Indebted To Lies

LIVING IN DENIAL ABOUT DEBT A PLUTOCRACY MAKES:
Abstract: Too many illusions governing, and a civilization dissolution guaranteed. A vast conspiracy extending from the financial right to the self conscious “liberal” elite, including the honorable conscientious liberal, Paul Krugman, claims that there is not that much of a debt problem in the USA.

Yet, a careful examination of the numbers and concepts involved shows that the esteemed pundits who howl urbi et orbi that there is no debt problem, coolly propose to steal Medicare and the Social Security Trust Fund.

This is pretty typical of the eerie manipulations that the powers that be engage in. Official progressives living in mansions end up in total solidarity with the plutocracy. One shudders at the possibilities.

Servicing Our Lords

Servicing too much debt is servicing plutocracy too much, and denial is its prophet.
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UNDERESTIMATING DEBT IS AN ECONOMIC DRAG:
Why did the presidency of Obama bring only change that we can’t see? Bush has been gone more than 4 years. Yet, the giant tax loopholes for the hyper rich are still in place (including “carry interest“!).

Not to worry, say many of the self proclaimed liberals and progressives opinion makers. In their latest tactic, they claim that there is no debt problem in the USA. They observe contently that interest rates have never been so low, that the deficit has disappeared from places such as the state of California, and that Obama’s reforms have been the “f… big deal“, as the robust Biden said, and Krugman confirmed.

What that self satisfied elite omits is that interest rates are low because the economy is not recovering. In a self amplifying loop, total debt (also called “leverage”), so easy to acquire with low interest, so stifling to serve later, is obviously a factor.

Because debt is accompanied with interest, too much debt means too much interest paid. At the limit, the debtor owns nothing, the debtor pays interest all day long, and the debtor becomes a serf.
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WHEN DEBT EXPLODES INTO SLAVERY:
Servitude from debt did not just happen in the Middle Ages. And it does not just happen to individuals.

In 2011 and 2012 Italy’s real economy was doing rather well: a bigger industrial sector than Great Britain, and no PRIMARY deficit (the USA primary deficit is 7% of GDP). Yet, Italy was engulfed in a catastrophic debt crisis.

How come? International investors asked for unsustainable interest to renew Italian debt.
Why they got in that mood, pouncing on Italy instead of Britain, say, is very complicated; but one of the factors is the madness of crowds; another, of course, is that the plutocracy has had a multi-generational conflict with France, and the Eurozone, or even the EU, is viewed as a dangerously French amplification machine.

During that crisis, Italian deficit (that is how much debt is added each year) came to be caused entirely by added interest on very old debt. (Total Italian debt was 121% of GDP when the interest rates charged to that country exploded.)

Greece went through something similar, just way worse (some Hellenic interest rates went above 100%).
Long ago, I advocated that Greece should default. This is what was done, in the end, because there was no other choice (although the default involved most of the governmental debt, Greece still owes hundreds of billions of euros, something that will have to be reduced further).

The European debt crisis abated in the second part of 2012 thanks to three factors. The most important factor was that unambiguous signals were given that France and Germany would do whatever it took to preserve the European banking system.

Thus the European Central Bank (ECB) was given a green light to stretch its mandate, and resort to USA style “Quantitative Easing” (QE). (The Europeans use another term than “QE”, in the hope that one does not feel they are just Americans infeodated to private finance as the government of the USA is!) QE consisted into sending a trillion euros to private banks, in the hope that they will show a profit. In the USA, QE has given to the banks more than 8 trillion dollars (about half of the yearly GDP). (See note on liabilities.)

The other cause of the abatement of the European debt crisis has been a ferocious crack down on deficits. Italy has no primary deficit, Germany has no deficit whatsoever. Even France is breaking hard to try to bring her deficit around 3% in 2013. Spain’s unemployment, now at 26%, keeps climbing, but the government helps ever less (after years of a delirious construction binge).

As Europe imports much of its energy, the climb of the euro, a consequence of these healthier finances, is viewed positively (it forces European industry to excell, a ball Switzerland and Germany got rolling, to great success.)
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WHEN DEBT CUTS INTO THE BONE:
Many countries are overdoing the austerity: Germany has no deficit, but it’s interior demand has long been very weak, as it rested on the likes of Greek and Iberian madness. Now the German economy is contracting. In Great Britain, savage cuts are proving self defeating: the deficit is still above 7%, the country is rolling again in recession, with long term GDP numbers worse than in the depression of the 1930s.

