My last post, “Ignorance is Death,” seemed over the top: Like most of you, I’m conditioned against taking alarmist messages seriously. It’s the ostrich syndrome, and I plead guilty to being as human as, well, nearly everybody else.
But now we need to pull our collective heads out of the sand, because we’ve just received a swift kick. Jamie Dimon, the top banker at JP Morgan has stepped up, with just four days to go before we default on the national debt, to tell us that the consequences of default are far more serious than we can possibly understand (here):
“You don’t want to know,” Dimon said when asked what would happen if the US is forced into default because Congress did not raise the country’s borrowing limit.
“It would ripple through the world economy in a way that you couldn’t possibly understand,” he said at a discussion held by the Institute of International Finance, a leading forum for the world’s banks.
He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.
“You don’t know the ripple effect of that through money-market funds,” stressed Dimon, head of the largest US bank by assets.
Of course, he’s right, except about what is “possible” to understand. The scary thing is he waited until the very last moment to try to call off the attack dogs. The Tea Party was useful to Wall Street, as long as its anarchistic insanity kept intelligent people from interfering with Wall Street’s gravy train. Ah, but this time the dogs have gone too far! Gee, that’s not what we had in mind!
Imagine the institutional inertia that kept Wall street bankers in line, all this time, as they watched their own personal fortunes grow by the billions. The strange thing is, they fell under the spell of their own propaganda, believing that the dollar truly is invincible. But now the house of cards is in serious trouble, and Dimon knows it.
Here’s what scares me: Dimon himself may not even realize the full extent of this unfathomable problem. He may not fully grasp the true nature of the national debt: It’s a bubble, like the housing bubble that drove us into depression in 2008, but it’s much, much bigger and will have much bigger international repercussions when it pops. The $17 trillion national debt financed top 1% tax reductions, and the addition of some $22-25 trillion to top 1% wealth (in constant dollars), over the last 33 years.
The national debt is, in effect, a “top 1% wealth” bubble. There’s no real wealth beneath it, just speculation that the U.S. could and would keep honoring, and propping up, its debt indefinitely, even as U.S. real growth continued to shrink and the bottom 99% depression deepened. That is, in effect, what Dimon has just confirmed:
“He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.”
The real borrowers are the top 1%, top .1%, and especially top 0.01% financiers who hold most of the debt and nearly all of the proceeds. Taxpayers pay the interest. These are things, I’m quite certain, Dimon understands.
So thanks, Jamie Dimon, for getting past your own personal love affair with capitalism. We mustn’t think that he’s just miffed because his salary, having just been cut in half, is now only $23 million. He’s genuinely concerned, I believe, for the security of the remaining half of his salary.
The rest of us, of course, will lose much of our wealth too, to the extent we have any, and our sources of income (like jobs, pensions, Social Security) will also falter. This is an endemic problem, and the ultimate day of reckoning cannot be avoided just by avoiding default on October 17. One thing should now be clear: The insane law that allows (no, requires) Congress to frequently reaffirm that it will honor the obligations it has undertaken on behalf of taxpayers must be scrapped, forever. Responsible citizens of other nations must regard the debt ceiling as sheer madness.
There’s still four days to go. Watch for many more of the Wall Street crowd to step up Monday and Tuesday, as it dawns on them that they could lose everything they have “worked” so hard to achieve. Many will not grasp the flaws of their “neoclassical” economic perceptions, or even the full bankruptcy of their “trickle down” and “austerity” fantasies. But they will see the handwriting on the wall.
JMH – 10/13/2013 (8:59 a.m. EST)