The stock market has experienced a big sell-off over the last few trading days. Today the obligatory Great Depression B&W photo has been trotted out on CNN, adorning an article by David Frum. It’s a dogma, you see, that depressions are signaled and perhaps even caused by sell-offs on the New York Stock Exchange. That isn’t true, but it doesn’t matter that it isn’t true. Dogma trumps truth in this instance.
What follows the photo is like, I don’t know, a little checklist. First Frum asks: “What’s the problem?” Then he cites four “factors”. You know, bullet point 1, then 2 then 3. Then the last one, 4, which opines that the “economy”, whatever that is, isn’t “growing” fast enough.
The word “debt” does not even appear in the entire article. As if the economic problems have nothing to do with debt, even though we just got through this whole “debt ceiling” thing and the big news over the weekend was that USG “debt” had been “downgraded”.
Frum provides good insight into the mindset of the Powers That Be. And that mindset can be summed up in two words: pathological denial.
Let me review just a little bit of recent history on this. The current slide – and this is just the current slide, there is a much longer view that could be considered but this is not the time – began with the so-called “subprime” crisis around 2007. That’s four years ago now.
What the subprime “crisis” was about, what it was always really about, was that there was a developing shortage of qualified new borrowers. Which meant, because of the insanity of our monetary system, that mortgage lenders had to seek out and lend to unqualified new borrowers, because the one thing that lenders can never, ever do in this monetary system is stop lending.
The real problem that resulted in the subprime crisis – the shortage of qualified borrowers – was never addressed. A lot of banks and other lenders went under and/or were absorbed by larger institutions, but in a way that doesn’t really matter because none of the bad debt ever really went away. That’s another rule of the insane monetary system: aggregate debt must always get bigger and can never be permitted to go away in any significant amount.
Because the money itself is debt.
Anyway, once all this consolidating and absorbing took place – think WaMU into BofA, for example, or whatever it was, like I said it doesn’t really matter – lending resumed to the last borrower left, the Great And Mighty Borrower Of Last Resort: the government of the United States, which promptly posted unimaginably high deficits the likes of which the world had never seen before.
You do remember this, right? This is not complicated. At least, not this part.
And by the way, this has nothing to do with Obama. Or Bush. Neither one of them could have done anything about all this. David Frum seems to think that the president should get the “economy” “moving” again, a la FDR in the 1930’s. It’s just way too late for that.
Anyway where was I? Oh yes. The huge USG deficits. Why anyone should be surprised that after running up so much “debt” so fast that the ability to pay is called into question – well – it is just beyond me that anyone would be surprised. One need not be an Austrian or a Keynesian. or for that matter an Asian or a Martian to have seen debt ceiling debacles and “S&P downgrades” coming; you need only have a sense of basic arithmetic. And it doesn’t even have to be a very precise sense. Mine isn’t. I’m just surprised at how long it has taken. I figured all this was quite obvious three or four years ago.
So now that the Great and Mighty Borrower of Last Resort is beginning to look exhausted – well, what then?
I feel a bit like Steve Martin’s Theodoric of York at the end of the skit.