David Cameron, an extremely rich scion, Britain’s chief, thinks smart to duplicate the degeneracy that afflicts the USA, ever since Reagan imposed Voodoo economics. Thanks to Cameron, it can cost 10,000 euros to attend public university in the UK. Such cuts, should they stick, guarantee that the historical strength of the West, intellectual power, will sink in England, as surely as the Titanic.

California does not have a deficit, Paul Krugman boasted. Sure. Because of horrendous cuts, through the muscles, into the bones. Say in education: the, supposedly public, University of California charges California residents more than $12,000 in tuition, about a quarter of the median USA family income. Another sneaky deficit fighting measure is to let children enter primary school a year later. Meanwhile health costs considerably more to the public, thanks to genial Obamacare.

No more education, no more health, while Paul Krugman, self proclaimed “conscience of a liberal”, extols California as an example. The hyper rich have something to celebrate, many of the richest of the elite still pays no taxes, thanks to loopholes that the media never talks about (while the working stiff pays nearly as much tax as in France, without any of the free stuff there).
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LET’S LIE ABOUT FEDERAL DEBT: WHAT COULD GO WRONG?
Paul Krugman, much of the New York Times and much of the official left, claim that there is no debt problem in the USA: the debt is only 73% of GDP (less than France or even Germany). This chorus has recently been joined by the Congress Budget Office (CBO) and the Wall Street Journal.

And yet… The debt ceiling has been broken through. The ceiling was at 16,4 TRILLION. Total debt is now crossing $16.5 trillion. The USA GDP is around 15 trillion. Thus the debt is 111% of GDP, as the IMF says, it’s not 73% as many democrats claim.

USA Debt/GDP Worse Than During WWII

(The green line above depicts what would have happened if Reagan had balanced his budget instead of practicing the Voodoo Economics that debt did not matter.)

If one tried to point to that fact, the 111% debt, the New York Times censorship bureau was long in the habit to find such news unfit to print, and would censor them immediately. They did this to me, dozens of times. I amused myself seeing the liberally correct establishment crack down on this apparently anti-liberal notion. the real extent of the debt. Another trick was to publish unfavorable comments informing me that I “did not know what I was talking about”, and should “do [my] homework“.

The Economist, apparently recognized that there was something good in this conspiracy to underestimate the debt. So it nebulously recognized that the debt was “actually 25%” higher than 73%. That is 100% of GDP.
But, as I said, the total USA debt is above 111% of GDP, and growing by 1% every two months. Not exactly a viable proposition. Those who deny this are, on the face of it, just sycophants of the present economic-financial system. As it is, the USA cannot apply to the European Union, on financial grounds alone. Ironical.

Debt is not computed in the same way in Europe and the USA. First, one has to distinguish “gross” public debt and net public debt. Net public debt subtracts fiscal assets (cash, bonds, shares) owned by the government.

When Europeans talk about the debt their states owe, they talk about the gross debt. That makes a huge difference due to the many assets owned by European states.

The French government could argue French debt is not that bad, because it owns shares in Renault, EADS, etc. The Greek government is busy selling various assets it owns to reduce its debt (countless islands, etc.).

But this is not the mentality ruling the bean counters in the USA. There those who want to under-estimate the debt of the government of the USA, far from being rigorous as the Europeans, go to the opposite extreme. They do NOT take into account the money borrowed FROM Medicare and the Social Security “Trust” Fund. Those who want to underestimate the debt of the USA do not count government bonds owned by the Social Security Fund since it is seen as one arm of government having a claim on another arm of the government.

This sleight of hand reduces the debt/GDP of the USA from 111% down to 73%. In other words, according to this subterfuge, the government general fund does not have to reimburse the five trillion dollars it owes to Medicare and Social Security. Paul Krugman and many at the New York Times and the CBO find this conscientious and liberal.
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LITTLE DEBT, IF WE STEAL SOCIAL SECURITY & MEDICARE:
The debt situation shows that many of the many prominent American liberals are actually not liberal at all. They just play one on TV. Because the most important message they have about the Federal debt of the USA is that, the money owed to Medicare and the Social Security TRUST Fund is actually ZERO.

