Alan Greenspan, long-time apologist for corporatist interests and recently reborn Bush neocon lackey, has had an epiphany: He’s now decided that staggering deficits and debts are a good thing in times of low interest rates. As long as ‘consumers’ can be ‘persuaded’ to keep buying the low-quality, over-priced crap that corporatists foist upon them, and as long as the currently wildly overpriced housing and stock markets can be kept at their artificially inflated levels, “balance sheets will remain in good shape”, he says, and hence interest rates can be kept low. And as the Chairman of the US Fed, Greenspan is the guy who single-handedly determines what interest rates will be.

It’s a house of cards, of course, a total fraud and extremely
dangerous. It’s Enron accounting at its most deceptive, the kind of
self-delusion that led to the absurd run-up of stocks in 1929 and the
subsequent collapse that produced the Great Depression. Here’s the
shaky foundation upon which the entire distorted economy now rests:

1. With interest rates at historically low rates, rich
   investors’ funds, millionaires’ tax refunds and pension fund infusions
   are all going into stocks instead of bonds, pushing up Price/Earnings
   ratios of stocks to astronomical and unprecedented levels. Even the
   most bullish brokers now admit that the stock market is wildly
   over-priced, but barring a spike in interest rates, money keeps flowing
   in and pushing prices up, because there’s nowhere else to invest it.
2. To delay a stock market collapse as long as possible, large
   corporations are creating unsustainable profit growth by (a) organizing
   into oligopolies and colluding to gouge consumers, charging them wildly
   inflated prices for low quality junk, and (b) lowering product and
   service cost (and quality) by downsizing, outsourcing and offshoring
   skilled labour, creating massive unemployment, underemployment, and a
   frightened, meek and compliant workforce willing to work incredible
   hours for a pittance.
3. Low interest rates also allow consumers to be hoodwinked into incurring collosal personal debts ‘virtually interest free’ just so they can buy more stuff.
   Their investment of choice with the proceeds of this ‘free’ borrowing
   is real estate, which, in parallel with the stock market, has therefore
   been driven up to ridiculous price levels completely unrelated to its
   underlying value. It’s
   a vicious cycle of buy more / borrow more, of excessive consumption and
   excessive borrowing, a cycle of addiction, and the corporatists are the
   pushers.
4. The borrowing capacity, risk of default, and borrowing cost
   of everyone — individuals, corporations and nations alike — is a
   function of the strength of their balance sheet.
   The balance sheet measures assets (the current ‘market value’ of
   investments, real estate, and ‘goodwill’ amounts paid by corporations
   to buy and remove their competitors from play) compared to liabilities
   (accumulated debts). Lending institutions will continue to extend
   credit as long as assets exceed liabilities, and as long as interest
   rates stay low enough to keep the cost of borrowing comfortably below
   income. Because they are now allowed to charge 15-30% interest rates to
   consumers on unsecured and risky debt like credit cards, second
   mortgages and mortgages with late or defaulted payments (rates that
   used to be banned under usury laws), the banks and credit card
   companies are actually encouraged to loan money to people even if they can’t afford to repay it.
   Result: personal bankruptcies and foreclosures are at record levels.
   Even two family incomes are not enough to keep many families solvent.
5. Because they borrow a lot, and have a lot of liquid
   investments, governments and big corporations can now borrow money at
   interest rates close to zero. And because they can, they do. This is
   called ‘leverage’, and is considered to be a shrewd business practice,
   because it doesn’t take much to generate a better return on the money
   borrowed (thanks to points 1 and 2 above), than the cost of borrowing, as long as the markets keep rising.
6. At the national level, the US government and multi-national
   corporations need to find someone to loan them money at these absurdly
   low interest rates. Who do they get to do this, and how? Why, they
   borrow if from other countries, of course. They get Arab and Asian
   countries to sell them trillions of dollars worth of cheap natural
   resources and crappy manufactured goods — but the deal isn’t for cash.
   These foreign countries lend the trillions of dollars the US needs to buy these goods, at low interest rates, with the debt denominated in US dollars.
   No cash changes hands. From an American perspective, they get trillions
   of dollars of goods (assets) and an offsetting trillions of dollars of
   debt (liabilities). The balance sheet therefore stays in balance, as long as interest rates stay low. From the Arab or Asian perspective, they get trillions of dollars of receivables (which they can take to the bank, as long as the US dollar and US economy is stable),
   and they create a bunch of sweat shop jobs for their grateful populace
   in the process. So as long as the US trade deficit is at record,
   astronomical levels, a US government deficit that’s also at record,
   astronomical levels is just hunky-dory. Mr. Greenspan says so, honest!

