Friday, April 19, 2013

Preface for Chinese translation of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

To be published by Fudan University Press

I thank Fan Zhiqiang for his decision to translate Panderer to Power. His great attention to detail in asking me to explain dozens of phrases and terms for a Chinese audience reminded me of how the book concentrates on the United States. The influence of Federal Reserve Chairman Alan Greenspan's actions spread around the world. It would have been a much longer book, though, if I wrote of how United States' policy influenced China (for example), other than writing of it in reference to the United States.

             That being said, Panderer to Power was written with foreign readers in mind. There are universal tendencies in how the United States changed from 1950 to the present. Lessons might be applied in other countries.

Alan Greenspan embarked on his career at the mid-century mark. His story is thus intertwined with that of the United States from its post-World War II peak. In 1950, four million automobiles were built in the U.S. while the rest of the world produced about one-half million cars. Most ambitious young men went to work at manufacturing companies such as General Motors. Alan Greenspan followed a different route. He became an economist. This was either far-sighted or lucky, or both. The field produces non-tangible products, unlike the automobiles made in Detroit.

A few economic numbers give a sense of how much the country has changed. By 1956, a majority of the U.S. population was not engaged in production. This was the first time, in any country, when more people worked in administration than in agriculture or industrial production. In 1950, 59% of U.S. corporate profits were in manufacturing, 9% were from financial activities. During the period from 2000 to 2008, 18 percent of profits were from manufacturing and 34 percent were from finance.

The 34 percent underestimates how the larger distribution of profits has changed the habits of Americans. In the 1950s, most Americans' investments were simple. They saved for their retirement. The money was deposited in a local bank where it collected interest year-after-year. The annual interest never exceeded the mid-single digits, but, consumer price inflation never exceeded 2 percent a year and was generally well below that.

In the mid-1960s, the United States government and the economists advising the government started to live in a world of make-believe. This fit the times. Walt Disney and other fantasies were becoming more popular, not only with children but with adults. President Lyndon Johnson decided to fight an expensive war in Vietnam at the same time Congress passed his "War on Poverty." This included greatly expanded programs of food and medical care provided by the government.

Johnson surrounded himself with advisers who were more inclined to write scripts fit for Walt Disney than for reality. Despite what they told him, the U.S. could not fight a large war in Vietnam and a big war against poverty at the same time the country was de-industrializing. The latter was noted by Alan Greenspan in his autobiography. The steelworkers went on strike in the late 1950s. Compared to industrial workers anywhere else in the world they lived like princes. In addition to owning their houses, the workers often owned large boats and winter vacation houses in Florida or Arizona. In his autobiography, Greenspan wrote that American companies that were forced to import steel during the strike often found it was both of higher quality and less expensive than domestic steel. Many never turned back from their Japanese and German suppliers. This pattern repeated itself thousands of times over the next half century until industrial production had been hollowed out.

The United States' economy veered more and more out of balance. It could no longer balance its fiscal budget. It was running greater trade deficits with foreign countries. The median family income reached a peak around 1971 and it has been a struggle to attain that standard of living ever since.

The United States was bound by the Bretton Woods Agreement of 1944. A foreign government (central bank) could convert $35 U.S. dollars into an ounce of gold with the U.S. Treasury. On August 15, 1971, President Richard Nixon announced the U.S. had closed the gold window. The importance of this goes beyond the mechanics of monetary arrangements. In The Fate of the Dollar Martin Mayer wrote about the weekend meeting at Camp David 1971 when the decision to sever the gold link was reached. Quoting Mayer: "The fact that this procedure would violate American treaty obligations does not seem to have been mentioned by anyone..."

That nobody even mentioned the United States was acting dishonorably, unilaterally walking away from obligations to foreign countries, was a sign of the times - and, of the times ahead. For instance, until the early 1970s, bonds sold by corporations to the public were issued to finance large construction projects or to invest in power generation. These were bonds backed by a constant flow of revenues to the issuer. There was no law or rule against selling bonds backed by automobile loans or mortgages, but the Bretton Woods agreement itself restricted behavior.

After August 15, 1971, currencies issued by countries were no longer bound by a physical restriction. In time, and never more than in 2013, governments, and their central banks, print unlimited amounts of currency. This has unleashed an avalanche of debt a thousand times greater than in 1971 and an unstable financial structure that has forced the savers of the 1950s into a whirlpool of fast-buck investing that confuses the best minds. In 1978, Federal Reserve Governor Henry Wallich told an audience these distortions were a means "by which the strong can more effectively exploit the weak. The strategically positioned and well-organized can gain at the expense of the unorganized and aged."

