Note: Originally written 9/11/2005. Since then, we have seen interest rates continue to rise, although thankfully no widespread panic has occurred.
I have posited this for years. We have been told by Marx that socialism would follow capitalism, the belief that a classless society would follow the highly stratified capitalist society. However, I do not believe that is the case. When you look at events and consider them for at least a moment, you begin to see that the United States, and most of the world, is headed back to a feudal system. Let us compare and contrast (this is going to be a long post). Since these topics are complex, please be sure to click and read the wiki entries.
Socialism
Socialism is commonly defined as the formation of a classless society – by the working class. Recently, we have seen socialists focus more specifically on issues instead of an entire governmental change. Their hope: to create an ideal democracy. However, much of this desire is founded upon the creation of a welfare state. Essentially, socialists want the government, which is the more informed and able party, to watch out for the common man, to provide general protection, and to provide aid as needed. That is great. We need a smarter, stronger, better, richer entity to watch out for us, to do what is in our best interests even if we, as citizens, are too dumb to know it.
Does anyone see a problem with this?
Personally, I do. Socialism and welfare states successfully remove the greed from capitalist societies – along with drive. Complacency Kills! We have seen similar results in the fall of the Soviet Union. Once people realize that they do not have to work in order to receive care, people stop working. Efficiency and effectiveness drop. The machine breaks.
We are beginning to see this to some extent in the United States.
We currently have two large social welfare programs: Social Security and Welfare. I am not going to enter that debate; however, we know that both of these programs (along with general incompetence) are bankrupting the United States government and require constantly increasing taxes to support an ever larger population. Our machine is breaking down. Do the socialists see that their efforts are going to lead to a day when the welfare state will be unable to help? To some general extent, that has been witnessed during Hurricane Katrina. The government lacked the ability to provide assistance - hampered by its own incompetence and lack of preparedness. No plan. No resources available at the right time.
What does this mean?
Personally, I believe socialism is being used as a tool to lead the United States and other governments to feudalism. But first, let us investigate feudalism.
Feudalism
Feudalism is essentially defined as citizens (known as vassals) using the owner’s (known as lords) land in exchange for homage or services – including military service. At this time, we must also define serf and serfdom. Serfs are not slaves, yet are bound to the land in forced labor. In exchange, serfs are protected by the lord’s military.
Serfs were caught in the middle. They did not own land, but they worked it. They were then taxed on the profits produced by the land – even though they did not own the land, vassals did.
This concept should not be too alien to us.
After all, we are almost there. The following is how I see feudalism evolving in the United States. The lords are now known as the government, the only true body owning land – we are just renting; hence the reason all citizens pay taxes. The vassals are comprised of the wealthy – be it wealthy individuals or the new elite, corporations. Corporations now own large tracts of land and property. You may have more commonly heard those called banks and property management companies. Then enter the serfs. Yeah, that is us. When we take out a mortgage from the bank, we are working the lord’s land – and get to keep the profits. However, we are taxed on these profits – federal and state income tax, property taxes, etc.
“But that is capitalism!” you say.
Originally, that was true. However, capitalism combined with the ever increasing welfare state of socialism is leading us down the road to feudalism. In the United States, the average citizen’s debt load has increased so dramatically in recent years that we really never own anything. Instead, we are constantly paying rent or interest and taxes for every item we ‘own.’ In many ways, the items own and control us. How many people do you know who make just barely enough to feed their families – yet they have a large house, nice new cars, and buy everything their children ask for? Yes, that is the disease of the middle class. The middle class wants to believe it is rich and deeply wants to act the part. The results are twofold: The middle class becomes indebted to corporations - where the lower classes have been for years. Additionally, the children of the middle class learn by example. Do the children of today inspire you? Can you envision them leading the United States of tomorrow? Well, we can envision them carrying on their parent’s credit-loving ways.
“Do-nothing Fed is dangerously disengaged”
Please click that link and read that article. It is a great example from MSN’s Jim Jubak. Mr. Jubak presents the twofold problem. First, the Fed has ensured a massive amount of cheap money has flooded the market. That cheap money has allowed most citizens to buy more and more property. The real estate boom! However, there is always a footnote. In this case, most of the loans have been interest-only or adjustable rate mortgages (ARMs). No longer is it a matter of if, but when interest rates will increase. When this happens, hundreds of thousands, if not millions, will find themselves either hard pressed or completely unable to make their mortgage payment. Unless something magical happens, the number of foreclosures will increase dramatically. That means lots of people losing the only bit of property they had – property that they paid so much to try to own. The foreclosure masses will begin moving to smaller, cheaper houses (where are they?) or back to rental properties.
Banks are guilty too.
The other side of this dangerous coin affects the banks themselves. Banks will have to deal with an increased number of foreclosures. This means tons of hassle and cost for banks and their shareholders. Additionally, it affects the stability of the banks themselves. Banks have to keep a certain amount of cash to cover bad loans and losses. These loan-loss reserves have been decreasing over the years since the number of foreclosures has dramatically dropped – because money is currently very cheap.
Does anyone else see the coming panic?
As interest rates begin to increase, some homeowners will be pinched by the increasing monthly payment. This increase will probably wipe out any ‘cost of living’ increase they have seen in their salaries. Eventually, some will be unable to pay the monthly payment. Banks, since they are corporations seeking profit, will foreclose. The homeowner, now squeezed dry, will either have to settle for a significantly smaller and/or cheaper property, or move back into a rental property to start again.
The banks will spend significant amounts of time and cash covering and processing these foreclosures. Smaller banks will be greatly affected. Their loan portfolios will turn negative. In order to rebound, the banks will either have to increase their own interest rates to make more money or sell some or all of their assets to others who have money. A domino effect / tidal wave will go through the industry. It will become a buyer’s market. Who still has money? Banks and large corporations do.
Look for massive consolidation in the banking industry.
In fact, I would even propose that the days of local banks and ‘mom and pop’ banks will entirely end. This is almost true today, but we have seen a rise in regional banks. Those too will be snapped up by large corporations and banks. Who has cash? Unfortunately, I am not a financial analyst (so feel free to dismiss this if you like), but I would be willing to bet that the following will win: Citibank, JP Morgan Chase, and Bank of America. I would also be expecting Microsoft to make some foray into banking soon. True, the entire banking industry will see great losses during this time, but the United States government will bail out the ‘good old boys’.
After it is done, only a few banks and corporations will own the majority of all property. Feudalism gets another step closer each day. An ever growing number of us will be locked into serfdom forever. The solution, hard as it may be, is for the masses to become smarter about money and debts. Next, I will be writing about the path forward.
