A Small Bridge…
The global economic problem is the problem of too much debt: personal, corporate, municipal, state and national. And there is no “solution,” except (perhaps) for a “system re-set.” The case for a “Jubilee” year of debt forgiveness…
By Robert Moynihan, reporting from Rome
St. Augustine on how nations or kingdoms are no better than a band of pirates if they are not committed to justice:
Set aside justice, then, and what are kingdoms but great bands of brigands? For what are brigands’ bands but little kingdoms?… And if those ragamuffins grow up to be able to keep forts, build habitations, possess cities, and conquer adjoining nations, then their government is no longer called brigandage, but graced with the eminent name of a kingdom [or nation], given not because they have left their practices but because they use them without danger of law. Elegant and excellent was that pirate’s answer to the great Macedonian Alexander [the Great], who had captured him, when the king asked him how he dared to molest the seas so. He replied with a free spirit: “How do you dare to molest the whole earth? But because I do it only with a little ship, I am called a brigand: you doing it with a great navy are called an emperor.”— St. Augustine, City of God, Book IV
“Rather, speaking the truth in love, we are to grow up in every way into Him who is the head, into Christ.” —St. Paul, Letter to the Ephesians 4:15)
In a few hours, Pope Benedict XVI’s long-awaited social encyclical Veritas in Caritate (“Truth in Love,” a quotation from St. Paul’s Letter to the Ephesians) will be published, and we will see what type of counsel the Pope offers to mankind at this moment of global economic crisis.
The essential counsel he will offer is that men should act virtuously, that is, not selfishly — not like rapacious brigands, or cruel pirates, or greedy thieves, but like upright, honest men, fair and trustworthy, and even like brothers, if possible. Only if we strive toward such virtuous behavior, he will say, can we hope to build a much more just society and economic order.
Will anyone heed him?
Perhaps not. But if he is not heeded, the trends now in place seem likely to lead to ever-greater social and economic disorder, to greater unemployment and poverty, with terrible consequences for the weaker among us, especially children and the elderly.
But where are we, actually, in the global economic cricis? And how did we get here? And where are we going?
The economic and market charts don’t lie. They may be impossible to interpret correctly, or even usefully — that is something else. But they don’t lie; they convey true information. It may be that the information they convey is irrelevant; it may be that the information is only partial, and that there are other factors, not taken into consideration, not reflected in the charts, or not yet reflected. But the charts tell a story. And this is the story they are telling.
The concentration of capital in the corporations of the leading western democracies, reflected in the Standard and Poors chart of the collective price of the shares of the largest 500 companies on the New York stock exchange, has double-topped (chart).
The first top was in the spring of the year 2000, not long before the events of September 11, 2001, which — according to the charts — far from crashing the markets definitively, actually offered an opportunity to “save” the markets.
The second top was at the end of 2007, and has been followed by 18 months of decline, with a small rise since March of this year, following the election of President Barack Obama and the injection into the US economy of approximately $13 trillion in new liquidity (I do not say “money” because I do not want to get into a philosophical debate about what “money” is; let’s just call it “liquidity,” which is another way of saying “a reality which acts like money, and may be money, but which is so elusive that it seems wiser not to call it money, but liquidity”). An approximately equal amount has been injected into the economies of the European Union and the rest of the world.
But the result of this unprecedented, extravagant, multi-trillion-dollar financial maneuver has not been to restore fiscal sanity to the economies of the world.
On the contrary, instead of the restoration of fiscal sanity, what has happened has been much more like the equivalent of a losing gambler “doubling down” with borrowed money after he has lost all his chips, to avoid admitting that he is broke and out of the game.
In essence, after a total loss of capital in derivatives trades and other speculative malinvestments amounting to something like $80 trillion during 2007 and 2008, the world’s governments have dipped into about $25 trillion of the future earnings of their citizens (taxpayers) to try to finance one last bet — one last throw of the dice.
The result has been to unbalance the global economic system even further. The result has been to drive the entire world even nearer to a global “tipping point.” A tipping point in what? In debt.
