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America Makes Money The Old Fashioned Way -- We Steal It From Children.

In America as in the third world elite business interests — financiers, in the case of the U.S. — played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse.

Simon Johnson
MIT Economist

Washington

Problems Of Our Own Making

America -- When Illusion Turns To Reality

The problems confronting Western civilization today are immense. They will be solved, but at what cost we are yet to learn for the ramifications are so immense that it will take decades for the final echoes of change to subside. Only then will we know what the new reality shall be — for the death rattles unleashed by what promises to become a tsunami of reality will impact everything, everyone and every generation.

The underlying causes for the collapse of international finance and trade are widespread ignorance and failed governance. In large measure our ignorance is due to failed education, failed journalism and failed moral underpinnings — all of which led us to prefer illusion to economic reality.

Resetting, repairing and restoring the world promises to be extremely painful and excruciatingly slow. That’s because deeply entrenched beliefs and attitudes favoring abdication of reality first complicates, then delays recovery. The early steps taken by both the Bush and Obama administrations were to borrow more money to solve our massive debt problems.  That’s abdication of reality big time for it demonstrates how powerfully we cling to the notion that we can pay our way in the world by borrowing that transfers our problems to our children and grandchildren.

We want to believe rules governing society apply to some other society, not ours.

The reality we seek to avoid is that our problems are entirely of our own making. While it is easy to accuse miscreant bankers, financiers and greedy corporate interests who were collectively responsible for the credit market collapse, it is far more difficult for most Americans to grasp the role we played, as individuals, in creating and/or sustaining illusions.

Reality Is The Best Medicine

The cure for what ails us is not only painful, it will take years to accomplish — for only when each of us has felt the pain will we be able to reconcile what we believe with what is real. Consider these examples:

Beliefs Colliding With Reality

• We want to believe in the illusion of permanent prosperity.
• We want to believe in the illusion of personal achievement absent personal commitment.
• We want to believe in the illusion of debt being the equal of productivity.
• We want to believe that we can still get a bigger piece of the pie for ourselves without collectively making a bigger pie.
• We want to believe that we can elect politicians based on one iconoclastic idea, notion or belief system and expect that whomever such thinking puts in office will work for our benefit, not his.
• We want to believe that we can prosper by spending, not earning.
• We want to believe that government that sends us money our children will have to pay is good government.

Live Well, Let Your Kids Pick Up The Tab

Next time you see a gaggle of elementary school school children waiting for their bus, or playing nearby remember that they are being systematically robbed of their future economic security by you, not some school yard bully.

Work is hard. Borrowing is easy. Solving problems is far more difficult than ignoring them. As a nation we want to believe rules that govern society apply to some other society, not ours. And that the money we so easily and foolishly spend, but do not have, is somehow free money. There ain’t no such thing.

So look your child in the eye tomorrow morning and tell him what you’ve done. For it is you, me, us who have spent $20,000 of your child’s money so we could live more ostentatiously. Be sure and thank him or her for their generosity. Being children they’re still young and innocent, trusting of family, and already deeply in debt. Next fall an average first grade class will show up at school owing well over a half million dollars. This is not what responsible adults do to their children. Is it?

But we did this to our children and we continue to do so.  Thank your kid for his $5,000 contribution to refinancing General Motors — and his $22,000 guarantee for the debts of AIG. You may not want to tell him that his  money has already gone to repay losses incurred by bankers and brokerages. Maybe you ought to explain that it’s best she be prepared to pay the part you’ve chosen not to pay.

Please Cancel My Subscription To Reality

Unfortunately we’ve come to expect easy answers, quick riches, all play and no work. But reality rudely interrupts us, ruins our businesses, debases our currency and robs from our children. Next time you see a gargle of elementary school school children waiting for their bus, or playing nearby remember that they are being systematically robbed of their future economic security by you, not some school yard bully.

Reality may be the best medicine for solving our problems, but none of us, especially our institutions, businesses, governments, legislatures, or politicians are ready clean up their act — they’re ready for someone else to clean up theirs. No vested interest will give an inch without a fight. Resetting, repairing and restoring the world promises to be extremely painful and excruciatingly slow.

Putting Out The Fire

One reality we must accept is that the world-wide conflagration that threatens our most cherished institutions and instruments of production has yet to be brought under control. The good news is that the fire department is on the scene. The bad news is that there has been substantial damage to livelihoods, institutions, government, social infrastructure and property — with more to come before the fire is extinguished.

We don’t know how long it will take to end the conflagration — or what will be left when the dust settles. But end it will once the firestorm at hand has run full course. Only then will we be able to assess the full extent of damage, or ascertain the structural defects in ourselves that fanned the flames of catastrophe.

Some of those defects are already known. We know, for example that western society’s belief system failed. There is no tooth fairy, no free lunch and that the laws of economics will not be repealed for our convenience.

Better talk to your kid about this since we’ve decided to let them pay for our collective unwillingness to deal with reality.

Jeffrey Slee and Richard Evans contributed to this article

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