It’s cool with the New York Times, Krugman and company, if the government stole five trillion dollars to We The People. How conscientious and liberal is that?

But why should we be surprised? Did not the same crowd embrace Obamacare’ public subsidies to private healthcare plutocrats?

Some say that there is no danger. They assume that government bonds will stay as worthy in the future as they are now. Yet this will happen if, and only if the Greater Depression we are in extends indefinitely. If the economy happens to improve significantly, there is no way that the present bonds, with their extremely low returns, would interest investors. So the bonds would lose most of their value.

As the money those bonds used to represent would still be due to Medicare and Social Security, it could either be stolen outright, from The People, or it could be raised from taxing The People once again, for the same thing as they taxed for, before.

Hence ignoring the part of public debt held by the… public, through public institutions is sustainable, if, and only if, the economy keeps on sinking. How progressive.
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TAX FREE RIDERS, TAX CARBON, SPURN UNPRODUCTIVE DEBT, EMBRACE JOBS:
So? Are the loud progressives dominating the media actually regressive? Would that be, by any chance, entangled with their membership in the plutocracy serving oligarchy?

By underestimating the debt problem, the problem of the present economy can keep on being underestimated. A huge deficit can insure that money can keep on been thrown at the People. And that the free riders will keep on riding for free.

Whereas what we The People need, to be fully satisfied, is jobs. Jobs don’t just bring money, but empowerment, pride, satisfy the instinct of utility, mental, and physical activity. A society where People work is fully human, a society where People don’t work, is not.

By realizing how severe the crisis is, jobs can be brought over to bear on the peoblem. Just to make sustainable energies work, millions of jobs have to be created.

Because those jobs would be profitable by definition, they are worth getting indebted for.

Take for example power lines. Power lines are needed because sustainable energy tends to jump around in space and time; lots somewhere sometimes, and then somewhere else, another time. Germany has wind in the north, sun in the south. Washington State has much hydro power in early summer, and not enough power lines to get it out. Much power line work is needed all over.

Windmills work. Especially the latest types, offshore. A problem, though, is that the wind does not blow all the time, or when needed. The same problem affects solar energy. Power lines cannot solve it all. But dams can remedy the rest.

In the case of offshore wind, the solution is obvious: artificial, multibillion dollars islands, to turbine up water in artificial reservoirs, when demand is slack. To build all these islands will surely be a lot of work.

Mandated weatherization of homes and buildings is another obvious target (that is done in some European countries such as France, but not in the USA, where the Obama administration just gave subsidies to weatherize one million homes; a completely different activity, as it redistribute taxpayer money, instead of leveraging private economic activity… without using any taxpayer money).

So here we are: face the debt problem. It’s enormous. Debt ought not to be used for everyday expense, but only for worthy investments, as used to be the case.

And if there is too much debt, the solution is not crushing taxes on salaried people (top tax margin in California is 52%, although the truly hyper rich still pays nought, as they are not salaried…) Nor is the solution savage cuts. Instead the tax system ought to be overhauled: make the richest individuals and corporations pay tax, and make the richest economic activity pay tax too (for example financial transactions ought to pay tax, like all other transactions do; 11 countries of the Eurozone have decided to do so.

Another obvious revenue generator is a worldwide carbon tax. If the USA cooperated with the European Union there, instead of opposing it ridiculously, the tax would become reality so fast it would have a positive economic effect right away. Verily the least carbon burners can do is to pay for the damage they are causing to the biosphere.
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SERVICING CAPITAL IS LESS IMPORTANT THAN SERVICING NATURE:
On the most macroscopic scale, debt services the most wealthy persons, those who have the capital. That’s OK, civilization needs capital. For worthy investments. It’s not OK, when it gets out of control, and debt becomes a way of life.

By insisting that Federal debt of the USA is only 73% of GDP, one lives in denial. One more denial in a web of illusions. Too many illusions governing, and a civilization dissolution guaranteed.

At this point, we can emulate the immense Khmer empire around 1300 CE. We can refuse to change so long, that we cannot change when we are forced to. With one million inhabitants, the capital, Angkor, was perhaps the world’s largest city, larger than China’s Hangzhou. However, the Khmer devastated their ecology, precisely by doing as we do now: using up all the carbon around. That deforestation caused a massive drought, combined with intense floods, and the combination killed the capital of Angkor.

