Wall Street Bailout: FINALLY Someone Said "No"

"The word that best epitomizes mainstream "-macroeconomics' (the study of the entire economy, not individual markets) is demand. If weak demand left the economy in a slump, government could rectify the situation by stimulating more demand through tax cuts, higher spending, or lower interest rates. If excess demand created inflation, government could suppress it by cutting demand through more taxes, less spending, or higher interest rates."-

"Demand"- means, quite simply, "purchasing power."- The trouble is that a modern industrial economy does not produce enough purchasing power through wages, salaries, and dividends to buy what is produced at prices that must be charged to keep the system running. There is a gap, which was Keynes' main point. The gap exists because of savings, or "retained earnings,"- needed for reinvestment to keep the system operating and innovating. Without this savings, the system runs down due to entropy, or the law of diminishing returns.

Few writers commenting on the current economic situation--including most professional economists I've read on the subject--understand this basic point of Keynes' thesis. That's why none of their solutions ever work. 

Keynes wanted to fill the gap through government deficit spending--pump priming. Supply-siders want to fill it by, well--by nothing. They don't recognize the gap. They think that if more is produced, more will be bought, and there will be more income to do it. This is because they believe in "Say's Law,"- an early 19th century formulation that worked for medieval village economies--as did Adam Smith's free-market ideas--but not modern industrial ones.

Still, the gap has been filled, except it has been filled by debt, by consumer borrowing, and by the hundreds of different kinds of exotic debt instruments dreamed up by Wall Street firms since Reagan took office in the 1980s. This debt pyramid is what is crashing today.

And behind all the exoticism is the debt-based monetary system run by the banks who own the Federal Reserve, because it is these banks that provided the leverage for it all to happen. It's the banks that leveraged all the bubbles--the merger-acquisition bubble, the dot.com bubble, the housing bubble, the commercial real estate bubble, the equity bubble, the hedge fund bubble, the derivative bubble, the commodity bubble, and on it goes.

So this is what deregulation has done for us. It may very well destroy the U.S. economy. It is already destroying democracy, because the social stress the system has produced is a hot-bed for every type of illness and social break-down and also feeds the anxiety that sees a terrorist under every bed and leads to wars and international crises as well.

It's the big banks that have been the winners, at least so far. Citibank is eating Wachovia. Bank of America ate Merrill Lynch. J.P. Morgan Chase is eating Bear Stearns and WaMu. Of course the latter is the bank of David Rockefeller and his family, so they are not doing too badly. The Rockefellers also own much of Exxon-Mobil, which continues to run record profits due to the oil price run-up.

But then the system was set up to benefit people like the Rockefellers and their ilk in the first place. That's why we got the Federal Reserve System, because the bankers of the world already knew in 1913 that if they could control the currency and introduce money into circulation only through public and private debt they would be the big winners when the incredible productivity of modern industry became manifest.

And what is a real solution? It's a dividend-based economy, as I have written many times, and as the Social Credit movement in Great Britain, Canada, Australia, and New Zealand have known for decades. What we should do is monetize savings and retained earnings by issuing a corresponding dividend to the consuming population to balance production and be able to purchase what industry can produce through a non-inflationary production-based monetary system. This is how credit really should be used. You can read about it in the many articles I have written over the past year or in my forthcoming book: We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008).

So that's what happened today in Washington. But just remember, it's the big banks that are really the ones behind the bailouts. They are the ones who call the shots with the Bush administration and the leadership of both the Republican and Democratic parties.

But thank God a few real "mavericks"- in Congress left the reservation today. Will they have the guts to continue to "just say no"- and make a real change in U.S. politics? Was this the day the revolution began? Or just a final rear-guard action in the death of American democracy?

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