"The strong," Wallich explained, "are smart enough to understand [distortion] introduces an element of deceit into our economic dealings." Contracts are no longer made to "be kept in terms of constant values."

To achieve the public's acquiescence when most Americans were falling behind, economists have turned all of what we have learned since antiquity on its head. It was always understood that investment is the bedrock of an economy. Consumption follows. It was always understood that imbalances - of budgets, in trade - must revert and balance again. It was always understood that a currency, the medium of exchange for trade, must be issued in limited quantities, a gold or silver standard often acting as a brake on issuance. A forgotten American essayist Alfred Jay Nock (Americans are expert at burying essayists critical of themselves) said: "It is an economic axiom as old as the hills that goods and services can only be paid for in goods and services."

The economists who run the world today have turned all such knowledge inside out and upside down. Their every decree defies common sense.

This is where Alan Greenspan came along at exactly the right time. He provided economic advice to companies from the early 1950s. He has been wrong at every turning point of the economy through his entire Wall Street and government career. Not once has he foreseen a change in the economy (for instance, when a recession or recovery was ahead). But: he was known on Wall Street as willing to provide whatever service a client wanted. As finance became more abstract and misleading after 1971, his advisory role to duplicitous firms and banks flourished. He also spent a large amount of his time courting the media. He deserves credit for anticipating that plastering one's face on television would come to define one's importance.

He served first in government as Chairman of the Council of Economic Advisers to President Gerald Ford in the 1970s. He served as Chairman of the Federal Reserve Board from 1987 to 2006.

The man who was willing to provide Wall Street with any service it wanted was more than willing to tell the U.S. Senate that it did not matter if the U.S. produced nothing (in 2003). He was more than willing to exhort Americans to buy adjustable-rate mortgages when the rates were at one percent (February 2004). Four months later, he was the man who started increasing rates.

Panderer to Power is the story of a bad economist with a shady reputation who reached the most powerful position in the United States. That the chairman of the Federal Reserve became more powerful than the President of the United States is part of that tale. I think it also important in understanding how power operates in our media-saturated time, to note the dynamic of how the entire, non-stop noise ensemble (newspapers, television, books), almost every economic department in every university in the country, and most of Wall Street, worshiped whatever Greenspan stated. It is little wonder then, that the American people, to their financial regret and destruction, bought (literally) what Greenspan told them to buy. That is the story you will read in this book.

We, the people in every country, are suffering from the spell of the same dynamic under Federal Reserve Chairman Ben S. Bernanke. This former head of the Princeton University economics department makes Greenspan look like a genius. He has led the world (forced the world, if you like) into the maddest and most destructive money printing scheme that has ever been attempted across every country on every continent.

As this is written on April 18, 2013, most Wall Street analysts and economists gleefully support central bank policies. Just listen to them: our celebrity central bankers can double the supply of currency, yet price inflation is dead. As long as consumers spend, we need not concern ourselves with mounting debt. The United States has consistently lost production jobs since 2000, but that does not matter. The only areas that have produced new jobs during that time are in education and health; where job growth has been produced by much higher government spending. The United States is only collecting 60 cents in tax revenues for every one dollar it spends. Somehow, this will continue. So, they tell us. They haven't been right in decades.

            Panderer to Power was written to help the reader understand this incredible inversion of common sense. May it provide a means to anticipate and act before the reversion to a sustainable future.

Wednesday, April 17, 2013

The Time is for Turning

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

The Economist published a sketch of Margaret Thatcher's political career in its April 8, 2013, edition"No Ordinary Politician" (subscription may be required) is a reminder of how, when there is a great change in store, it is evident to few. So it is with gold.

            When Thatcher was elected head of the Conservative Party in 1975, she may have been grateful the Labour Party was in power. Inflation, the Economist writes, "had reached 25% and people began to hoard food. It was then that Mrs. Thatcher became a Thatcherite. She was led there by [Keith] Joseph, who argued that only a free-market approach would save the country. These policies, extremely daring for 1975, became her agenda for the next 15 years."

