"I found myself in a shadowed forest for I had lost the path. That shadowed forest, dense and difficult-death is hardly more severe!"
~ Dante, Divine Comedy: Inferno, Canto I

The First Circle of Economic Hell is the Ephemeral. It is populated with the froth of financial effluvia-the eternally roiling river of numbers concerning all things economic. Inflation. NASDAQ. Interest rates. Unemployment. Exports. Imports. Industrial production. Capacity utilization. Consumer spending. Money supply. Taxes. Commercial vacancies. Blah, blah, blah, ad infinitum.

The Ephemera are always with us, numbing us with their leaden, empirical embrace. Like the box scores in the sports section, they are the white noise that betokens Meaning in a civilization obsessed with quantification. Their message: things can be measured and, therefore, Reality holds.

But the Ephemera are not trending well for the Bush administration. Gasoline prices have soared. Median incomes are flat. Employment growth has stalled. Interest rates are up. Housing starts are down. Deficits are growing. Bankruptcies are rising. Savings have turned negative. The steady drumbeat of negative news has cast an irksome pall on an administration already hobbled by so many other substantive palls.

Still, any economic priest worthy of the mantle can dispatch Ephemera with a few Delphic incantations of "cyclical breathers" and "letting the market work out its hesitations." It is surely not to a man of Paulson's gravitas that we need turn to deal with such flighty matters. Indeed, heavier burdens await him, verily, beckon him, in the Second Circle.

The Second Circle of Economic Hell

"He placed his hand upon my own to comfort me and drew me into the secret sanctum. Such a commotion of groans and wails of woe, I wept myself from sheer bewilderment."
~ Dante, Divine Comedy: Inferno, Canto III

The Second Circle of Economic Hell is the Circle of Monetary Effects. It is concerned with prices and interest rates-the "veil of money" as it was once called. It is on top of this Second Circle that the First Circle of Ephemera rests.

The Monetary Effects were positive influences for the first four years of the Bush administration. Inflation was dormant and interest rates were the lowest in fifty years. These Effects produced a housing boom that turned American homes into clapboard-sided ATM machines. Workers re-financed their homes to carry out a consumption binge far beyond what their faltering incomes could actually support.

But as with the Ephemera of Circle One, the Monetary Effects have recently turned negative. Oil costs more than twice what it did when Bush took office and the effects are coursing through the economy, pushing up the price of everything from trucked-in vegetables to Handi-Wrap. To combat the inflation, the Federal Reserve has raised interest rates seventeen times since the summer of 2004. The combination of higher prices and higher interest rates are killing off the weak recovery that had been one of the few Bush administration bright spots.

Paulson' torment in the Second Circle is to pretend he can do something about it when, in fact, he controls neither prices nor interest rates. The Fed's Ben Bernanke, who does at least control short-term rates, has betrayed an artless determination to raise them in order to constrain inflation. He doesn't say so, but he also has to raise rates to continue to attract foreign buyers for the government's record debt-more of which, in deeper Circles, below.

None of this can be considered Providential for Paulson. The last thing he needs is the stigma of stagflation haunting his nascent tenure. Unfortunately, however, one can't choose one's punishment in Hell, whether Divine or Economic. Bound to his Fate, Paulson must lumber on.

The Third Circle of Economic Hell

"Of strange new torments must my verses tell, so I gazed unflinchingly into the pit, which was awash with anguished tears aplenty."
~ Dante, Divine Comedy: Inferno, Canto XX

The Third Circle of Economic Hell is hotter than the Second. It is the Circle of Fiscal Effects, concerned with transgressions involving taxes, spending, and government debt. On the Fiscal Effects of Circle Three rest the Monetary Effects of Circle Two. It is here that we start to glimpse the true inner workings of Economic Hell.

The problem for Henry Paulson is that the Bush administration has premised the whole of its economic policy on debt-massive debt. Bush inherited a $136 billion budgetary surplus from Bill Clinton but turned it into a $152 billion deficit his first year. He's never looked back. The national debt-the cumulation of all deficits since the founding of the republic-was $5.6 trillion when Bush took office but now approaches $9 trillion, up a breathtaking 50% in only five years.

The causes of this explosion of debt are easy to divine. Bush has relentlessly cut taxes on the rich while expanding federal spending at a rate surpassing even Lyndon Johnson's prodigious profligacy. It has allowed him to play Santa Claus but only by conscripting our children into the economic bondage of the greatest debts in history.

This tsunami of government debt has flooded the world with dollars, debauching the currency and sending the price of oil, gold, and other commodities through the roof. But the inflationary blowback has come to haunt the Bush economy, forcing the Fed to raise interest rates to throttle back economic growth, all noted in the Circle of Monetary Effects, above.

More disquieting, Bush's debts have made the U.S. economy perilously dependent on lending from abroad. Bush has borrowed more money from foreigners than all prior presidents COMBINED. To fund his own record debts, Bush goes, hat in hand, to borrow more than $2 billion a day from the rest of the world. Only the pathologically Republican fail to understand how such indebtedness undermines America's future growth while compromising its control of its own national affairs.

Even more problematic is that foreigners have begun to have their fill of dollar-denominated debt. They are having a harder and harder time understanding how-with the debt growing far faster than the economy itself-the U.S. will ever pay the money back. They can only be induced to continue lending by higher and higher rates of return, i.e., higher interest rates. This cycles us back, yet again, to Circle Two, above, and the steady strangulation of the economy caused by rising prices and rising interest rates. Which delivers us to the Gates of the Fourth Circle.

The Fourth Circle of Economic Hell

"I said: "My master, who has set this anguished gust in motion? And he to me: "You shall soon be where your own eye will answer that."
~ Dante, Divine Comedy: Inferno, Canto XXXIII

It is in the Fourth Circle of Economic Hell that Paulson's Saga becomes the Ordeal that it truly is. This is the Circle of the Real Economy on which the Third Circle of Fiscal Effects must inevitably rest. With all the glamour lavished on financial manipulation, we sometimes forget that, eventually, real things have to be made. Before money can be sold, subordinated, factored, futured, arbitraged, discounted, traded, and so on, real people have to produce and consume real products. It is here that Paulson and Bush cower in such hopeless despair.

More than 100% of the growth in Gross Domestic Product over the past five years is attributable to the expansion of debt. GDP is up $2.8 trillion since 2001. But government debt alone is up over $3 trillion for the same period. Add in the explosion of home mortgage debt at over $5 trillion, and a cumulative $3.5 trillion in trade deficit, and you get a Real Economy that is literally going backwards. The illusion of affluence is only sustained by selling off the family china. Working Americans know this all too well and the reason is not hard to see: the American consumer simply doesn't have enough money to pay his bills.

Real average hourly earnings are 14% below their 1973 post-War high. Real median household incomes are still 4% below where they were in 1999. The economy has lost almost 3 million manufacturing jobs since 2001-twenty per cent of its total. Delphi Automotive, the largest automobile parts manufacturer in the world is in bankruptcy. It is demanding 60% pay cuts of its work force. Ford and GM are closing 19 plants between them and have just announced severances for 45,000 workers.

Employment in the communications equipment industry is down 43% since 2000. Semiconductor employment is off 30%. Electrical equipment has shed one quarter of its industry's jobs. Textiles, off 40%. These are the high-wage jobs on which the American middle class-the American standard of living-once rested. Replacing them with jobs for waitresses and bartenders, home health care workers, fast food servers, and greeters at Wal-Mart doesn't begin to sustain consumer purchasing power.

But that is the overwhelming nature the employment picture under the Bush administration. The economy has needed seven million new jobs just to keep pace with population growth since 2000. It has added just over three million, virtually all of them in low-paid domestic service sectors. This evisceration of labor and labor-based income comes at a time when corporate profits are at their highest level as a percent of national income since 1947 while labor's share is at its lowest level since 1946. The rich are getting richer and everyone else is getting dramatically poorer.

These reversals are not accidents. They are the intended outcomes of two and a half decades of government policy designed to increase the returns to capital while reducing the bargaining power of labor. The policy began with Reagan's Supply Side Economics, which cut the marginal tax rate on the highest incomes from 75% to 38%. It is bookended by Bush's unending tax cuts for the wealthiest, from income taxes, to taxes on interest, dividends, capital gains, and, if he gets his way, the estates of multi-millionaires. All these cuts favor the very wealthiest of Americans at the expense of everybody else.

In this environment, with median incomes falling for decades, the only way to maintain the American family lifestyle is to borrow against the house. And when that is still not enough to keep the economy afloat, the government must step in and borrow against Americans' future earnings. But rising interest rates are already killing off the tenuous housing-based recovery. And as prices rise with them, consumers are left with even less money to spend. The imperative for more and still more government borrowing becomes overwhelming.

This is Paulson's inescapable dilemma. If he wants to continue the Republicans' policy of shifting the nation's wealth to those who are already the most wealthy, AND sustain the illusion of broad-based prosperity, he has no choice but to increase deficit spending (and therefore borrowing) at a greater and ever-greater rate. To be sure, the higher interest rates that result are an unquestioned boon to Paulson's coupon-clipping friends. But they are a death sentence for the Real economy.

