The welfare state has failed. All western welfare states are on the verge of political and economic collapse. All are insolvent and incapable of meeting their obligations. As shown here, the mathematics cannot work without massive defaults.
Political leaders, almost universally, are unwilling to accept this reality. Power has aphrodisiac-like properties. Once attained, more is desired. It is rarely relinquished willingly. Dismantling the welfare state is relinquishing power. It is not likely to happen smoothly or before political and economic failure.
The world is at a dangerous juncture. A confluence of failures has never occurred before other than from world-wide plague, famine or far-reaching wars. Breakdowns in arguably the most civilized societies are going to occur. When they do, war and other apocalyptic outcomes are possible. Confusion and mayhem present opportunities for rogue nations and non nation-states.
The above is a simple description of the state of our world. As people, investors, taxpayers or whatever other roles we play, it is our reality.
How Did We Get Here?
The common cause in the impending sovereign disasters is the welfare state. Lord Acton pointed out the dangers of power in his universally-recognized quote “Power corrupts; absolute power corrupts absolutely.” This aphorism explains why both written and unwritten constraints on elected officials were considered important.
In order to acquire excessive power, these constraints had to be circumvented. Enter Otto von Bismarck who “invented” the welfare state. This relatively recent concept provided the vehicle for massive government expansion. As Bill Buckler succinctly described it:
… the welfare state is the mechanism which makes government depredations acceptable to the public.
The welfare state was sold as an improvement in citizen conditions. Promises were made that would improve everyone’s circumstances. The welfare state institutionalized what Bastiat warned about:
The State is the great fiction by which everyone seeks to live at the expense of everyone else.
Bastiat’s warning appeared over 150 years ago. It pre-dated Bismarck and provides a nearly perfect description of the modern welfare state.
The welfare state quickly became a Ponzi scheme. Whether that was Bismarck’s original intent is irrelevant. It was abused by the ruling class to buy votes and enhance power. As described by Mr. Buckler (his emphasis):
This mechanism can “work” – for a while - but the result is that there are more people dependent on the State than there are people who are able to create the wealth on which the State depends. This situation is inherent in all welfare states, approaching in most of them, and already here in one [Japan].
While the welfare state has failed as a sustainable economic entity, it succeeded in aggregating enormous power for the ruling elite. It is the single cause that produced our current economic problems. Keynesian economics deserves blame, but it was merely a “useful idiot,” a tactical tool that enabled the power elite.
The welfare state is now exhausted. It is in the process of imploding and shattering the myth that government can solve all (or any?) problems. According to Tyler Durden, its collapse
… will expose the “depredations” of developed world governments for all to see, without the benefit of the cloak of the insurance provided by “welfare state” premises, which made the wealth transfer of 7 generations acceptable to those who knew they could extract at least something in exchange for the fruits of 140 years worth of labor.
Where Are We Now?
The Ponzi scheme is about to collapse. It will fail, but not before government exhausts every conceivable option, no matter how useless, harmful or outrageous. Surviving is all that matters for this wounded animal. Deferring the collapse is all important because once it occurs, the game is over. Citizens don’t count. The power privileges of statism are what must be preserved. The US government is at the point where lying, cheating, stealing and perhaps worse are acceptable. Survival is the end that justifies all means.
When political perspectives are accounted for, many of the irresponsible actions of the past couple of years can be understood. The bailouts that citizens almost unanimously opposed provide an example. Citizens were correct, but they were viewing matters from the standpoint of the country. Politicians, the decision makers, view matters in terms of their own self-interest.
A system collapse would reveal the corruption and plunder by government and its cronies. It would terminate the welfare state, dramatically reduce the size of government, slash political power and possibly result in jail terms for many elected officials. The ruling class will do everything to prevent that from happening, regardless of the consequences for the country.
Where Are We Going?
What is happening has little to do with solving an economic problem. Oh, it would be nice if it that occurred, but it is a secondary consideration. First and foremost is the survival of the ruling elite. They intend to extend their reign regardless of the unnecessary additional pain imposed on the country.
Quantitative Easing (QE) is the current policy. It is marketed as a way out of our economic condition. It is not. It is the sign that we have reached the endpoint where collapse could occur any time.
QE is nothing more than a euphemism for inflation. It is the last gasp of desperate government. QE is lying, cheating and stealing. It makes each dollar worth less. It cheats every saver and steals from every person living on a fixed income. It eventually wipes out the middle class of a country.
If it were really possible to substitute credit expansion (cheap money) for the accumulation of capital goods by saving, there would not be any poverty in the world.
It is irrelevant to consider whether Ben Bernanke is stupid or lying. He works for the state and must maintain the myth that the state can cure the economy. He cannot announce that we have failed and are out of options. It does, however, appear that Mr. Bernanke knows that QE will not work. He and Alan Blinder co-published a paper that Washington’s Blog referred to with the following title: “Bernanke Knew Back in 1988 that Quantitative Easing Doesn’t Work.”
Mr. Bernanke has as much influence on the economy as the Wizard of Oz. He can do nothing at this point except make matters worse. Yet he dutifully must play his Wizard role and attempt to buttress the rapidly disintegrating myth of government.
Even if we were in an economic boom, QE would be coming “good and hard” as H. L. Mencken was fond of saying. The government is broke. It is unable to pay its obligations. Current spending, tax revenues and the ability to sell Treasury Bonds cannot cover the shortfall. Revenue sources cannot be increased and spending will not be decreased.
Deficits cannot be financed other than by the Fed buying securities (QE). The Federal Reserve charade about QE is to disguise the fact that we have reached the endpoint of the welfare state. We are out of money. As Mr. Durden points out
… the economy of the western world now functions strictly on an auction to auction basis (or, as is better known in layman’s terms: “living paycheck to paycheck”): a state in which the US Federal Reserve and the global central banking cartel is responsible for making sure that not one hint of possible bond auction failure trickles down to the broader population.
QE has nothing to do with the economy. Without QE, social security checks, medicare reimbursements, welfare payments, etc. stop. QE is nothing more than a last-ditch effort to extend the fraud. Years of over-promising and overspending have pushed the government to the Ponzi-break point.
In a non-political world, the solution would be simple — drastically cut government to an affordable size. That will not happen within the normal political process. Citizens won’t accept it and politicians won’t do it. Too many citizens believe they are entitled to live at the expense of others. The welfare state has destroyed the concepts of personal responsibility and accountability for many.
The economy must crash before real change occurs. This economic tragedy appears to be coming sooner rather than later. It is “good” news in the sense that less damage will have to be repaired. The cleanup and caging of Leviathan should begin sooner rather than later.
The dollar is apt to be destroyed as government tries to survive. That would mean hyperinflation. Civil unrest, break-down in markets and metropolitan lawlessness are likely under any crash scenario.
Other welfare states in the world face the same outcomes. Hopefully the transition period is short. More importantly, we must transition government back to its original conception. Otherwise we risk the loss of all freedom and life under totalitarian rule.