The Silver Curtain

The Silver Curtain

Courtesy of Marla Singer, Zero Hedge 

On the 5th of March in 1946, in Fulton Missouri, at Westminster College, Winston Churchill delivered an address (since christened the "Sinews of Peace") lamenting the burgeoning power and influence being slowly but surely gathered up by the Soviet Union.  Perhaps the address will be familiar to some of you owing to its most famous passage:

From Stettin in the Baltic to Trieste in the Adriatic, an iron curtain has descended across the Continent. Behind that line lie all the capitals of the ancient states of Central and Eastern Europe. Warsaw, Berlin, Prague, Vienna, Budapest, Belgrade, Bucharest and Sofia, all these famous cities and the populations around them lie in what I must call the Soviet sphere, and all are subject in one form or another, not only to Soviet influence but to a very high and, in many cases, increasing measure of control from Moscow. Athens alone — Greece with its immortal glories — is free to decide its future at an election under British, American and French observation.

Ironic, as I will address, that he should mention Greece.

Much less well known perhaps is this later passage:

Our difficulties and dangers will not be removed by closing our eyes to them. They will not be removed by mere waiting to see what happens; nor will they be removed by a policy of appeasement. What is needed is a settlement, and the longer this is delayed, the more difficult it will be and the greater our dangers will become.1

The "Iron Curtain" came, of course, to signify the cavernous ideological, and eventually concretely physical, divide between East and West.  It took some 43 years before it was lifted once more, first and haltingly, in the form of the removal of Hungary’s border fence in mid-1989 and then, of course, finally via the fall of the Berlin Wall in November that same year.

Not to be compared with a production of Italian Opera, the Iron Curtain did not describe a sudden, smooth, abrupt descent over the stages of Eastern Europe.  Quite the contrary, its drop was in stutters of discrete, fractional lowerings, such that it was a full fifteen years after Churchill used the term before its ultimate expression, the Berlin Wall, was finally erected in response to the emigration westward of a full fifth of East Germany’s population between 1950 and 1961.

Appeals to patriotism (or accusations of treason, the criminalization of abandoning the state "Republikflucht" and eventually the very credible threat of deadly force) did little to stem the tide of departures from the East until it was erected.  But, obviously, it is in the nature of confiscatory governments to fence in the subjects from which they wish to appropriate- whether the asset that fuels their lustful avarice is freedom or (merely) capital.  (As if there is a difference).

Is it not despicable when for the sake of a few alluring job offers or other false promises about a "guaranteed future" one leaves a country in which the seed for a new and more beautiful life is sprouting, and is already showing the first fruits, for the place that favors a new war and destruction? Is it not an act of political depravity when citizens, whether young people, workers, or members of the intelligentsia, leave and betray what our people have created through common labor in our republic to offer themselves to the American or British secret services or work for the West German factory owners, Junkers, or militarists?2

A copyeditor might change only five words in the above passage for it to be easily mistaken for the words of a democratic representative on the House floor before slipping into the Health Insurance Portability and Accountability Act of 1996 an amendment imposing confiscatory taxes on expatriating U.S. Citizens.

This last bit of déjà vu is interesting, and was not lost on foreign commentators.  When the United States tightened its grip on departing expats in 2008, the Economist went so far as to call it "America’s Berlin Wall."  The comparison is more than apt once one discovers §8 USC 1182 ("Inadmissible Aliens"), which asserts:

Classes of aliens ineligible for visas or admission
Except as otherwise provided in this chapter, aliens who are inadmissible under the following paragraphs are ineligible to receive visas and ineligible to be admitted to the United States: 

[…]

Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is inadmissible.

Just a few paragraphs away from the exclusion barring the admittance of:

Participants in Nazi persecution, genocide, or the commission of any act of torture or extrajudicial killing…

You know… Republikflucht, Nazi persecution… same deal.

Fortunately (or unimportantly), it is not the soul of its subjects the United States seeks to hem in.  (Yet).  In fact, the failure of the Iron Curtain to contain what Thatcher called "the essence of the human spirit and desire for freedom" seems to be a lesson well learned by what can only be termed "the left" in these pages.3

Avoiding direct assaults on this essence is a lesson the left have transformed into a most adept mastery of and adroit affinity for the more Machiavellian elements of political science.  Shadowy machinations like: The midnight vote.  The backroom deal.  The bill we must pass in order to read.  Reconciliation.  The anonymous earmark.  The bankruptcy priority end-around.  The Cornhusker Kickback.  The Chicago Way.  This deeply Chekist approach is a subtle acknowledgement either that postmodern subjects simply cannot be made to believe in the optimistic assertions of the benefits of these interminable social programs, or that clandestine-legislation is the only means to sneak damaging edicts past an increasingly educated and informed population.  So far, this approach has worked swimmingly for both the left and (despite?) the right.  Consider:

It is almost impossible not to smirk just imperceptibly in admiration when contemplating the achievements of Rep. Barney Frank.  He did, after all, manage in the short span of fifteen years to transfer several trillion dollars from the middle and upper classes to his constituents (and if you think these are limited to Massachusetts residents you aren’t paying attention) right under the nose of an opposition party via the DeBeersian invention of "The American Dream of Home Ownership."  Even linguistically, simply grafting the term "Home Ownership" onto the brand of "The American Dream" is a bit of elegant marketing genius that should forevermore serve as a centerpiece in graduate level marketing programs.  As if this were not itself impressive, he has managed to deflect essentially all criticism related to the inevitable collapse onto the evil specters of greedy bankers.  Lavrentiy Beria would have wept to be able to wield such control while maintaining such a low profile.

The selection of Supreme Court Justices now almost excludes the possibility of selecting talented and brilliant jurists in favor of those political devotees unassailable enough to be confirmed by virtue of the raw rarity of written work which might actually tend to illuminate their skills and talents.

Despite terms like "Lockbox," "Trust Fund" and "Trustees" the only assets currently held by the Social Security Trust Fund are IOUs from the United States Treasury that will, in any event, have to borrow (or seize) the money to repay them- literally an impossible endeavor to complete.  Of course, this effectively means that for some time now, social security has been nothing more than a tax and that its description as "security" or a retirement scheme has long been a rather unimaginative lie.  Against this background Kevin Drum asserts:

Back in 1983, we made a deal. The deal was this: for 30 years poor people would overpay their taxes, building up the trust fund and helping lower the taxes of the rich. For the next 30 years, rich people would overpay their taxes, drawing down the trust fund and helping lower the taxes of the poor.

Well, the first 30 years are about up. And now the rich are complaining about the deal that Alan Greenspan cut back in 1983. As it happens, I agree that it was a bad deal. If it were up to me, I’d fund Social Security out of current taxes and leave it at that. But it doesn’t matter. Once the deal is made, you can’t stop halfway through and toss it out. The rich got their subsidy for 30 years, and soon it’s going to be time to raise their taxes and use it to subsidize the poor. Any other option would be an unconscionable fraud.

The ease with which the assertion that this was obviously merely a regressive to progressive mutating tax scheme all this time and everyone knew better comes to Mr. Drum should be instructive (though others are prone to call it historical revisionism).

If it was really true that this was merely a tax scheme all this time with proceeds intended all along for the general fund why not say so?  Voters may have been upset perhaps?  Of course, this implies a rather deep penchant for deception on the part of the political class.

On the other hand, its possible that Social Security was the progeny of the best intentions, and was merely raped and pillaged wildly by Congress to fund… well… whatever they liked.  This would make the same political class nothing more than felons in effect.

Of course, in the end it makes no difference if the political class are charlatans or outright thieves.  What is of no small import is the pattern of governance here.  It is a pattern that has become so prevalent that my own ego cannot resist the temptation to label it with a term that I hope takes root.