Maybe the Khmer were paralyzed by the debt they were servicing, and, certainly, they were paralyzed by the plutocracy that they were servicing.
What they needed to do was to repair the giant reservoirs they depended upon, that were fillong up by debris from the floods. And stop the deforestation. And they needed to do this in timely manner, when they still had the power. They waited too long, weakened, and were invaded.

The Maya also waited too long in a huge ecological crisis they contributed to, along the same lines. So it was with Sumer: deforestation, drought, salination, biblical (literally!) flood…

Rome went through something similar, long enough to debate the problem. However, the plutocracy barred the way to go further than that.

It’s always the same pattern: not working hard on the ecological problems, when they could still be solved, because one is paralyzed by a self obsessed plutocracy.

Why underestimate the debt difficulties of the USA, while maximizing bad rhetoric about those of Europe? Is there a pro-American cult out there? Not really. It is more a cult of capital, and underestimating the debt one owes to capital is part of it.
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Patrice Ayme
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Note on liabilities: Liabilities are more general than debt. Although this is too arcane to deal with here, QE extends the liabilities of the central banks, and one can view it as augmenting considerably, maybe 50%, German or French debt… But of this no one never talks. For example although USA debt is nearly $17 trillion, all the liabilities of the government of the USA go beyond $62 trillion…

Why Austerity?

AUSTERITY IS PLUTOCRACY’S BEST FRIEND.

We are in a giant ecological crisis, the collapse of the biosphere. That’s new. We are also in the midst of the silent coup of global plutocracy. That’s nothing new, plutocracy has ravaged many a civilization.

Collapse and plutocracy are entangled, they always have been. The economic crisis is only an appendage of a catastrophe of antediluvian proportions.

Krugman pointed out in “Reagan Was A Keynesian“, that, by the fourth year of Ronald Reagan’s presidency, because the economy had faltered, total government spending was augmented 130% more than in the comparable period under Obama. Thus confirming that Obama is to the very far right of Reagan (especially considering that the economy is now in a grave depression, the Greater Depression, not just a Federal reserve engineered recession, as it was under Reagan!)

President Ronald Reagan caused in part, through his military built-up, a built-up in high tech. That was highly profitable, in the end. The ecological and energy crises can be solved by such a technological built-up. They can only be solved by such a much greater built-up. Such a built-up would then prove very profitable. For all of humanity, yet again.

Austerity is the enemy of technology. Superior technology asks for a measure of irrational exhuberance, as does, even more, its fertile ground, new science. Indeed, if we knew how it worked already, it would not really be new.

So why all the austerity now? Why undermining what can save the biosphere, and us?

Because austerity advantages the plutocrats, in the coup they are conducting, silently.

Such a phenomenon, a coup by the richest, under other guises, happened several times in Roman history: the situation was dire, and the plutocrats in control of the Senate tried their best, including sometimes mass assassinations, to reduce spending. In the end, austerity reigned, and reigned so much that plutocracy killed Rome.

Why is austerity favorable to plutocrats? Because, when one has it all, as plutocrats do, the best way to keep it, is to make sure that the others get ever more impotent. And when one has it all there is to be had, one can only get more, if one makes sure that others get less.

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Here are a few elaborations on the preceding, justifying the aphorisms above:

AUSTERITY IS THE ENEMY OF TECHNOLOGY:

Time and time again, Roman inventors, under the empire, presented drastic inventions, which could have changed the flow of history. They were squashed. Because plutocracy has no interest to change the flow of history, or even to have one. (As imperial Rome did not progress technologically, but the barbarians and the ecological difficulties did, irresistibly. The plutocrats heading the Roman state, cornered, became weirder and weirder, calling ever more to the fascist instinct to enforce a fanatic war against imaginary enemies, while, naturally, ignoring the real ones, namely themselves.)

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THE BIOSPHERE IS APPROACHING A TIPPING POINT:

An article in 07 June 2012 issue of Nature considers that the entire planetary biosphere may be close to a “tipping point”. Indeed. The two essential observations are that;

a) the biosphere has undergone dramatic “phase shifts” in the past, and

b) that the present stresses on the biosphere are the greatest in at least twenty million years.

