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."
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.Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So do many others.
[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.
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
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 ...
- Two powerful congressmen said that banks run Congress ...
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.
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.