|Mundell: Blame the Fed||Can Women Return Us to Beauty?|
by Christopher Chantrill
May 11, 2010 at 6:23 pm
LAST WEEK government workers in Greece were marching through the streets chanting thieves, thieves to the industrialists and politicians that have robbed their nation blind. These workers would be experts about that, with their 13th and 14th month bonuses, and their early retirement.
So the global banking crisis has arrived at the stage of the sovereign debt crisis. The economic fallout from a big financial crisis usually digs a hole in government finances as tax collections crater, write Carmen Reinhart and Kenneth Rogoff in This Time is Different. Typically, government debt will double, and the weaker governments will default on their debt as their interest rates sky-rocket.
It all starts with a boom in real-estate prices, or a one time bonanza in technology or natural resources. Should people worry about the huge runup in valuations? Not at all, say the experts. Theres no need to worry. This time its different.
We are talking here about experts that people take seriously. Federal Reserve Board Chairman Alan Greenspan and his successor Ben Bernanke, and Treasury Secretary Paul ONeill all reassured us in the Oughties that there was nothing to fear from the big housing bubble.
It turns out, every time, that this time is not different. Instead the usual things happen. People react to an unusual rise in real-estate prices or a bonanza in the economy by doubling down on their borrowed bets. They leverage up, and lenders let them. Maybe the government encourages them.
At some point the real economy turns south, and then the highly-leveraged folks start defaulting on their debts. The crisis is on. You get a banking crisis, which is when people are afraid to lend to banks.
Governments are just as bad as real-estate speculators. Politicians promise goodies to their supporters. If there isnt enough tax revenue to pay for the goodies, they borrow the difference. Thats OK when the economy is expanding. When the economy turns south, the revenue goes down but the politicians keep spending. Government borrowing goes up until you get Greece and a sovereign debt crisis. A sovereign debt crisis is when the banks are afraid to lend to the government.
For Americans there is something shocking about a sovereign debt crisis, when a government reneges on its debt. But nothing could be more ordinary. Governments renege on their debt all the time, according to Reinhart and Rogoff.
Typically, government default is not as blatant as Zimbabwes hyperinflation, or Argentinas seizure of bank accounts. Instead governments do partial defaults, by currency devaluation or revising the terms of their debt, The United States did this in 1933 by abrogating the Gold Clause. The Brits did it in 1932 by consolidating World War I debt into a perpetual annuity at 3.5 percent interest.
Only really dumb governments refuse to pay their debts outright. But there are plenty of those. Greece, for instance, has defaulted on its sovereign debt five times since winning independence in 1829. Argentina has defaulted seven times since independence in 1816.
One of the big takeaways from the This Time is Different is that nearly all governments make a mess of their finances.
My takeaway is this. We know that the US government has an unfunded liability of about $100 trillion, mainly in unfunded Medicare promises. It is obvious, from Reinhart and Rogoff, that the US will default on its promises. The only question is: how? Will it be by default on the debt? By inflation? By seizures? Perhaps they will freeze everyones account at Vanguard and Fidelity. But default it will. Default is what governments do when the going gets tough.
Years ago, after the Three Mile Island accident, Charles Perrow wrote in Normal Accidents that close-coupled complex systems like nuclear plants are accidents waiting to happen. Nuclear plant operators just dont know and understand enough to take the right action when things go wrong in the reactor. For some reason our liberal friends have never seemed interested in extending this analysis to Big Government and Big Finance, big complex close-coupled systems that nobody understands.
Meanwhile we have the crisis over Greeces sovereign debt. It is nothing new, and the solution will be nothing new: devaluation, default, taxes, lower living standards.
But here in the United States there is cause for hope. This time its different.
The Tea Party movement in the United States is an instinctive reaction against the recklessness of government and their middle-men in the finance industry. Maybe the Tea Party moms, young women like Dana Loesch, understand the problem with reckless government spending.
"Motherhood itself has become a political act," says Ms. Loesch. "And the tea parties are an extension of our need as moms to protect the future for our children."
