FIRE!!!! Are Americans and the World Missing the Boat in Diagnosing what has occurred in the USA—i.e. Bubble, Bubble, Crash, Bubble, Crash, Bubble, Cr
By Kevin A. Stoda
A few years ago, Kevin Phillips wrote a sadly accurate and insightful book entitled AMERICAN THEOCRACY, in which he accurately predicted all of the economic troubles in the USA this autumn 2008. In his analyses, Phillips clearly saw that the failed attempt to boost the economy in the early Bush years of this decade simply covered up one bubble with another larger one. This is why Phillips called the Federal Reserve Board Chairman, Paul Volcker, a serial-bubbler.
“In official statistics, the finance, insurance, and real estate (FIRE) sector of the U.S. economy swelled to 20 percent of the gross domestic product in 2000, jumping ahead of manufacturing, which slipped to 14 percent. Since the 1980s financial deregulation has encouraged these three related vocations to interweave in so many holding companies and financial groups that their identification as one sector has become routine.”
In all, since 1987, the U.S. has faced an increasing set of bubbles and crashes—mostly propelled by casino-like speculation:
1987 Post-Stock Market Drive Rescue,
1989-1992 S & L Bailout,
1990-1992 Citibank & Bank of New England Bailout,
1994-1995 Mexican Peso Rescue,
1997 Asia Currency Bailout,
1998 Long-Term Capital Management Bailout,
1999-2000 Y2K Fears and .com Bubble Crash
2001-2005 Post-Stock-Market Crash Federal Rate Cuts Bubble
2006-2008 Real Estate Crash and Finance/Investment Sector Bubble Collapse
In short, as the former wizards of Wall Street, the Federal Reserve, and many financial firms’ supporting George W. Bush’s presidency cry that the sky is falling and America must cough up 800 billion dollars (and Now), Americans have to decide whether the proposed medicine for this FIRE—and America’s dependence on finance, insurance and real estate—will only continue to make more-and-more bubbles as the recent federal reserve chairmen have engineered so often over the past 20 years.
DEPENDENCE ON F.I.R.E. MEANS DEATHTOLL OF SUPERPOWERS
Phillips spent the last half of his book, AMERICAN THEOCRACY, going over the historical framework of political economic decline that great nations have faced over the past 500 years, i.e. as they have become over-dependent on the financial sector to run their political economic regimes. Phillips’ short narrations took us through the collapse of Habsburg Spain, the end of the Dutch financial wizardry of the 17th century, and the end of the British Colonial world financial system at the end of the world’s industrial revolution.
Now, America appears to be heading towards a swan dive because (particularly since the 1980s) its leadership has thrown more-and-more political weight (and federal rescue moneys) behind banks, insurance firms, and real estate lenders than moneys to support good education, development of production oriented jobs & industries, and generally improved the security of the commonweal.
AMERICAN CULT OF DEBT-IS-GOOD
In the INDEBTED SOCIETY, James Medoff and Andrew Harless, wrote, “Thirty years ago, neither firms nor politicians used (or could use) massive indebtedness to justify their actions or inaction. Since 1980, firms, politicians and others have regularly used debt to rationalize conduct that has been damaging to workers and to the poor . . . .Debt, directly or indirectly, has decayed the very soul of America.”
In short, it wasn’t until the last two (or so) decades that the USA decided to allow the financial, insurance, and real estate (FIRE) sector to surpass manufacturing. Phillips notes again and again that this overdependence on FIRE to run the US and global economy and provide GNP figures to rise is unparalleled in world history.
How could Americans have allowed this to happen? What happened to big projects that would have raised American production, like better directed investment into manufacturing and alternative energies. Imagine what we would be facing today if President George W. Bush had said in 2001 (in the wake of 9-11) that Americans should save more and invest in good products like regional metro lines and more efficient transport systems, instead of simply telling citizens to “borrow and consume consume consume”!
I’m sure there would have been a much smaller real estate and economic bubble over the past 6 to 7 years.
Moreover, fewer Americans would have gone bankrupt of lost savings and houses over the same period.
Over-reliance on predominantly on the financial sector is a losing approach for great nations. History shows this. The USA must invest in infrastructure and good sound construction, production and manufacturing—in balance with other sectors of the economy.
Americans cannot afford to continue to be exposed to so much debt. A great nation cannot borrow its way from one crisis to another.
BUSH FAMILY’S BIAS & THE USA
What is worse, no presidency in USA history has been so dependent on the FIRE (finance, insurance and real estate) sector for its campaign financing as the George W. Bush Administration. Phillips writes,“In the mid-2004, the Center for Public Integrity tabulated the leading lifetime patrons of George W. Bush: the big four were Morgan Stanley, Merrill Lynch, PriceWaterhouse Coopers, and MBNA, the credit-card giant. The [Bush] family background also blended these same origins and commitment.”
This does not mean that the Clinton Administration didn’t make the same sort of errors in abandoning more secure economic development in the areas of manufacturing (and in the areas of failing to reduce the average American’s debts, including education-, investment-, real estate-, and credit card debt). However, the number of economic bubbles created in the last decade dwarves the previous record setting levels of the 1960 through and early 1990s.
Long-time critiques of the rise of this unfettered finance, insurance and real estate industries over the past few decades have called this phenomena the “Rise of the U.S. Debt and Credit-Industrial Complex.”
It is a debt system of short-term joy which promotes long term pain and high cost of living for most American.
THE DEBT AND CREDIT INDUSTRIAL COMPLEX
The hollowing out of the U.S. manufacturing and production economy has been propelling the casino-like nature of the world’s largest debtors—the U.S.A. and its citizens.
The solutions are clear:
(1) We, the people of the USA, need some control over banks, insurance, investment, and real estate lenders as long as the liaise faire system fails to stop greed from ruining so many American’s lives.
(2) America needs to build real things to sell and produce for all—for example: high speed trains, local alternative energy sources, local manufacturing and construction, and products and educational or health services that help reduce our mammoth personal and national “important-export” deficits.
(3) The federal government needs to reduce its own debt and encourage Americans
(4) The USA must become more supportive in the creation of jobs and education. Debt elimination in these two processes need to be important secondary goals of these areas of the economy. This means: Don’t unnecessarily encourage large or medium sized debt by individuals on the behalf of banks, even to jump start spending!
Let me explain! The current system of low interest rates by the federal reserve discourage savings tremendously. The Japanese tried this between 1989 and 2003—and it never really worked well.
Moreover, in our interrelated world, deflating the dollar also diminishes global earnings on dollar investments world wide. The USA will never be an island-unto-itself, so the US leaders need to learn to heed global warnings, such as the British and European banks and economists who consistently warned the USA against its high-debt path for the past 3 decades.
Finally, Americans need to be able to save and to be able to invest in their own homeland’s economy and national debt as well—however, currently foreign owners have now become the big new boomer owners of American debt. This is because many Americans have too much debt and the stock market where they place their savings have been run like casinos.
These pro-FIRE governmental trends in the USA has gotten to be so bad that one single bank Citibank, has had to be bailed out by foreign investors and the federal government more often than any other institution in the USA—and the world—over the past 20 years.
(And this same bank has been involved in more scandals world-wide than any other USA bank.)
In short, no blank check of 800 billion dollars can be afforded nor paid for by USA tax payers.
Phillips, Kevin , AMERICAN THEOCRACY, New York: Viking, 2006.