In a favorable review of David Stockman's The
Great Deformation: The Corruption of Capitalism in America, a critic winds
down with a sigh. Stockman's prescriptions are "blue sky" and will
not be adopted by today's Washington.
Of course they won't, but, since he generally agreed with Stockman's take, what
does the commentator want? A friend opines the reviewer "is like a lot of
people out there who understand economic orthodoxy and how far off course we
are" and struggles to imagine "how we can maintain [our] collective
standard of living."
Such a course is impossible. Leaving aside how far living standards have
already fallen, the economy and our process of thinking have become so deformed
there is no way back without a shattering of such illusions and of living
standards. The United States is one among most nations with accumulated
imbalances of finance, trade, profits, jobs and non-jobs that have reached such
distorted levels because of the post-1971, non-redeemable, paper-money,
printing experiment. There is no precedent and there is no getting around the
need for markets to clear.
The insiders will pretend they are still in charge until the end. They started
to lose control around 1985. It was still possible to redeem our foul
misadventure at that juncture, painful as it would have been. Paul Volcker's
unpopular medicine between 1979 and 1982 demoralized large sections of the
United States, many pockets long since confused by the inflationary 1970s. The
Reagan administration then started to appoint establishment economists to the
Federal Reserve Board. At FOMC meetings, the votes of pliant economists made
economics popular again. So doing, we are in the muck today.
"A
Quarrel in a Far-Away Country between People of Whom We Know Nothing,"
(March 21, 2013) was, of course, Prime Minster Joseph Chamberlain's comment
surrounding Germany's invasion of Czechoslovakia in 1938. To expand: "How
horrible, fantastic, incredible it is that we should be digging trenches and
trying on gas-masks here because of a quarrel in a far-away country between
people of whom we know nothing. It seems still more impossible that a quarrel
that has already been settled in principle should be the subject of war."
Taken alone, this statement rings true. (The "in principle" is quite
a stretch.) The same could be said of Federal Reserve Chairman Ben S.
Bernanke's many bizarre comments, which, on their own, are neither wrong nor
interesting.
In 1940, George Orwell wrote of World War II: "After 1936, of course, the
thing was obvious to anyone except an idiot." In 1938, upon returning to
England from continental Europe, Orwell had written about the "familiar
streets, the posters telling of cricket matches and Royal weddings, the men in
bowler hats, the pigeons in Trafalgar Square, the red busses, the blue policemen
- all sleeping the deep, deep sleep of England, from which I sometimes fear
that we shall never wake till we are jerked out of it by the roar of
bombs." The bombs flattened London in 1940.
What Orwell wrote of the establishment
figures in 1940 need not be changed to describe recent Presidents, Prime
Ministers, Secretaries of the Treasury, Senate and Congressional Banking
Committee members, unaccountable central bankers, other sordid, government
bureaucrats, think tanks, professional-certification money-machines, tenured
professors, and editorial boards: "They had to feel themselves true
patriots, even while they plundered their countrymen. Clearly there was only
one escape for them - into stupidity. They could keep society in its existing
shape only by being unable to grasp that any improvement was necessary."
(We might amend Orwell to account for the international loyalties of bean
counters and bureaucrats rather than to their fellow countrymen.)
Again, Orwell could have been writing about the litany of trusted leaders who
have betrayed us: "What is to be expected of them is not treachery or
physical cowardice, but stupidity, unconscious sabotage, an infalliable
instinct for doing the wrong thing. They are not wicked, or not altogether wicked;
they are merely unteachable. Only when their money and power are gone will the
younger among them begin to grasp what century they are living in."
The Great Deformation: The Corruption of Capitalism in America names
names and describes the atrocious position the U.S. finds itself in today. It
is pure Bernankeism to wish (or believe) we can maintain our standard of living
without redemption many magnitudes beyond the severity of that which could have
sufficed in 1985.
In 1933, Winston Churchill wrote to a
colleague who accused him of being old fashioned: "I think we differ
principally in that you assume the future is a mere extension of the past
whereas I find history full of unexpected turns and retrogressions. The mild
and vague liberalism of the early twentieth century, the surge of fantastic
hopes and illusions that followed the armistice of the Great War have already
been superceded by a violent reaction against Parliamentary and election
procedure by the establishment of dictatorships real or veiled in almost every
country. Moreover the loss of our external connections, the shrinkage of our
foreign trade and shipping brings the surplus population of Britain within
measurable distance of utter ruin. We are entering a period when the struggle
for self-preservation is going to present itself with great intenseness to
thickly populated industrial countries. In my view, England is now beginning
the period of struggle and fighting for its life.... Your ideas are twenty
years behind the times."
Martin Gilbert, author of the book in
which this letter is published, then writes: "The times were indeed moving
rapidly; on April 7, [1933],Hitler formally imposed Nazi rule on each of the
German states, ending their century-old autonomy."
Churchill's influence was muffled through
the decade. The Baldwin and Chamberlain governments held him at a distance,
John Reith of the BBC kept him off the air, and Geoffrey Dawson, editor of the Times,
suppressed his warnings. He was nearing 60 and who wanted to listen to this
windbag anyway? It was easy to dismiss him as a has-been. In 1935, no doubt
creating more distance between himself and the cabinet, Churchill warned the
House of Commons: "[W]hen the situation was manageable it was neglected,
and now that it is thoroughly out of hand we apply too late the remedies which
then might have affected a cure. There is nothing new in this story. It is as
old as the sibylline books. It falls into that long, dismal catalogue of the
fruitlessness of experience and the confirmed unteachability of mankind. Want
of foresight, unwillingness to act when action would be simple and effective,
lack of clear thinking, confusion of counsel until the emergency comes, until
self-preservation strikes its jarring gong - these are the features which
constitute the endless repetition of history."
Kicking off National Poetry Month, this
morning's Wall Street Journal (April 1, 2013), published excerpts from
W.H. Auden's "September 1, 1939," the day Germany invaded Poland. It
starts:
I sit in one of the dives
On Fifty-second Street
Uncertain and afraid
As the clever hopes expire
Of a low dishonest decade:
Waves of anger and fear
Circulate over the bright
And darkened lands of the earth,
Obsessing our private lives;
The unmentionable odour of death
Offends the September night.
Orwell and Churchill make for compelling
reading today because they looked into the future, understood it, and warned
the public despite indifference or hostility.
Among the investment managers who saw the
mortgage meltdown well in advance was Paul Singer, general partner of the hedge
fund, Elliot Associates. In 2006, Singer made a presentation at the fall Grant's
Interest Rate Observer Conference. A majority of those present probably
anticipated the housing crash, but Singer understood the form it would take.
Having dug through tranches of highly sought CDOs, Singer showed that, in one
example, and given certain assumptions, a 4% fall in housing prices would wipe
out 84% of the principal. His presentation astonished some of the long-time,
mortgage-bears present.
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