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A Banana Republic With No Bananas
Experts on third world banana republics from the IMF and the Federal Reserve have said the U.S. has become a third world banana republic (and see this and this).
Are they right?
Well, let's look at Wikipedia's description of the four factors which make a country a banana republic.
Profits Privatized and Debts Socialized
The
first feature of a banana republic as "A collusion between the
overweening state and certain favored monopolistic concerns, whereby
the profits can be privatized and the debts socialized."
Check.
As I pointed out in November:
Nouriel Roubini writes in a recent essay:
This is a crisis of solvency, not just liquidity, but true
deleveraging has not begun yet because the losses of financial
institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...
The
releveraging of the public sector through its build-up of large fiscal
deficits risks crowding out a recovery in private sector spending.Roubini has previously written:
We're essentially continuing a system where profits are privatized and...losses socialized.
Nassim Nicholas Taleb says the same thing:
After
finishing The Black Swan, I realized there was a cancer. The cancer was
a huge buildup of risk-taking based on the lack of understanding of
reality. The second problem is the hidden risk with new financial
products. And the third is the interdependence among financial
institutions.[Interviewer]: But aren't those the very problems we're supposed to be fixing?
NT:
They're all still here. Today we still have the same amount of debt,
but it belongs to governments. Normally debt would get destroyed and
turn to air. Debt is a mistake between lender and borrower, and both
should suffer. But the government is
socializing all these losses by transforming them into liabilities for
your children and grandchildren and great-grandchildren. What is the
effect? The doctor has shown up and relieved the patient's symptoms –
and transformed the tumour into a metastatic tumour. We still have the
same disease. We still have too much debt, too many big banks, too much
state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.[Interviewer]: Are you saying the U.S. shouldn't have done all those bailouts? What was the alternative?
NT:
Blood, sweat and tears. A lot of the growth of the past few years was
fake growth from debt. So swallow the losses, be dignified and move on.
Suck it up. I gather you're not too impressed with the folks in
Washington who are handling this crisis.Ben Bernanke saved
nothing! He shouldn't be allowed in Washington. He's like a doctor who
misses the metastatic tumour and says the patient is doing very well.Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So do many others.
Devalued Paper Currency
The second characteristic of a banana republic is "Devalued paper currency in the international community."
Check. Here's a chart of the trade weighted US Dollar from 1973-2009.
And here's a bonus chart showing the decline in the dollar's purchasing power from 1913 to 2005:
Politicians Use Time in Office to Maximize Their Own Gains
The third characteristic of a banana republic is:
Kleptocracy
-- those in positions of influence use their time in office to maximize
their own gains, always ensuring that any shortfall is made up by those
unfortunates whose daily life involves earning money rather than making
it.
Check. As I wrote last month:
Summers, Geithner, Bernanke and Congress like things just the way they are.
Of course they do ... they're bought and paid for:
- Lobbyists
from the financial industry have paid hundreds of millions to Congress
and the Obama administration. They have bought virtually all of the key
congress members and senators on committees overseeing finances and
banking. The Congress people who receive the most money from lobbyists
are the most opposed to regulation. See this, this, this, this, this, this, and this.
- Obama received more donations from Goldman Sachs and the rest of the financial industry than almost anyone else
- Summers and the rest of Obama's economic team have made many millions - even in the first few months of being appointed, or right beforehand - from the financial industry
- Two powerful congressmen said that banks run Congress ...
The chairman of the Department of Economics at George Mason University
(Donald J. Boudreaux) says that it is inaccurate to call politicians
prostitutes. Specifically, he says that they are more correct to call
them "pimps", since they are pimping out the American people to the
financial giants ...
Corruption Remains Unchecked, Politicians Are Only for Show
And the fourth characteristic of a banana republic is:
There
must be no principle of accountability within the government so that
the political corruption by which the banana republic operates is left
unchecked. The members of the national legislature will be (a) largely
for sale and (b) consulted only for ceremonial and rubber-stamp
purposes some time after all the truly important decisions have already
been made elsewhere.
Check. There's no accountability.
For
example, former Vice President of Dallas Federal Reserve, who said that
the failure of the government to provide more information about the
bailout signals corruption. As ABC writes:
Gerald
O'Driscoll, a former vice president at the Federal Reserve Bank of
Dallas and a senior fellow at the Cato Institute, a libertarian think
tank, said he worried that the failure of the government to provide
more information about its rescue spending could signal corruption."Nontransparency
in government programs is always associated with corruption in other
countries, so I don't see why it wouldn't be here," he said.
As I noted in October:
William K. Black - professor of economics and law, and the senior regulator during the S & L crisis - says that that the government's entire strategy now - as during the S&L crisis - is to cover up how bad things are ("the entire strategy is to keep people from getting the facts").
Indeed, as I have previously documented,
7 out of the 8 giant, money center banks went bankrupt in the 1980's
during the "Latin American Crisis", and the government's response was
to cover up their insolvency.
Black also says:
There has been no honest examination of the crisis because it would embarrass C.E.O.s and politicians . . .
Instead, the Treasury and the Fed are urging us not to examine the crisis and to believe that all will soon be well.
