"The wages of men should be recognized in the social order as more important than the wages of money...." Abraham Lincoln
The leaders of the world are about to gather in New York and Pittsburgh to address the catastrophic failure of the global economy at a time when many are using the stock market boom to argue that recovery is in sight.
The hype around the stock bubble -- for that is what it is -- will most likely weaken any resolve to deal with the huge challenges posed by an out-of-control finance sector and a failing global economy.
Unemployment worldwide is expected to rise in 2009 to the historically unprecedented level of 240 million, the highest ever level on record.
This is the G-20's challenge: do they obey their democratic mandates at Pittsburgh and recognize that the wages of men and women are more important to democracy and stability than the easy money made from the wages of money?
Or do they go down in history as the wimps that fed and pandered to the destructive King Kong, the colossal and unaccountable monster that is the finance sector, towering over the global economy, destroying value and jobs, and weakening democracies?
This Summit represents a turning point in history. World leaders can act to tame the beast, regulate and constrain it, or choose to do no more than give the monster a gentle rap on the knuckles for excessive bonuses, and then allow it to continue on its debt-deflationary rampage through the global economy.
The casualties of this ruinous "bankers' crisis" are to be found all around Pittsburgh, site of the G-20 summit. In Pennsylvania alone more than 191,000 people have lost their jobs since August, 2008.
Nationally, 25 million Americans are unemployed, or under-employed. 40 million Americans are now living in poverty -- on incomes below $11,200, according to a recent Commerce Department report. The number of Americans getting food stamps is up 700,000 since May.
At the same time as we hear talk of a housing market revival, in July alone 360,000 middle-class Americans were evicted from their properties by banks. 2.3 million properties have this year been defaulted upon, auctioned or repossessed, and the number is rising at record rates. Banks have so many properties on their books they are turning to auction houses to conduct mass sales. This affects the housing market as a whole by steadily deflating prices across the board.
Only yesterday I heard of a New Yorker who offered to buy from a bank for just $60k a repossessed house valued at a $150k. His offer was declined and the house put up for auction. He attended the auction, and purchased the same house for 25k. A massive destruction of value -- not just of that property but of all the properties in the area.
At the same time Americans are walking away from their debts. Serious mortgage delinquencies (90 days non-payment) rose to a new high of 43 percent in the second quarter of the year. A number likely to subvert any real recovery is the recent data on credit contraction by banks and other financial institutions. Over the last quarter private sector credit in the US contracted by an astonishing $2.32 trillion -- "an unprecedented event in the postwar period".
Perhaps the biggest deterrent to recovery is the decline of real incomes. For all Americans, income fell by 3.1 percent between 2007 and 8 -- and has fallen further since then.
The great delusion spun by the finance sector is that the next recovery can be built on this destruction of value and wages, as long as the wages of money can continue to grow.
For against the grim backdrop outlined above, one sector is doing extraordinary well: the banking sector. "Guaranteed by the state, enjoying in essence free money and with, as yet, no increase in regulation, banks have been swinging for the fences." According to the Fed, banks have increased their assets by 10 percent to a staggering $14,200 bn.
Backed by the Federal Reserve's free money, and with taxpayer-funded bailout money bulging in their pockets, the finance sector has plunged into the Casino that is the stock market, and lured a tide of individual investors in behind them. This bubble is due to burst, and when it does many more thousands will lose precious savings.
The choice for the G20 is clear: to back the wages of men and women that elected them, or to back the wages of money.
Because none of the G-20 leaders have the courage or the political backbone of either Abe Lincoln or FDR, we know which way they will choose.