Home > economics, political-economy > The Wall Street Crisis: How Washington was slowly starving you

The Wall Street Crisis: How Washington was slowly starving you

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Wall Street is broken – this much we know because assholes in very expensive business suits keep coming before one congressional committee after another to repeat it.

But, what does it mean to say Wall Street is broken? What does a broken Wall Street mean to us, the collective body of penniless uneducated fucking hillbillies.

We didn’t work on Wall Street anyways. We didn’t collect the big bucks for seducing wealthy widowed Miami Beach retirees and pension funds to invest in ponzi schemes.

At best, we used our credit cards more than we should have and ended up in a hole as our creditors jacked rates to levels unheard since Mohammed preached against usury.

This blog holds to the idea that the statement, “Wall Street is broken,” essentially means, at least, “The domestic funding mechanism of the American Empire is broken.” Wall Street has, for the last sixty years or so, functioned mainly as the pump through which Washington siphoned off a massive amount of the social product of economic activity to maintain its unique position as global hegemon.

All the concern in Washington regarding a broken Wall Street is less about the suffering of Main Street than it is about the greatly reduced prospect for this economic strategy.

Using data provided by Washington, John Kemp shows us that in the period since the implementation of National Security Council Memorandum 68 Wall Street has benefited fantastically by serving as the essential mechanism for gaining access to trillions of dollars of global resources.

As shown in the following graph, Washington’s dependence on Wall Street has led to the massive expansion of the financial sector of the economy, which grew much faster than the overall economy for the last sixty years.

growth-of-financial-sector

Reading Kemp’s article it is fairly obvious the rapid growth of the financial sector has been powered mainly by the fantastic expansion of a disguised form of debt peonage: a permanent state of indebtedness, which ties no single working stiff to the company store of any particular employer, but enslaves all of them together to the continuous extension of their working time despite improvements in productivity.

Output rose eight times between 1975 and 2007. But the total volume of debt rose a staggering 20 times, more than twice as fast. The total debt-to-GDP ratio surged from 155 percent to 355 percent. Second, almost all this extra debt has come from the private sector. Take a look at Chart 2.

growth-of-private-debt-burden

Kemp notes:

Despite acres of newsprint devoted to the federal budget deficit over the last thirty years, public debt at all levels has risen only 11.5 times since 1975. This is slightly faster than the eight-fold increase in nominal GDP over the same period, but government debt has still only risen from 37 percent of GDP to 52 percent.

Instead, the real debt explosion has come from the private sector. Private debt outstanding has risen an enormous 22 times, three times faster than the economy as a whole, and fast enough to take the ratio of private debt to GDP from 117 percent to 303 percent in a little over thirty years.

To repay the total accumulated debt of individual working families and corporations would now require more than the gross output of the United States for three years – including the federal, state and local revenue share of this GDP.

For the working family this debt burden has meant the forced entry into the labor force of millions of mothers with young children, the contracting out of household tasks, such as childcare, cooking, etc., and the lifelong struggle to maintain employment amidst the rising tide of mortgage, credit card, auto, and other forms of personal debt.

Kemp continues:

This created a dangerous interdependence between GDP growth (which could only be sustained by massive borrowing and rapid increases in the volume of debt) and the debt stock (which could only be serviced if the economy continued its swift and uninterrupted expansion).

The resulting debt was only sustainable so long as economic conditions remained extremely favourable. The sheer volume of private-sector obligations the economy was carrying implied an increasing vulnerability to any shock that changed the terms on which financing was available, or altered the underlying GDP cash flows.

None of this was an accident: By pursuing the kind of permanent economic expansion, out of which it could siphon off ever greater amount of economic output to fund its empire, Washington was, at the same time, slowly impoverishing you.

You responded to this slow economic asphyxiation by joining your husband in the workforce to increase your family earnings, and by financing more and more of your consumption with debt – hoping to keep your head above the debt tide with longer hours of work involving more family members.

We note: None of this was ever forced on you. Nobody came to your house and threatened to arrest you if you did not charge that 42 inch, wide-screen, high-definition plasma television on your Visa card.

You are ultimately responsible for the mountain of debt you have accumulated and which compels you to sell yourself out each day like a two dollar hooker to men in very expensive suits who now come before congressional committees begging for handouts like platinum plated hobos.

By the same reasoning, however, Washington and its coterie of filthy, boot-licking, whore-economists never once explained to you that the mountain of debt under which you labored was the direct result of Washington’s subtly tightening choke hold on the material living standards of your family.

Washington was slowly starving you and your family to encourage you to accumulate that debt.

Every time economic output faltered, Washington quietly increased the pressure on your family, and, at the same time, eased a little on interest rates, while making ever greater sums of money available to be lent to you through its debt manufacturers on Wall Street – Home mortgages, auto loans, student loans, small business loans for nail and tanning salons, restaurants and the like: whatever it took to drive you deeper in debt, compel you to work longer hours, and siphon off the revenues to fund its empire.

What a fantastic scam! The harder they squeezed, the more debt you took on.

Soon they were handing you cash based on the quality of your smile, not caring whether you had the means to repay or not; not caring whether what you wanted to buy (house, car, plasma television) was even worth the money to be paid for it; not caring whether that restaurant you always dreamed of opening would close in bankruptcy – as 6 out 10 did – in the first 3 years.

The proximate trigger of the debt crisis was the deterioration in lending standards and rise in default rates on subprime mortgage loans. But the widening divergence revealed in the charts suggests a crisis had become inevitable sooner or later. If not subprime lending, there would have been some other trigger.

So it has come crashing down – and the extent of this crash has still not even begun to make itself felt.

Wall Street is now broken, but more than this is the collapse of the very mechanism Washington employed to compel you to work longer hours by slowly starving you and your family and pushing you into debt to survive.

This is what Washington thinks it can fix with a $700 billion gift to Wall Street, and another $825 billion in Barack’s stimulus package.

It is not going to work – period, full stop.

The debt, as Kemp tells us,

…is so large it will stretch even the tax and debt-raising resources of the state, and risks crowding out other spending.

Trying to cut debt by reducing consumption and investment, lowering wages, boosting saving and paying down debt out of current income is unlikely to be effective either. The resulting retrenchment would lead to sharp falls in both real output and the price level, depressing nominal GDP. Government retrenchment simply intensified the depression during the early 1930s. Private sector retrenchment and wage cuts will do the same in the 2000s.

The solution must be some combination of policies to reduce the level of debt or raise nominal GDP. The simplest way to reduce debt is through bankruptcy, in which some or all of debts are deemed unrecoverable and are simply extinguished, ceasing to exist.

This debt has to be abolished, and working hours severely reduced. This is the only solution for you, your family, and your future.

Will Barack follow this solution?

We prefer to think of him as a modern Lincoln – although he may turn out to be a 21st Century Ford. We prefer in other words to believe that he will be driven, as Lincoln was driven, to do the unthinkable.

In Lincoln’s case, it was the abolition of slavery, which he refused to address until it was forced on him by secession and war.

For Barack, the abolition of debt and the reduction of working hours will likely not come as the result of secession and war, but the failure of economic policy to reinstate the essential material condition of empire – the ever increasing domination by Washington over the billions of unpaid hours of work.

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