            "Extremely daring" is not an exaggeration: "The country shifted significantly to the left during the second world war, leading to a landslide victory for Clement Attlee's Labour Party in 1945. Building on the forced collectivism of the war years, the Attlee government embarked on industrial nationalization and introduced the welfare state. To a generation of politicians scarred by the mass unemployment of the 1930s, full employment became the overriding object of political life."

            Most of the nationalizations long pre-dated the 1970s but the machinery of state tied the country in knots: "[T]o keep employment 'full', successive governments, Labour and Conservative, had to intervene ever more minutely in the economy, from setting wages to dictating prices." The atmosphere in Britain was tense. The unions were militant and frightening. One did not dare test their authority, which was ubiquitous.

            It was obvious the policies of the past 30 years had failed, but no one in politics was willing to address them. From the previous paragraph: "successive governments, Labour and Conservative, had to intervene ever more minutely in the economy...." To prevent the intrusive apparatus of state from unraveling, politicians in both parties intruded all the more.

To set wages and dictate prices was not a great disadvantage in either party since any debate echoed within a very, narrow channel. (As seems always to be the case, at least in recent decades, the two parties, say, Democrats and Republicans, are not really debating anything beyond the brand of mouthwash stocked in the Senate men's room.) The public debate did not wander much beyond these divined parameters since "an urgent return to the values of enterprise and self-help" (from the Economist's description Thatcherism) was - literally - unheard of.

            As opposition leader in the late 1970s, Thatcher "proceeded slowly, appointing her supporters to a few key posts, but otherwise doing little to suggest a radical break with the past. She relied more on the mounting unpopularity of the Labour Party, unable to control the trade unions during the 'winter of discontent' of 1978-79, to win the election of 1979."

            Central bankers today play the part of the Labour Party. They are doing whatever it takes to control us. The absurdities grow. At the Grant's Interest Rate Observer conference on April 9, 2013, Sean Egan spoke. Head of Egan-Jones Rating Company, he predicted European central banks will announce they are transferring sovereign bonds to Special Purpose Vehicles (SPVs). The asset will be the countries' bonds and the liability will be the euros that are whipped into existence at the moment they enter the SPV. The countries will then report their sovereign debt has been reduced from (let's say) $200 billion to $100 billion.

            Sean's forecast was met with skepticism, not, I think, because Lewis Carroll copyrighted it. Instead, the skeptics seemed to believe the scheme would be so self-evidently nonsense that the EU and ECB would lose all credibility. I think the skeptics will (would) be wrong.

Having seen central bankers state and do the incredible for so long, and noting their disregard for the law and plausible finance, an SPV announcement will probably not stir passions.

It is easy to picture: The press conference is held. TV people find pro and con experts who argue whether the SPV is better for stocks or bonds. The print media reports on the front page: "The ECB today announced..." The twelfth paragraph on page 41C: "Harry Hothead from the Lucifer Institute claims the SPV is 'simply a shell game' and 'should be ignored. It does not reduce the debt on national balance sheets by a single euro.'" On his blog, The Krugster will claim "the SPV has the same qualities as the trillion dollar platinum coin I proposed to close the U.S. national debt. It's time to revive that debate." And now, the orbit of central banking and common sense having passed Alpha Centauri 100,000 miles ago, some - maybe not enough, but some - former detractors of the platinum coin will be persuaded the idea is very similar to Europe's SPV, so "let's not dismiss it out of hand." Note the L.N.D.I.O.O.H. ploy followed the bait-and-switch of comparing the coin to Europe. The complete idiocy of the idea has, therefore, been extracted from discussion. The P.R. people will then enlist all the regulars for op-ed duty: repeat and repeat "very similar to Europe's SPV," until that becomes commonly acknowledged. The anatomical process of adapting platinum coins would continue - unless it didn't. There will be a moment when The Emperor Wears No Clothes. If that happened here, the skeptics at the Grant's conference would be correct: this is a step too far.

That's the point we are approaching. Gold is the refuge from the wildly out-of-balance world that central bankers are given credit for bequeathing upon us. Gold, silver, oil, and Johnny Walker Black are money, more awkwardly employed than paper currency, but the thing to hold when The Emperor...etc.

There are cracks and they are growing. Margaret Thatcher's ascendancy shows the opening, then development, of a change in thinking across the country, from roughly 1975 to 1983.

