Let me start by acknowledging that the theory I'm about to present is very ambitious, and thus I recognize that many readers may not agree with it. However, I'll start with the proposition that past is prologue, in this particular case.
If you look at this graph by Calculated RISK you will get a visual representation of the stark difference between the current recession and all others after the Great Depression. This latest recession (caused by the 2008 banking sector collapse) is the worst recession, by far.
Now, take a look at this graph by The Washington Post. You will see that "The top 0.1 percent of the population (those making about $1.7 million or more) saw the sharpest increase in income share, taking home 2.6% of the nation’s earnings in 1975 and 10.4% in 2008."
Towards the end of the award-winning documentary Inside Job the narrator asks the most important question: Given the opportunity to make an exorbitant amount of money in the short term, versus a more moderate amount in the long term, which options would top banking executives select, when the short term bonanza also means the demise of the companies they are in charge of?
Well, by the time the question was asked in the documentary, it had already been answered. They would choose to exploit their companies for the sake of exorbitant short-term profit (for themselves), and would happily walk away from the disaster, and let others clean it up; which is exactly what happened.
I argue that, in a way, during the last several decades after the Great Depression, all recessions have coincided with the growth of income inequality between the rich and the rest of the population. So much so, that income inequality is now at par with what it was during the Great Depression.
But now there is a key difference, that does not bode well for what is left of the American democracy (which is not much).
Let me use the 2008 financial crisis as a stepping stone for the theory. In a nutshell, Wall Street devised a convoluted shadowy trading market that consisted in combining mortgage loans into investment instruments. The key here is that the people who devised this system benefited (in the short term) by the fees generated by the sale of those instruments, regardless of the quality of the underlying mortgage loans.
So volume sales became the name of the game, and thus they pushed hard to increase the volume of sales of the collateralized mortgage obligations.
This situation could also be looked at as when a virus infects the bloodstream; the bloodstream being the global financial system. And the thing is that the virus is very much alive and well, and it's about to finish off bringing down its host.
Transferring Losses to The State
But here's the brilliant part of the strategy. As long as there was a separation between the public sector and the private sector, the risks to either one could be contained.
But during the last several decades, through a very careful, calculative, and brutally effective campaign aided by think tanks like the American Enterprise Institute, CATO, The Heritage Foundation, a myriad of corporate public relations firms and their fake, astro-turf "grass roots" organizations, and the subsequent corruption of every government institution, from the entire Congress, to the presidency, to judges, they were able to create a system where profits and earnings would flow (at an increasingly fast pace) to the ruling elite, and risks and losses were transferred to the taxpayers.
This is important because this situation, which is where we are today, was the main objective of the right wing think tanks.
Other ancillary changes (that are part of the strategy) include curtailments of constitutional protections, privacy, corporate personhood, and the redefinition of corporate money as free speech.
So now, having perfected the system, we will see a more clear connection between financial systems collapses and rapid accumulation of wealth and power at the top.
So with every shock to the system, the governments are weakened, as the rich and powerful get stronger. With every collapse, government institutions are weakened and then you see a strategic move by the "private sector" to acquire more and more public sector assets, thus privatizing a bigger and bigger portion of the government. Akin to drowning the baby (government) in the bathtub.
So you'll see privatization of the justice system (with private jails, private judges, private non-union guards, etc.); the sell off of buildings; bridges and tolls; parking meters; parks. You'll privatization of police departments, schools and education, etc., etc. The list will continue to accelerate.
The logical conclusion of this trend is of course a nascent neo-feudalism where a very tiny elite will have control of all the levers of power, including finance, education, the justice system, the media, the market.
Based on this theory is that I am projecting (or predicting) that there will be another catastrophic financial collapse (or a series of shocks) before the 2012 election, and beyond.
I see the current fake, phony, debate about the debt ceiling in this light. It's just part of the plan.
If this turns out to be accurate, then next month we are going to see another major shock, fear, confusion, chaos, as the U.S. and world markets react to the crisis manufactured by the Republicans (and enabled by the Democrats).
I've debated this view with very smart people, and one thing they always tell me is that they believe I am wrong because the rich are not that stupid as to create chaos on purpose. They argue that the rich need a strong middle class to buy their products; they argue that the rich will also suffer when there is a financial shock to the system.
I argue that that mindset is unduly influenced by fear. They can't get their heads around the possibility that by creating a financial collapse that plunges the country into a crisis, the rich will actually acquire more power and influence. Because this thought is unfathomable.
But until the reader realizes that the rich (plutocratic elite) has devised and perfected a system whereas, number one, they benefit both in an up market and a down market, and number two, all losses created by financial shocks have the effect of destroying the public sector (or government), it would be hard for the reader to accept my premise.
I think that the scenario I present here is going to become more clear with every passing week.
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