Drudge has posted a Washington Post article where Bob Woodward recounts the thinking, negotiations and brinksmanship that led to the last budget deal and its increase of the national credit card limit / debt ceiling.
You will recall that Standard & Poors was unimpressed by both the process and result. They downgraded the US credit rating a day later from AAA.
Readers should consider the full context of that article - it is part of a series published by the consummate insider journalist in Washington – Bob Woodward. He produces scoops because he has access. To fully monetize his access he writes books, which his article is meant to promote. He knows how to guide a story such that future access is preserved. There is a dynamic tension in Washington between such celebrity journalists and the people they cover – at the end of the day they need each other. Every interaction is a sort of insider kabuki dance. Trade offs are built-in – a “give and take” exists in the text.
Were people aware of this process, the following excerpt regarding the thinking of Treasury Secretary Tim Geithner would convert 50% of the population to Federalism (emphasis added):
The president should not put himself in the position of saying unequivocally that he would veto, Geithner concluded, for one simple reason: No one could be sure how to put the American or the global economy back together again. The impact would be calamitous.
“And the people who would bear the pain of that would be the people less prepared,” Geithner told others, “less able to absorb that cost. It would be something you could not cure. It is not something you can come back and say, a week later, ‘Oh, we fixed it.’ It would be indelible, incurable. It would last for generations.”
That part of the story was meant by Woodward to offset the damage of the article to Obama’s reputation (it is made clear he doesn’t plan or negotiate from a pragmatic point of view). The paragraphs provide a “scare context” that pokes the reader – the reflex is to accept any other outcome as better. The outcome of the House leadership dropping a demand and Obama signing the deal makes Obama look good and the Republicans as irresponsible for “courting disaster.”
But are you even paying attention?
That very thinking - the fact that such scares people – demonstrates that we have grown the Federal Government so much and so irresponsibly that not funding its voracious appetite threatens the constellation of crony employers, subsidy recipients and “private institutions” who are so dependent on Federal Government consumption, largess and protection from market forces that they’d summarily fail en-masse. A meltdown that “can’t be fixed” were the US Federal Government to allow some bills to be paid late. Bills that would eventually get paid as the Government figured out how to live on its revenues rather than borrowing.
That is the story.
It is the story of our time. The story of several generations – of those living who wrote the story and those yet born who will pay dearly for its ultimate unraveling.
It is a Federal crime for go between FDIC banks and “kite checks” – building up mythical balances by writing increasing checks between the accounts and “timing the float” so that you are never overdrawn until you walk in and ask to close the accounts for cash. Yet that is basically what we are doing with this “Borrowing.”
Consider that the US has $16 Trillion in debt at the moment. That debt is almost entirely in the form of US Bonds. US Bonds come in long term and short term denominations. Of the long term bonds only about $700 Billion aren’t owned by the Federal Reserve. Think about that – the Treasury of the United States loads the inkjet printer with some nice parchment and prints “IOU 1 Trillion to be paid in 30 years” and hands it to the Federal Reserve who hands the Treasury $1 Trillion. Where did the Federal Reserve get that $1 Trillion? They created it out of thin air – someone simply typed a “1″ followed by 12 (count ‘em) zeroes into a computer and hit “enter.”
Such is how money is “printed” these days. Money printing is how you destroy confidence in a currency and create hyper-inflation. Ask Brazilians about their “fond memories” of hyper-inflation. Ask them who was harmed most.
Now re-read what Woodward wrote – he guided his story to turn on a “moral question” in Timothy Geithner’s mind (emphasis added):
Geithner thought there was one other consideration. He did not mention it to anyone, not even the president, but he had thought about it a great deal. It was not just that Obama faced an economic choice or a political choice. He faced a moral choice.
That is the sentence that preceded what I previously quoted.
See how that worked? Woodward took one of the most amoral decisions in generations of America’s history – the choice to monetize our discomfort and preserve the luxuries of a government vastly larger than we can afford (and a government that is both corrupt and incompetent, as his story already makes clear) and force future generations to pay for it while simultaneously impairing capital flows vital to small business job creation – Woodward reframes the entire incident as a “moral choice” that perturbed the mind of a moral midget who blamed his own tax cheating on Turbo Tax.
Are you paying attention now?
This is what we have done with the most dynamic and fruitful economy that civilization has ever produced. An economy that lifted so many people out of poverty that it created an unprecedented thing – a “middle class.” There used to be two things economically – wealth and everyone else. As household incomes decline and American productivity (measured on a real basis) is stuck in a flatline perhaps we’ve decided to go “retro” and eliminate the middle class altogether. Then you get an economic system that resembles today’s system of celebrity journalism.
In such economies, government acts to both threaten and preserve those who hold wealth. That then becomes the new dynamic – where the wealth preserves its position by taking care of (while simultaneously threatening) the functionaries, law makers and the armed people who enforce the laws. The big decisions revolve around access and favors rather than innovation, productivity and market needs. It is an old formula that repeats itself in history – one that our founders thought they escaped by creating a Federal Government under the control of the States (except for one house in Congress) and where its powers were divided into three parts that basically competed with each other. And the powers that weren’t explicitly granted to those three parts were to be in the hands of the People via their States.
Imagine an economic system where cronyism is lawfully held at bay and economic liberty is the rule. Where the wealthy are most threatened by innovators rather than bureaucrats. Where the Federal Government is small enough where “buying it off” is hardly worth the effort because that isn’t where the power is. Or the wealth.
Now imagine Geithner’s “moral choice” under such a bizarre, foreign and radical system – who’d give a shit if the US Federal Government had to skip a payment or two except for those who’d been dumb enough to lend them money to bail out the United Auto Workers via GM and “invest” in Solyndra? And the wars? Well – lots of history of people lending to governments in time of war. History shows that wars funded in such a manner tend to be short and focused. Just think of how inexpensive Iraq and Afghanistan would have been if we had quit while ahead instead of “nation building.” Would you buy a “US Nation Building Bond?” Nor would I.
So are you paying attention? Are you a Federalist yet?