In a phase shift, typically the gas content (more or less CO2 or oxygen, O2), or the temperature change abruptly, and for many million years. Such events seem to be associated with ultra-massive volcanic events (core volcanism, for want of a better expression: Dekkan, Siberian Traps), or possible asteroid impacts (Yucatan, Chesapeake Bay, Siberia events).

The article concludes:”It is also necessary to address root causes of how humans are forcing biological changes.” “Root causes” have to be addressed. If they are not, the problems fester. Rome did not address the “root cause” of its problem, so the Roman empire went through a succession of catastrophic tipping points. See below.

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THE GIANT COUP BY THE LORDS OF FINANCE: has been made possible by its stealthy character. The flies have not seen the spider web in which they are englued.

The civilization sized coup of the Lords of Finance, has been in the making for at least half a millennium, ever since bankers financed Francois I and Charles V, so that they could ostensibly make war against each other (circa 1520 CE). At least, so it looked, officially. War is a reason that gives plutocracy meaning.

Well financed war between France and Spain, for 150 years or so, allowed oligarchies of the splendid, on both sides, to have an excuse to make said war. War was a distraction, that diverted the People from revolution. The exploits of the knight Bayard may still mesmerize the naïve, but when men of war turned their traditional expertise to religious wars, it was distinctly less funny.

The silent coup, has thus unfolded over five centuries. It has consisted of several phases and elements:

a) LEVERAGING THE WAY MONEY IS CREATED PRIVATELY. Money mostly created by credit lines made possible by the fractional reserve system (privately managed, but set-up by the public government).

The fractional reserve system is highly technical and non linear. It allows private individuals, the bankers, to create 99% of the money. The complexity of the fractional reserve system hides it from democratic scrutiny. However, president Jackson, a great, extremely brutal and macho general and duelist, understood enough of fractional reserve and bankers to prevent its establishment in the USA in connivance with the state. Jackson called that his proudest achievement. On his deathbed.

Jackson’s  hostility to the Rothschild was amply justified by fact and theory. The Rothschilds (Red Shield in its original German) were feeding both sides of the so called Napoleonic Wars. Napoleon certainly did not start them: the Rothschild were out there financing wars, even before Napoleon was born. Maybe the Napoleonic wars should be called the Rothschild wars.

Alluding to the fractional reserve system, the Rothschilds had been crowing about their control of nations:

Mayer Amschel Rothschild: “Give me control of a nation’s money and I care not who makes the laws.” 

(In other declarations, Rothschild boasted that he “issued” the nations’ money.)

Tellingly the theoreticians of class struggles of the Eighteenth and Nineteenth Centuries missed out that angle entirely. Marx vaguely complained about the banks’ “monopoly”. He forgot to say that it was monopoly in money creation. That private individuals could monopolize money creation would have floored the leaders of countless polities in passed millennia. Leaders, in the past, knew that striking coinage, that is, in practice, Fiat Money, was the prerogative of the state. That state monopoly was backed-up by military force.

However, president Roosevelt was not fooled: he “welcomed the hatred of money changers“.

(“Money changers” was the old derogatory term for financiers used during the Middle Ages’ great age of independent republics and cities: Roosevelt knew history.)

b) THE METASTATIC RISE OF FINANCIAL DERIVATIVES under Clinton and complete deregulation of finance (London’s “Big Bang, etc.) Derivatives were initially a way to insure farmers (say rice farmers in Japan 16C, or corn growers in Illinois 19C). They have their place as a form of insurance for commercial operators. But a distinction ought to be drawn between those and speculators. Moreover, when there is no insurance connected to the bets (as has been the case with CDS), then one obtains A CASINO INSURED BY THE PUBLIC, ALBEIT OWNED  BY SHARKS. Thus a welfare system for plutocrats set-up by the public.

c) MAKING THE STATE SERF TO PLUTOCRACY: The French law of 1973 passed by Rothschild banker Pompidou forbade the state to create money. Instead the state had to ask the richest men for money, and they were free to make as much money as they wanted from this begging. It was generalized to all of Europe by dim witted or treacherous socialists (Delors and his crew).

d) THE BANKERS STOLE THE ECONOMY, GIVE THEM MORE: The crisis of 2008 (Subprime, etc.) was “solved” by throwing trillions of public money (“monetary base”) to (private) banks. The bankers had lost that money, to themselves, and their friends.

