“We cannot solve our problems with the same thinking we used when we created them.”
–Albert Einstein
“Our greatest glory is not in never failing, but in rising up every time we fail.”
–Ralph Waldo Emerson
“Adversity is the trial of principle. Without it, a man hardly knows whether he is honest or not.”
–Henry Fielding
“A banker is a fellow who lends you his umbrella when the sun is shining, but wants it back the minute it begins to rain.”
–Mark Twain
“All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation [money].”
–John Adams
“The time to save is now. When a dog gets a bone, he doesn’t go out and make a down payment on a bigger bone. He buries the one he’s got.”
–Will Rogers
“I believe that banking institutions are more dangerous to our liberties than standing armies.”
–Thomas Jefferson
Few seem to grasp that we have arrived at a turning point; a nation and a world confronted with extraordinary structural change.
To think of the future in terms of recovering the past will not be helpful. We must pick ourselves up, hit the reset button, and move forward in a manner that is congruent with a rapidly changing reality.
I am not a banker or economist. I cannot speak with authority regarding the fragile conditions to which we are exposed. But neither am I trapped in past assumptions or blinkered by custom. My intent here is to monitor a transition I think we should all try to understand.
There are many aspects to the changes we are experiencing, some with immediate implications, others longer-term.
However, I think it useful to begin with a particular question with critical immediacy: “Why is the Federal Reserve unable to return the economy to some semblance of order?” Or, to put it another way: “Why has nothing actually been fixed since 2008?”
Here we find a powerful illustration of what is meant by structural change.
The short answer to these questions is that they want to believe they are dealing with a cyclical crisis rather than a structural crisis.
Again, why? Because the truth represents an unbearable existential threat.
Structural change has shifted the economy into a long-term deflationary trend, which presents financial institutions and governments with an impossible situation.
I refer you here to James Rickards’ recent best-seller, “The Death of Money: The Coming Collapse of the International Monetary System”. A monetary economist and former banker, Rickards is an adviser to the Pentagon and CIA.
Using simple math, Rickards’ explains how “in effect, the impact of declining prices [deflation] more than offsets declining nominal growth [GDP] and therefore produces real growth.”
Most of us would think this is a good thing.
He writes: “Despite possible real growth, the U.S. Treasury and the Federal Reserve fear deflation more than any other economic outcome. Deflation means a persistent decline in price levels for goods and services. Lower prices allow for a higher living standard even when wages are constant, because consumer goods cost less. This would seem to be a desirable outcome, based on advances in technology and productivity that result in certain products dropping in price over time….”
Why is the Federal Reserve so fearful of deflation that it resorts to extreme measures to oppose it? Rickards gives us four reasons.
First, deflation has a severe impact on government debt. “U.S. debt is at a point where no feasible combination of real growth and taxes will finance repayment…. But if the Fed can cause inflation…, the debt will be manageable because it will be repaid in less valuable nominal dollars. In deflation, the opposite occurs, and the real value of the debt increases….”
Second, deflation impacts the debt-to-GDP ratio, causing foreign creditors to lose confidence and demand higher interest rates. This is an urgent problem because the debt is continually increasing. Budget deficits require new financing, and interest payments are being financed with new debt.
Third, deflation is a major problem for banks. As Rickards’ puts it, “deflation increases money’s real value and therefore increases the real value of lenders’ claims on debtors…. But as deflation progresses, the real weight of the debt becomes too great, and debtor defaults surge.”
The fourth problem with deflation is about taxes. When a worker receives a raise, the additional income is subject to taxes. But, if the cost of living drops by the same amount, the worker in effect receives the same raise and the government cannot tax it.
“In summary,” writes Rickards, “the Federal Reserve prefers inflation because it erases government debt, reduces the debt-to-GDP ratio, props up banks, and can be taxed.”
“Deflation may help consumers and workers,” he says, “but it hurts the Treasury and the banks…. The consequence of these deflationary dynamics is that the government must have inflation, and the Fed must cause it. The dynamics amount to a historic collision between the natural forces of deflation and the government’s need for inflation.”
Such are the difficulties and dilemmas of structural change.
Tom
Next week: Insolvency and the Devaluation of the Dollar.
Note to readers: You can support this blog and the book project by suggesting that your friends and associates take a look.
“It is incumbent on every generation to pay its own debts as it goes.”
–Thomas Jefferson
“Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even.”
–Will Rogers
“If a person gets his attitude toward money straight, it will help straighten out almost every other area in his life.”
–Billy Graham
There is trouble in the land. Things are not right and the signs confront us daily. The mainstream media focuses on politics and the economy, but we know it goes far deeper.
The illness is shows itself in violence and bitterness, in material deprivations, in the degradation of human dignity and loss of responsibility. Many of us share a sinking feeling. We are afraid of the future, and increasingly we fear one another.
