America is now poised to repeat a test of our Republic that played out at the end of the Revolutionary War in the state of Massachusetts, that of Shays’ Rebellion. In 1776, 90 percent of the patriots who fought in the war left their farms to do so. To feed the war effort, others sought loans from bankers and wealthy merchants to increase the size of their farms. Returning from the war in 1783, former soldiers found their farms in disarray. Returning from the war with war pay that had been severely devalued by banks, returning soldiers could not repay their farm loans. Farmers who had taken loans to increase their farm sizes now found with returning veterans, the demand for their produce had decreased and they also defaulted.
In the midst of these farm defaults, Massachusetts determined to raise revenues needed to pay war debt by taxing farm land and Boston bankers also demanded repayment of loans. Such began the conflict between the Eastern elites and Western farmers. Massachusetts had no bankruptcy law and the wealth class forced many farmers into debtor’s prison, creating fears that others would suffer the same fate. Farmers anxiously met in county conferences to send grievances to politicians, who had no political solutions. They petitioned the courts, which continued to foreclose on farms. These former revolutionary soldiers deciphered that the economy, banks, courts, and political systems of this new confederation that they had supported with their lives, now did not support their economic futures.
Led by Captain Shays, who had been a decorated soldier in the Revolutionary War, Western Massachusetts farmers conceived of the idea to organize and march on Boston and other Eastern Courts with enough weaponry to shut them down. They must have known that this uprising could not end well but in desperation they marched and did in fact shut down courts, temporarily halting foreclosures and debtor’s prison.
In response, Massachusetts passed the riot act to jail and take away properties of anyone who participated in these court disruptions. They then sent militia to capture leaders of the rebellion. Reacting to this aggression, Shays organized his own “militia”. Responding to Shays, 129 wealthy Bostonians paid for a mercenary army to march against the rebels. To have any chance against the mercenaries, in 1787, Shays determined to send his band of 2,200 men to secure the federal military stores in Springfield. In abandonment of all reason, Shay stated he would burn down Boston and overthrow the devils that controlled the courts. Shays’ Rebellion led to America’s founders adopting our constitution in 1787, including its federal protections of states against internal uprisings.
In 2011, America has experienced devastation to its middle class similarly to those that rose in rebellion against the elites in Massachusetts. Millions of modern Americans lost their homes not due to their deceitfulness or slovenliness but due to a fundamental shift in our economy that no longer supported their ability to repay their debts. A government and banking induced Ponzi collapsed the underlying value of their homes below the debt they incurred, and the resulting credit collapse caused a contraction of jobs and incomes.
While some civil groups have risen up like Shays and staged disruptions in courts that have caused delays in foreclosures, organized American resistance has been quiet. Unlike Western Massachusetts in 1783, Americans have not resorted to anything like armed rebellion. Millions have lost their life’s savings and thousands have been forced homeless. Yet thus far, unlike Greece, America’s social net has muted any resistance.
Unlike 1783, no one faces debtor’s prison. Although 10 million homes faced foreclosure since the crisis began, most states have allowed homeowners to simply walk away from their loans without recourse. For those states without nonrecourse provisions, a few have been able to work out short sales and deed in lieu of foreclosure. Most, however, have had to endure bankruptcy. Yet, unlike normal times, bankruptcy during this financial catastrophe has been accepted by the public without much social stigma. Six million Americans have faced it since the crisis began.
Without bloodletting, modern America has staged its own Shay’s rebellion. Sensing the inane injustice of an economic wave that has crushed financial stability, Americans have simply washed their hands of debt, giving it back to their bankers. In fact, in one out of every three foreclosures, homeowners who still had the wherewithal to continue paying their debt simply walked away from houses in which the debt exceeded the home’s value.
This modern American rebellion was not without consequence. Similarly to the elites’ initial quashing of Shays’ rebellion, banks reacted to America’s modern default by staging a “bank bombing” of America. With housing prices in freefall, profits of international banks plummeted. Some went into bankruptcy. Others merged. Finally, after several waves of financial panics, political appointees and elected representatives of the people colluded to bail out the banks to “keep the economy from imploding”. The Fed quickly shored up its fellow banks by patching financial cracks with two trillion dollars of quantitative easing.
Just as 1783 Americans were shocked when their militias fired on fellow Americans during Shays’ rebellion, modern America watched in cognitive disbelief as our elites and political supporters volleyed back and forth with the American people. Leading up to the crisis, reminiscent of Shays, banks and politicians worked in unison to create the stage for housing inflation, an expected recurring event in American history, committing Americans to trillions of dollars of unsustainable debt. As the debt Ponzi popped, Americans recognized a financial scam of historic proportions and felt no remorse in handing their debt back to the banks. As the financial elite turned on themselves in a flurry to rid their portfolios of financial stock precipitating a collapse of the world’s monetary system, banks responded by obligating politicians to throw bank debt back on the American taxpayers.
Now, all stare across the truce table sensing a potential mutually assured destruction. At an unwinnable impasse, the American people have still forced previous partners, EurAmerican banks and politicians, to face off in front of the electorate, challenging the elite to accept partial responsibility for the crisis. Knowing that the Great Middle has twice flushed Washington’s political power since the crisis began, once in 2008 electing the Democrats by landslide, and then reversing direction electing Republicans and the Tea Party when the Democrats failed to address the crisis, both parties are stalling in an increasingly obvious side step to avoid committing either elite or middle class constituents to the bargain.
Tea Partiers are beating the drums of Shays’ ancestral beginnings and attempting to rally the American people to their side. Yet the Great Middle, though beginning to rouse, remains muted. In a foreshadowing of the great conflict ahead, the Greek bourgeois have taken to the streets to demand equitable participation of their elites and to rue the austere contraction of their consumerism. America is now queuing behind Greece to continue on a much grander scale the Western upheaval that threatens our entire monetary system during the next phase of America’s modern Shays’ Rebellion.