Slouching Toward Bedlam

The global financial storm encircles remote, beautiful Iceland.

If one favors poetry over precision, Iceland could be described as a frozen island sitting atop a huge volcano. Its economy in recent years was similarly poised for a meltdown, and the inhabitants of that remote but beautiful land were too busy enjoying the transitory pleasures of soap-bubble "prosperity" to pay attention.

Now that their banking system has collapsed and their imports have been cut off, Icelanders are too busy emptying supermarket shelves to ponder the disastrous errors that led to their national disaster.

Embodiment of a hearty people: Iceland's Jon-Pall Sigmarsson (1961-1993) was a four-time World's Strongest Man. He died in the gym attempting to dead-lift the equivalent of a small continent. There are worse ways for a man to go.

Iceland was settled by Norwegian explorers in the ninth Christian Century, and for most of its history the country's economy was wedded to fishing, a cyclical market that taught the nation's inhabitants to value strength, perseverance, thrift, and relatively modest living.

Other migrations brought Danes, Irish, Scots and Swedes to Iceland. A vigorous and attractive people flourished in splendid isolation. And it's no surprise that Iceland, in recent years, distinguished itself by producing some of the strongest men and most beautiful women known to humanity.

Like too many other countries, however, Iceland fell prey to the peddlers of debt-based financial "products" whose terms were impenetrably abstruse and whose connections to actual productivity were distant and dubious. The tiny nation's banking system became deeply involved in repackaging international investment instruments, and with its minuscule population (roughly 300,000), Iceland vaulted to fifth place on the list of the world's wealthiest nations as measured by per-capita GDP.

Northern Colossus: The wonderfully named
Magnus ver Magnusson, another four-time
World's Strongest Man from Iceland,
seen here in a typical event.

The illusion of prosperity was dispelled a little more than a week ago, when Iceland's entire financial system imploded. For months ahead of that cataclysm, Icelanders, under the pressure of economic necessity, had begun to rediscover the virtue of frugality. But their economy had already passed the Event Horizon.

When skittish British depositors began pulling their funds from Icesave, an on-line affiliate of Iceland's Landskanki, Reykjavik responded by imposing what amounted to a limited bank holiday. This prompted the British government to employ a "counter-terrorism" law to freeze Icelandic deposits in British banks.

So we were treated to the fascinating spectacle of one NATO ally treating another as a terrorism-sponsoring "rogue nation." This picture became a touch surrealistic when Iceland's government, having nationalized the banking system and desperate to prevent a permanent system-wide collapse, turned to Moscow for a multi-billion-euro emerency loan.

Three years ago, Iceland was ranked second (after its Mother Country, Norway) on the UN's Human Development Index. Now, its currency is dead, its banking system is in hospice care, and its government -- in a role familiar to juntas ruling many indigent societies so charmingly referred to as "developing" nations -- is playing the mendicant at the International Monetary Fund, pleading for an international bailout. It is the first "developed" nation to request such help since pre-Thatcher Britain did so in 1976.

Irony is plentiful in the story of Iceland's descent from Nordic economic titan to bankrupt international panhandler. But Americans aren't entitled to so much as a second of smugness, given that we're following exactly the same trajectory.

American tables are not as dependent as Iceland's on imported food. But for the past several years, we have imported more food than we have produced. And now that short-term commercial credit has frozen, getting imported food to supermarkets and other retail outlets has suddenly become much more difficult. The effects of this development are yet to be felt, but they will be manifest in due time.

Icelanders are denuding supermarket shelves of basic household needs, from fresh produce to canned items to light bulbs. This is as close as that island's small, tranquil, and relatively homogenous population comes to an outright riot.

When Americans face the same circumstances -- and we will -- we can expect to see localized eruptions of Bedlamite violence that will make the 1992 L.A. Riots look like a series of mild high school pranks.

I'm cynical enough to think that our rulers, who eagerly seize power under the pretext of crises,
are counting on an upheaval of this kind in order to propel us into the "New Bretton Woods" global financial system now being openly discussed.

