The U.S. economy came "very close" to collapsing into a second Great Depression and the government had no alternative to bailing out financial firms, former Treasury Secretary Henry Paulson (pictured left) said. "There was a time when the credit markets had essentially frozen and when blue chip industrial companies were having trouble raising money," Paulson said in an interview today on Bloomberg Television. "I knew then we were on the brink." "We easily could have had unemployment of 20 percent," he said. "That would have meant millions of additional jobs lost, millions of additional homes lost, trillions more lost in savings. It would have been terrible." Paulson, who has just published his memoir, "On The Brink," said he understands the criticisms of the bailouts of financial institutions such as Bear Stearns Cos. and American International Group Inc. "In this country, none of us like bailouts," he said. "I hated the things we had to do. But they were far better than the alternative." The former secretary said it was harder for policy makers and legislators to deal with the crisis, which deepened after Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008, because it came just before the election. – Bloomberg
Dominant Social Theme: He needed to do what he did.
Free-Market Analysis: What exactly did Paulson save? From our point of view, he purports to have saved a financial system that is driven by fiat money and distorted by central banking surges. Not a real financial system in other words, but a false-mimic of one that has gradually been put in place decade by decade by subterfuge over the past 100 years. Call it a fiat money economic system. Or a central banking economy. It is not the same as real market-driven one using money stuff with real value dug from the ground.
Once a society has adopted a central bank, it is never the same. It changes, and not for the better. Our Brownian friends will argue that a public central bank under the control entirely of the state (and directly responsible to citizens) is better than a central bank run by a private banking cartel. But ultimately giving any entity the power to print money without end must lead to corruption, inefficiency and eventually distortion of all elements and instrumentalities of the state. It cannot be otherwise. Power corrupts and absolute power corrupts absolutely. (It just may take a little longer).
Here at the Bell, we are proponents of free-banking. We believe in any and every non-state solution to the creation and circulation of money. Yet we are proponents of honest money as well. Historically, when free-banking is implemented, it is accompanied by a private gold and silver standard. In fact, this sort of solution was the one that was adopted by citizens of the initial "united States." We would argue that it worked fairly well in many cases, despite the inevitable distortions inflicted on it by states and municipalities.
Before the advent of an American central bank, and certainly before the Civil War, America had a much different – and far more private – economy than it does today. Schools and healthcare were private, aged individuals were supported by their families, small farms were prevalent, entrepreneurialism was welcomed, taxes and regulation were low or non existent and even large industrial efforts were easily identifiable as family owned. Even the military was considered a communal element, not to be usurped by the federal government with a standing army – volunteer or not. This profile, in fact, can still be seen here in Switzerland which values small farms so much that it actually has passed legislation favorable to their survival.
But America has moved far away from its republican roots. Today, schools and increasingly healthcare are publicly funded and controlled by the federal government. Farming is in the hands of large conglomerates as are industrial enterprises – increasingly globalized – and taxes and regulation are almost at a point where the larger society is paralyzed. Increasingly Americans operate in a gray "cash only" market where regulations are avoided whenever possible, along with taxes. Central banking has funded a huge military industrial complex that has allowed the Anglo-American empire to project its power and corporate interests far abroad. Central banking has also contributed to the rise of the casino economy in which individuals attempt to get wealthy, or prepare for retirement, by timing the booms and busts of the stock market.
The most grievous cost is not to America's collective health care, education or even its finances – but to American internal life. And this could be said of citizens throughout the West. The jobs that are available are those that the state itself allows to exist. Inventions are suppressed – if possible – if they pose a threat to the existing order. Individuals' interior life, the ability to plan and prosper within the ambit of one's own society and culture, is severely restricted.
The Internet itself has provided a much different perspective on how the world works – or can work, within a republican environment that is actually implemented rather than merely paid lip service to. In a free-market society with common (private) law, utilizing private solutions for education and health care and other human services, entrepreneurialism would once again flourish and familial enterprise – as opposed to corporatism – would likely become the preferred model. Taxes would not be needed for the most part – as industrial solutions would be private – and regulations would not be necessary as disputes would be settled personally or through private justice.
Paulson did not save the "American" economy. He saved an economic enterprise that is a direct result of a central banking distortion. The booms of central banking money printing have empowered government solutions, allowed for the creation of a military industrial complex and continually squeezed out the vital American private sector that was responsible for the American miracle in the first place. Paulson saved a system of banking mercantilism, dependent on fiat money and cronyism.
It is an increasingly jobless system. And many of the jobs it throws up during the "boom" part of the boom/bust cycle are as insubstantial as the bubbles themselves. It is, in fact, a sad comment on the state of affairs in America especially that more do not understand that the economy they have is in a slow motion collapse. Paulson did the average man and woman no favor by salvaging the trembling remnants of central banking and fiat money. It is a false system based on inordinate money stimulation but not much else. There are more crises to come.
The wreckage of such a system would, in fact, provide the foundation and nutrients for a re-establishment of the kind of free-market-oriented economy that the West enjoyed (to some degree) before the advent of the central banking era. The Internet is gradually revealing this truth to a surprised and grateful populace. As it does, more and more realize they are living a lie and that there is a reason that their dreams have shriveled and their professional and personal lives have been distorted by the exegeses of modern life. This is the true cost of fiat money and central banking – the endless, silent agony it inflicts on those who continue to suffer under its terrible, merciless regime.