What’s driving the debt ceiling debate

by Justin Raimondo / Antiwar

Rothbard’s account of the course of American foreign policy as the history of contention between the Morgan interests, the Rockefellers, and the various banking “families,” who dealt primarily in buying and selling government bonds, is fascinating stuff, and it illuminates a theme common to both left and right commentators: that the elites are manipulating the policy levers to ensure their own economic interests unto eternity.

Everyone agrees the United States is in a crisis of momentous importance: we’re approaching bankruptcy [.pdf], millions are out of work, and the emotional leitmotif of our culture can be summed up in one word: demoralization.

Is there a way out?

Well, yes and no. Yes – if the solution comes from below: no, if we’re depending on our “leaders” to pull us out of the abyss.

Let me explain.

The problem is dramatically illustrated by our current debate over the “debt ceiling” crisis. In order to reassure themselves – and, more importantly, the public – that they aren’t just madmen, Congress imposed on itself a “debt ceiling” beyond which they are not supposed to go. In reality, however, they have raised the ceiling whenever they’ve felt like it. Now, however, as the imminence of America’s bankruptcy has impressed itself on increasing numbers of voters, there is some resistance to raising it – and, as a result, there is panic in Washington. Are the peons objecting to Washington’s assumption of absolute power, and actually challenging the elite’s ability to spend without limit? Horrors!

For months, the pundits and Washington think-tank know-it-alls have been in a tizzy: who do these unwashed peasants think they are? But of course we’ve got to raise the debt ceiling – after all, what about the “full faith and credit” of the United States? Don’t these denizens of flyover country realize they don’t have a choice in the matter? And now, with unmistakable finality, Wall Street has spoken in the form of Moody’s and S&P, the bonds rating agencies, which are threatening to downgrade US bonds if Congress fails to raise the limit.

This should give the ordinary American a clue as to what is at stake here, and who is on what side: it’s the Washington insiders and Wall Street versus the people of the United States – and the stakes are the fate of the nation.

Let’s recount a little history here: in the winter of 2008 the house of cards that is the American economy suddenly collapsed, and the Great Bubble of faux “prosperity” burst. A long orgy of malinvestment – spurred by bank credit expansion [.pdf] (i.e. the Federal Reserve printing gobs of “money”) – came to an ignominious end. The housing market, already weak, imploded. It was a massive market correction, one that had to be endured before it could be cured – but the big boys weren’t going to take their medicine.

In a free economy, the banks that invested trillions in risky mortgages and other fool’s gold would have taken the hit. Instead, however, what happened is that the American taxpayers took the hit, paid the bill, and cleaned up their mess – and were condemned to suffer record unemployment, massive foreclosures, and the kind of despair that kills the soul.

How did this happen? There are two versions of this little immorality tale, one coming from the “left” and the other from the “right” (the scare-quotes are there for a reason, which I’ll get to in a moment or two).

The “left” version goes something like this:

The evil capitalists, in league with their bought-and-paid for cronies in government, destroyed and looted the economy until there was nothing left to steal. Then, when their grasping hands had reached the very bottom of the treasure chest, they dialed 911 and the emergency team (otherwise known as the US Congress) came to their rescue, doling out trillions to the looters and leaving the rest of America to pay the bill.

The “right” version goes something like the following:

Politically connected Wall Streeters, in league with their bought-and-paid-for cronies in government, destroyed and looted the economy until there was nothing left to steal. Then, when their grasping hands had reached the very bottom of the treasure chest, they dialed BIG-GOV-HELP and the feds showed up with the cash.

The first thing one notices about these two analyses, taken side by side, is their similarity: yes, the “left” blames the free market, and the “right” blames Big Government, but when you get past the blame game their descriptions of what actually happened look like veritable twins. And as much as I agree with the “right” about their proposed solution – a radical cut in government spending – it is the “left” that has the most accurate analysis of who’s to blame.

It is, of course, the big banks – the recipients of bailout loot, the ones who profited (and continue to profit) from the economic catastrophe that has befallen us.

During the 1930s, the so-called Red Decade, no leftist agitprop was complete without a cartoon rendering of the top-hatted capitalist with his foot planted firmly on the throat of the proletariat (usually depicted as a muscular-but-passive male in chains). That imagery, while crude, is largely correct – an astonishing statement, I know, coming from an avowed libertarian and “reactionary,” no less. Yet my leftist pals, and others with a superficial knowledge of libertarianism, will be even more surprised that the founder of the modern libertarian movement, also an avowed (and proud) “reactionary,” agreed with me (or, rather, I with him):

“Businessmen or manufacturers can either be genuine free enterprisers or statists; they can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism.

“Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout.

“Investment bankers do much of their business underwriting government bonds, in the United States and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.”

That’s Murray N. Rothbard, the great libertarian theorist and economist, in his classic monograph Wall Street, Banks, and American Foreign Policy. If you want a lesson in the real motivations behind our foreign policy of global intervention, starting at the very dawn of the American empire, you have only to read this fascinating treatise. The essence of it is this: the very rich have stayed very rich in what would otherwise be a dynamic and ever-changing economic free-for-all by securing government favors, enjoying state-granted monopolies, and using the US military as their private security guards. Conservatives who read Rothbard’s short book will never look at the Panama Canal issue in the same light again. Lefties will come away from it marveling at how closely the libertarian Rothbard comes to echoing the old Marxist aphorism that the government is the “executive committee of the capitalist class.”

Rothbard’s account of the course of American foreign policy as the history of contention between the Morgan interests, the Rockefellers, and the various banking “families,” who dealt primarily in buying and selling government bonds, is fascinating stuff, and it illuminates a theme common to both left and right commentators: that the elites are manipulating the policy levers to ensure their own economic interests unto eternity.

In normal times, political movements are centered around elaborate ideologies, complex narratives that purport to explain what is wrong and how to fix it. They have their heroes, and their villains, their creation myths and their dystopian visions of a dark future in store if we don’t heed their call to revolution (or restoration, depending on whether they’re hailing from the “left” or the “right”).

You may have noticed, however, that these are not normal times: we’re in a crisis of epic proportions, not only an economic crisis but also a cultural meltdown in which our social institutions are collapsing, and with them longstanding social norms. In such times, ideological categories tend to break down, and we’ve seen this especially in the foreign policy realm, where both the “extreme” right and the “extreme” left are calling for what the elites deride as “isolationism.” On the domestic front, too, the “right” and “left” views of what’s wrong with the country are remarkably alike, as demonstrated above. Conservatives and lefties may have different solutions, but they have, I would argue, a common enemy: the banksters.

This characterization of the banking industry as the moral equivalent of gangsters has its proponents on both sides of the political spectrum, and today that ideological convergence is all but complete, with only “centrists” and self-described pragmatists dissenting. What rightists and leftists have in common, in short, is a very powerful enemy – and that’s all a mass political movement needs to get going.

In normal times, this wouldn’t be enough: but, as I said above, these most assuredly aren’t normal times. The crisis lends urgency to a process that has been developing – unfolding, if you will – for quite some time, and that is the evolution of a political movement that openly disdains the “left” and “right” labels, and homes in on the main danger to liberty and peace on earth: the state-privileged banking system that is now foreclosing on America.

This issue is not an abstraction: we see it being played out on the battlefield of the debt ceiling debate. Because, after all, who will lose and who will win if the debt ceiling isn’t raised? The losers will be the bankers who buy and sell government bonds, i.e. those who finance the War Machine that is today devastating much of the world. My leftie friends might protest that these bonds also finance Social Security payments, and I would answer that they need to grow a spine: President Obama’s threat that Social Security checks may not go out after the August deadline is, like everything out that comes out of his mouth, a lie. The government has the money to pay on those checks: this is just his way of playing havoc with the lives of American citizens, a less violent but nonetheless just as evil version of the havoc he plays with the lives of Afghans, Pakistanis, and Libyans every day.

This isn’t about Social Security checks: it’s about an attempt to reinflate the bubble of American empire, which has been sagging of late, and keep the government printing presses rolling. For the US government, unlike a private entity, can print its way out of debt – or, these days, by simply adding a few zeroes to the figures on a computer screen. A central bank, owned by “private” individuals, controls this process: it is called the Federal Reserve. And the Fed has been the instrument of the banksters from its very inception [.pdf], at the turn of the 19th century – not coincidentally, roughly the time America embarked on its course of overseas empire.

There is a price to be paid, however, for this orgy of money-printing: the degradation, or cheapening, of the dollar. Most of us suffer on account of this policy: the only beneficiaries are those who receive those dollars first, before it trickles down to the rest of us. The very first to receive them are, of course, the bankers, but there’s another class of business types who benefit, and those are the exporters, whose products are suddenly competitive with cheaper foreign goods. This has been a major driving force behind US foreign policy, as Rothbard points out:

“The great turning point of American foreign policy came in the early 1890s, during the second Cleveland Administration. It was then that the U.S. turned sharply and permanently from a foreign policy of peace and non-intervention to an aggressive program of economic and political expansion abroad. At the heart of the new policy were America’s leading bankers, eager to use the country’s growing economic strength to subsidize and force-feed export markets and investment outlets that they would finance, as well as to guarantee Third World government bonds. The major focus of aggressive expansion in the 1890s was Latin America, and the principal Enemy to be dislodged was Great Britain, which had dominated foreign investments in that vast region.

