Page 38


fissures in the economy between gold traders on Wall Street and the farmers of the Great Plains, for whom gold’s periodic deflations were ruinous. Beyond the Mississippi, it was long felt that, “By stealing its specie, the capitalists of the northern seaboard sucked the life out of the South and West.” Little wonder that William Jennings Bryan emerged from the prairie, as Brands writes, preaching “the gospel of silver:’ With money tied to something other than the inside trades of merchant bankers, both farmers and the democracy might not be nailed to a cross of gold. According to Brands and other historians, the American economic wars that started with the Bank of the United States ended with the Federal Reserve Act of 1913, which established an independent central bank with the power to regulate the money supply. In effect, Hamilton’s heirs won. In theory, the economy would no longer be the province of amateur politicians, but have on call the kind of financial savvy that J.P. Morgan brought to the table when he routinely saved markets \(and the counsions and the madness of crowds. Admittedly, the Fed and the Hoover administration made a hash of responding to the 1929 stock market crash they cut spending, raised taxes, and increased tariffs. Since then, according to the folklore of capitalism, the altruistic and independent Fed has avoided panics and ushered in numerous eras of good feeling, not to mention the sustained stock market rally that began in 1982. In this brave new world, we are all Hamiltonians, if not bond traders for Goldman Sachs. 0 verlooked in the euphoria that has turned the American economy into a Speculator’s Ball is the extent to which the democracy has been reduced to a hedge fund, leveraged to the same interests that Jackson went after with a stick. According to the annual reports of the Bush administration, the economy has gone from strength to strength because of the pluck and luck of its entrepreneurs, the self-regulating mechanisms of its markets, and the thrift of its citizens. My feeling is that the game is unchanged since it was practiced by the Jays \(Cooke dressed up as patriotism, and citizens are being taken for a ride \(perhaps on one of At almost every level, what is sustaining the U.S. economic miracle is Hamilton’s beloved debt. The federal government balances its books with paper laid off to Asian bondholders under the Faustian bargain that they buy our securities and we buy their exports. Domestically, the lender of last resort is not the Fed, but the U.S. consumer, sadly as innocent about speculators as Abraham Lincoln. In the last six years, to pump liquidity into the market, the government has not only run record deficits but laid off further indebtedness on its citizens, who have been forced to borrow against the equity in their houses just to pay for college. Mortgage debt is now almost $11 trillion, up from $6 trillion in 2001. More than half of this debt floats with interest rates, leaving borrowers exposed to a credit squeeze. The same is true of consumer credit, which in the last 10 years has increased from $1.1 trillion to $2.4 trillion. \(Popular T-shirt: “I can’t No wonder candidates for president are judged as collection agents. So long as the carousel of indebted prosperity keeps turning, consumers can buy a new car every few years, and the executives of major investment banks can pay themselves salaries and bonuses that routinely exceed $15 million annually. The winners from this great wheel of fortune are the financial intermediariesbanks, investment houses, hedge funds, and stockjobbersthat issue credit cards, securitize mortgages, collect monthly payments, package bonds to pension funds, and process payments at the mall. \(As Mark Hanna crowed when William McKinley was elected: “God’s in his heaven; all’s go-round stops, the well paid executives will have retired to Boca Raton, but citizens will be left holding IOU bags that put their houses financially underwater and their government hocked to the Chinese. At that point, leasing the country to Hamilton’s speculators will not look like much of a deal. Matthew Stevenson is a contributing editor to Harper’s Magazine. His books are available at . His e-mail address is: [email protected] freesurfch 26 THE TEXAS OBSERVER MAY 18, 2007