The following was written in the 1930s:

“The general shape of this universal delusion [that is, credit] may be indicated by three of its familiar features.. First, the idea that the panacea for debt is credit.. The burden of Europe’s private debt to this country now is greater than the burden of her war debt; and the war debt, with arrears of interest, is greater than it was the day the peace was signed.. Debt was the economic terror of the world when the war ended. How to pay it was the colossal problem. Yet you will hardly find a nation, state, city, town or region that has not multiplied its debt since the war. The aggregate of this increase is prodigious, and a very high proportion of it represents recourse to credit to avoid payment of debt.

“Second, a social and political doctrine, now widely accepted, beginning with the premise that people are entitled to certain betterments of life. If they cannot immediately afford them.. nevertheless people are entitled to them, and credit must provide them.. Result: Probably one half of all government, national and civic, in the area of western civilization is either bankrupt or in acute distress from having over-borrowed according to this doctrine.. Now as credit fails and the standards of living tend to fall from the planes on which credit for a while sustained them, there is political dismay.. When [people] have been living on credit beyond their means the debt overtakes them. If they tax themselves to pay it, that means going back a little. If they repudiate their debt, that is the end of their credit. In this dilemma the ideal solution, so recommended even to the creditor, is more credit, more debt.

“Third, the argument that prosperity is a product of credit, whereas from the beginning of economic thought it had been supposed that prosperity was from the increase and exchange of wealth, and credit was its product.”

The more things change, the more they stay the same.

Check out this video from Jim Cramer in which he admits the current market is rigged, and that trust is breaking down. His solution: more regulation. If they are calling for more regulation on CNBC, then you know that change is coming. Unfortunately, that change will, in the end, make no difference.
It will make no difference, because this economic system will end the way every other system based on a debased or fiat currency has ended: with a crash. If you look at history, you will find that every time fiat money has been used, it has failed. And, it has failed the same way, with a wave of debt, speculation and inflation.

Finally, somebody is going after Robert Rubin and his part in the current rapid destruction of our financial system. Surprisingly, it’s the Wall Street Journal. Less surprisingly, Rubin has a litany of excuses:

Under fire for his role in the near-collapse of Citigroup Inc., Robert Rubin said its problems were due to the buckling financial system, not its own mistakes, and that his role was peripheral to the bank’s main operations even though he was one of its highest-paid officials. “Nobody was prepared for this,” Mr. Rubin said in an interview.

Sure, nobody was prepared! Except for all those people who were warning about the coming crisis for years before it happened! Since 1999, Rubin was paid, not counting stock options, $115 million by Citi! Presumably, he was paid that much to help Citi avoid bankruptcy.

Today, the United States’ political and economic systems are stuffed to the gills with people of two types: those who immediately and effectively blame others, and the fools who let them get away with it. Rubin is a prime example of the first type, and things will not get better until we all stop being the second type. This is why I have little hope for the incoming Obama administration. So far, he is staffing his economic team with people who were complicit in the current destruction. More of the same is not going to work, and that is all that Obama’s team is offering.

For more on Rubin, see Rubin Agonistes, and Mirabile Dictu! Rubin Takedown by the Wall Street Journal.

Michael Lewis, the author of a great book about Wall Street in the 8o’s called Liar’s Poker: Rising Through the Wreckage on Wall Street, has written an article for Portfolio that everyone should read if they want to understand the roots of today’s financial crisis. As he notes in the article’s introduction:

[Since the 80's, I've been] waiting for the end of Wall Street. The outrageous bonuses, the slender returns to shareholders, the never-ending scandals, the bursting of the internet bubble, the crisis following the collapse of Long-Term Capital Management: Over and over again, the big Wall Street investment banks would be, in some narrow way, discredited. Yet they just kept on growing, along with the sums of money that they doled out to 26-year-olds to perform tasks of no obvious social utility.

Until, eventually, it all fell apart. Read The End, and learn.

Today, the Fed announced that it was allowing American Express to restructure as a bank holding company. This gives American Express access to the Fed’s emergency credit lines. That’s a pretty good indication that American Express is in severe trouble.

There are 13 former Goldman Sachs directors running the Treasury Department and the NY Fed. For the last five years, Goldman Sachs has been, by far, Obama’s largest campaign contributor. Jim Johnson, who sits on the Goldman Sachs board, was a chief Obama campaign advisor before he was busted for his sordid Countrywide deal. Warren Buffet, who owns a $5 billion stake in Goldman Sachs was another Obama advisor. Robert Rubin, a former Co-Chairman of Goldman Sachs was an Obama financial advisor. Other Obama advisors include JPM’s Jamie Dimon, who in the last 6 months has received $213 billion from the Fed and Paulson, and Timothy Geithner, the engineer behind the Bear Stearns/JP Morgan deal.

So, what’s the chance that the Treasury Department will see much change under Obama?

Only a fool would say that there are not substantive differences between Barack Obama and John McCain. Yet, in the end, these differences are irrelevant to the fate of the United States. Once an empire begins to decline; reversal is almost impossible. This is particularly true, when financial engineering has replaced real achievement. When a nation reaches that point, then there are few real sources of wealth available to it. As Kevin Phillips has pointed out:

On the edge of decline the Spanish had gloried in their New World gold and silver; the Dutch, in their investment income and lending to princes and czarinas; and the British, in their banks, brokers, and global financial network. In none of these situations, however, could financial services succeed in upholding the national preeminence that had been earlier built by explorers, conquistadores, maritime skills, innovative science and engineering, the first railroads, electrical dynamos, and great iron and steel works. Invariably, power and greatness passed to new explorers, innovators and industrialists.

Each of those declining empires had skilled statesmen who appreciated the true situation of their countries and tried to restore its preeminence. In every case they failed, because the power of existing political factions to defend their own interests was too great. Consider that Spain was far richer and more powerful than the U.S. in the 16th Century. And yet, it fell very swiftly. If the Count-Duke of Olivares couldn’t save Spain, who would bet that John McCain or Barack Obama can save the United States?

In December 1930, about a year after the great crash of 1929, John Maynard Keynes wrote:

“The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history. But now that the man in the street has become aware of what is happening, he, not knowing the why and wherefore, is as full today of what may prove excessive fears as, previously, when the trouble was first coming on, he was lacking in what would have been a reasonable anxiety. He beings to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or dropping off into a nightmare which will pass away?”

We are in a similar situation now.

Jim Rogers is a partner of George Soros, and a famous commodities investor. Here’s an interview with him from Bloomberg a year ago: