Leverage, by Karl Denninger

Karl Denninger is no stranger to these pages. With respect to the financial meltdown–and subsequent bailouts–that have crippled our economy, Denninger was one of a handful of commentators and economists who called it.

He has written a book about the conditions that led to the collapse, complete with an assessment of the current situation and what needs to change. That book is called Leverage.

I’ve read a fair share of books about the meltdown, and Denninger’s is probably the most comprehensive assessment of the debt situation in the United States. He leaves no stone unturned: federal spending; the complicity of the Federal Reserve from Volcker to Bernanke; Congress; Presidents from Reagan to Obama; federal regulators whose negligence bordered on criminal; Government-Sponsored Entities (Fannie Mae, Freddie Mac) whose leaders were grossly corrupt; the OTC derivatives that brought down AIG and other hedge funds; the banksters who got to walk away richer in spite of the financial carnage they caused; the consumer credit industry; the pension system; the health care system; and, of course, the student loan racket.

But Denninger doesn’t just stop there: he describes, in detail, the evolution of the culture of debt, fed by an increasing sense of entitlement by the American people, in coordination with a mother lode of unfulfillable promises made by government at local, state, and federal levels. He could have easily named the book Debt Spiral.

Anyone who thinks we can resolve Medicare, Medicaid, and Social Security by making small changes, needs to read Leverage.

Some reviewers contend that Denninger’s nebulous solutions–“we need to have a discussion about X”–weaken his case. Honestly, I think that is a strong suit on his part: there are no pretty answers to our crises, and Americans need to decide, soberly, what the heck it is we want from our government.

Ponzi schemes tend to promise something for nothing. Those who invest early in that scheme will benefit–and many have. Trouble is, if you still are holding the bag when the scheme breaks, you are screwed. And make no mistake, government has run several Ponzi schemes, and the system has run out of suckers. Next to our government, Bernie Madoff looks like an Eagle Scout.

Perhaps Denninger’s most controversial section is his take on our health care system. Liberals–and some conservatives–will cringe when they look at his recommendations. While I have mixed feelings about his solutions for health care, but he does provide a good explication of the problems that exist in our system.

His chapter on energy promotes something that Ticker readers are well-familiar with: the liquid fluoride thorium reactor (LFTR). I’m not necessarily on the bandwagon, but–honestly–we need to look at more alternative sources of energy that offer the scale and energy density that we need.

The LFTR reactor could be a potential solution, but we won’t know until we get the government the heck out of the way and allow innovators and developers pursue it. As for the NIMBY (Not In My Back Yard) folks, I say build it in my back yard. I’m game.

Overall, I give Denninger 4.9 out of 5 stars for this one. I highly recommend it.

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