I must politely disagree with Felix Salmon of Reuters, Ben White at Politico and others who wring their hands and fret about the undoing of the world in the prospective debt default by the US. The damage is done, Felix declared on Reuters.com. I have heard similar views from many friends and colleagues, but I must disagree.
First the debate over the budget, pathetic as it may seem, represents an increase in the intensity of the public discourse over the nature of the American economy. Debate is good. It is the essence of checks and balances, the key feature that separates American democracy from the authoritarian states of Europe and Asia.
For too long Americans have been on auto pilot, relying upon elected representatives and various flavors of hired agents in Washington and on Wall Street to manage our money and our nation. Itâ??s time to start paying attention again.
Second and more important, the debate over federal spending and the tradeoff between higher taxes and greater fiscal discipline begins a larger discussion about the nature of the American political system. After 80 years of borrow, spend and inflate to finance the Cold War, Housing Bubbles and the rest of the world's growth needs, the US economy has reached an endpoint. The experiment in corporate statism begun by FDR in the 1930s and extended through and after WWII has brought us to the brink of insolvency.
Political gridlock in Washington means not only an end to growth in government spending, but also that we are no longer willing to serve as the overdraft account for the world in terms of demand for imported goods and services. As I noted in my 2010 book Inflated, the US has bailed out the no growth states of Europe three times since WWI. Each time our allies in western Europe have defaulted on their debts. Bring the US troops in Europe home, I say, right now.
Asia, likewise, has grown at the expense of American jobs, the bitter legacy of owning the world's reserve currency. As the US reins in spending and the monetary excesses that created the illusion of economic growth since the 1980s, an illusion funded with inflation and vast amounts of public debt, our ability to bail out the EU will fade. Remember George Washington's warning about "European entanglements."?
But the third and most important side effect of the fiscal crisis in Washington is that people around the world will start to diversify both commerce and financial transactions out of dollars and into other currencies. Far from being a threat, I welcome such an evolution. The less of world trade and finance that flows through dollars, the less easy it will be for the Treasury to issue debt or for the Fed to monetize this borrowing on the backs of US consumers and businesses via steady, unrelenting inflation.
Of course Nobel Prize winning economist Paul Krugman rightly notes that a reduction in federal spending will result in pain for many Americans. But what he fails to tell these Americans, especially low income working people he pretends to love, is that the cost of the borrow and spend policies advocated by second generation New Dealers is persistent inflation, a diminution of purchasing power that is just as surely killing the hopes and dreams of all Americans.
I have long argued that a low growth, low inflation environment is better for the working people that the manic, boom and bust cycles caused by big federal deficits and following accommodative Fed policies to make this all seem to work in a nominal sense. Alan Greenspan, after all, was at best a tool; a cog in the machine.
Americans need to understand that we face not a mid-cycle slowdown, to paraphrase the economist Richard Alford, but a post-stimulus adjustment to economic reality. Think post WWII in fact. If this crisis helps to break the cycle of debt and inflation, that is a big plus for America's long term prospects.
The right choice for Americans is to say no to ever more debt and to instead embrace debt reduction and restructuring of insolvent banks and markets to restore economic solidity. Both in the EU and the US, debt levels by governments and consumers must be reduced to restore national and personal solvency, and thereby start the great growth game all over again.
Do Americans have the courage to make the tough choices, cut spending and also generate more revenue, and thereby set an example for the world? I think the answer is yes, but it may take some time. That is why I am in no hurry to pass the new debt ceiling. A few days or weeks of pain will raise the political temperature in Washington even further and bring all Americans into the proverbial kitchen for a long overdue family discussion about money. And that is a very good thing.
It would be fitting to hand the Repubs back the same piece of crap economy they handed the Demos â?? served up by their own doing. I guess they could pull a lot of marginally legal, eleventh hour back room deals like the last problem they supposedly solved. YOU know â?? the financial system, the problem our economy is still cleaning up â?? the paragons of society â?? the Masters of the Universe.
The problem is that both parties are equally at fault â?? no matter all the huff and bluster they put on. As far as the debt crisis goes, how do the citizens of this country deserve that monumental shortcoming from the political economic system? They donâ??t. Itâ??s that simple. Until ALL Americans pull their own heads out and do something about it, like expecting a lot more substance out of Congress, especially the US Senate, then Americans deserve their crooked, self-serving politicians.
