Thursday, March 08, 2007

The State

Never has Franz Oppenheimer's view of the state been more clearly on display: it is there to dominate, exploit, and protect itself against any challenges to its power. It clings to power like Gollum holding the ring. And that power is deployed, not for the ostensible purpose of protecting people but for protecting the state and its interests. When Oppenheimer theorized in 1908 that this was the true nature of the state, he was shouted down and pilloried for denying the doctrine of government as a social compact. Today his claims read like a description of the day's political news.
From the Romans to the Fourth Crusade, and their Venetian and French aggressors, to Genghis Khan to the Spaniards and Napoleon and the Brits, Bonner and Wiggin teach us the lessons of empire, with learning and irony. "A great empire," they note, "is to the world of geopolitics what a great bubble is to the world of economics. It's attractive at the outset but a catastrophe eventually."
And this raises a very important point about the reform that everyone seems to agree we so desperately need. We hear about the need for new laws, a new Contract with America, a new class of politicians, or a constitutional amendment. Folks, we've been through this many times. These are diversions. What we face is a massive institutional problem. It is not surprising that we are ruled by a government that wants to spend ever more money to buy votes and rule an ever-larger roost. The mystery that needs explaining is how they come to get away with it.
Corporations can run high amounts of debt, as can state governments, but those debts must be marketed on the free market, and they carry a default premium. Corporations that are irresponsible face punishment in the markets. States that go too much in the red are threatened with bankruptcy.

Not so with US government debt. Interest rates are set by markets but they closely track the rates that the Fed charges to its member banks. The risk of holding federal debt, as everyone knows, is nearly zero, which is perhaps the only reason that anyone holds it at all.
On that last sentence:

Regular readers know that's not true
any longer
and goes far beyond US
borders as you can see.

Now the question becomes, since
everyone thinks government debt
risk is near zero (everyone's holding
it for that reason) and it isn't....what
might be the result of that?

Now think about that...very carefully.

Later on in the article Lew advocates
a gold standard on currency.

That's been done before and failed.

There is only one way to replace
currencies with gold or any other real
money: after most currencies hit the
bottom of the crapper. At least, that's
what it appears to me and that means
it will happen from the bottom up,
i.e. when everyone starts "voting" with
the replacement, absent direction from
on high.

There is a very high probability that
means great suffering for all who don't
see it coming.
Highly recommended.