Permitting the Economist speak: "Once in power [in 1979 - FJS]... she revealed her true colours. Government spending was curbed to control the money supply, exchange controls were abolished and the currency was allowed to continue to float (rather than joining the new European Monetary System)-all decisive breaks with post-war orthodoxies. Industrial subsidies were cut, sending many firms to the wall. Against the background of a world recession, the result was a sharp rise in unemployment. By 1981, when joblessness stood at 2.7m, police were battling Molotov-cocktail-throwing protesters on many city streets in Britain.

"This was Mrs. Thatcher's low-water mark. She was, for a time, the most unpopular prime minister on record. Most of her colleagues expected her to retreat, but instead she ploughed on. 'U-turn if you want to, the Lady's not for turning,' she had cried the year before. She sacked all those ministers, the 'wets', who wanted to change course, and stocked her cabinet with ideological fellow-travelers. The 1981 budget contained more spending cuts, further depressing demand, in the teeth of the recession; 364 economists condemned her policies in a letter to the Times. This, more than anything, saw the birth of her reputation for ruthless decisiveness."

Having visited England for the first time in 1981, I can attest that the 364 economists were attempting to freeze the nation into a world only they, with their woefully inadequate imaginations, yellow bellies, pathetic efforts to stiff students with Ouija boards as science, and tenure to contribute less of importance than the Ames, Iowa, roller-derby team, could have found attractive. A hotel room in Mayfair cost the equivalent of $29, but it was cold. Theatre-goers wore old overcoats since there was no heat. There were so many strikes or rumors of strikes over the course of a day one needed a scorecard to keep track. The people looked awful. Was this Moscow? Will they get out of bed tomorrow morning? Why?

Margaret Thatcher is rightly celebrated for "not turning," but her time would not have arrived except for the bunglers who ditched their country to preserve their personal sanctuary. After the people have said "enough" to central banking, there will be such conversations: "Oh, yeah, Ben Bernanke was a terrible man. What did he do, again?" 

Friday, April 12, 2013

Let's Not Think

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

            On April 2, 2013, Peter Orzag, former director of President Obama's Office of Management and Budget, debated David A. Stockman, former director of President Reagan's Office of Management and Budget. Stockman is the author of The Great Deformation: The Corruption of Capitalism in America, a book that doses out unwelcome prescriptions for mending America. (Also a book that Amazon pledges to deliver within 3 weeks, a testament to the book's resonance with the reading public or publisher short-sightedness, the latter condition being practically redundant.) Orzag, who wanted to bury this uncomfortable debate, told Stockman and the TV audience: "The discussion has to happen within the bounds of what's, from a political economy perspective, remotely feasible. It does no good to be so far off from what's practical in terms of what could actually happen that it's a completely academic exercise."

It is Orzag who both ardently and fearfully attempted to lasso the debate within faculty parameters. Orzag is now a vice chairman of Citigroup. His attempt to live in the past resembled Citicorp Chairman Walter Wriston's (circa 1982) declaration that sovereign nations never default.

            Chapter 31 of The Great Deformation ("No Recovery on Main Street") shows how far the United States has wandered from a functioning economy. To those who are perplexed at the state of the union, this chapter is illuminating. What follows is a quick etching of how this trillion-dollar-a-year, deficit-financed economy has departed from sustainable reality despite the protestations of such establishment figures as Peter Orzag.

            One strand is the 21st century swing towards HES jobs: health, education, and social services. They do not produce high-paying salaries. Stockman isolates these from "breadwinner" jobs, which, "on average paid about $50,000 per year - just enough to support a family." There were 72 million breadwinner jobs in the American economy in 2000. By September 2012, there were 66.4 million. Such jobs fell by an average of 35,000 each-and-every month over those 12 years.

            From the time the recent recession bottomed in December 2007 (not to be mistaken with the long-running ever-worsening Silent Depression), 5.6 million breadwinner jobs have been lost. Only 200,000 had been recovered by September 2012.

            Since the official recession ended in June 2009, three million jobs, of all types, have been recovered. More than half of those have been in what is often called the "part-time economy" including "retail, hotel, restaurants, shoe-shine stands, and temporary help agency" positions. The "part-time" shoe-shine boys and dish washers were positions restored after layoffs during the recession.

About 40% of the three million are HES positions. These are new jobs. Daunting is the recognition these positions have been deficit- and debt-fueled. Jarring is the recognition they could vanish if U.S. government spending is constrained.

HES jobs serve the economy. They are made possible by production. The current U.S. economy does not fit this mold. It is an economy boosted by rising debt rather than increased production. Stockman writes that HES job growth "was possible only so long as government and health plans could keep spending at rates far higher than the growth rate of the national economy."