A wide range of crises are emerging into view or loom on the horizon.
I have surveyed some of these threats in Chapter Two of the book project, “A Confluence of Crises,” where I note that many are interrelated. And, I have argued that Americans must pull together despite our differences, both for self-preservation and to ensure the survival of the American republic.
The broad theme running through this blog (and forthcoming book) is the necessity for Americans to work together shoulder-to-shoulder to meet local needs and resolve local problems. As difficult as this prospect may seem, I do not believe we have a choice.
However, my purpose here is not to warn of impending crises, but to prepare us to remain positive in mind and spirit – to get us through a dark and chaotic time, and out the other side.
We face a long crisis. A constructive response needs to be mounted even as we withstand hardships and disasters.
We are challenged as Americans to rebuild the foundations of the nation in preparation for a future we can respect and believe in. This will require courage and steady determination. Even when we cannot see our way clearly, we must keep our focus on the ends we seek.
In the coming weeks I will offer a broad overview of issues that I think should be taken into consideration as we think about a future beyond this upheaval. We will need to have a realistic understanding of circumstances if we are to progress intelligently, rationally, avoiding wrong turns and hidden dangers.
The most important consideration in all this, in my view, is recognition of the structural nature of the transition. We have arrived at an historic turning point, both as Americans and as human beings. We are experiencing massive structural change.
Structural change takes place outside the realm of our normal experience and expectations. It is caused by events beyond our control.
Examples would include an aging population with insufficient savings, bankrupt governments and institutions, the unprecedented complexity of economic distortions and disruptions, the uncontrolled advance of extraordinary technologies, and the threat of terrorism – all developments that have little to do with partisan politics.
That mistakes have been made and illusions foolishly pursued is undeniable. But, very big changes are taking place that are actually not anyone’s fault.
I have focused attention on values and principles in recent blog posts because, as a practical matter, we are entering new territory. We can only navigate safely with principles that are valid and dependable.
To think of the future in terms of recovering the past will not be helpful. We must pick ourselves up, hit the reset button, and move forward in a manner that is congruent with a rapidly changing reality.
You see, there is a reason the bankers and their economists are not succeeding at returning the economic condition of the United States to some semblance of order. They have proceeded as though they are dealing with a cyclical crisis rather than a structural crisis. And, as long as they continue to do so, there will be no recovery.
Why don’t they understand this? Well, some of them do. But, few dare to speak openly because the financial world would panic.
Why do they continue with a strategy that cannot possibly succeed? Well, there is a reason for that, too. Central bankers (and governments) are trapped between a rock and a hard place.
In the coming weeks we will address the ways a rapidly changing world is changing our lives. We must move past our emotions even as the world is driven over a cliff – because our grandchildren deserve a rational inheritance. And that depends on us.
Tom
Next week: Why the bankers are trapped.
Note to readers: You can support this blog and the book project by recommending that your friends and associates take a look.
“The fact is we can only love what we know personally. And we cannot know much. In public affairs, in the rebuilding of civilization, something less dramatic and emotional is needed, namely tolerance.”
–E. M. Forster (Novelist)
“If man is to survive, he will have learned to take a delight in the essential differences between men and between cultures. He will learn that differences in ideas and attitudes are a delight, part of life’s exciting variety, not something to fear.”
–Gene Roddenberry (Creator of Star Trek)
The Bill of Rights, which includes the first ten of the amendments to the Constitution, was first proposed to Congress by James Madison as articles to be incorporated into the main body of the Constitution.
Congress approved twelve articles of amendment to the Constitution in 1789 and submitted them to the states for ratification. Contrary to Madison’s proposal, they were submitted as “supplemental” additions. Articles Three through Twelve were ratified by the required number of states and became Amendments One through Ten in 1791.
The Second Amendment, which has become a matter of considerable interest in recent years, reads as follows:
“A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”
This was not controversial at the time. The concept existed in English common law long before the enactment of the Bill of Rights. And for a variety of reasons today many Americans feel it is necessary to own firearms.
The importance of this issue to the founders was quite clear. James Madison introduced the language that became the Second Amendment and also wrote: “The Constitution preserves the advantage of being armed which Americans possess over the people of almost every other nation where the governments are afraid to trust the people with arms.”
Alexander Hamilton, like Madison a strong advocate for Federalism, was equally explicit: “The constitution shall never be construed…to prevent the people of the United States who are peaceable citizens from keeping their own arms.”
Thomas Jefferson famously said: “No freeman shall be debarred the use of arms.” And he also wrote that “The strongest reason for the people to retain their right to keep and bear arms is as a last resort to protect themselves against tyranny in government.”
During the years leading up to the Revolutionary War there was mob violence in several of the colonies. In addition, many American lived in or close to wilderness regions where conditions were essentially lawless. The need people felt to protect their families was quite rational.
