They abstain from interference, because they fear that, if it fail of good effect, their own safety or reputation may be damaged or destroyed; not because they see that their preservation and good name are needful, that they may be able to influence those who need their instruction, but rather because they weakly relish the flattery and respect of men, and fear the judgments of the people, and the pain or death of the body; that is to say, their non-intervention is the result of selfishness, and not of love.
– St. Augustine, City of God, Chapter 9
In the chapter of his magnum opus, titled “Of the Reasons for Administering Correction to Bad and Good Together,” St. Augustine explains that those who have neither sinned themselves nor opposed the evil deeds of the wicked merit the consequences that invariably arise from those evil deeds on the basis of their refusal to interfere with the rampant sin surrounding them. St. Augustine was referring to Christian morality and the sack of Rome by Alaric in 410 A.D., but the principle applies equally well to economics and the ongoing financial devastation of the United States.
Thus it is that Main Street is forced to pay for the reckless fraud of Wall Street. More than 10 percent of the labor force has been thrown out of work because the bankers finally managed to reach the outer limits of debt-demand after 62 years of the near-unmitigated expansion of debt. Total credit market debt has risen from $1.28 per dollar of national income to $3.73 during that time. Even after two quarters of debt contraction, the households, corporations and governments of the nation are $52.6 trillion in the red. And contrary to the predictions of economists, politicians and bureaucrats, absolutely nothing has been done to solve the problem. Ben Bernanke did not prevent the Great Depression 2.0; he merely postponed the reckoning.
And yet, it is not correct to assert that Republicans are guilty of nothing more than failing to interfere with the Democratic Party’s construction of this great pyramid of societal debt. Republicans have attempted to pin the subprime crisis on Jimmy Carter and Bill Clinton and blame the current economic turmoil on Barack Obama. But while these three Democrats have without question made the situation worse, they are no more responsible for creating this tidal wave of debt that is presently cresting than were George Bush, George W. Bush or even Ronald Reagan. As the chart below shows, there is no rational basis for arguing that Republicans are any less responsible for the perilous state of the economy than Democrats.
This chart shows the yearly percentage increase in the total amount of commercial bank loans, which at $6.8 trillion presently represent only 13 percent of total U.S. debt, but it has grown by a factor of 254 since 1947, more than twice the rate of the overall credit expansion. In only five of the 62 years prior to 2009 did bank debt fail to expand: 1955, 1975, 1992, 1993 and 2002. Democratic administrations are shown in cyan and Republican presidencies in white, so it is clear that there is no difference in the amount of debt expansion regardless of what party happens to control the White House. Nor would it make any difference if one substituted control of Congress, the governors’ mansions or the Supreme Court.
The failed $700 billion banking bailout was pushed by a Republican president and passed by a Democratic Congress with the full support of both the Democratic and Republican candidates for president. The next banking bailout, which appears to be in the $4 trillion range, will be pushed by a Democratic president and a Democratic Congress, but there is no reason to believe that a Republican president and a Republican Congress would not do precisely the same thing if they happened to be in office.
It is pure madness to imagine that Republicans, who are the co-architects of the present financial system, are capable of successfully reforming it. Indeed, they have shown absolutely no signs of being willing to do anything but defend it. And it is highly unlikely that the system can be reformed, anyhow. It will almost surely have to be replaced in much the same way that an old building needs to be torn down before a new one can be erected. The only significant question facing the American people is if the present system is demolished in a prudent and controlled manner, as Ron Paul has suggested, or if it is artificially propped up until it finally collapses under the weight of its structural flaws.
America appears to be rapidly approaching a post-partisan crisis that will pit Wall Street, the government bureaucracies and the political elite of both the Republican and the Democratic parties against a large majority of Americans that includes everyone from the Kossacks of the left to the Mises Institute on the right. The Republican Party is not the answer. It cannot be, because it is a significant part of the problem.