The Grandest Bargain Ever, explained
The Grand Bargain Fiscal Cliff deficit hysteria is the end game in a sophisticated, multi-year version of three-card monte.
For this illustration, we’ll use the shell game version where the slicks hide a ball under a nutshell. Under one shell you've got bank money. Under another shell you have the national budget money. Under the third shell you have social program money, let's call it Social Security.
The object of the game is to take all three balls without anyone noticing, and if the institutional legitimacy of the shells get destroyed, well . . . .
So Wall Street and the bankers take the money under the first shell, and turn it into an investment vehicle. Using deregulation and leveraging—that is, investment money from pensions, mutual funds, private investment—they stuff the shell with 200 other balls, depending on the leverage ratio, and then lend the whole kit and caboodle out in real estate. They create a market bubble, which they then bet against with hedges. They still only own that one ball, and whatever they make in fees, but when the market bubble bursts, and all the balls go up in smoke, they’ve already taken several balls out in the form of fees, and payouts from the hedges they made on the investment vehicles they specifically designed to fail. All those balls go into their pockets, the investors in the vehicle can go pound sand, and the bank shell is left empty.
The central bank and the federal government says "oh noes, without the bankers we won't have loans, business will stop and we'll have a depression!" So they backstop the bankers by tying the budget to the bankers' losses with TARP. The money under the second shell gets transferred into the first shell. The losses are borne by the taxpayer, and the Federal Reserve prints all sorts of crazy money to “save liquidity.”
Well whaddya know, the bankers stop making loans and we get a depression anyway. Furthermore, they take some of the money from the second shell and take it to the horse races, inflating commodity and stock prices. And they pay themselves bonuses. Of course. If they lose that money, hell, there’s more where that came from.
But now the second government government shell is empty. It’s running budget deficits, the economy is in the tank so they're not taking in enough in taxes, so where are we going to get the money? Ahhh! There's still money in the third shell! $2.7 Trillion, as a matter of fact. And although Social Security is a creditor to Uncle Sam, just like anyone who holds a U.S. Bond backed by the full faith and credit of the government of the United States of America, and although the Social Security trust fund does not contribute one red cent to the deficit or the national debt, Pete Peterson hires a bunch of deficit peacocks like Barack Obama to run around and say the sky is falling and the only solution is tax breaks for the wealthy and the dismantling of Social Security, or . . . or . . . or else we'll turn into Greece!
They conflate Social Security as the source of the deficit and if we just get rid of it to balance the budget, we can avert catastrophe. So when they make the Grandest Bargain Ever, they'll take the money from Social Security, and put it in the second shell. Now none of these deficit hysterics are serious about the debt. They went into hibernation when George W. Bush’s tax cuts for the wealthy went into place. They didn’t say anything about George W. Bush’s Medicare Jubilee for big Pharma. And they were playing croquet when Congress appropriated $Trillions in perfectly predictable “emergency appropriations” year after year after year for the wars in Iraq and Afghanistan. No. The deficit hysteria peacocks are in service to the people in charge of the first shell. In fact, they need a large structural deficit to stay in place so they can siphon off the money from the third shell. How do they do this? The Federal Reserve prints money into existence, lends it to the people running the first shell, who turn around and lend it to . . . who? Uncle Sam! At a substantially higher interest rate! Free money for as far as the eye can see! So all the balls are transferred to the first nut, creating a roundabout pipeline siphoning money from one set of Uncle Sam’s creditors—Social Security—to another Set of Uncle Sam’s creditors: the people who run the banks.
But remember! “If we don’t fix the deficit, we’ll turn into Greece!” However, our policy makers are making all the same mistakes to assure just that. Look what happened there. Their banks made bad loans, the government backstopped the Greek banks and hired Goldman Sachs to hide the government debt, and now the Troika is making rules about minimum wage and pensions. They’re using the Greek government as a conduit to feed money from the populace into German banks. A fully-functioning Greek economy doesn’t facilitate their acquisition of all the balls; destroying the other balls is just as useful since it makes the ball under your shell so much more valuable. It's a pretty neat trick to put a bomb under the economy, and warn there's a bomb, and then blow it up. Misdirection. Projection. Three-card monte.
Soon, the deficit hysteria peacocks will make their Grand Bargain to bring the misery here. Barack Obama and the lame duck congress will follow all their prescriptions. The economy will tank, the debt will grow. They don’t want the problem solved. That’s your problem. They want all the money in the shells. And if they can't have it, no one can.