It should be noted that a primary motivation for supporting “a well regulated Militia,” articulated in the Second Amendment as “being necessary to the security of a free State,” was the strong opposition among the founders to the concept of a standing army.
Thomas Jefferson put it this way: “None but an armed nation can dispense with a standing army. To keep ours armed and disciplined is therefore at all times important.” “Every citizen should be a soldier,” he wrote. “This was the case with the Greeks and Romans, and must be that of every free state.”
The American reality in 1776 and 1791 was entirely different from that confronting us today. Yet, news of social, religious, and psychopathic violence imposes itself on us every day. Older Americans are particularly sensitized to what has changed: the radical loss of trust and the lack of civility, ethical integrity, and social responsibility we see everywhere.
We must acknowledge the compelling reasons why so many feel it necessary to own firearms.
That said, however, I must tell you I believe the use of force among Americans today, in defense of the Constitution and the American freedoms, would be counterproductive and incompatible with an effective strategy.
Our consideration in recent posts of the dynamic relation of means to ends should, in my view, make this clear.
Violence committed by Americans against Americans would contradict the rationale behind the impetus to violence itself. It would be self-contradictory, pitting brother and sister against brother and sister, subverting the integrity and viability of the American Idea as a guiding force for the good.
We can do far better.
I have presented principles supporting this assertion in previous posts, (see especially Nov 28 and Dec 12), and will offer a more explicit argument next week.
We need to consider this carefully and get it right. We face a long crisis. Many dark and dangerous things are possible.
Tom
Next week: Principled Means, Principled Ends
Note to readers: You can support this blog and the book project by suggesting that your friends and associates take a look.
If we are to rebuild the foundations of this nation in a manner consistent with principle, it will be wise to employ means that lead effectively to the ends we seek. Let us proceed with wisdom and foresight rather than emotion and ego.
Nothing will cause greater destruction to our purpose than a combative attitude that alienates the very people we need to win over.
If we avoid allowing our differences to tear us apart, we can choose to cooperate in addressing the structural problems that threaten the safety and security of our communities. And, it is only in the context of personal relationships tasked with essential responsibilities that we can come to understand and influence one another.
As long-time readers know, I have urged that we turn away from the dysfunction, dishonesty, and deceit of national politics to the extent possible, and join with one another to rebuild America in our local communities.
I have described three essential elements – trust, dependability, and constructive action – which will be necessary to regain stability and to move us forward. These elements will only be found in communities where neighbors rise above their differences to serve a higher purpose.
I have chosen the term “constructive action” to describe the means by which we can realistically progress. And I have explained in recent posts why a shared sense of purpose will be required to guide constructive action.
Shared purpose, I wrote, is a lens through which the challenges of necessity can be brought into focus. The efforts of diverse personalities can be coordinated. Purpose provides a standard by which to determine priorities and judge progress. In short, forward motion is essential; yet it is impossible without unity of purpose.
So, how can we understand constructive action?
Constructive action is action based on the refusal to do harm. It is action taken in a spirit of respectful kindness, a spirit founded upon the refusal to fight, to kill, or to damage. The principle here is the refusal to hurt – by impatience, dishonesty, hatred, or wishing ill of anybody.
I submit to you that this is the first principle upon which all other values, principles, and purposes depend.
Please do not misinterpret constructive action as merely a negative state of harmlessness. Quite the contrary, while constructive action in its purest form attempts to treat even the evil-doer with good-will, it by no means assists the evil-doer in doing wrong or tolerates wrong-doing in any way.
The state of constructive action requires that we resist what is wrong and disassociate ourselves from it even if doing so antagonizes the wrong-doer.
There is a close relationship between the positive spirit of kindness, respect, and trustworthiness that characterizes constructive action and the moral integrity of the free society we wish to build. The two are inseparable.
Constructive action is the means. Unity of purpose, grounded in the truthfulness of moral integrity, is the end.
Western political thinking has always considered means to be either an abstraction of tactics or simply the character of social and political machinery. In both cases means are considered only in their service to the desired ends, or goals, of particular political interests. We will approach our understanding of means in quite a different way, replacing an end-serving with an end-creating function.
Such an approach to means is necessary if we seek to apply traditional American values to rapidly changing circumstances.
This is the reason for my insistence on the meaningful engagement of all Americans in this endeavor, despite our vast diversity. A genuinely American future can only be realized in the context of our differences.
I believe this is what America has always been about. Is it what we want now, or not?
We have a clear choice to make. Either we choose to recover and reconstruct the fundamental meaning of the American Idea, or we can walk away forever from the safety, stability, and meaning of an America we can trust and believe in.
Tom
A note to readers: The next several posts will explore the meaning and implications of this “first principle.” I will take a breather for the holidays, so please look for the next post on January 2-4: “The Second Amendment, Then and Now”.
Liberty and the American Idea 