We No Longer Have A Right To Claim ‘Exceptionalism’


In an exclusive interview with the Voice of Russia, Karl Denninger talks about the debt ceiling crisis, American exceptionalism and why Obama should “admit the sins of the past”. Karl Denninger is an American businessman, financial pundit, political activist, publisher of The Market Ticker and the author of Leverage: How Cheap Money Will Destroy the World.

Reality Check: Who is guilty of the “debt ceiling crisis”? Republicans, Democrats, the whole political class of the US?

Karl Denninger: The entire political class. To put the current situation in perspective the US Government is akin to a family making $27,000 a year, spending $38,000, and having credit card debt of $170,000. No family and no business would get away with this anywhere near long enough to run up that $170,000 on the credit cards, yet both parties demand continuing the ruinous policies that led us to this point.

This is the root cause of the problem and until the political class is willing to live on $25,000 (since it “makes” $27,000) and starts to pay down the $170,000 credit card bill there is no solution that will actually work.

The reason the middle class and poor have been destroyed over the last 30 years is this behavior; unlike a family that is instantly rendered bankrupt by doing this, when a national government does it the emission of that credit causes the immediate and permanent destruction of purchasing power throughout the economy. Since only the very rich hold a sufficient number of assets (which also rise in price when this practice is undertaken) and can access the large amounts of leverage necessary to outrun it only they can obtain a benefit — and they only keep it if they are privy to inside information so they know when to liquidate before a crash occurs. Everyone else just gets screwed.

Productivity improvements over the last 30 years in the form of robotics and computer science, among others, should have resulted in the average middle-class American living like kings while working only 20-30 hours a week. Instead, real purchasing power is lower now than it was in the late 1980s and dependence has more than doubled as a percentage of the population.

Reality Check: How will the “debt ceiling crisis” end?

Karl Denninger: The Republicans are likely to cave in; this is what they have done since Obama has been elected. But this will not end the crisis, it will merely compound the damage. Until the above is done there is no actual end, although the market will likely rejoice (more) at the Republicans “giving up.”

Reality Check: What would you do if you were the President today?

Karl Denninger: Step to the microphone, admit the sins of the past, and hold the conversation with the American people that must be had — we must choose what we want from government, and we must pay for everything we choose in the current time, plus at least a small payment toward extinguishing our previous borrowing.

Chief among being able to do this without destroying everyone in America (e.g. via outrageous tax increases — a rough doubling would be required which will never work as too many people will simply stop working entirely) is tearing down the medical monopolies. Doing so would almost single-handedly resolve the problem permanently. There would be costs in this path, mostly in the form of new therapies that might not be developed at all, but it would put an immediate stop to the fiscal red ink. It would also result in an immediate deep recession (~15% of GDP would instantly come off) but as that effort was reallocated to other areas of the economy a rapid realignment and improvement in the average person’s life would occur. Among the immediate and tangible improvements would be the fact that the specter of going bankrupt due to a medical emergency would almost completely disappear and all pretense as the need for “Obamacare” would as well. Note that medical emergencies are the greatest single cause of bankruptcy among Americans today, even for those with health insurance.
If the government doesn’t do this nothing else matters; after much analysis (several years worth) I am convinced this is the only way to resolve the problem that will actually work.

Reality Check: Can the people of the US influence the decision making process in Washington or are they forced to be powerless bystanders in this crisis?

Karl Denninger: They can certainly influence the decision making process. They can go on strike as I am doing now. The government cannot compel people to earn taxable funds and without that the scheme they are running collapses, as the underpinning of the bond market would be destroyed.

The people have the power to withdraw consent in this form via entirely peaceful and lawful means, should they so choose.

Reality Check: Bonus question. What is American exceptionalism? Is today’s “exeptionalism” the same as the old exceptionalism of America’s past or has it morphed into something different?

Karl Denninger: America was founded on the principle that all persons had unalienable rights which no government has the right to infringe. The recognition of the right to ownership of one’s person, and thus the right to own that which one produces with your hands and/or mind, is central to the founding of America. Unlike most nations our government did not find its foundation in the right of the ruling class (whether King, Parliament or Politburo) to the labor and efforts of the citizens — rather, the power relationship flowed the other way, from the people upward.

This has now been destroyed through guile and fraud; the claim that we have held for 200+ years is no longer valid.
The very words of our legislators, including most-particularly people like Harry Reid, Nancy Pelosi and Obama, along with the willingness of the Republican Party to sit silently for such pronouncements instead of immediately responding with recall campaigns and impeachments, make a mockery of the foundation of this nation, and that the people sit for it simply ratifies the fact that we no longer have the right to claim “exceptionalism.”

The core of exceptionalism remains in our founding DNA, but until and unless we, the people, decide to take back that which was stolen from us and enforce the fact that our government has no right to exist except with our consent and that this consent is individual and cannot be forced upon anyone else, we can no longer claim “exceptionalism” in America.

The Voice of Russia