This manner of government is not driven by overt collectivism and the blatant, state-enforced social subjugation that characterizes communism.  Nor is it well understood to be dominated by the pernicious nationalism, autocratic industrial centralization and megalomaniacal personality cults framed by fascism.  Neither can it be sketched as the consenting construction of broad and broadly parasitic labor pools and growth retarding redistribution schemes that make up the key tenants of socialism.  Quite differently, this manner of government is premised on the suspension of disbelief via sophistication, word play, disguise, deception, mistaken identity, the deliberate use of nonsense and absurdity to distract and will, no doubt, end in a melodramatic chase scene (treasury officials in absurd uniforms chasing stage left to stage right after foreign borrowers perhaps?)

In short, the United States has come to be governed by Farcism.

Farcist PIIGS

The success of Farcism depends on, and in some ways derives a measure of legitimacy from, the acquiescence (or abject ignorance of) a lazy citizenry. Truly, it is hard otherwise to explain phenomena like the perpetuation of the myth that President Reagan shrunk the government, or that President Clinton ever presided over a surplus in the United States when budget and historical debt outstanding figures are openly available permitting anyone at all to falsify these claims in seconds. In fact, under the Clinton administration it was the wholesale pillaging of the Social Security trust fund (accounted for in Intragovernmental Holdings instead of "public debt") that permitted the specious claim that somehow a material slice of the aggregate debt of the country had been paid off. In other words, the sort of accounting and insurance fraud that would send anyone in the private sector to jail and so familiar to forensic accountants and prosecutors it actually has a name: "Cookie Jarring."  The last real surplus was in 1957, by the way.

Likewise, and in a more contemporary construction, that any member of Congress or the current administration might assert that pouring trillions of dollars of liquidity via Government Sponsored Entities into cheap mortgages had no real inflationary effect on housing prices and, almost in the same breath, scold the public on the importance of supporting via blank check the unaudited Fannie, Freddie and Federal Housing Administration to prevent a housing crash, and so assert without howls of public protest strains the very imagination in the absence of rampant Farcism.

Perhaps unsurprisingly, America is not alone in these practices.  In fact, with apologies to Churchill, a silver curtain, lovingly lowered by Farcist leaders, has long since descended over the free markets of the West.  It encompasses and conceals from public view the finances and balance sheets of all the major powers and many private firms housed therein.  It is typified by the sort of opacity that permits the United States to claim a mere $12.9 trillion in debt.  It is the blocking force that simply dares "independent" ratings agencies to even think of downgrading a sovereign (clearly Egan Jones must then be a member of the financial Maquis on this basis).  It smothers the utility of FAS 157, drawing a metallic shield over the balance sheets of large banks until guessing what lies behind becomes an exercise in futility.  It surrounds and isolates price inputs like short sellers and buyers of credit default swaps. It permits European banks to reduce capital requirements (read: increase leverage) by loading AIG up with $172 billion in exposure in its "foreign regulatory capital portfolio." It retains the heat required to keep mysterious Special Purpose Vehicles within e.g., the Federal Reserve warm and dry.  And in the United States, member of a very exclusive club of sovereigns that tax worldwide income of their subjects, a club in which North Korea is also a charter member, as the desperate need for capital to support a flagging treasury begins to bite down, it carves out a "death strip" and orders its revenue agents to audit on sight, and its immigration officials to banish forever any subject with thoughts of Republikflucht.

It is somewhat Ironic that Greece, also called out by Churchill would be among the first to begin to emerge (entirely involuntarily as it happens) from behind the silver curtain. It is as if Farcism, which erected the barrier in the first place, is itself eventually corrosive to the metal. No surprise that Farcism’s NKVD immediately targeted and hunted down, like Western agents caught in East Berlin, traders in sovereign credit default swaps. In the case of Greece, they even used the state intelligence services to do so.  (Sheesh, at least Germany only uses its Gestapo foreign intelligence appendages to track down tax evaders).  Perhaps lies, damn lies and GDP statistics eventually burn holes in silver curtains, when the painted over rust that is a Farcist economy can no longer support its own weight.  Until then, however, you must realize that you actually have no idea how much something in a Farcist market is actually worth.

