by Victor Davis Hanson
Greek Bonds, Anyone?
The world is getting a little edgy when very few investors are willing to buy Greek bonds — given what they know about Greek politics and productivity. And so the interest rate has soared on ten-year-yields to above 7.5% — a chase-your-tail scenario, in which the bankrupt Greeks will have to increase the interest rate to attract capital, that in turn will go so high that they, the Greeks, will not be able to pay the debt, that again in turn will frighten bond buyers even more, that, of course, will send rates even higher.
California, take note. Some Stanford economists and analysts just refigured the cooked books at the various California public pensions and found a $500 billion shortfall. The state is already broke. Its taxes are the highest in the nation, the flight of its wealthy per week unsustainable — and its teachers apparently (please explain this?) furious that their salaries are the highest in the country and their students among the worst. So we either float more bonds, or ask retirees to take a cut or freeze. The latter is not even being discussed.
Who Said You Owed Anything?
Chris Dodd is pushing a multifaceted credit card bill that probably will up rates on all to allow some more deserving to refigure their debts. (I hope not in the fashion that Chris Dodd gets mortgages, or Timothy Geithner pays his FICA, or Barack Obama buys a lot, or Tom Daschle reports limo perks or Charlie Rangel adds up vacation rent). Dodd’s effort is a sort of relish to the administration’s own plan to ensure that some underwater mortgages (note, I said “some”) won’t have to be quite paid off.
I think you get my drift with these examples. If you don’t, just note whom Obama serially demonizes — doctors who lop off too much, insurers who are just too greedy, CEOs of non-government-run companies who jet to the Super bowl, “fat cat” bankers, and so on — and whom does he worry far more about: anyone who was forced by the system to take out a debt and is again forced by the system into not paying it back. No wonder the Greeks are scrambling to find ways not to pay back their gargantuan debt.
Trust — How Quaint?
We are not just in a war on those who have capital and loan it to others, but a war on the entire sinews that hold together the modern system of global finance — trust.
Following the Greek explosion, we heard of everything from fraudulent bookkeeping to the German responsibility to pay more reparations for World War II to the dangers of belt-tightening. All were euphemisms for Greeks to find ways of not having to pay back what the government freely borrowed — essentially to pay millions of unionized Greeks at work and in retirement. So where is all the money? Long ago spent on salaries for millions to do little, who now want more from those who do a lot (e.g., Germany)
The New Versailles
The problem is not just the old “big government.” The public is now more focused. They are reifying “government” into millions of public workers and their technocratic overseers: all are far better tenured, salaried, and pensioned than their counterparts in the private sector. They are the new court hordes at Versailles. And we know their numbers have expanded almost geometrically, far faster than both the rate of inflation and population growth — most as rewards for paying off constituents, expanding the block of loyal entitlement-receiving voters, and in general ensuring a sort of pandemic government dependency in which 20 percent of the nation receives all of its monthly money from the government and another 20 percent receives most of it.
From what the administration announces almost daily, from the radio ads blaring now in the popular culture, and from congressional promising, I think I get the new narrative. “Trust” is an archaic construct established by capitalists to ensnare the more noble poor. When you buy that blue-ray DVD player or plasma TV (saw lots of that today at Best Buy in Fresno), in lieu of a catastrophic insurance plan, and add to it a night out at the Macaroni Grill and the multiplex, it is not all that certain you will have to pay all of that charge back. As you go from one maxed-up credit card to another, there will be a new company waiting to renegotiate your debt, and a demagogic congress person to explain why you were snookered into doing what you did.
“Walking away” is suddenly not defaulting, but a smart move when the house you were betting would go up went down in value. Note that we didn’t have any law suits five years ago against new “greedy” homeowners who woke up each year with thousands of dollars in “equity” that magically appeared out of nowhere. No one wished then to sue the speculative homeowner that banked rightly on his investment; instead, on the way down is where we get the human interest stories about greed — and the need to violate the trust of an obligation. It is all sort of analogous to the Old West stereotyped saloon scene, in which the confident would-be card player struts up to the card game, starts losing, and then overturns the table, guns blazing.
Cuts for Thee, Not for Me
There are dangers to all this. Soon California will begin to realize that it either can drive out everyone still left who makes good money by raising more taxes (beyond the existing highest sales, income, and gas taxes in the nation), or can renege on what it owes bond holders, or will have to furlough its work forces far more days per month. (But note we always cut parks, playgrounds, patrol cars, and jails rather than the Assistant III social worker counselor or the Deputy Director of the Migrant Reentry program.)
And the call from our public employees (I was one for 21 years and so know well) will be for the state in extremis either to violate its trust and not pay contractors, or not pay bond holders, or not pay almost everyone, before cutting spending on public employees. There are most certainly millions of government workers, each able to explain why his job is essential, why he is far better than his counterpart in private business, and why all those millions of rich locusts that blacken the skies with their Gulfstream 550s could make all this present nastiness go away, if we just went after them and got more of our money they stole. The noble aims of the many justify the means of meeting them.
We forget that the cry throughout most of classical antiquity when city-states and republics reached a Greek-like, California-like crisis, in which there was not enough money to pay people any more to go to the theater, or to vote, or to put on a play, or to receive free food and entertainment was “cancellation of debts” and “redistribution of property.” The tyrants to Catiline made careers out of that for a half-millennium. The usual ancient antidote to insolvency was to violate trust: Coin more money of cheaper metals, cancel debts, and divide up the wealthy estates.
So again, these are dangerous times. There is no one in this administration reminding Americans to purchase wisely, not to take on debt that they cannot service, and to remember that no government of any size, especially not one as bankrupt as our own, can solve self-created miseries. Instead the 24/7 megaphone is essentially, “It is not your fault you can’t meet your mortgage, pay off your credit card, pay your taxes, pay for your college, or buy catastrophic health insurance, and we are going to rewrite the law to make sure we can get you even with all those who did those things to you.” (Has anyone heard Obama state exactly how we are to pay back the soon to be reached $20 trillion in debt? Has he mentioned a payback plan yet or much of anything other than promising more borrowing to more constituents?
In short, in just 14 months we have redefined trust and “debt”. Forget the old capitalist definition:
Debt: An amount owed to a person or organization for funds borrowed. Debt can be represented by a loan note, bond, mortgage or other form statingrepayment terms and, if applicable, interestrequirements. These different forms all imply intent to pay back an amount owed by a specific date, which is setforth in the repayment terms.
Try this the new egalitarian improvement:
Debt: An amount of now non-essential capital supposedly “owed” to a wealthier person or well-off corporations for past life-saving borrowing. “Debt” is accrued by a system of entrapment, ostensibly manifested as a “loan”, “note”, “bond”, “mortgage,” or other efforts at coercing repayment through usually illegitimate terms, and usurious interest demands. These different forms all force one pay to back an inflated amount owed by a completely unreasonable date, which was hidden carefully under the repayment terms of extortion.
Everything is now up for grabs and negotiable; there is no real debt, no trust anymore that we cannot look to government to readjust.
©2010 Victor Davis Hanson