In the meantime, if it costs more for a bunch of crappy Walmart junk that belongs in the dump before itâ??s even sold, hey the jokeâ??s on us!
Excellent, persuasive article, although Krugman should consider that a reduction in federal spending will not result in pain for many Americans. The cornerstone to understanding government fiscal policy is that government has no money. The second cornerstone is that it does not create anything of value. Government can only take from one person (or corporate legal entity) by taxation and give that money to another. So what was the return on forgiving debt to European countries? Nothing. The administration cost of this wealth redistribution is the cost of government. If the collective populace keeps what it earns, it saves the administration cost of government, and flows the money through the economy free of the artificial distribution created by government. While indeed â??someâ? may feel the pain of not receiving government largess, that is not an economic decision, but a political one. Cutting medicare or the military is a political choice, and determines if there is any â??painâ?, or not.
Whalen article can be summed up in this: â??After 80 years of borrow, spend and inflate to finance the Cold War, Housing Bubbles and the rest of the world's growth needs, the US economy has reached an endpointâ?
He justify America fiscal and monetary recklessness, political corruption, corporate greed, even the selling of fraudulent financial products, of the past dozen years in the broad context of helping the world. Like, where would the world be without America?
This is classic imperial thinking which an educated world will not be fooled. This is the same kind of thinking imperial Britain used in the mid-19th century â?? it farmed and produced huge amount of opium in colonial India paying slave wages. It then forced the importation of this deadly drug into China under military guns to â??helpâ?? China trade surplus. To create much needed jobs in India. And if China blows up along the way, well, where would China be without the generosity of Great Britain?
I ask where would America be without the world?
America economic problems are created purely to satisfy its own out-of-control demands. Nobody in the world asked America to â??please import our products, borrow our savings, to feed your consumer addictionâ??.
America economic problems are due to US corporations placing ever-higher quarterly profit the only thing that matter, even when it means virtual de-industrialization of production and associated skills-train. They routinely layoff millions to the streets to â??make the numbers this quarterâ??, conveniently transferring the human cost to the government. But refuse to pay a dime more in tax. They feed on government free lunch.
America economic problems are created to sustain a massive military-industrial empire far far beyond the legitimate needs of self-defense and all defense treaties. Even beyond the considerable ego of a superpower. Nobody forced G W Bush borrow a few trillion dollars to fund wars of occupation he started. He did it because he thought he could get away with it.
No foreigner forced the â??masters of the universeâ?? at Wall Street to twist, contort and corrupt financial capitalism to the point to creating national economic disaster so that they can reap untold billions in bonus. They did it not as a favor to the world. Certainly not to help their country.
So Whalen piece, while offering some useful observations, hide misdeeds and even stupidity under the umbrella of â??America must act as the world engine of growthâ??. Yes, but an engine of growth does not mean an engine that drinks top-nitro fuel, rev to 20,000 rpm and blows up.
Excellent column. FINALLY someone in mainstream journalism is looking at the fact of our outlandish and unsustainable spending and debt.
Previous â??routine and uncontestedâ? increases in the debt limit have been no different than a consumer being able to just change (increase) the credit limit on their credit card when when their credit limit is reached. Hello?
Responsible credit users do not constantly increase the amount that they have to borrow. Money borrowed on which interest is paid is money they do not have and should not spend.
Our government and both parties have proved incapable of governing within the economic means of â??we, the peopleâ?. The only way to stop the overspending is for us to cut up their credit card. THATâ??s what this is all about.
Without a deadline, Congress never does much and this is no different. The time to start the system to fiscal sanity is long past, but if not now, when? If not here, where?
Anarchist. I donâ??t know if heâ??s consciously or subconsciously an anarchist, but the author is an anarchist just the same.
The massive dislocation America will suffer from a default, and the rest of the world along with it, will make shredded cabbage of Americaâ??s social, governmental, financial and economic orders. The country, in its already profoundly weakened condition, simply cannot sustain the kind of â??adjustmentâ?? he is recommending.
Yet, eventually something even worse in the way of a crisis is coming if America does not somehow get itâ??s house in order.
Catch-22 here, because weâ??re hosed if we do what the author suggests and weâ??re hosed if we donâ??t.
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