Subtitled “Reckless Finance, Failed Politics and the Global Crisis of American Capitalism”, Kevin Phillips’ ‘Bad Money’ opens up with a quote from a chief investment strategist:
The “crack cocaine” of our generation appears to be debt. We just can’t seem to get enough of it. And, every time it looks like the U.S. consumer may be approaching his maximum tolerance level, somebody figures out how to lever on even more debt using some new and more complex financing.
According to Phillips, the public and private debt quadrupled from 10.5 trillion to 43 trillion under Greenspan. Of note is that this debt escalation has led to the U.S. financial sector now representing an unprecedented 21 percent of GDP. Although public debt is frequently discussed, less is made of the ballooning of private debt. Coupled with the energy dependence of the U.S. and you have what Phillips calls a “double dislocation” of the state of the U.S. economy. Although U.S. politics might not be “broken”,
both political parties have calcified in terms of interest-group domination and limited strategic capacity. [...] Neither of the major parties will find it easy to discuss long-evolving U.S. predicaments, including energy and financial excess, which reflect on both, if not necessarily equally.
So what is ‘Bad Money’? According to the author:
Money is “bad,” in the historical sense, when a leading world economic power passing its zenith—before the United States, think Hapsburg Spain, the maritime Dutch Republic (when New York was New Amsterdam), and imperial Britain just before World War I—lets itself luxuriate in finance at the expense of harvesting, manufacturing, or transporting things. Doing so has marked each nation’s global decline. To institutionalize the dominance of minimally regulated finance at this stage of U.S. history is a bad idea.
Illustrative of the situation is the estimate that the
debt the United States has been piling on in the last few years has provided only 30-40 percent as much stimulus per dollar to the national economy as did the debt added twenty-five or forty years ago. Why? Because money borrowed in 1970 or 1984 to be spent on factories, new jet fighter aircraft, teachers, or interstate highways had a lot more grassroots impact than money borrowed by tend thousand hedge funds to double the leverage of their various self-serving speculations.
Quoting Yale professor Jacob Hacker, Phillips discusses how securitization has lead to the insecurity of Middle America; not only has income inequality increased at a staggering pace but income instability has grown even faster.
Be it be a critique of the Consumer Price Index and the statistical debasement that has gone along with it to ‘ease’ inflation or the consequences of Peak Oil, Kevin Phillips writes a powerful book that should not be ignored by anyone trying to understand the crisis that made its public debut in August 2007. I will end with another of the book’s quotes, this one from Joseph Chamberlain, the British colonial secretary in 1904:
Banking is not the creator of our prosperity, but it is the creation of it. It is not the cause of our wealth, but it is the consequence of our wealth.
