Saturday, February 7, 2009

The Shape of Things to Come -- Part 5

Proverbs of Hell

The road of excess leads to the palace of wisdom.
A fool sees not the same tree that a wise man sees.
He whose face gives no light, shall never become a star.
Eternity is in love with the productions of time.
If the fool would persist in his folly he would become wise.
The fox condemns the trap, not himself.
The cistern contains: the fountain overflows.
The eagle never lost so much time, as when he submitted to learn of the crow.
The fox provides for himself. but God provides for the lion.
The tygers of wrath are wiser than the horses of instruction.
You never know what is enough unless you know what is more than enough.
Listen to the fools reproach! it is a kingly title!

From The Marriage of Heaven and Hell, by William Blake

So where were we? Oh yes: the dire predictions of Peter D. Schiff, who writes of "runaway inflation" morphing into "hyperinflation," leading inevitably to a "worthless" currency and an "economy left in ruins." The final paragraph of his little essay is particularly disturbing:

The grim reality, of course, is that when the real estate bubble burst, the government was able to “bail out” private parties. However, when the bond market bubble bursts, it will be the U.S. government itself that will be in need of the mother of all bailouts. If U.S. taxpayers or foreign creditors are unwilling or unable to pony up, and if the nightmare hyperinflation scenario is to be avoided, default will be the only option. If misery really does love company, Bernie Madoff’s clients might finally find some comfort.

(As I've repeated several times on this blog: economics is poetry.)

In other words, Obama, congress, the government, and the nation as a whole -- Democrats and Republicans alike -- appear to be caught in a terrible double bind. If we currently do nothing, as many conservatives have argued, allowing "market forces" to prevail, then our entire financial system, the banks, the investment funds, the hedge funds, the bond markets, the commodity markets, the insurance companies, etc., will collapse, and with it the equities market (i.e., Wall Street), in which so many of us have invested our life savings. Just about everyone from every class, wealthy, middle, working and poor, will be wiped out, along with most of the businesses on which we rely for products, services and jobs.

If, on the other hand, the government intervenes to stimulate the economy and get the financial system back on its feet by buying up trillions of dollars in "toxic" assets, it will be necessary for the Treasury to print so much money that hyperinflation will be all but inevitable, and the United States will be forced into default, rendering our currency valueless.

Until recently I strongly believed the latter alternative should be avoided at all costs. And since the course Obama seems to be advocating would inexorably lead us in this direction, step by inevitable step, his good intentions notwithstanding, I was prepared to argue very strongly against it. It does look as though we are indeed on such a path, a path to utter and complete ruin, and in fact this is exactly what I predict will happen. Not intentionally, of course -- but at each stage of an ever more alarming crisis, it will be necessary to commit more funds in order to justify the funds already committed, until, as in a Ponzi scheme, the whole thing must simply collapse of its own weight.

But is this outcome necessarily a bad thing? The French surrealist poet, George Bataille had a term for it: "expenditure without reserve." Which sounds pretty alarming, until you realize that, for Bataille, non-productive, limitless expenditure, as opposed to "restricted economy," was and is a necessity for all healthy societies. For Blake also, "the road of excess leads to the palace of wisdom." I won't get into the very complex and subtle implications of either Bataille's or Blake's poetics here, but the eerie appropriateness of such language in the present context tells us something about the extreme nature of our situation.

It's interesting to speculate as to when, exactly, the light will dawn, and the full extent of the abyss before us will becoming blindingly apparent, even to the most obtuse "free market" conservatives. Will it be when the Dow hits 1000? 500? 250? 0? Will it be when tax breaks no longer matter, since no one is any longer earning enough to pay taxes? Will it be when their own personal fortunes are wiped out? I have a feeling we may have to wait until millions of US citizens are starving in the streets before the terrible reality sets in -- and the great awakening begins.

(to be continued . . . )

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