I was going to write a post about the coming dark age, but since recently being reminded that this site tends to be "a bit gloomy," I thought I'd do one about the upsides of the financial disaster. While it is true that, materially, things probably won't get better any time soon, it is equally true that in its unfolding we may witness great, even divine, triumphs, if we are able to recognize them.
National Bankruptcy
National bankruptcy is almost certainly in our future. The deficit approached $1 trillion last year; it is foreseen to be $1.75 trillion this year by some exceedingly optimistic forecasters on the basis of Obama's presented budget.
Let's call it an even $2 trillion. That makes $3 trillion in two years. Last year, the accumulated national debt was about $10 trillion, not counting Social Security and Medicare obligations, which simply make the calculation too ludicrous to bother with. So, that constitutes a 30% rise in debt obligations in two years. Obama says, again, exceedingly optimistically, that the deficit will be $500 billion by the end of his term. So we're looking at a few trillion more over the next 4 years.
By exceedingly optimistic guestimation, we are talking about increasing the national debt by $5-6 trillion over four years, bringing us to $15-16 trillion in total debt by 2012. Now, the national debt is structured such that a fraction of it "rolls over" (heaven forbid it be paid off!) every year. This means we can expect the Treasury to be auctioning off ~$5 trillion or so to keep the old debt alive in addition to the $500 billion in deficit spending for 2012. Again, being very generous.
Right now interest rates are insanely low, especially on shorter term Treasury debt, allowing the Treasury to borrow fairly cheaply. (Incidentally, all this federal borrowing tends to "crowd out" private sector borrowing, as corporate bond rates clearly show.) But at 6%, a more "normal" interest rate, the interest alone on $15 trillion is $900 billion. Let's call it an even trillion. Federal Revenues for 2008 were $2.5 trillion on GDP of $14 trillion. Neither will be that high this year. Or next. The Treasury can't afford for rates to rise to "normal" levels. If the FED doesn't intervene to suppress the interest rate, the budget will be toast.
The government and the FED have fallen off the debt tightrope. They just haven't hit the ground yet. We are just waiting to see whether it will be the pavement or the rocks, outright bankruptcy or a very, very nasty inflation. The smart money is on inflation.
So the money supply will expand. A lot. This will bring the legitimacy of the dollar as a store of value into question. This will tend to further dampen interest in the purchase of Treasury debt, as it is denominated in dollars, and possibly instigate selling, necessitating further purchases by the FED. It is a vicious cycle, and it won't have a pretty ending.
But the upside of national bankruptcy and the destruction of the currency is... national bankruptcy and the destruction of the currency. When government checks bounce (or more likely, won't buy much of anything), and the value of retirement plans are wiped out, there may,
just may, be a window of opportunity for the forces of liberty. The very legitimacy of the government and central banking will face severe scrutiny, with or without political opposition.
I have said before that I would not expect the present culture to suddenly embrace the principles of limited government. But a government that cannot write good checks is a weak government indeed, and will have difficulty enforcing its will. This may mean less law and order, and personally I would expect that there might be some difficulty holding this large and varied nation together in one piece if the central government became too weak and "the several states" thought they might have a better go of it on their own.
But a weaker central government is a weaker central government. Never look a gift horse in the mouth.
Socialism Doesn't Work
"This would be a terrible world if socialism worked. Fortunately, it does not work."
-Leonard E. Read,
Foundation for Economic Education,
as relayed by Gary North
Socialism does not work. Fascism, being a variant of socialism and kissing cousin of communism, does not work either. All seek to enforce government direction of the economy and use of resources, rather than direction by the consumer, which is the rightful sovereign of the marketplace. We need not fret over whether or not the present system is broken. It most definitely is, and has been for some time. It will not work because such schemes have never worked. History has taught us this.
Any scheme that seeks to replace socialism with more socialism will not work either. We do not need to worry about that. No further scheming and conniving acts of Congress, the President, the Treasury, the FED, or any other worldly power, can produce a tenable, permanent arrangement.
The world was not built to sustain socialism. It will eventually wither and die.
Only systems which recognize certain basic ethical principles may flourish in this world, and this is by design. These principles are categorically denied by socialism. The principles cannot perish; socialism will. Always.
Which brings us to our last, and our very best, reason to be hopeful.
God Is In Charge
The single biggest lesson that we can learn from this is that God and his universal laws are in full force, that they are unbreakable, and non-negotiable. No contrivance of man can overcome, circumvent, or overwhelm what He has designed. None.
We may know with confidence that whatever may be obtained within the bounds of His laws cannot possibly be against His will, and ought not to be overturned by the hand of man. This is the basic ethic of a free nation, and is rightfully respected by decent men. The converse we may also know: that whatever is against His will must also be against His laws, and cannot stand for long.
We are tempted to despair by what we see in the marketplace, but make no mistake: what we are witnessing is actually a very powerful display of
righteous forces wreaking havoc on a vile and evil system. As
Gary North has pointed out, this crisis is Adam Smith's "invisible hand" dealing a powerful, possibly fatal, blow to central banking and a fiat currency regime, which is a system founded on theft, fraud, and coercion for the purpose of accumulation and centralization of power.
A free nation has no use for such a thing. It is an abomination. Good riddance.
If we find ourselves cheering on Ben Bernanke and the FED as they struggle to "save" the banking system, we should probably ask ourselves just whose side we are on, anyway. We should not lament the end of the present system. We should celebrate its demise.
What will replace it? We do not know. It will probably be even worse. But the present one will be gone, or at least severely weakened, and this will be a mighty testament to His eternal, universal sovereignty, though few may recognize it. As much as it will impact our way of life, those of us who choose the side of liberty should recognize this as A Good Thing.
Conclusion
We really should not beat ourselves up too much over the present failure. We like to think of ourselves manning some last desperate rampart, fending off the forces of tyranny against all odds to the bitter end. This is not particularly realistic.
The reality is that the walls were breached long ago. The battle has already been lost. The FED is almost a century old. So is the income tax. Social security is not much younger. The Constitution has been in tatters for ages. America has been in a long, slow slide for quite some time, and, truthfully, the West's New Dark Age has been a work-in-progress for quite a while now. The 20th century did not just see man land on the moon and the invention of the iPod. It was also a period of mass slaughter on a scale never before imagined.
How easily we forget these things.
But despair is the opposite faith. There are things larger than America, and larger battles to be fought. We ought to choose the banner we will fight behind wisely, for though we may suffer or even perish, if we have chosen the proper side, we cannot possibly be defeated; we can be certain Who is destined for victory.
I think I will leave the final conclusion to a fellow Austrian:
A friend once asked how I could be so cheerful while America rots from within and endures attack from without. Others have wondered how I can be so personally optimistic even as I morbidly chronicle one debacle after another in this column and on my blog. The answer is that despite my love for America and my passionate allegiance to the ideas upon which it was constructed, I know that its fate is immaterial. Our country, our homes and even our lives are all things of shadow which will one day disappear in the light of the glory of Jesus Christ.
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