The Fifth Circle of Economic Hell

"He made me stop and said: 'This is the place where you will have to arm yourself with fortitude.' Oh reader, do not ask me how I grew faint and frozen then-all words fall short of the horror it actually was."
~ Dante, Divine Comedy: Inferno, Canto XXXIV

We have reached, then, the Fifth and Final Circle of Economic Hell. It is this Circle upon which all other Circles-the Real Economy, Fiscal Effects, Monetary Effects, and Ephemera-ultimately rest. It is the Circle of Structural Decline.

As onerous as they are, the deficits described in Circle Three, above, constitute only a small fraction of the total indebtedness of the U.S. economy. The official "national debt" is approaching $9 trillion, as noted, a substantial figure, to be sure. But the government's "unfunded liabilities"-obligations it has committed to pay but for which there is no known source-are estimated at an incomprehensible $58 trillion. Add in revolving consumer debt, mortgage debt, and corporate debt, and the nation's total obligations exceed $90 trillion, more than seven times GDP. At the time of the 1929 stock market crash, total debt stood at two times GDP. These obligations will never be paid.

The reason is that the job drain from the U.S., while it looks like a torrent now, is still only a trickle. Though the U.S. won the Cold War, it is rapidly losing the Cold Peace, which began when China ended its communist isolation and joined the world market. The average wage in China is $.57 per hour. China has more than half a billion workers meaning the drain of good jobs from the U.S. to China can go on indefinitely-and will. Alan Blinder, a Princeton economist and former Governor of the Federal Reserve Board, has estimated that as many as 56 million U.S. jobs are susceptible to outsourcing of the sort that has already dealt such damage to U.S. incomes.

But this is exactly what Bush and Paulson and their fellow "conservatives" intend. This is the magic of "globalization" that the Heraldic voices of Thomas Friedman and others eulogize as inevitable. Globalization means liberating capital from all obligations to national well being, freeing it to pursue only the highest returns it can find, no matter where they may lie. That means seeking out the lowest paid labor and shifting all possible jobs there. That is China. Or India.

The U.S. worker and the U.S. economy will be left to their own devices. All social safety net systems must be dismantled for, given the colossal debt, they can no longer be afforded. These include welfare, unemployment and disability insurance, pensions, health care, Medicare, Social Security, job retraining, and eventually, education. The U.S. is a high cost economy in a world where, when capital is perfectly mobile, low cost wins. If capital is to be honored, then the U.S. must be ballasted, abandoned, in the way the British economy was in the aftermath of World War II. It will be milked of its remaining assets-that is what the huge run-up in debt is intended to do-and then thrown away.

The only government programs of substance that will be maintained will be police and military systems. The Patriot Act, with its massive recissions of civil liberties, is not so much directed at foreign terrorists as it is at future domestic dissidents, citizens who dare confront these putative inevitabilities with demands for democratic (as opposed to capitalist) recourses. The military, of course, is needed to carry out the nakedly colonial expropriations such as Iraq that remain the last hope of America to compete in the world: by controlling the oil, the substance without which no industrial civilization can operate.

Paulson's job, then, is to arrange the write down of debt that must accompany the effective bankruptcy of the U.S. He will have to promise an IMF-like fiscal austerity to foreign lenders to keep the funding flowing until there is nothing left to take. This will mean draconian cuts in social spending, no tariffs, and the removal of all remaining controls on the mobility of, and returns to, capital. The dollar will be precipitously devalued with the consequence of massive inflation and stratospheric interest rates. These will only accelerate the decline. A new international reserve currency, based on a basket of currencies including the Euro, the Yen, the Chinese Yuan, and the dollar, will be devised.

None of this will come as a surprise to Henry Paulson. It is Paulson, perhaps more than any other private individual, who has so successfully, happily, and ever-so profitably laundered the huge bubble of U.S. debt to his rich clients throughout the world. It is Paulson and his coterie of wealthy capitalists who have so diligently used the U.S. government to increase returns to, while removing democratic constraints on, private capital. Indeed, it is these same wealthy owners of capital who are Paulson's-and Bush's-true clientele.

The question for Paulson, therefore, as he looks into the Abyss of this final Circle of Economic Hell, is this: "Whose interests will he be serving as Secretary of the Treasury? Those of the American people or those of his investor class?" It is truly a question of Dantean proportions for the Second Ring of the Ninth Circle of Dante's Inferno is peopled by those who betray their class.

Ominously, however, the Fourth Ring of the Ninth Circle-the Innermost Ring of Hell-is reserved for those who betray their masters, their employers. Paulson's employer is now the people of the United States. Who will Paulson be compelled to betray? It is an interesting angel-counting exercise, a diversion worthy of its Medieval origins. But do we really need to ask?

Robert Freeman writes about economics, history, and education. Email to: robertfreeman10@yahoo.com.