In borrowed money which must somehow be either defaulted on or paid back.
The chart to the left shows only one example of this debt. It refers to the debt of US households over the past 40 years. The chart shows a curving line that is going parabolic.
Other similar charts exist, of corporate debt (think General Motors), of municipal debt (think Birmingham, Alabama), of state debt (think California, which on July 1 began issuing IOUs because it has run out of cash), of national debt (the US was the world’s Number 1 creditor nation in the late 1980s, and is now the Number 1 debtor nation, and many other nations also have staggering debt loads).
The sword of Damocles hanging over the world is not a sword of steel, but a sword of notional electronic currency values, digits of debt, and if that sword finally descends, it will sever the arteries of all the productive forces of the world, and bring world production and trading of goods and services to a shuddering halt.
Yes, the problem is the debt.
The debt is not large, it is colossal. And there are only two possibilities for paying off the debt:
(1) many, many years of belt-tightening and lower consumption (read, global depression); and
(2) an abrupt repudiation of the debt, and the total collapse of world trade, with an effect perhaps not completely unlike the collapse of trade that came with the fall of the Roman Empire in the late 5th century, followed by the centuries we commonly call “the Dark Ages” (though that is a too simplistic, and in many ways false, description of the second half of the first millennium).
In either case, we face social and economic choices which will strain our political systems to the breaking point.
Instead of a triumphant, humanist dream of global progress with progressively less drudgery and longer life-spans of ever-healthier people (which was always only a tarnished dream, for many of the world’s people especially in the “Third World,” and for many even of the wealthy in the so-called “First World”), we will have widespread poverty, and a likely global struggle for scarce resources, and the cruelty and propaganda that such resource wars will require.
And, if we look at the charts, they are telling us that this future is now, it is here — it is coming upon us with the speed of a freight train hurtling through the tunnel of history into the second-half of the year 2009, and the year 2010, and the second decade of the 21st century.
The chart at the left, for example, shows the dramatic, unprecedented fall in S&P 500 earnings over recent months. You can see for yourself that this has never happened before… (Perhaps the chart could reverse; I’m not saying it can’t; I am saying it shows something unprecedented in its magnitude, at least since the 1920s.)
What do the charts tell us? They tell us that the modern mis-allocation of capital — reckless, foolish malinvestment — has during the past three decades of “affluence” literally thrown away the wealth of the West, laboriously created over many generations, leaving us with unprecedented debts, which cannot be paid, and which make a “New Deal” impossible, as there is no money, no real wealth, available to finance the renewal.
We are bankrupt, and there is nothing left for it but to declare the bankruptcy and reorganize the entire system from scratch. And that declaration is precisely what the world’s leading political and financial leaders are striving at all costs to avoid making.
How did we get here?
The story is a complicated one, but three major turning points stand out.
First, the return of usury.
Yes, usury became legal in the US during the past 30 years following the overturning of US laws against very high interest rates (that is, usury, something the Church, as well as the Jewish and Islamic traditions, has always condemned).
When did this happen? Well, 1978 was a turning point. In that year, a US Supreme Court ruling opened the way to higher interest rates on credit cards throughout the United States.
Here is a brief summary: “A 1978 (US) Supreme Court decision (“Marquette”) fundamentally altered the market for credit card loans in a way that significantly expanded the availability of credit and increased the average risk profile of borrowers. Marquette ushered in deregulation of usury ceilings on consumer interest rates by allowing lenders in a state with liberal usury ceilings to export those rates to consumers residing in states with more restrictive usury ceilings. The result was a substantial expansion in credit card availability, a reduction in average credit quality, and a secular increase in personal bankruptcies.” (Here is a link to the complete report on this ruling, with some quite interesting graphs and analysis: http://www.fdic.gov/bank/analytical/bank/bt_9805.html)
Second, easy money.
Yes, the financial leadership of the US decided to flood the country with money at low interest rates.
