Ilana: Republican president George Bush was as good if not better than Clinton and Carter at laying the legislative foundation for the minority mortgage meltdown. Comment with reference to the thesis of your book (and mention some other Republicans who’d like ditto-heads to forget their political pedigree).
Vox: Like Carter and Clinton, George W. Bush pushed government programs designed to boost homeownership among low-income families that couldn’t afford to meet the debt obligations they were assuming. These programs were focused on minorities, particularly Hispanics, which is why the four states where the majority of defaults have been located to date are California, Arizona, Nevada, and Florida. However, it should be kept in mind that these inept and bipartisan housing programs were not the cause of the core problem; they were merely a consequence of the overall problem of debt chasing a dwindling pool of borrowers.
Ilana: “Too much aggregate savings reduces growth.” “A global savings glut” got us into the depression. So say the money mavens. Unpack this intellectual fraud for us. Why is it important that our readers grasp that Keynes’s General Theory, received wisdom by both parties, is a political theory, not an economic one?
Vox: First, on the theoretical level, it’s incorrect. Second, on the empirical level, it’s simply false. There was no savings glut. It’s not possible for there to have been too much aggregate savings because even if one doesn’t bother to correct for inflation, the savings rate was declining in the USA and elsewhere around the globe. This should be obvious given the way in which the global debt statistics clearly show that the various Asian economies that supposedly had too much savings didn’t actually have any net savings at all. If I have $5k in the bank but have racked up $10k of debt on my credit card, what have I saved? It’s an absurd argument, false on every level. The reason it’s important to understand that the General Theory of Employment, Interest, and Money is a political theory, not an economic one, is because most of the macroeconomic statistics reported are based on Paul Samuelson’s practical application of it. So, the statistics used are intrinsically politicized and therefore unreliable.
Ilana: You point out that the Communist Manifesto calls for the kind of system of credit we already have, and both parties champion. Democratic lackeys are either mortified or mocking when we say “socialism” vis-à-vis BHO (you and I would apply the socialism designation to Bush Babies too). Comment (with reference to the Financial Overhaul Bill). What other economic edifices and legislation, pending or passed, would meet Marxist maxims?
Vox: There is nothing capitalistic or free market about the present U.S. economic system. To claim that a central bank monopoly established by the federal government is somehow indicative of laissez-faire economics is ridiculous on its face, especially given that “centralization of credit in the banks of the state” is the fifth pillar of the Communist manifesto. Other openly Marxist institutions are the FCC and FAA, which centralizes the means of communication and transportation as per pillar 6, the death tax (pillar 3), the progressive income tax (pillar 1), and of course the government-funded school system which is referenced in the tenth pillar.•
Ilana: The other day I watched Newt Gingrich twist like a cirque du soleil contortionist in trying to excuse his support for the Bush bailout, or TARP. He blamed the experts. As you tell it, Nobel Prize winner F. A. Hayek knew and liked Keynes the person, but disliked Keynes the political operative. The economic mast Hayek claimed Keynes “was [not] a master of the body of economic theory,” and that “his main aim was always to influence current policy, and economic theory was for him simply a tool for this purpose.” What accounts for the refusal of establishment “intellectuals,” politicians, and media sorts ─ against all standards of reason ─ to recognize the same? Is it a case of “No one knows anything”? “Intellectual inertia”?
Vox: It’s partly that. The dirty little secret of politics is that most politicians are of barely above average intelligence and possess very narrow educations. They’re mostly people with IQs of around 120 and a law degree. So, they know literally nothing about economics and lack the capacity to see that what the experts are telling them doesn’t add up. Given those circumstances, it should come as no surprise that they so readily embrace the economic theory that tells them exactly what they want to hear. “Go, thou, and spend, and thus shalt the economy be saved. And lo, thou shalt be the savior of thy people!” That’s a lot more palatable than being told that the nation is in dire straits and their careers are in jeopardy due to the actions of their predecessors and there’s not much they can do about it. So, they listen to the self-interested parties and blindly go about making the situation worse.TARP was like something out of Kafka. Imagine it was the NFL instead of the Wall Street banks. Everyone would have laughed if the NFL suddenly called a press conference and declared that unless each NFL team was immediately given $20 billion dollars, cats and dogs would start living together and martial law would have to be declared. But because it was the banks, naturally the politicians panicked and started handing over the money, no questions asked.•
Ilana: “The Democratic Party’s first candidate” ran, in 1829, on a “fiscally conservative, anti-central bank platform,” and all but eliminated the federal debt. What was Andrew Jackson thinking? It’s hard to believe that the fear of the inflationary fed resulted in “the foundation of … the Democratic Party.” Comment.
Vox: Yes, it is amusing that so few Americans can envision an economy without the Federal Reserve given that it is the fourth central bank with which the nation has inflicted itself. The same thing has happened every time. The central bank inflates like crazy, eventually the economy collapses, and the politicians are finally forced to step in and get rid of it. Eventually people forget and fall for the temptation of cheap credit and the process starts again. Who knows, perhaps the Tea Party will evolve into the modern version of the Jacksonian Democrats.•
Ilana: To mention the Fed today as anything but a hedge against inflation is to qualify as “Worst Person in the World.” Early Americans were not nearly as baffled about what the Fed did. Comment with reference to the on-and-off attempts to eradicate this Federal Frankenstein. What good would an audit of the money mafia do?