“In a notable series of articles in 1894, Bankers’ Magazine set the agenda for the remainder of the decade. Its conclusion: if ‘we could wrest the South American markets from Germany and England and permanently hold them, this would be indeed a conquest worth perhaps a heavy sacrifice.’

“Long-time Morgan associate Richard Olney heeded the call, as Secretary of State from 1895 to 1897, setting the U.S. on the road to Empire. After leaving the State Department, he publicly summarized the policy he had pursued. The old isolationism heralded by George Washington’s Farewell Address is over, he thundered. The time has now arrived, Olney declared, when ‘it behooves us to accept the commanding position… among the Power of the earth.’ And, ‘the present crying need of our commercial interests,’ he added, ‘is more markets and larger markets’ for American products, especially in Latin America.’”

The face of the Enemy has long since changed, and Britain is our partner in a vast mercantilist enterprise, but the mechanics and motivation behind US foreign policy remain very much the same. You’ll note that the Libyan “rebels,” for example, set up a Central Bank right off the bat, even before ensuring their military victory over Gadhafi – and who do you think is going to be selling (and buying) those Libyan “government” bonds? It sure as heck won’t be Joe Sixpack: it’s the same Wall Streeters who issued an ultimatum to the Tea Party, via Moody’s, that they’ll either vote to raise the debt ceiling or face the consequences.

But what are those consequences – and who will feel their impact the most?

It’s the bankers who will take the biggest hit if US bonds are downgraded: the investment bankers, who invested in such a dodgy enterprise as the US government, whose “full faith and credit” isn’t worth the paper it’s printed on. In a free market, these losers would pay the full price of their bad business decisions – in our crony-capitalist system, however, they win.

They win because they have the US government behind them — and because their strategy of degrading the dollar will reap mega-profits from American exporters, whose overseas operations they are funding. The “China market,” and the rest of the vast undeveloped stretches of the earth that have yet to develop a taste for iPads and Lady Gaga, all this and more will be open to them as long as the dollar continues to fall.

That this will cripple the buying power of the average American, and raise the specter of hyper-inflation, matters not one whit of difference to the corporate and political elites that control our destiny: for with the realization of their vision of a World Central Bank, in which a new global currency controlled by them can be printed to suit their needs, they will be set free from all earthly constraints, or so they believe.

With America as the world policeman and the world banker – in alliance with our European satellites – the Washington elite can extend their rule over the entire earth. It’s true we won’t have much to show for it, here in America: with the dollar destroyed, we’ll lose our economic primacy, and be subsumed into what George Herbert Walker Bush called the “New World Order.” Burdened with defending the corporate profits of the big banks and exporters abroad, and also with bailing them out on the home front when their self-created bubbles burst, the American people will see a dramatic drop in their standard of living – our sacrifice to the gods of “internationalism.” That’s what they mean when they praise the new “globalized” economy.

Yet the American people don’t want to be sacrificed, either to corporate gods or some desiccated idol of internationalism, and they are getting increasingly angry – and increasing savvy when it comes to identifying the source of their troubles.

This brings us to the prospects for a left-right alliance, both short term and in the long run. In the immediate future, the US budget crisis could be considerably alleviated if we would simply end the wars started by George W. Bush and vigorously pursued by his successor. Aside from that, how many troops do we still have in Europe – more than half a century after World War II? How many in Korea – long after the Korean war? Getting rid of all this would no doubt provide enough savings to ensure that those Social Security checks go out – but that’s a bargain Obama will never make.

All those dollars, shipped overseas, enrich the military-industrial complex and their friends, the exporters – and drain the very life blood out of the rest of us. Opposition to this policy ought to be the basis of a left-right alliance, a movement to bring America home and put America first.

In the long term, there is the basis for a more comprehensive alliance: the de-privileging of the banking sector, which cemented its rule with the establishment of the Federal Reserve. That, however, is a topic too complex to be adequately covered in a single column, and so I’ll just leave open the intriguing possibility.

“Left” and “right” mean nothing in the current context: the real division is between government-privileged plutocrats and the rest of us. What you have to ask yourself is this: which side are you on?

See original article here

Read more by Justin Raimondo

• The Debt Ceiling and the Warfare State – July 12th, 2011