Evil designs: John Maynard Keynes (left) confers with Harry Dexter White at the 1944 Bretton Woods Conference.

Eventually this would be an updated and fully realized version of the Bretton Woods system as originally envisioned by the detestable John Maynard Keynes and his comrades, which would be built around a world central bank and a world fiat currency (Keynes suggested that it be called the "bancor"; Keynes' comrade Harry Dexter White wanted to call it the "unita").

This was seen as a bit too ambitious in 1944. In 2009, this proposal may be embraced by many as the only alternative to the complete collapse of the world economy. And the political class both here and abroad is doing its part by enacting policies that are certain to fail.

There is already a de facto global financial system in operation, as the United States and the governments of the various European Union states implement exactly the same policies on both sides of the Atlantic: Socialize the bad banking assets, and nationalize any good ones that remain. This amounts to a global race in which the finish line is economic oblivion. The U.S. may not be the nation that breaks the tape, but we'll ge there eventually.

The Triumvirs assemble: While the Bushling (off-camera) recites his scripted lines, Henry Paulson works on his Mussolini impression and Bernanke channels Lenin.

Yesterday, Commissar Paulson, head of the Directorate for Protection of Plutocratic Assets, summoned the CEOs of nine "healthy" banks to announce that the Regime is taking a controlling interest in each of them. Eventually, the Regime will take control of thousands of smaller banks and financial institutions.

As Megan McArdle of The Atlantic observes, the Regime is first recapitalizing the big, "healthier" institutions, rather than the sicklier ones, in order to defer, for as long as possible, public disclosure of the condition of the banking system: "In this case, the government is specifically fighting to keep the market from getting information about whose balance sheets are shakiest [and] ... recapitalizing only the weak ones would send a message about their balance sheets that might trigger the run he is trying to prevent."

This morning (October 14), the withered little simian in the White House, who has a little less than 100 days left to ruin whatever still works in this country, emerged from his lair, squinted the eyes from which the light of intelligence has never shone, rummaged around in the cranium in which wisdom has never dwelt, and then spoke another of the lies that come so easily to his sneering lips:

"The government's role will be limited and temporary. These measures are not intended to take over the free market but to preserve it."

Bush was flanked by the other two members of the Regime's de facto ruling Triumvirate, Commissar Paulson and Commissar for Currency Destruction Bernanke.

Paulson struck an authentically Stalinist note when he declared: "The needs of our economy require that our financial institutions not take this new capital to hoard it, but to deploy it." Down with "hoarders," those self-fixated wreckers who react to an economic downturn by intelligently choosing thrift over profligacy! Who ever heard of a bank saving money, rather than pissing it away in bad loans to government-favored recipients?

But here's the point: Now that the banks are receiving "capital" from the government, and under government control, they will operate on the basis of political priorities, rather than the needs of the market and the interests of their shareholders.

Bernanke, who really deserves to be beaten savagely with the nearest available object (especially if that object is either Paulson or Bush), announced, in effect, that the "temporary" measures described by Bush will be in place in perpetuity: "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."

Given that the course being pursued will result in the destruction of our currency, what Bernanke was really saying is that the Triumvirate will not "stand down" until it has finished destroying our economy, or until the new global banking system is in operation, or both.

For as long as they can get away with it, everyone who benefits from this deception will play along. With the dutiful but palpably doomed earnestness generally displayed by adherents of a suicide cult they will assure themselves, and the rest of us, that we really can magically heal mortally crippled financial institutions through the laying-on of authoritarian hands.

Last Friday, reacting in shock as markets around the world were in free-fall, one London trader exclaimed, "It's like someone cancelled gravity."

Actually what we saw last week, and will see in the future, is the equivalent of gravity pitilessly asserting itself.

Massive liquidation of some kind simply has to occur. It should take the form of vast, painful settlement of bad debts and the shuttering of terminally stricken financial enterprises. Instead, we're going to see the annihilation of the fiat dollar and the liquidation of the American middle class.