That “solution” made private financiers more powerful than ever. The same is done in Europe, with the same result. The 100 billion euros “rescue’ for Spain is more of the same. Breaking up Europe would make the financiers even more powerful, that is why they are trying their best to do so.

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SUSTAINABLE ENERGY IS UNSUSTAINABLE WITHOUT STORAGE:

Only very much higher technology will solve the present crisis. Sustainable energy, in particular could work, with storage systems… That we do not have: the best are dams, but dams cannot go in every backyard. (Dams allow to recover 80% to 90% of the energy, by working turbines in reverse to bring the water up, when there is excess energy; the method was inaugurated to serve nuclear plants, which never stop producing, night and day, month after month…) -Denmark better start building dams, to stop depending upon coal (as it does now). In the case of Denmark, a flat country, that means elevated lagoons.

More advanced storage are possible. Fuel cells have high efficiency (but they have proven finicky, expensive, and even dangerous). On the island of Corsica a private-public partnership with the local university, is building fuel cell systems connected to the grid.

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ROMAN PRECEDENTS:

Roman history is very instructive, and deserves much better, to be so instructed, than the parody of it taught right and left (last example: the May 2012 book “Why Nations Fail“).

Rome knew several plutocratic and debt crises. The first one, the rise of plutocracy, put an end to the republic; the next one was solved radically by Tiberius, by massive public refinancing; the following one set the roots for the collapse of the Principate, and even the empire: the plutocrats refused to pay enough taxes to keep the barbarians off the gates… Already under Marcus Aurelius! It got only worse and worse in the following three centuries, or until Roman armies were replaced by Frankish armies… Which were paid by Frankish taxes… Or nationalizations.

The present crisis is a combination of the three Roman financial, economic and social crises.

Europe, always more inventive, has found still another crisis to add to the mix.

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EUROPE, OR WHEN THE STATE ENTRUSTS THE COUNTERFEITERS WITH CREATING MONEY:

Europe has entrusted the plutocrats with money creation. In ancient Rome, as in any state worth this title, it’s the state that created money. It is still like that in the USA, Japan, China, Britain, Mongolia, or Argentina. But not in Europe’s European Monetary Union.

Part of the problem of Late Third Century Rome was that, precisely because the plutocrats refused to pay taxes, and they had the means to refuse, the Roman empire ran out of money. Diocletian corrected that with an economic command and control system that worked obviously very well, and was sustainable…

Until the Vandals cut the food line between Africa and Rome in the Fifth Century: there had not been enough money to pay a sufficient army, or navy to stop 10,000 or so Vandal warriors!

Thus command and control in the economic realm, had not fixed the fundamental problem, the disconnection of the plutocrats, and the resources they commanded, from the rest of society. The plutocrats could afford (private) armies, precisely because the state could not afford the PUBLIC army. Plutocrats did not care that cities needed walls to protect themselves; they had their own armies to defend themselves.

Present day Europe has hyper linked to that condition of the Later Roman Empire, at warp speed.

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HOW ROME FELL, SHORT VERSION:

Plutocracy makes stupid, and stupidity was the proximal reason for the fall of Rome. Rome swung from general to general, as a gibbon from branch to branch, and finally the fiercest of them all, Constantine, allied himself with the army of the Christians, a state within the state, resulting in the establishment of full blown theocracy.

Plutocracy, plus theocracy, makes for a doubly stupid leadership, hence really stupidly conducted wars, and the consequence was the successful invasion of the Roman empire by the Goths. In comparison with the Franks, who were deeply romanized, the Goths were savages. It took 130 years for the Franks to beat the Goths, and re-establish a military successful Roman state (the Imperium Francorum, which took officially the title of Imperium Romanum, “Roman empire” only in 800 CE, when both the Pope and the Roman imperial state in Constantinople agreed).

When Rome fell, that means, when the giant Roman socio-economy collapsed, most of the population could not get to food, nor even drinkable water. Most people died. We are even more vulnerable now.

The mushrooms of plutocracy, such as austerity, can appear beautiful, but they are most venenous…

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Patrice Ayme