Paul Craig Roberts hits it on the head, again, in his article: Collapse At Hand .
This is one of the best analysis of the financialized economy I've read in a while.
However, way back in February 15, 2009, I wrote a much shorter article in which I gave the same derivative cancellation solution as PCR:
"... Getting back to the derivative
crisis; to resolve it, and to save the worldwide economy, Obama must
assume FDR-like powers, something he has seemed reluctant to do so far,
despite his mandate to do so. The first thing he should do is to declare
all derivatives placed outside of legally regulated markets (90% of
them are unverified contracts) null and void. These "bets"--worth $180
trillion according the U.S. Office of the Comptroller of the Currency in
America alone, and over half a quadrillion dollars worldwide--could not
have been made in traditionally regulated markets, because the players
had insufficient collateral, i.e. they flouted the law and their fiscal
responsibility.
Because for every buyer there is a
seller, the amounts lost would zero out and no one would gain an
advantage. We would just get to reset the clock. This is as fair as
things can be made given where we are. Right now, this enormous sum is
only good for driving companies into bankruptcy and tying up the courts
for years while the "winners" of these bets squabble over the crumbs of
the bankrupt companies. This is already happening with creditors
fighting over the last crumbs of Lehman Brothers. This is a pointless
and destructive squabble and the administration must act to prevent
years more of these.
If the parties object to the elimination of their derivative bets, they should be reminded of the penalty for fraud."
As
you can see, PCR uses the same logic and solution (though leaving out
my prescription for fraud), and almost says the same thing word for word in some
places. (You can read the full article here: Saving the Economy Without Spending a Dime).
But
that's OK, PCR's article is far more sophisticated and complete than
mine - as would be expected from an Assistant Secretary of the Treasury
and long time economist.
What's even more interesting is how the
size of the derivatives market has continued to grow since I wrote this
in early 2009, at the very depths of the last market crash - the market
would "turn around" just a month later, thanks to a steady stream of
unprecedented bailouts and guarantees begun the previous Fall. One
credible analyst said - 2 years ago - that the derivatives market is not
$700 trillion worldwide - a figure often quoted by the MSM, but not in
this article by PCR, who focused on only American exposure, but 1.2 quadrillion (see here).
We can thank the financial industry for making us think in terms of
numbers usually reserved for the science of Astronomy. Would that the
science of Economics be so sound and accurate! (The science of
Economics was hopelessly corrupted beginning in the early 20th century,
when the role of Land - in classical economics meaning ALL of nature's
resources - was deliberately and completely expunged in neo-classical
economics. You can read more about that in Georgist Prof. Mason
Gaffney's short book: "The Corruption of Economics." It was no accident
the land-grant universities led the way in this).
The other
solution, short-term, that PCR does not consider is Greenbacking -
taking the Money Creation power back from the banks and restoring it to
"We The People" as the constitution's Art. 1, Sec. 8, clause 5, states
when giving Congress the power to "coin Money." Coins are produced
debt-free, as are stamps for a limited use. U.S. Notes, first produced
by the greatest economist-president, Abraham Lincoln, under the nation's
first legal tender law, were also debt-free money, and were created in 14 series through 1971.
They remain in circulation - some $250 million, far too small an amount
to do any good, but, tellingly, as a form of money legally not allowed
to be counted against the debt . That's OK. U.S. Notes should be issued
directly by Congress to pay for Public Works projects - the original
"Public Works" paid for by U.S. Notes was the Civil War - $450
million went a lot further back in 1862-1863. This would one-up FDR by
paying for the things the country needs, putting people back to work,
with debt-free money .
Ironically, our newly prosperous nation could then afford to pay off its debts more easily.
Europe could do this too, by issuing a grant, not a loan, on a needs basis for those countries
in the Eurozone in the most desperate shape. Depression, like what
Spain, Portugal, and especially Greece, are in, is primarily a
deflationary event - caused by a removal of credit-money (from the
banks' point of view), or debt-money (as everyone else experiences it).
That money needs to be restored, without debt, so people can work and
earn. Government needs to step in when the private banking sector has
failed. This is what Lincoln did when the NY banks wanted 24-36%
interest during the Civil War. This is what we must do again.
Later,
we can tax back the surplus that would normally be siphoned off by the
elite 1% by taxing valuable locations and natural resources, as Henry George
advocated, just before the science of economics - then called "political
economy" became corrupted and Land became conflated with Capital - to
which it is actually almost a complete opposite. Without a tax on Land, the
hoarders of Earth's resources, which, by right, belong to all of us
equally, the 1% elites will always extract the world's riches for
themselves, eventually.
Still, as a short-term immediate measure,
Greenbacking, Lincoln's and later, George's, other Great Idea, would put
the Money Power back in the hands of We the People, via a newly
empowered and unobligated Congress who could finally tell the banks to
"take your money and shove it!" something that was tried by presidents Andrew Jackson (a
victim of 2 failed assassination attempts), Lincoln and Kennedy (both
successfully assassinated, with banker involvement in both cases, to
some degree). The Money Power plays for keeps and for total
domination. Their current plan through the European Stabilization
Mechanism, is to completely take over Europe. The confused and desperate public, cut off from any direct democratic control in the European Union, may allow this as early as next month.
We are running dangerously short of time to right this boat.
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