Last week Wall Street firm JP Morgan Chase announced its CEO Jamie Dimon would be paid $17 million for 2009. As a reminder, this is the guy who said on CNBC in February 2009, “we should teach the American people you’re supposed to meet your obligations, not run from them.” So what does a Wall Street firm actually do besides sending its head salesman out to lecture Americans with a subtle threat to pay him as his firm kicks them out of their homes and jacks up their credit card rates? The time has come to reconsider this question before Wall Street destroys any remaining glimpse of a free market and free society.
Unfortunately almost nobody knows what Wall Street does despite its incredible power over everything in the United States and much of the world. Neoclassical economics, i.e. groupthink for the banks, even has the media and the people who work for Wall Street fooled. The AP described Wall Street yesterday as “an essential component of economic recovery”—so much for the idea of a non-captive, free press. NYT writer David Brooks thinks Wall Street firms “channel opportunity to new people.” I’d be curious if those in Argentina, Indonesia, Peru, Iceland, and the small towns of America that have been destroyed would agree with such detached fiction.
Debt: The Temporary Illusion of Wealth
Supposedly Wall Street is responsible for making the United States the wealthiest country in the world. Yet, if that is true, how could the US be trillions of dollars in debt? Why is almost every state bankrupt? Why are Americans losing their homes? Why does the lower class have to work multiple jobs to feed their families? Why do both parents in middle class families have to work when one parent could easily support the family fifty years ago? We were told we were making so much progress over those years thanks to Wall Street. What happened?
My apologies for so many questions, but sometimes the only way of making a point so dramatically different from CNBC propaganda is to ask the obvious. Hopefully the questions make it clear that the United States is hardly the richest country in the world. Instead it is the most insolvent, drowning in the most debt. This is because the very core of our money and banking system, headed by the Federal Reserve and cartel member Wall Street banks like JP Morgan Chase, is based on nothing but debt. If only we would have listened to John Adams, “There are two ways to conquer and enslave a country. One is by the sword. The other is by debt.”
So strip away the complex façade of high finance, and it should be clear given the current state of the US economy that Wall Street puts people, businesses, and governments in debt. As opposed to sucking off only the taxpayer as it did after the crash of 2008, Wall Street sucks off both the interest payer and the taxpayer in other years. The more indebted Americans are, the more short-term bonus money Jamie Dimon’s team and the Goldman traders make. When Wall Street would otherwise go bankrupt from excessive debt-based profiteering, the government props them back up because it is also controlled by debt. In fact, the monopolizing Wall Street cartel only exists because of the government. This should smash the prevailing belief that Wall Street as currently structured represents anything close to a free market institution.
The government made a grave error creating the cartel because, unfortunately, the rise of Wall Street goes hand in hand with the decline of America. A bank cartel with government protection, which adds no productive value to the economy but instead sucks value from everything else, eventually hollows out the host upon which it lives. Real value comes from community relationships, effective local governments and businesses, farming, manufacturing, construction, etc. Wall Street, on the other hand, is a massive mining operation that lords over all the people and institutions doing those activities. It is just a different version of the feudal kings of old who staked controlling claims around the world to mine people and resources. Once the Federal Reserve Act created the Wall Street cartel with a permanent controlling stake over the entire system, the American republic was doomed, guaranteed to be converted into a voracious corporate empire in a matter of a couple generations.
Centripetal Forces
Every major religion warns about the danger of usury, but the secular case against it is even more powerful. It is the most powerful centralizing centripetal force ever invented, and it steadily increases velocity to the point where life becomes nothing but a sprint in a hamster wheel to keep the debt system running. Over time, the simple math results in Wall Street centralizing an inordinate amount of wealth and power while the rest of the economy becomes increasingly indebted—precisely the situation in which we find ourselves today.
Wall Street centralizes wealth by stripping profit from the rest of us who create real value. For example, if farmers make 5% profit, but have to borrow at 5% to fund their operations, they go out of business and the debt owners behind the banks collect all the profit. That is why family farmers no longer exist, while bankers are so well paid for pushing debt around that they buy the farm land and rent it back to the farmers who were driven off of it.
At a 2005 political rally, a divorced woman with three kids told President Bush she worked three jobs in order to fund her family (an example of the extreme velocity of our system) and wondered what he could do about it. He said “Uniquely American isn’t it? I mean that is fantastic.” Wow. Fantastic that it is becoming impossible in modern America to earn enough to feed a family no matter how many hamster wheels a parent spins? No doubt like most politicians Bush has no clue what the problem is, but his ignorance about money and credit makes him an apologist for the monetary system and the Wall Street cartel. When one parent working a standard job fifty years ago made plenty to feed a family, this debt system has brought us to the point where many citizens of supposedly the wealthiest, most advanced nation on earth cannot thrive, let alone survive, without having multiple jobs.
