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Protesters at Congressional hearings last year jeer former Lehman Brothers CEO Richard S. Fuld, who walked away from the largest bankruptcy in U.S. history with millions in compensation.JONATHAN ERNST

In his seventh book, Empire of Illusion: The End of Literacy and the Triumph of Spectacle, veteran U.S. war correspondent and Pulitzer Prize winner Chris Hedges systematically attacks what he sees as the self-deluding and corrupt character of American society, economics and global influence today.

In this excerpt from the final chapter, he ties his analysis to the recent bailouts of banks and other corporations.

Democracy is not an outgrowth of free markets. Democracy and capitalism are antagonistic entities. Democracy, like individualism, is based not on personal gain but on self-sacrifice. A functioning democracy must often defy the economic interests of elites on behalf of citizens, but this is not happening.

The corporate managers and government officials trying to fix the economic meltdown are pouring money and resources into the financial sector because they are trained only to manage and sustain the established system, not change it.

John Ralston Saul writes that the first three aims of the corporatist movement in Germany, Italy, and France during the 1920s, those that went on to become part of the fascist experience, were "to shift power directly to economic and social interest groups, to push entrepreneurial initiative in areas normally reserved for public bodies" and to "obliterate the boundaries between public and private interest - that is, challenge the idea of the public interest."

It sounds depressingly familiar.

The working class, which has desperately borrowed money to stay afloat as real wages have dropped, now faces years, maybe decades, of stagnant or declining incomes without access to new credit. The national treasury, meanwhile, is being drained on behalf of speculative commercial interests.

The government - the only institution citizens have that is big enough and powerful enough to protect their rights - is becoming weaker, more anemic, and increasingly unable to help the mass of Americans who are embarking on a period of deprivation and suffering unseen in this country since the 1930s. Creative destruction, as the economist Joseph Schumpeter understood, is the essential fact about unfettered capitalism.

"You are going to see the biggest waste, fraud, and abuse in American history," Ralph Nader told me when I asked him about the bailout. "Not only is it wrongly directed, not only does it deal with the perpetrators instead of the people who were victimized, but they don't have a delivery system of any honesty and efficiency.

"The Justice Department is overwhelmed. It doesn't have a tenth of the prosecutors, the investigators, the auditors, the attorneys needed to deal with the previous corporate crime wave before the bailout started last September. It is especially unable to deal with the rapacious ravaging of this new money by these corporate recipients," Nader said.

"You can see it already. The corporations haven't lent [out the bailout money] They have used some of it for acquisitions or to preserve their bonuses or their dividends. As long as they know they are not going to jail, and they don't see many newspaper reports about their colleagues going to jail, they don't care. It is total impunity. If they quit, they quit with a golden parachute. Even [General Motors CEO Rick]Wagoner is taking away $21-million."

There are a handful of former executives who have conceded that the bailouts are a waste. The former chairman of American International Group Inc. (AIG), Maurice R. Greenberg, told the House Oversight and Government Reform Committee that the effort to prop up the firm with $170-billion has "failed." He said the company should be restructured. AIG, he said, would have been better off filing for Chapter 11 bankruptcy protection instead of seeking government help.

"These are signs of hyper-decay," Nader said from his office in Washington. "You spend this kind of money and do not know if it will work.

"Bankrupt corporate capitalism is on its way to bankrupting the socialism that is trying to save it," he added. "That is the end stage. If they no longer have socialism to save them, then we are into feudalism. We are into private police, gated communities, and serfs with a 21st-century nomenclature."

The United States will not be able to raise another $3- or $4-trillion, especially with our commitments now totalling more than $12-trillion, to fix the mess.

It was not long ago that such profligate government spending was unthinkable. There was an $800-billion limit placed on the Federal Reserve. The economic stimulus and the bailouts will not bring back our casino capitalism. And as the meltdown shows no signs of abating, and the bailouts show no sign of working, the recklessness and desperation of our capitalist overlords have increased.

The cost to the working and middle class is becoming unsustainable. The Fed reported that households lost $5.1-trillion, or 9 per cent, of their wealth in the last three months of 2008, the most ever in a single quarter in the 57-year history of record-keeping by the central bank. For the full year, household wealth dropped $11.1-trillion, or about 18 per cent.

These figures did not record the decline of investments in the stock market, which has probably erased trillions more in the country's collective net worth.

The bullet to our head, inevitable if we do not radically alter course, will be sudden. We have been borrowing at the rate of more than $2-billion a day over the last 10 years, and at some point it has to stop. The moment China, the oil-rich states, and other international investors stop buying U.S. Treasury Bonds, the dollar will become junk.

Inflation will rocket upward. We will become Weimar Germany. A furious and sustained backlash by a betrayed and angry populace, one unprepared intellectually and psychologically for collapse, will sweep aside the Democrats and most of the Republicans.

A cabal of proto-fascist misfits, from Christian demagogues to simpletons like Sarah Palin to loudmouth talk-show hosts, whom we naïvely dismiss as buffoons, will find a following with promises of revenge and moral renewal. The elites, the ones with their Harvard Business School degrees and expensive vocabularies, will retreat into their sheltered enclaves of privilege and comfort. We will be left bereft, abandoned outside the gates, and at the mercy of the security state.

Lenin said that the best way to destroy the capitalist system was to debauch its currency. As our financial crisis unravels, and our currency becomes worthless, there will be a loss of confidence in the traditional mechanisms that regulate society. When money becomes worthless, so does government.

All traditional standards and beliefs are shattered in a severe economic crisis. The moral order is turned upside down. The honest and industrious are wiped out while the gangsters, profiteers, and speculators walk away with millions.

There are signs that this has begun. Look at Lehman Brothers CEO Richard Fuld. Many of his investors lost everything and yet he pocketed $485-million. An economic collapse does not mean only the degradation of trade and commerce, food shortages, bankruptcies, and unemployment.

It also means the systematic dynamiting of the foundations of a society. I watched this happen in Yugoslavia. I watch it now in the United States.

The free market and globalization, promised as routes to worldwide prosperity, have been exposed as two parts of a con game. But this exposure does not mean our corporate masters will disappear. Totalitarianism, as George Orwell pointed out, is not so much an age of faith as an age of schizophrenia.

"A society becomes totalitarian when its structure becomes flagrantly artificial," Orwell wrote. "That is when its ruling class has lost its function but succeeds in clinging to power by force or fraud."

They have engaged in massive fraud. Force is all they have left.

There are powerful corporate entities, fearful of losing their influence and wealth, arrayed against us. They are waiting for a moment to strike, a national crisis that will allow them, in the name of national security and moral renewal, to take complete control. The tools are in place.

These antidemocratic forces, which will seek to make an alliance with the radical Christian Right and other extremists, will use fear, chaos, the hatred for the ruling elites, and the spectre of left-wing dissent and terrorism to impose draconian controls to extinguish our democracy. And while they do it, they will be waving the American flag, chanting patriotic slogans, promising law and order, and clutching the Christian cross.

By then, exhausted and broken, we may have lost the power to resist.

Excerpted from Empire of Illusion. © 2009 Chris Hedges. Published by Knopf Canada. Reproduced by arrangement with the Publisher. All rights reserved.