PhD economist Dean Baker made a similar point, lambasting
the Federal Reserve for blowing the bubble, and pointing out that those
who caused the disaster are trying to shift the focus as fast as they
can:The current craze in DC policy
circles is to create a "systematic risk regulator" to make sure that
the country never experiences another economic crisis like the current
one. This push is part of a cover-up of what really went wrong and does absolutely nothing to address the underlying problem that led to this financial and economic collapse.Baker also says:
"Instead of striving to uncover the truth, [Congress] may seek to conceal it" and tell banksters they're free to steal again.
Politicians are for sale.
And Congress made a big show of passing derivatives reform legislation, but actually weakened existing regulations. In fact, the legislation was "probably written by JP Morgan and Goldman Sachs" (two of the biggest derivatives players). In other words, Congress just rubber-stamped decisions which were already made elsewhere.
The same is true with every other piece of financial "reform" legislation which has been passed. See this and this.
It's all for show, folks. Dodd, Frank, Obama and all the other
politicians of both parties (with the exception of a handful trying to do the right
thing) are "consulted only for ceremonial and rubber-stamp purposes
some time after all the truly important decisions [about economic
legislation] have already been made elsewhere"
Without the Bananas
Wikipedia gives some additional background on the term "banana republic":
Banana
republic is a pejorative term originally used to refer to a country
that is politically unstable, dependent on limited agriculture (e.g.
bananas), and ruled by a small, self-elected, wealthy, and corrupt
clique.
Well, America isn't dependent on limited agriculture like bananas. But just about the only areas of growth are in the military and in giant companies lavished with buckets of cash and special "favors" by Uncle Sugar.
As one commentator succinctly put it, America has become:
A banana republic with no bananas.
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As one who is quite familiar with machinations of the Thai bureaucracy, and those of the upper class, I have to say that you're exactly right.
The difference is that in Thailand there's a sort of implied responsibility of the rich and powerful for their immediate charges, particularly in the workplace. They'll exploit the hell out of you, but at the same time they'll show up at your mother's funeral and maybe give you a little time off to deal.
Here in the developed world we've eliminated those sorts of sappy gestures towards the serfs.
Oh, there's also the fact that the serfs in Thailand have suddenly developed some backbone and self respect. We've evolved to crawl on the ground before our masters instead.
The USA is looking more like Thailand day by day
Sweet! Thailand rocks!!!
When are the "buy-me-drink" bars gonna start popping up?
Want to know the next phase ?
Since it i already obvious that the US/STATE Governments will employ over 50% of the population, this means that one of the few high paying jobs possible in the US will be when one holds some form of public office. In third world countries, a person has two to four years to steal all the money they can, from the tax coffers, mostly paid by a VAT tax on items that all people have to buy.
This means that election time will be the most spirited ever, because it is at this time that those with the right color cards are the one ones that will get to have some type of job, in a chronic 20% or higher unemployment rate scenario.
The benefit is that the cost of education and medicine will go down, because very few people have any money.
The US is crossing an important juncture, and it does not really matter about what type of government it says it has, it is what the government does in terms of interfering with prices.
High taxes simply means high prices for all goods and services, because taxes are just one cost component of goods and services that have to be passed on to the next person.
If a country wants to be more competitive on a global stage, then it must insure that it enables the industries from which it derives taxes, that they sell as much as possible to someone else. This means that their role is to lower the tax portion of price as much as possible.
For the US, this would mean that the taxes should be no higher than 15%, and should be a broad based consumption tax.
An economy that has to pass on 15% will be much larger than an economy that has to pass on more than 50%.
Have you ever checked the graph for the percentage of Americans in jail and how that number has grown since 1971 (when the Fed went away from the gold standard) ? Check these graphs. ITS TRAGIC.
http://en.wikipedia.org/wiki/File:US_incarceration_timeline-clean.svg
http://en.wikipedia.org/wiki/File:Incarceration_rate_of_inmates_incarcerated_under_state_and_federal_jurisdiction_per_100,000_population_1925-2008.png
Yep. Price control is one of two arms that gov't uses to control perception of reality in the age of the printing press. The other is redistribution of wealth.
Which means that very soon, as has been the case in many large, advanced societies in world history, your kid's upbringing will be completely geared to that one single day which will determine the quality of the rest of his/her life: the civil service exam.
That's exactly how things have been in France for several decades now. They study in the nationalised university system to get government issued diplomas, and then they take the concours that determines whether they are set for life(permanent govt job with great benefits, hours, and conditions) or destined for a life of insecurity, relative poverty, and hard labor in the privee.
You got my attention here.
As far as I know, the french college system is divided into public universities and select college levels (grandes ecoles, if I remember right) accessible through concours.
Getting out of these select college levels in a top quintile is what warrants a golden path, more of them expressed in the private sector which often offers better guaranteed conditions to the best than the public sector. This also creates cronyism, bow ties and stuff. Nothing very different from the Harvard and following stuff
This is what I retained when I browsed through the french educational system.
As you read knowledgeable about the topic and as this site is better than spouting nationalistic propaganda, I am eager to read more from you about that.
For the vast majority of French citizens, landing a government job is the best possible outcome. There are rich people and not so rich people in France as in the rest of Europe but the rich tend to stay rich and the not so stay not so. There isn't nearly as much mobility that way as there is here. You don't meet many people who turned a fast food or landscaping business into a small fortune.