About a month ago I was almost kicked off a site because I recommended higher taxes on the rich in order to recycle the interest debt they were receiving through the economy in an effort to assist in paying down debt. I was cited as proposing class warfare as a solution. The warfare started long ago.
The idea that the general fund be used to bail out the bad collateral amassed by the NY banking group of millionaires and billionaires is class warfare in itself. The fact of the matter is that amassing more debt in any form in the current economic environment without a plan to reduce the massive pile that is strangling the economy into depression, therefore bailing out billionaires from their failed enterprise under the threat they are going to plunge us in depression is warfare. It is being waged and it isn't that all parties deserve a handout, because none do.
The US Constitution endowed Congress with the power to coin money and regulate the value thereof, but it has been ceeded to the Federal Reserve and its organized crime group of Wall Street enterprise. Organized crime always operates through the government and in this case we aren't talking about back ally thugs, but Ivy League, conected MBA's and other elite. Granting a private enterprise the privilege to create money is in itself illegal. To bail them out of their failed enterprise is also Anti American and likely Unconstitutional as well. A failed surety is a failed business and those running the game have failed. But, it appears that failure is only for small business and those who got themselves over their heads in debt. I propose that the very problem that was bailed out was those thought of as highly successful and clearly highly compensated commited themselves to debts they couldn't pay. They should have been bankrupted and investigated for criminal activity instead of being bailed out.
To have any understanding as to how this mess can be solved is to understand the nature of debt and credit to start. Michael Hudson of the University of Missouri, KC comes as close to describing what is going on as anyone I have read. His writings can be found at http://www.neweconomicperspectives.blogspot.com/ and http://michael-hudson.com/ . Mr. Hudson understands that non-self liquidating debt cannot be paid and that is has to be systematically eliminated, losses taken and the economy cleaned out. Savings and debt are mirrors of each other.
The equation most of us are familiar with is the compound interest formula. Hudson and Steve Keen both make note that the equation has historically collapsed, but our government and Wall Street is trying to reflate to continue their compound debt peonage on the American economy. Problem is the general population and the borrower on the fringe has broken down and demand for the general economy can only be financed by more debt or by bankruptcy. The losses should be taken, but instead they are bailed out, keeping the rich rich and the middle class in sinking poverty.
In banking, principal is created, put into an account and paid back with interest. The banker keeps this cycle in motion by reloaning his interest after extracting his income. Once a debt bubble has begun, it is dependent on enough rents being collected to pay the note and for the banker to continue to expand debt and inflate values. Once there is more interest and payment due than there is rent, the game begins to crumble. No equity, no loan, no security, bankruptcy.
Wall Street created this mess, paid themselves massive bonuses and went broke. Much of this money was earned financing and packaging fraudulent securities. It is almost assured that many involved knew they were packaging and peddling fraudulent paper, but they continued well after the gig was clearly up. Together with return seeking hedge funds and fraudulent ratings given by S&P, Moodys and others, the game went on beyond where it could have earlier. Wall street was broke and Wall Street was bailed out instead of being liquidated. Legitimate players on the street had plenty of money to recapitalize their own firms, but instead the firms were propped and bailed out by the government. Many of their borrowers are also being bailed out, not to their benefit, but to the benefit of the bankers in continued payment instead of bad debt allowances.
Better yet, the game continues. Wall Street and banks paid out well over $100 billion in bonuses this past year. The bill for the taxpayer will probably exceed the balances on all the mortgages that were in existance when this mess started. People are losing their homes, but Wall Street isn't writing down the loans or impairing their own capital. Instead they are looting the system as it is in slow collapse. The US is probably done as a major economic power now that the entire purpose of the system is to provide income for a few super wealthy families. In the end, the goose that laid the golden egg will have died and even the rich won't be so rich. But, the management of Goldman Sachs and others can't see past the tip of their nose. Most that need to will take flight to greener pastures, but modern economy will be in shambles.
To revive the goose, we are going to need to extinguish the goose poison, the excessive debt load on the working class. The only way I know to extinguish debt is to quit creating it to start, take much of the earnings from it away from those that have the bulk of ownership in it and pay it to the general population where they can then pay it to those that hold the debts and keep the system solvent. Otherwise, if we are going to end up with a poor middle class, then the rest is going with it and all will end up being much poorer.