This is, as I wrote last fall, nothing less than Woman-led Conservatism. Maybe it takes a Mom to lead America away from financial crisis and default, back to small government and a decent future for our children.
Buy his Road to the Middle Class.
[The Axial Age] highlights the conception of a responsible self... [that] promise[s] man for the first time that he can understand the fundamental structure of reality and through salvation participate actively in it.
Robert N Bellah, "Religious Evolution", American Sociological Review, Vol. 29, No. 3.
[To make] of each individual member of the army a soldier who, in character, capability, and knowledge, is self-reliant, self-confident, dedicated, and joyful in taking responsibility [verantwortungsfreudig] as a man and a soldier. — Gen. Hans von Seeckt
MacGregor Knox, Williamson Murray, ed., The dynamics of military revolution, 1300-2050
Civil Societya complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churchesbuilds, in turn, on the family, the primary instrument by which people are socialized into their culture and given the skills that allow them to live in broader society and through which the values and knowledge of that society are transmitted across the generations.
Francis Fukuyama, Trust
[W]hen I asked a liberal longtime editor I know with a mainstream [publishing] house for a candid, shorthand version of the assumptions she and her colleagues make about conservatives, she didn't hesitate. Racist, sexist, homophobic, anti-choice fascists, she offered, smiling but meaning it.
Harry Stein, I Can't Believe I'm Sitting Next to a Republican
[T]he Liberal, and still more the subspecies Radical... more than any other in these latter days seems under the impression that so long as he has a good end in view he is warranted in exercising over men all the coercion he is able[.]
Herbert Spencer, The Man Versus the State
These emerge out of long-standing moral notions of freedom, benevolence, and the affirmation of ordinary life... I have been sketching a schematic map... [of] the moral sources [of these notions]... the original theistic grounding for these standards... a naturalism of disengaged reason, which in our day takes scientistic forms, and a third family of views which finds its sources in Romantic expressivism, or in one of the modernist successor visions.
Charles Taylor, Sources of the Self
Families helped each other putting up homes and barns. Together, they built churches, schools, and common civic buildings. They collaborated to build roads and bridges. They took pride in being free persons, independent, and self-reliant; but the texture of their lives was cooperative and fraternal.
Michael Novak, The Spirit of Democratic Capitalism
For [the left] there is only the state and the individual, nothing in between. No family to rely on, no friend to depend on, no community to call on. No neighbourhood to grow in, no faith to share in, no charities to work in. No-one but the Minister, nowhere but Whitehall, no such thing as society - just them, and their laws, and their rules, and their arrogance.
David Cameron, Conference Speech 2008
As far as the Catholic Church is concerned, the principal focus of her interventions in the public arena is the protection and promotion of the dignity of the person, and she is thereby consciously drawing particular attention to principles which are not negotiable...
[1.] protection of life in all its stages, from the first moment of conception until natural death; [2.] recognition and promotion of the natural structure of the family... [3.] the protection of the right of parents to educate their children.
Pope Benedict XVI, Speech to European Peoples Party, 2006
No lesson seems to be so deeply inculcated by the experience of life as that you should never trust experts. If you believe doctors, nothing is wholesome: if you believe the theologians, nothing is innocent: if you believe the soldiers, nothing is safe. They all require their strong wine diluted by a very large admixture of insipid common sense.
Lord Salisbury, Letter to Lord Lytton
What distinguishes true Conservatism from the rest, and from the Blair project, is the belief in more personal freedom and more market freedom, along with less state intervention... The true Third Way is the Holy Grail of Tory politics today - compassion and community without compulsion.
Minette Marrin, The Daily Telegraph
In England there were always two sharply opposed middle classes, the academic middle class and the commercial middle class. In the nineteenth century, the academic middle class won the battle for power and status... Then came the triumph of Margaret Thatcher... The academics lost their power and prestige and... have been gloomy ever since.
Freeman Dyson, The Scientist as Rebel