Wednesday, November 17, 2010

Debt, and more debt

The recent cover of The Economist portrays a gaggle of Republicans on horseback in front of the U.S. Capitol building, in a posse pose copped from the film “The Magnificent Seven”—with Sarah Palin in the Yul Brynner role. A poor analogy; in the movie, the seven (as in the original “Seven Samurai”) were protecting defenseless peasants against marauding bandits. The Republican horsepersons have very different priorities: their defending the marauding bandits (Wall Street, corporations, financial and insurance companies) against the defenseless peasants (the working poor). During the Bush administration, when these mostly the same Republicans road into town, they let the bandits run wild throughout the countryside, doing as much as they could get away with. Naturally, the bandits pleaded poverty when they ran out of plunder and demanded replenishment from the government and hapless taxpayers. When the peasants became upset by these demands, the replenished bandits tried to convince them that the Democrats who road into the village with the idea of saving them from the bandits (or at least keeping the bandits at bay with contributions from the Treasury) were the real villains. The bandits and their Republican allies succeeded in convincing a majority of the peasants through clever propaganda that their marauding ways had been forced upon them by budget deficits; what they didn’t mention was that these deficits might make discontinuing tax cuts for the rich and looking askance at corporate welfare and attempts to dodge tax liabilities, with an eye to reducing the deficit and maintain programs for a civil society, more likely.

Meanwhile, Barack Obama’s recent trade mission was unsuccessful, in part due to the fact that our trade partners seemed to be less inclined to the U.S. attempt to open up markets for U.S. goods and inflate Chinese currency. Why? Because they see now that the Republicans are dead-set crazy against him, at least in the House, and this has weakened U.S. influence. Is it not remarkable how the Republicans actually weaken the U.S. internationally? They always think that playing bully wins friends, but only in the short term, as tempers simmers and the desire for vengeance increases. The international community instead is demanding that the U.S. clean-up its debt problem, the excuse they always use to when the U.S. demands open markets. The rest of the world knows that the U.S. is the world’s biggest consumer market, and they want to keep it that way. What they don’t seem to understand is that with jobs going overseas and wages decreasing in order to compete with low-wage labor, there are fewer Americans with the cash to buy their products. Nobody wants a trade war, but nobody wants to play fair either.

Domestically and internationally, the U.S. is being hammered for its federal deficit, but it isn’t the only debt issue this country faces. Back in 2006, U.S. private debt was 126 percent of income, and some were predicting that this problem would be the harbinger of another economic depression (something like what we are in now). Today, private debt is around $13.5 trillion, comparable to that of the federal national debt. Non-financial business debt, according to a Fed study out last September, is about $11 trillion. State and local government debt is “only” about $3 trillion. Total debt is a mind-boggling $50 trillion dollars, three times the GDP. The same study noted that the total value of U.S. financial assets is $131 trillion, while liabilities are $106 trillion. These numbers are just too big for my little head to comprehend, but they do indicate that the problem is too big for simplistic statements and token measures.

Things could get a lot worse. The underfunded amount of future pension programs around the country is estimated at $3 trillion. Although some studies suggest that the claim that Social Security is in dire straits is overblown and an attempt to force privatization, runaway health care costs are expected to double by 2018. The people who will be hurt by this more than anyone are not Republicans and their wealthy corporate and big banking backers who pay for the propaganda they feed the masses, but the masses themselves who are paid insufficiently or are jobless—and accumulating ever more debt. Thomas Jefferson foresaw the problem of this sort of debt, warning that:

“If the American people ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless. I sincerely believe the banking institutions (having the issuing power of money) are more dangerous to liberty than standing armies. My zeal against these institutions was so warm and open at the establishment of the Bank of the United States, that I was derided as a maniac by the tribe of bank mongers who were seeking to filch from the public.”

Although there technically is no “Bank of the United States,” the Federal Reserve in fact has all the elements that Jefferson warned against—and worse. The Fed is not a government entity, but a private corporation whose basic interest is in maintaining the profit margins of corporations and stockholders; its interest in job creation is only peripheral to its principle mission. Note that the Fed gave trillions of dollars (most of it unaccounted for) to financial and business entities during the current crisis (and even before), while untold numbers of people have lost their homes and jobs because the Fed didn’t require that some of this money be used to relieve public distress or create jobs.

Every nation in the world (except maybe China) has massive debt problems relative to their GDP. Japan, in fact, has a much worse debt problem than the U.S.; by next year, it is estimated that it will have 200 percent as much government debt in relation to its GDP, compared to 100 percent in the U.S.; surprisingly, Latin American as a whole has government debt only one-third of GDP. The Republicans talk a big game about what they are going to do about the deficits; those without short memories might recall that during the Bush administration the national debt ballooned out of control, but that was so yesterday for the short of memory. The cutting of earmarks—something we’ve heard about many, many times before—even if implemented will barely be noticeable, and may cause more harm than good to cash-strapped states. Cutting “welfare” and social programs—unless we’re talking about corporate welfare—won’t be much help; even excluding government pensions, Social Security and Medicare, only 18 percent of so-called “welfare programs,” which includes unemployment insurance, goes to what some people disparagingly refer to the “welfare queens,” as well as food assistance and school lunches. Surely there are ways to trim Medicare and the defense budget to make a noticeable (but not substantial) impact on the budget reduction. No further stimulus packages will make a dent on next year’s deficits, but otherwise even eliminating Education and HUD will have little noticeable impact while only causing more pain on the state and local level. Health care costs—with or without reform—continues to run out-of-control, and the Republicans have offered zero plans on how to deal with it, short of allowing many more millions to go without health insurance.

Anyone who claims that tax increases are not necessary to close the gap is just playing to the crowd. Economist Robert Reich has recently written that the poor need the crumbs that the Bush tax cuts gave them more than the rich need the massive cuts they were given. Allowing the tax cuts for the top 1 percent to sunset would free-up $120 billion over the next two years, which would be enough to cover further unemployment insurance costs for the jobless. Republicans continue to insist that tax cuts for the rich will “trickle down” into job creation. When are people who vote Republican going to wake-up and realize that this is simply not true? With unemployment continuing near 10 percent and those tax cuts for the rich in place these past two years—where are those jobs?

As if that isn’t bad enough, tax-cheating is rampant. Back in 2007, it was reported that the tax gap between what people owed and what they paid that year was $345 billion—and we are not even talking about off-shored assets not subject to taxation. In some states, the tax payment gap exceeds their budget shortfalls. These days, law firms are telling you how to they will help tax cheats pay pennies on the dollar when the IRS comes calling. Some of the largest corporations pay no taxes at all. Why are not Republicans and their lemming constituency not concerned about this? Oh, I forgot: They don’t like paying taxes if they can help it.

I frankly don’t foresee the new Republican “posse” doing anything useful for the long-term. In 2008, they seemed dead in the water after all the crimes against America they committed. They committed further crimes by lying to the American public about their culpability in the current malaise the country is facing by manipulating the darkest aspects of the national character. We may soon see what they really are: intolerant, bigoted bullies beating on the most vulnerable in this society, just to keep their own power.

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