debt bailout would be the biggest government patronage
program in history and would amount to declaring martial law
over the U.S. financial system and economy. Even if such martial
law is necessary, its implementation should be put in democratic
hands - a non-partisan agency with full transparency, statutory
standards for its purchases, and close accountability to
All the same, even if it can work - that is, prop up insolvent
financial institutions - the Treasury's proposal is still a
proclamation of the collapse of the whole U.S. financial system.
Even if some financial institutions are saved, the collapse will
manifest itself in other ways, probably ways more damaging to
the public. For who cares if Goldman Sachs and Morgan Stanley
endure if the issuance of $700 billion more in government bonds
drives interest rates way up, diverts credit from the private
economy, devalues the already sinking dollar, and sends
commodity prices soaring again?
In that case the financial class will have won another battle in
its long war against the producing class. It will be again as
was said about the maneuvers of the Second Bank of the United
States two centuries ago: “The bank was saved; only the people
Injecting throughout the world financial system their bogus and
unregulated financial instruments, like collateralized debt
obligations and credit-default swaps, the big New York financial
houses have taken the world economy hostage. The president and
Congress should strive to save the hostages, not the kidnappers.
But the president and Congress have participated eagerly with
the kidnappers in the total corruption of the financial system.
They have staffed the regulatory agencies largely from Wall
Street and then diminished financial regulation.
They have let the financial houses finance presidential and
They have watched haplessly as accounting firms and
credit-rating agencies engaged in conflict of interest and
failed to do their jobs over and over again even as corporate
scandal followed corporate scandal.
They have waged mistaken imperial war not with taxes but with
huge amounts borrowed from abroad, making the country hostage to
foreign nations, including some with hostile interests.
They have approved the government's falsification of inflation
data and its surreptitious suppression of the price of gold so
that interest rates could be set below the inflation rate, the
government and everyone else could borrow more at lower
interest, and the public would not become alarmed by monetary
Now the U.S. government is conjuring into existence via a few
computer keystrokes fantastic, virtually inconceivable amounts
of money. Unreal as these amounts are, they will be claims on
the real goods and services of the country, and, if the rest of
the world wants to keep playing along, which is doubtful, claims
on the real goods and services of the rest of the world as well.
The purpose of all this will be to save the people who happen to
be in charge of the payments system and to save the propertied
class generally. But people without many assets, people who
don't earn enough to own housing, people who could gain from
lower housing prices and lower prices of everything else, are
not even in the government's equation.
The country is simply busted. Its financial obligations are
unpayable, its asset prices are illusions, and the great
undertaking in Washington and New York is to preserve those
illusions rather than face reality. If the price of preserving
those illusions is $700 billion - and of course it is more
likely to run into the trillions - could it really be more
expensive to dispense with the illusions now? After all, instead
of rescuing financial institutions that disregarded risk, the
government just as easily could keep the country going by
sending checks to everyone every month - as it already sends
Social Security checks to retirees.
But as long as the government keeps paying ransom, the financial
class will keep taking the country hostage.
CHRIS POWELL IS MANAGING EDITOR OF THE JOURNAL INQUIRER IN
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