I think it is desirable that the obligations arising out of past borrowing, of which National Debts are the most important, should, as time goes on, gradually command less and less of human effort and of the results of human effort; that progress should loosen the grip of the dead hand; that the dead hand should not be allowed to grasp the fruits of improvement long after the live body which once directed it has passed away. -- JM Keynes, Treatise on Money
The way our financial system is construed, debt is both necessary and in certain matters healthy. For example, if a company wanted to expand its business building a new plant, it can go in debt in order to provide future growth. Or a city can sell bonds so that it can build a new sewer system or fund parks for the enjoyment of future generations. Debt can provide the ability to marshal present resources for future wealth and utility. However, there is also unhealthy debt, simply defined as a means to preserving the present at the expense of the future. The easiest example of this is the old landed aristocracy of Britain. As Britain moved from an agrarian political economy to an industrial system, the political economy that empowered the landed gentry was hollowed it. Over time, much of the aristocracy went further in debt trying to hold onto lifestyles the underlying economic conditions could no longer uphold. Eventually, when they no longer could even pay the debt incurred on the estates themselves, the game was over.
This is the insidious game the United States has undertaken over the last several decades. The underlying 20th century industrial model has been changing, instead of fundamentally changing how the system operates, we have indebted ourselves to the status quo. Even more harmful, our financial aristocracy has grown and not loosened its grip on the political economy, but tightened it. They have not just placed themselves further in debt, but the entire political economy. It has been quite amazing in the last week, as the White House minutely turned up its rhetoric on our financial aristocracy, how overwhelming the push back was, even from some who deem themselves "reformers". We are now told, we can't do anything about Wall Street, we need them, and changing the financial system will wreak havoc. Each day we pile on more debt, entrenching the status quo, and seemingly as the saying goes, sealing our fate.
The financial system that evolved over the last several decades has placed a premium on entrenching established ways. It was even more destructive as the game was rigged so that a few could make more money by taking existing debt and piling more debt on top of that, call it "financial innovation." A great deal of this debt is now bad, and all the moves of our financial lords in the past two years has been to pile up more debt, with the completely false notion that the new debt will make the old debt solid. Most despicable has been the movement of trillions of dollars of private debt onto the public books, the equivalent of mortgaging the American estate, which is left out of the equation when you hear the bond barons and other deficit hawks lamenting about the debt.
The last several decades, we sat and watched as a financial aristocracy gained further and further control of our government. We sat and watched our government become increasingly centralized, leading to one thing, a further entrenchment of an unsustainable status quo. Each day, we sit and watch as the American system, based on distributed and separate powers, and checks and balances, is in the name of security and stability centralized and made less accountable. Yesterday, as Yves Smith points out, we are now aware of the merging of our behemoth national security state procedures and the financial sector. We find the Fed placed its dealings with AIG under "special security procedures. The foundation of self-government is openness. Power cannot be held accountable without access. Yet every day we sit and watch our government become less and less accountable.
We our caught in a nasty trap at this point, a cult of expertise. The modern world is much more complex than those that preceded it. While we our flooded with information, the average person is much less educated on the forces that impact their daily lives than the peasant of Medieval Europe. Instead of evolving new processes by which people are brought in to be educated, manipulators and editors of information, that is decision makers, we increasingly centralize more and more decision making and empower "experts", people who have come to their position because they understand the status quo, and then become its protectors.
In such a centralized system, reform of relevance never comes from the top. The only way to do it is to break up power and redistribute it, allowing the freedom and creativity to reform, create and evolve. The first step in creating this freedom is going to have to be destroying a lot of the dead debt that sits on the books of our banks, corporations, government, and households. We need to begin redistributing power and wealth, and by that I don't simply mean taxing the rich, but the wealth and power entrenched in our unsustainable ways of doing things and its institutions. Only by destroying debt will we be able to free ourselves from the status quo and begin to reform America for a vibrant future, giving the future the same opportunities bequeathed to us.
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