ND: Do you miss the old Hunter Thompson as much as I do?
EJ: Last week I listened to a recording of a lecture he gave at Boulder University in 1977 after he published Fear and Loathing in Las Vegas. At one point a student in the audience asks if there is anything that he as a young person heading out into the world can do to help get the U.S. off the self-destructive course that Thompson describes in his book. Thompson is fatalistic. He says, no, there is not, that the crazed system is destined to go on and on until it blows itself up and burns itself out. Looks like he was right.
ND: We blew it. The media, I mean.
EJ: We use this catch phrase at iTulip: “Who could have known?” to refer to any obvious outcome of excess and fraud over the past 11 years that we've been in operation. Anyone reading our site—and plenty of others—since 1998 could see the current crisis coming down hard on us, but not if they only read mainstream papers or watched cable or network TV. After a string of failures to protect the public from cheats, crooks, and liars—the primary role of the media—a cloud of suspicion hangs over the whole industry. On top of the business model challenges created by the Internet, there’s a real crisis of credibility. Today they’re backpedaling as hard and fast as they can, and maybe readers will forget that the media hung them upside down to have their pockets picked by mortgage brokers and stock jobbers selling the American dream as a debt they can’t repay and a stock portfolio that vaporizes as soon as they reach retirement age. It's a safe bet they will forget.
ND: Who’s doing a good job today?
EJ: The Wall Street Journal is doing a good job of covering the crisis now that it’s here. Plenty of thoughtful skepticism about the recovery. But the fact remains that the savings of a generation of our middle class was wiped out by the stock and housing bubbles. Failure by the media to expose the frauds while they were being perpetrated has caused millions to lose faith in the mainstream media.
ND: Who will take its place? Glenn Beck and Alex Jones?
EJ: The average American doesn’t know how to be intelligently skeptical. They lack the tools. Their schooling taught them to believe what they read in the paper and watch on TV and are told by anyone in a uniform or anyone who makes more money than they do. For example, the mortgage broker in a suit who told them not to worry about exaggerating income in order to qualify for a ridiculously huge mortgage. You can say these people were stupid for trusting the brokers and the appraisers and the lawyers and all of the other conspirators to the gigantic fraud that came to be known as the housing bubble, including the media that used to quote the National Association of Realtors as a source of information about the safety of housing as an investment. That’s journalism? But who is the public supposed to trust? No one? So now the public doesn’t trust anyone. Why should they? But in the wake of these frauds they lack the tools necessary for critical evaluation of even the most basic data about their economy, never mind complicated issues like monetary policy, inflation, and employment. In this environment guys like Glenn Beck and Alex Jones thrive.
ND: Where is this headed?
EJ: When the people lose faith, they do not then believe in nothing. They believe in anything. Between an oligarchic government controlled media and a public unable to distinguish between an argument made on evidence and one based on speculation, I believe we are heading into an era of rising nationalism and unreason unlike anything we have seen since the 1930s. The antecedents are exceedingly dangerous. Our polity can be whipped up into a frenzy to do just about anything.
ND: Where is the leading edge of rising nationalism?
EJ: Japan just elected the first government since the end of WWII that represents a break from alignment with the U.S. The election was a big deal in Asia. The winning platform was distance from Washington and separation from Wall Street.
ND: Japan was hit especially hard by the global recession that we caused.
EJ: True, but it’s important to remember that our economic relationship with Japan has been difficult since at least the Kennedy administration.
For U.S trade partners like Japan, the U.S. has been like a very large and important customer that delivers most of the revenue to a goods manufacturer. Endlessly demanding, at times irrational and occasionally dangerous, our behavior was tolerated for one and only one reason: we, the customer, always placed our order by the end of the quarter. All was forgiven.
Then the 2008 crisis came. We, as a major customer to our global trade partners, have always been difficult to do business with, but at least we were worth it for the orders, even if they had to provide much of the financing. But since U.S. consumer demand for imports fell off a cliff last year, we’re not worth the trouble.
Yet our demanding and irrational behavior continues as if we were still the world’s most important customer or we will regain that status shortly, if only we print and borrow enough money to get households borrowing and buying again. The perpetuation of this delusion will end in tears.
ND: What did we do to Japan under the Kennedy administration? I don't remember that.
EJ: In my research I came across a reference on Sony Corporation’s web site that stated that Japan's 1965 economic depression was rooted in the interest equalization tax instituted two years earlier by President John F. Kennedy. The U.S. economy was in recession and domestic capital was pouring out of the country. Kennedy imposed a 16.5% interest equalization tax on all capital leaving the U.S. to slow the outflow--basically, a capital control. The law succeeded in decreasing the outflow of U.S. capital but it also caused a panic in world stock markets. In 1965, Japan’s securities market crashed and Japan had its worst depression since The Great Depression.
While it’s tempting to see events like the election of an anti-U.S. government in Japan as a recent development, the issues between the two countries that led to that outcome have been brewing for decades. The 1980s bubble and crash was also a product of U.S. policy. Political change, such as shown in the election of a new government in Japan, appears sudden if you haven’t followed the history and antecedents.
After this latest U.S. financial and economic debacle that cratered Japan’s economy, the Japanese people decided they’ve had enough.
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