For a moment, just a brief moment this week, the silver curtain seemed at least translucent in the United Kingdom. Some days ago, carefully after the shadow of Gordon Brown seemed sure to recede, Governor of the Bank of England, Mervyn King made several simply astounding pronouncements prompting Jeremy Warner at the Telegraph to Headline "Free At Last".

With crooked finger King pointed at the United States, shattering for a precious moment the illusion that letters like AAA should appear on the same page with the words United States or United Kingdom.  But even as the ripples in the pond undulated, the forces of Farcism, reeling for just a moment, seemed to collect themselves and reassert their dominance.

I do not want to comment on a particular measure by a particular country, but I do want to suggest that within the Euro Area it’s become very clear that there is a need for a fiscal union to make the Monetary Union work.

Read: Euro wide tax and spend authority.

Act III, The Chase Scene

Even the smallest cracks in the silver curtain may permit subjects in the United States to finally realize the extent and duration of the outright lies they have been subjected to by the Farcist political and regulatory classes.  It remains to be seen if these revelations will have any impact or if, in fact, the great power of Farcism (denial) will overcome enlightenment until utter collapse finally takes hold.

The fact is that, absent assumptions that strain the very fabric of space-time (perhaps the United States will invent cheap fusion power and become an energy exporter to the world? Or will the massive deflation of such a discovery merely accelerate the debt collapse?) there is simply no math that results in a calculation whereby the United States can pay off its outstanding obligations.

The United States will not outgrow its debt.  The United States will not tax away its debt (even marginal rates of 70% and 80% would not achieve this).  ("Mr. Obama, tear down this wall!" seems unlikely to do much good.)  The United States almost certainly lacks the political will to austere away the debt (to even balance the budget would require a 40% across the board cut using the 2009 or 2010 baseline, a 30% across the board cut using the 2011 baseline… etc).  Even a Republican sweep is highly unlikely to bring out the required change.  Instead the country must, as Greece has, begin to pursue frantically any source of capital it can grasp at.  Taxes must not only increase, but broaden, and capture more and more of the economy.  In this connection, slipping into the unread health bill the requirement that 1099s be filed for effectively every single transaction in the country over $600 easily reminds one of Greece’s recent ban on cash transactions over €1500.

When a business buys a $1,000 used car, it will have to gather information on the seller and mail 1099s to the seller and the IRS. When a small shop owner pays her rent, she will have to send a 1099 to the landlord and IRS.

And here too is a measure of the power of Farcism.  It seems to Americans impossible that their 401(k) plans or IRAs might be the targets of sovereigns in the Final Chase scene. "We would never let that happen!"  Of course, they forget that outright seizure and forfeiture are the hallmarks of communism and fascism.  Farcism is hardly so crude.  The Farcist government doesn’t pass laws with overt seizure of retirement funds spelled out. The Farcist government waits until midnight before slipping a small provision into the fast-tracked Child Protection and Education Act of 2011 that simply levies a corporate level tax on greedy retirement communities, the wealthy and exploitative licensed medical professionals who service them, slaps safety surcharges on the sale of each of those dangerous "ultra-light super compact electric vehicles," (read: Rascals), establishes a Homeland Security and border protection fee on all cruise tickets to the Bahamas, and establishes a surcharge on Kenny Rogers tickets. 

1. 1.The full text of the address is available here.
2. 2.From an East German propaganda booklet describing the horrors of the newly created offense "Republikflucht" (flight from the republic). (c. 1955).
3. 3.I use this term collectively and with particular intent.  I have long since abandoned the quest to learn if the likes of Barney Frank actually believe the laws of supply and demand to be optional, or if they are merely power hungry charlatans who no more believe that rent control is a good idea than do economists, as the correct answer actually has no mitigating effect whatsoever on the damage wrought by their collective movement.