Vox: Keith Olbermann should have stuck to sports. He has no idea what he’s talking about when it comes to economics. The Fed isn’t a hedge against inflation, it is the primary engine of inflation just as its three predecessors were. A genuine audit of the Fed will immediately end its political viability and probably its existence, which is why the Fed is fighting so des
perately against the Ron Paul bill. But the end result is inevitable. The Fed can’t hide behind fictional statistics forever, as with the Soviet Union, people eventually begin to notice that they are not, in fact, wealthy and well fed.
Ilana: My second favorite line in your book: “… the only sense in which mainstream economic theory is worthy of serious study is the sense that a flight recorder demands intense examination after an airplane crash.” (One quibble with this analogy would be that the flight recorder contains retrievable immutable truths.) What hope is there for an awakening if “mainstream economic theory” is precisely what is being seriously studied and heeded by those among us who are not reading Dick Morris? Vox: The only hope is for economic sensibility to be restored post-crash. There are some positive signs, such as the widespread mocking of Paul Krugman’s belated warning of a “third depression” after the failure of the second stimulus. Krugman said a $600 billion stimulus package was needed, Obama got a $787 billion package through the Congress, and it failed anyhow. But the fact that these Neo-Keynesian clowns are still taken seriously and their models dominate the political discourse is an indication that a serious theoretical retooling will not happen until after the Great Depression 2.0 is well underway.
Ilana: At first the pols conceded that what they had given us was a jobless recovery, which is a lot like a housewarming for the homeless. They’ve quit that Big Lie and are now touting all the jobs BHO has created. What’s going on? Tell us why official indices such as unemployment and GDP are not to be trusted.
Vox: Unemployment is dependent upon reducing the size of the labor force. So, if you’re out of work and aren’t jumping through the BLS hoops, you don’t count as unemployed. It’s a joke. GDP counts spending but doesn’t subtract debt, so it’s like saying that you’re rich because you maxed out your platinum Mastercard. Until the debt is paid back, you can’t properly count it as economic growth. And almost all of the GDP growth over the last 20 years has been nothing but debt growth. And now that the debt is shrinking as people and governments default, GDP will begin to contract oo.
Ilana: I know who the “Zulus” are; I’m from that part of the world. You lost me with “Whisky Zulu.” Explain.
Vox: It’s just my personal reference to Weimar and Zimbabwe, two famous cases of hyperinflation. The Whisky Zulu scenario I consider is the hyperinflationary one that many inflationists favor. It’s a credible scenario anticipated by many very smart people, but I believe events are demonstrating that the debt-deflation scenario is the one that is playing out instead.
Ilana: I agree with you that “the Great Depression 2.0 will be worse than its predecessor.” Debt. Consumption. Credit. Have at it (p. 211).
Vox: It’s pretty simple. I give 10 reasons in the book, but two should suffice for here. First, the amount of outstanding US debt to GDP is proportionately greater. It hit a peak of 287% in 1933, and 375% in 2009. Second, stimulus plans that extended and exacerbated the Great Depression were limited to the USA. This time around, Europe, Japan, and China have been actively engaged in their own stimulus packages as well, so the economic blowback is going to be much larger on a global level than it was in the Thirties. Except for Germany, which had its own particular issues related to losing WWI and the strictures imposed by the Treaty of Versailles, the problems faced by Europe did not rise to the level of a “Great Depression” because Europe’s leaders didn’t make it worse by listening to the Keynesians as Hoover and Roosevelt did.
Ilana: It’s befitting that we end with perhaps the most important right in a free society. My favorite line in your book: “… one should always be deeply skeptical of any economic theory which … serves as a justification to allow one man to dispose of the property of another.” Private property has become a dirty word in an increasingly collectivist America. Not even Rand Paul, in his valiant defense of “private businesses” vis-à-vis the Civil Rights Act, could bring himself to speak to the sanctity of private property. People are comfortable alluding to “freedom of association” but not to what a man owns. Your thoughts with a view to what lies ahead.
Vox: Government can’t fix what government has broken. All of the desperate attempts to “fix” the global economy according to Neo-Keynesian and Monetarist principles are going to fail, state, local, and even national governments are going to default on their debts, and it’s going to be a very difficult road ahead for the next two decades. There will probably be a major war or two as well, as usually happens in times of large-scale economic contraction. But it is a second Great Depression, it’s not the Ragnarok. This isn’t a Democratic problem or a Republican problem and although the politicians will do their best to take partisan advantage of the situation, it is a structural crisis that cannot end until the structure collapses and is replaced with a more economically realistic one. Needless to say ownership ─ self-ownership, property ownership ─ will not fare well.
©2010 By ILANA MERCER
WorldNetDaily.com (Abridged version)