From the turn of the century until 2007 (end of the housing-boom era), nominal GDP grew by $4 trillion. Total debt rose $20 trillion: $5 of new debt for every dollar of growth. More to the point, federal spending on Medicare rose from $300 billion in 2000 to $800 billion by 2012. Stockman writes: "Having gone from a modest surplus (the federal budget was in surplus in 2000 - FJS) to a $1.2 trillion deficit (annual - FJS) during the same 12-year time frame, it was evident the robust growth of federal health spending and the consequent bonanza of new jobs, on the margin, had been deficit financed."

Of education, from 2000 to 2012, student debt rose from $150 billion to $1 trillion. "The job count in nonpublic higher education had risen nearly 45 percent during the same twelve-year time frame..."

The reader may be forming a parallel picture to bulging mortgage credit, a building bonanza, and the associated growth in construction jobs.

Maybe Orzag is right. It's more comfortable not to think about where we, or these jobs, are headed.

Wednesday, April 3, 2013

Take Your Money and Run

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

            It is a wonder of the times that, in matters of money, such trust endures when those in whom it is invested work so hard to demonstrate they will squander or confiscate it. Both money and trust. At the very least, the mandarins have made no attempt to hide their inability to think and act beyond today's headlines. Every day is writ anew, with complete ignorance of previous decrees and assurances.

"Why Cyprus Is a Special Case" - March 25, 2013, Bloomberg

Cyprus 'Bail-In' Not a Special Case After All - March 25, 2013, ITV News:  "If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on.'" - Dutch Finance Minister, Jeroen Dijsselbloem.


ECB Repeats That Cyprus is a Special Case to No Effect. - March 26, 2013, City A.M: "The European Central Bank's Ewald Nowotny has repeated that Cyprus is a special case, but markets aren't paying attention. The euro remains stubbornly low."


"Merkel Says Greece is Special Case" - January 9, 2012, Reuters: "We have said time and again that Greece is a special case...."


"Ireland is a Special Case" - German Chancellor Angela Merkel and Irish Taoiseach Enda Kenny - October 21, 2012

"Portugal's Problems: The Next Special Case?" Renewed optimism about the euro zone has passed Portugal by - Feb 4, 2012, The Economist

"Cyprus Was a Very Special Case, Everyone Knew That. And We Found the Right Solution." - March 28, 2013, Wolfgang Schaeuble, German Finance Minister

"German Finance Minister Wolfgang Schaeuble Has Said Savings Accounts in the Eurozone are Safe." - March 30, 2013, Reuters

"Germany Remains A Special Case"-December 13, 2012 - Der Spiegel

OH, NO!:


"Britain is a somewhat special case" -Paul Krugman, New York Times - March 29, 2013

"So the question is whether Japan is a special case" - Paul Krugman, New York Times, February, 24, 2013

            The March 2013 edition of the Edelweiss Journal includes an essay by Dylan Grice in which he sorts through the confusion of this untethered world. The obvious locus is central bankers and their "crackpot monetary ideas." After quoting from Richard Cantillon's timeless essay on those closest to new money seeing their purchasing power rise the most, he notes those who pay are "furthest away from the newly created money." Today, the money created by crackpot monetary ideas is inflation, in assets, goods, and accumulating beliefs. Grice's investment quest is to find scarcity: "But the scarce substance we prize above all is trustworthiness. Aware that we worry too much in a world growing more wary and distrustful, it is here we place an increasing premium, here that we seek refuge from financial folly and here that we expect the next bull market."

Tuesday, April 2, 2013

Speaking Up for Deformity

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market" (, 2009)

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.

Singer spoke again at the April 2012 Grant's Interest Rate Observer Conference. His financial prognosis is consistent with Stockman's dim view of the economy in The Great Deformation. Singer told his audience there is one big difference between next time and the last time, the last time being that in which money-losing tranches in CDOs caught such worthies as Standard & Poor's and the banks sound asleep. This time, the "guarantors of last resort" in 2007-2009 - sovereign governments and their willing accomplices - are under suspicion: "So at some point in this process of impaired growth, restive underemployed populations being egged on by politicians who get points and votes by riling people up against others, and investors inability to earn a return on savings," said Singer - "at some point, investors, Arab revolt-style en masse, may say quietly to themselves, but perhaps at a crystallizing moment: 'Enough.'"