The Moloch State, When Government Safety Nets Break

Tuesday, April 10, 2012
By Paul Martin

By: Gary North
Market Oracle
Apr 10, 2012

The West’s governments are going to default, one way or another. Politicians cannot bring themselves to stop spending money the governments do not have.

The deficits of the major Western governments are now so great as to be irreversible. The governments must now borrow money to be used to pay interest on money already borrowed. In the housing market, this is called a backward-walking mortgage. It invariably spells default. The subprime mortgages were mostly of this type.

The West’s largest governments are therefore subprime borrowers.

Politicians no longer speak about politically viable plans to call a halt to these deficits. They speak as though revenues will come from some unknown sources. They talk of reducing the debt-to-GDP ratios in the distant future. This is subprime mortgage thinking. It always leads to foreclosure and bankruptcy. But this fact did not stop lenders, 2002-2007. It does not stop them today. Lenders lend 90-day money to the U.S. Treasury for eight one-hundredths of a percent. “What could go wrong?” Answer: plenty.

THE ETHICS OF THE WELFARE STATE

The welfare state is defended ethically as a system of safety nets. These safety nets are defended as ethically necessary for a good society, meaning ethically good. Intellectuals see business profits as legitimate mainly because profits provide a tax base for funding the welfare state.

These safety nets require constant and ever-increasing funding. They are going to lose this funding. Why? Because of national government bankruptcies.

There is no question that the deficits will produce a series of fiscal crises. These crises will initially be covered up by central bank inflation, but the end result of that policy will either be hyperinflation, which is a form of concealed default, or stable money, which will be followed by open default. There will be a default. The political fall-out of this default will change the nature of Western politics.

The welfare state is going to self-destruct. It is highly unlikely that we will see the complete destruction of the welfare state in any nation, but it will contract on a scale not seen since the fall of the Roman Empire. That is because we have not seen a welfare state as comprehensive as Rome’s until modern times.

The bigger they are, the harder they fall.

The Rest…HERE

Leave a Reply

Support Revolution Radio