This was caused by the decision of the US Federal Reserve to keep the “Fed funds” rate, which it charges member banks, very low, and eventually, in the years following 2001, at a record low of 1 percent per year. That low rate enabled banks to borrow cheaply and then lend out huge sums of money, especially for home purchases. This fueled a speculative fever, and led to the unprecedented rise in housing prices from the late 1990s to 2006, which have since 2007 begun to collapse in price.
Especially, the repeal of the Glass-Stegall Act in 1999.
On November 12 of that year, the US Congress repealed the Glass-Steagall Act, which had been passed under the Roosevelt administration in 1933 to keep banks from speculating with the savings that American citizens were entrusting to them.
The law’s repeal, under the Gramm-Leach-Bliley Act, was drafted and passed by a Republican Congress, and signed by a Democratic President, Bill Clinton. So, it was a bi-partisan decision.
It allowed commercial banks to merge with investment banks. (For instance, Citigroup merged with Traveler’s Insurance, although this merger was announced in 1998, before the act was passed; at the time Citigroup CEO Sanford I. Weill said that he spoke with government officials and, “that over that time the legislation will change… we have had enough discussions to believe this will not be a problem”).
Now, the banks could sell mortgages to homeowners, but also repackage the mortgages and sell them as “sound investments” to pension plans and other Wall Street firms. It was a license to speculate, and it led to ever-looser mortgage-lending standards, and eventually to the collapse we have begun to experience (it isn’t finished).
Now, in his new encyclical, Pope Benedict is pointing his finger at the root cause of this financial mess: human greed, human willingness to trick and deceive for the sake of profit.
Only the Pope, among all the leaders in the world, has the counter-cultural courage to denounce what is occurring, to say it is a crime against the dignity of man, and that there is another way, a difficult way, but a way that, if taken could lead to a more just world, a more free world, a more dignified world, a more prosperous world, a cleaner world, not as filled with bright lights and tinsel, but a world with simplicity and truth, with families and feasts, with hope for the future and freedom in the present.
What are governments doing? Instead of recognizing our peril, they are temporizing. As the tidal wave approaches, they are distributing umbrellas. No one is building any life rafts. No one is preparing redoubts on higher ground.
When Joseph went into Pharaoh and explained Pharaoh’s dream, that the seven good years would be followed by seven bad years, and that granaries had to be built to ensure against famine, he acted prudently, and saved Egypt and much of the surrounding world, from starvation.
We must be prudent again, with our energy, with our land, with our water, with our consumption, with our pollution, or we will find that we, fat and sick to the point of vomiting, have left nothing for those who come after us except a scarred and desertified planet, incapable of supporting a large human population, incapable of supplying that surplus production which then becomes the basis of culture.
The failure to wipe out the debt overhead led to the collapse of Rome’s imperial republic, and to the collapse of the Ottoman Empire toward the end of the 19th century. From about 2,500 BC to perhaps 300 BC, Babylonian and other Near Eastern rulers kept their citizens free and preserved their landholdings by annulling personal and agrarian debts when they took the throne – a true “tax holiday.”
These practices were adopted literally in the Biblical Jubilee Year if Leviticus 25. Even the same Hebrew word, deror, was used for the Babylonian andurarum proclaimed by rulers of Hammurabi’s dynasty from 2000 to 1600 BC. In the very first sermon that Jesus gave, in Nazareth (Luke 4:14-30), he unrolled the scroll of Isaiah 61 and promised that he had come “to proclaim the Year of the Lord,” the Jubilee Year. That was the literal “good news” that he preached — the forgiveness of debts.
“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hope of its children.” —US President Dwight D. Eisenhower – Farewell Speech, 1961
Unless we act now, unless we follow the counsels of the Church, and of Pope Benedict, we will find ourselves further from Eden than ever. There is still some time before the lights go out. But it is very late.
The last decade was a time when we should have taken a prudent course, a humane course.
Now we face the abyss. But we can still seek to throw a small bridge across the deep chasm, and then widen and strengthen it, if we wish to. We should turn away from the love affair we have with pleasure and death, and choose life. Then those who come after us will look back on us, and on this age, and bless us, and not curse us. Which way will we choose?
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