Financiers and their cheerleading press like to scream that this is petty populism. No, it is simple math, math that greatly benefits the top of the hierarchy while impoverishing others. But empathy for those others should compel us to wakeup and recognize the fact that the American republic and many communities around the world are on their deathbeds thanks to an empire system built on debt. Naturally financiers will try to use their platforms like CNBC to shout us down, but it is time to shut them down.
Exponential Growth
Due to its compounding nature, having interest attached to all the money in the system creates the need for exponential growth. It must continuously expand. This is why we have seen so many developing countries conquered by debt in the last several decades. A steady state is not possible. Neoclassical economics inexcusably ignores this by implying that our system is driven by production and money is simply a medium of exchange that facilitates it. On the contrary, the very nature of the debt-based money pumped out by Wall Street and the banking system requires growth. We see such growth in ever-expanding shopping malls, ever-decreasing quality of franchise food, ever-increasing number of manufacturers moving offshore to find lower cost labor, and many other ways. These are bad enough. But if growth is not driven by real production that can maintain more stable levels of debt, how else can the system grow?
Credit inflation
An illusion of growth can be created by simply issuing more debt. This is called credit inflation, which is for the most part the type of growth the US economy has experienced ever since 1971 when the dollar was changed to allow for infinite credit inflation. If the banking system is viewed as a casino, credit inflation is passing out extra free chips to everyone, which makes people think they are more wealthy. It certainly makes the casino, i.e. Wall Street, more wealthy as they extract their rigged profit from an expanded game with far more chips, but the reckoning with the truth eventually comes when everyone else tries to cash out their chips. The money will not be there. This is what the world is facing as we approach a massive deleveraging decline in the economy.
Credit inflation spirals total debt out of control because more and more must be borrowed in order to payback all the interest in the system. It is not hard to understand the problem with such a pyramid system—it crashes. Is should have crashed in the 80’s, but the financial system worked overtime to prevent it. Government then changed laws in the 90’s to prevent it again by allowing Wall Street to engage in chicanery that created a near infinite amount of credit inflation—the fraudulent derivatives market. The Wall Street / DC axis of power colluded throughout the 2000’s to continue preventing it.
The Reckoning
After so many years of kicking the can down the road with false growth, a reckoning is now upon us. Credit inflation by definition results in deflation. People are getting ready to leave the casino. Everyone will be in a mad frenzy competing to cash chips in for real value. The last significant deflationary period, the Great Depression, resulted in WWII. One can only imagine what we will face in the next several years.
One aspect of the future that is becoming increasingly clear is the return to something akin to two-tiered feudalism—most of the population, small businesses, and governments awash in debt vs. the small group that benefits from it. This includes the debt owners, their Wall Street servants, their DC servants, and the top echelon of the multi-national corporations that cycle the debt. David Brooks says pointing this out is divisive. Sure. Just like pointing out the difference between slaves and owners in the old South was divisive. Surely he would not be an advocate for the owners back then. Why is he now?
Again, it is not politics, but the simple math of this empire system that rewards those at the top at the expense of almost everyone else. This is why a guy in a power suit who moves numbers back and forth like Jamie Dimon can make $17 million sucking value from the Americans who are losing their jobs, their homes, and possibly their country for good if nothing is done. Such skewed math is the basis of debt servitude, not a free market. Conservatives need to examine this truth and stop cheering for the debt lords, and liberals need to stop supporting the big government that keeps them in power.
Nothing will ever be done at the federal level—both parties are hopeless captives. The solution is to reconstitute local communities because they are self-sufficient, not dependent on the corporate system, and therefore capable of living without the Wall Street mining operation above them. Moreover, state and local governments need to reassert their autonomy and spend money into the system, rather than borrowing it from banks, in order to escape debt prison.
Damon has had two fairly different lives—one as an overachiever serving the financial empire, and another as a hopeful advocate for the victims of the empire: local community, indigenous population, the American republic, and the individual heart. He graduated from the United States Military Academy, served as an officer in the US Army, then graduated from Harvard Business School, took a short detour on Wall Street, and had a career in Silicon Valley in several leadership positions in technology corporations. Since leaving empire service, he became a mountaineer, attended Mars Hill Graduate School, and now works toward redemption as a writer and post-neoclassical economic philosopher. See the beginnings of his course on Renaissance 2.0 here.
Damon can be reached at: strabes23@gmail.com