I’m sure, gentle reader, you can see the folly here, and all the things
that can, and ultimately will, go wrong. Just as Enron’s profits and
stock value were based on fraudulent overvaluation of assets, the
‘balance’ of everyone’s balance sheet — individuals’, corporations’,
and governments’ — is fraudulently overvalued because the stock prices
and real estate prices that constitute most of the assets are absurdly
inflated.

If any of the following things occurs,
the whole house of cards collapses — stock markets will plunge,
housing values will plunge, the US dollar will collapse, and interest
rates will soar — we’re talking the worst global economic collapse
since the Great Depression:

• The IMF decides the leverage of the US debt is too high,
  and downgrades its rating of US government debt, producing a spike in
  US borrowing costs and/or a demand that future borrowings be
  denominated in Euros, which, in conjunction with the resultant collapse
  of the US dollar against the Euro, would drive up the value of the debt
  to staggering levels, making the US essentially bankrupt.
• Consumers and wise investors, realizing the stock and
  housing markets are dangerously overpriced, pull their money out of US
  investments and put their money overseas or into commodities.
• Currency speculators, who account for over 90% of all
  currency transactions, decide to ‘short-sell’ the US dollar, leading to
  its collapse against other currencies (some people think this is
  already occurring).
• Consumers decide they’ve had enough of their addiction to
  consumption and debt, rein in their spending, sell off investments and
  luxury goods, make personal sacrifices to pay off their debts, and
  start buying smarter, less, and better-quality, longer-lasting, goods
  and services.
• The Arabs and/or Asians decide their heavy investment in US
  dollar receivables is too risky, and, even though it will cost them a
  lot of American business, start to insist on being paid in local
  currency, Euros, or (gasp!) cash.
• Consumers revolt against usurous interest charges and
  demand a law capping interest rates a few points above prime, causing a
  fierce tightening of credit, and a huge spike in interest rates on all
  debt to recoup the lenders’ lost revenue.

So what do we do to prevent it? We’re so over-leveraged now that the best we can hope for is a ‘soft landing’.

Individual citizens can reduce their exposure to the collapse by paying
down high-interest and variable-rate debts and short-term mortgages,
selling US stocks and bonds (and getting your pension money out of
these investments, too), and preparing for the likelihood that housing
prices will plummet.

We also need to get rid of Bush and Greenspan, and ensure that Kerry
has a program for dealing with the astronomical US debt and foreign
payments deficit. And we need laws to reduce the power and influence of
corporations, electoral campaign finance reform, cancellation of ‘free’
trade agreements and vastly strengthened anti-combines law and
oligopoly regulation.

But I want to get back to my ‘pusher’ analogy. It’s really insidious.
Just as rats in the laboratory have been ‘trained’ to push a button to
get a ‘shot’ of addictive pain-killing drugs, and start pushing the
button more and more often, we’re being trained — by our education
system, by advertising, by the media, and by the entire oil-fueled
corporatist economic machine — to want and ‘need’ to buy more and more
stuff, to throw things out instead of fixing them, to get stuff done
for us instead of doing it ourselves, to buy an endless stream of
flimsy $5 doodads made in China instead of one $20 doodad made
domestically that will last a lifetime, to undervalue our time and
overvalue possessions, to buy overpriced ‘brand names’ for status, and
to be terrified of not having enough.
And to pay for our addiction to all this overpriced crap, we’re
encouraged to borrow more and more money now (“no interest!”, “don’t
pay a cent until 2005!”, “zero down!”) so we get as addicted to debt
and as dependent on low interest rates as the big corporations and the
Bush government.

By encouraging this reckless excess, Alan Greenspan really is the
ultimate drug pusher, and he damn well knows that this, like all
addiction, must ultimately end in tragedy. The corporatists, like all
drug pushers, depend on reducing the people, the citizens, to mere
consumers, mindless zombies. It’s irresponsible. It’s destroying our
social fabric, wrecking families and causing irreparable damage to the
environment. It’s shameful. It has to stop.