"These “intragovernmental bonds” are certainly not assets of genuine intrinsic value. Were we to consolidate both balance sheets – that of the Treasury and that of the institution concerned – it would produce a tautologous situation that would only not result in the total loss of value of the social welfare trust’s assets if the Treasury were in a position to avail itself of the capital market to an ever greater extent.
So let us look at this absolutely decisive cash flow situation. The American Treasury had to finance new debt of 705 billion dollars in 2008. This was needed to cover the budget deficit of 455 billion dollars and a special deficit for the war in Iraq and Afghanistan of 250 billion dollars. New debt in 2009 will amount to somewhat more than 2,000 billion dollars, with some 200 billion going to the Middle Eastern war chest and 1,845 billion to the “regular” budget deficit.
This debt must be bought, financed, by someone. So how are the individual categories of creditors behaving? Number 2 in the ranking of creditor groups are the “Foreign and International Holders”; that is, the total of all foreign creditors, including central banks, sovereign wealth funds, private investors and so on. In 2008 they bought some 560 billion dollars’ worth; in this year so far, just 460 billion. In March and April they were net sellers of government securities. Other categories, such as pension funds, states, communities and investment funds, also seem to be tending to unload government paper this year. This means that the usual sources of finance for the American state are drying up. The last hope of salvation comes from the Fed, which, with its quantitative easing programme for printing money, is currently having to buy up to half the newly issued debt, month after month. This will be OK as long as it’s OK. A Ponzi scheme, for that is undoubtedly what we are talking about, goes on working as long as its growing over indebtedness does not arouse any doubt among the public as to the scheme’s continuing performance, and the flow of funds to the scheme is not significantly disturbed by other influences. As we know, Madoff’s scheme only collapsed when individual creditors had liquidity problems and were obliged to withdraw funds.
The stupendous increase in American debt is by no means a problem only for the Treasury, but affects the economy as a whole. The state’s ravenous appetite for debt is preventing private borrowers from getting access to the available finance. This is known as the “crowding-out effect”. The aim of the Fed’s quantitative easing policy is to counter this effect. At the same time, distressed banks, and whole industry sectors, like car manufacturers, are being subsidized with enormous sums, which ultimately must result in further distortions, and crass disadvantages for the unsubsidized part of the economy.
This generally anti-entrepreneurial policy of discouraging investment is further reinforced by wholly disproportionate efforts to intensify the regulation of small businesses. From the Wall Street Journal, we learn that legislation already exists in Washington that would impose reporting obligations on small venture capital enterprises –exactly those that have powered the rise of Silicon
Valley – whose administrative burden would be simply unsupportable. And this just because of the concern that hedge funds, which, rightly or wrongly, are felt to require greater control, might be able to operate in the guise of such venture
capital companies. If Washington gets its way, this will mean the end for many small businesses with 10 to 20 employees.
In this economic crisis, the Obama administration
The Obama administration is making exactly the same mistake as its great hero, Franklin D. Roosevelt, made in what is quite wrongly regarded as the exemplary “NewDeal”. Driven by Keynesian ideology and a belief in the possibility of an upturn caused by appropriate state intervention, in the course of the 1930s, Roosevelt deprived businesses of any hope of being able to make money again through their own efforts. Those who produced too cheaply were taken to court, big businesses were given
blatantly preferential treatment, and property rights increasingly threatened. Without the external event of the Second World War, Roosevelt would have been numbered among the most unsuccessful American presidents of all time.
We live at a time of shifting power and influence in the world. Asia is on the rise, and Brazil too, probably. Australia will catch on to their coattails, and Europe may once more be able to position itself within these countries’ recoveries. The USA will remain the unquestioned military power and also an enormous repository of debt and other problems. Because they are painful, and there
is always an inclination to shift the blame for them onto third parties, redimensioning processes always harbour the potential for aggression. Switzerland is currently experiencing just this. But it won’t end there. Potential aggression and economic
progress are mutually exclusive. Which is why we are well advised to take a general farewell of America. This will be painful, for the USA was once the most vital market economy in the world.
But for now, it’s time to say goodbye."
The above article has been redacted and several, maybe significant parts, have been omitted. Nevertheless, the point is made that we are in ' deep doo doo' as a nation and a society. Serious and extensive revisions must occur if we are to regain the pursuit of our God given destiny.
With Love and Kindness,
THE HATMAN
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