Ice cubes still tinkled in glasses. People were sleeping under warm comfy blankets. Couples danced or fought their petty battles. The cooks and waiters went about their work.
People were wrapped up in the usual things that people think about: business affairs, the health of loved ones, petty squabbles with friends or spouses, perceived slights, the well-being of their children, lost loves and hopes for new opportunities.
Few felt the ship buckle and those that did feel the massive vessel shudder probably just ignored it. Surely, the powers that be knew what they were doing and would quickly correct any problems that might interfere with their journey. Only a few people were aware of the extent of the damage, and of course, those people were ignored.
Passengers who found themselves immersed in 28-degree water sobered to the fact that those in charge, merely by way of title, education or rank, did not necessarily know what they were doing, or were so overwhelmed by rapidly changing events that they could not act quickly enough. In either case, the end result spelled doom for both the ship and the passengers – an event that seemed nearly impossible just a few short hours before.
And so it is with the US economy: once the glittering envy of the world, it has hit the proverbial iceberg. I am here to tell you, and will likely be ignored, that we have already hit the iceberg. The ship is listing badly while the captain and crew scamper about the uneven deck, excoriating us with the usual pacifying platitudes, “No need to panic; help is here!” “Worry not! Spend money!” “Look! Interest rates are at 0%! Buy a house, buy a car! Spend!” “Go back to your cubicles! All is well!” But as more and more working people of America slide off the decks of the middle class and into the icy brine of financial turmoil, the platitude panderers are not being heeded as families try to hobble together their own life rafts.
Any engineer will tell you that all complex systems will fail, but rarely are the failures catastrophic. Catastrophic failures arise from a combination of failures, any one of which, alone, would be insufficient to cause the disaster. Ships hitting icebergs and sinking, space shuttles blowing up on liftoff, or bridges collapsing are caused by no singular event but by a series of seemingly unrelated and improbable events. So it is true with the US economy.
As they say in Country music, “Its all over but the cryin,” and here is why.
What people are calling a “stubborn recession,” or “stagnant growth” or a “weak recovery” is something altogether different. What makes this tepid economic growth more startling is that it follows the most aggressive flooding of the market with capital this nation has ever seen. The Federal Reserve has launched Quantitative Easing (QE1) and QE2, actively buying US treasuries with money it decides to print. It has bailed out foreign banks, and has artificially pegged interest rates at 0.0 percent.
Fiscally, the federal government has been spending trillions of dollars it doesn’t have to spur economic growth. Cash for Clunkers, bailouts, and tax credits to buy a house have all proven ineffective methods to spur private demand. Despite trillion dollar annual deficits, the economy – if not dead – is in a coma.
The net results of these bungling policies are ballooning debts, long-term unemployment, record Social Security disability claims, record homelessness, and a record number of families and children living in poverty. And for the first time in a long time, hunger has shown itself to the former members of the middle class. Inflation is up, employment is down, deficits are up and consumer spending is down; the worst of all possible outcomes.
And now comes the first real splash of cold water – interest rates must invariably rise; and when they do, each percentage point rise in rate correlates to an $800 billion increase in interest payments.
As interest rates rise, the Treasury notes that banks have been buying instead of lending money begin to drop in value like a rock, starting a whole new wave of bank failures and bailouts.
Economies can’t literally sink, but what we are witnessing is more than just a business cycle recession. It is nothing less than our nation’s descent into third-world nationhood. We have all of the qualifications: a systemically corrupt government, crony capitalism, millions living in poverty, terrible public schools, rampant inflation, and mountainous public debt all leading to a declining standard of living. Enjoy the cruise.
Joseph A. Scalia writes from Las Vegas where he has practiced law for 20 years. He hold a BA in Economics from the University of Maryland College Park and a JD from the University of Baltimore School of Law.