United States goes broke?
From The Daily Bell
Originally posted April 23, 2010
WHILE THE GLOBAL FINANCIAL SYSTEM REMAINS TRANSFIXED BY THE PROBLEMS of Greece and several other European countries risking default over their massive debts, the real threat is whether the credit standing and currency stability of the world’s biggest borrower, the United States, will be jeopardized by its disastrous outlook on deficits and debt.
That’s the fear raised in a devastating Op-Ed on the Financial Times website written by Roger Altman, a former deputy U.S. Treasury secretary under President Clinton who is now chairman of Evercore Partner, a leading global advisory and investment firm. “America’s fiscal picture is even worse than it looks,” Altman writes. “The non-partisan Congressional Budget Office just projected that over 10 years, cumulative deficits will reach $9.7 trillion and federal debt 90 percent of gross domestic product – nearly equal to Italy’s. “Global capital markets are unlikely to accept that credit erosion,” Altman says. “If they revolt, as in 1979, ugly changes in fiscal and monetary policy will be imposed on Washington. More than Afghanistan or unemployment, this is President Barack Obama’s greatest vulnerability.”
The financial outlook for the United States is frightening. The CBO projects the size of the federal debt to increase by nearly 250 percent over 10 years, from $7.5 trillion to a whopping $20 trillion. The only remote comparison to such a debt load occurred during World War II, a global conflict that killed 50 million people, Altman and other analysts have written. – NewsMax
How did the world’s biggest republic come to this pass? Twenty-five years ago, it seemed that America was indeed a shining light on a hill, or at least moreso than it had been for some time. The nation’s rhetoric was shaped by its most libertarian president in decades (Ronald Reagan) and its great adversary, the Soviet Union, had just come undone. Surely, an epoch of freedom and free-markets was resurgent?
Unfortunately … no. Today, America is embroiled in two wars, its culture is being gradually reshaped by an influx of Mexican immigrants, and what’s left of its republican heritage is being eroded by its current president, Barack Obama, perhaps the most actively authoritarian president the nation has known since Franklin Delano Roosevelt. Worst of all, the country’s central-bank driven economy is seemingly in full melt-down, presaging ever-larger deficits and eventual price inflation that may end up being catastrophic.
When one looks back at the decline and fall of the Anglo-American axis, one may be struck not by how precipitous it was, though it happened quickly, but by its apparent deliberateness. This article will provide a quick (modest) overview of what has happened to America over the past 25 years, and what might arrest the arc of its descent.
We will use as our touchstone, various American presidents, much as one might summarize the progress of empire by focusing on rulers. In fact, all countries are made up of people involved in their own “human action” and to summarize epochs by focusing on rulers is only a convenient way of presenting a particular set of observations which may or may not be true. However, it does provide us with a convenient sociopolitical shorthand.
Thus we begin our quick summary with President Ronald Reagan who came to power in 1980 facing numerous challenges including the Iran “hostage crisis” and a very deep recession. The most startling aspect of Reagan’s presidency was not its achievements but the rhetoric that Reagan himself employed as chief executive. Unlike American presidents who came later, Reagan actually seems to have been a sincere believer in free-markets and the American experience as enunciate by the great agrarian republican Thomas Jefferson. He preached the message of lower taxes, smaller government and supported the private sector as the font of innovation and entrepreneurship.
Regan did not actually shrink government. The military industry complex expanded under his reign and in many ways America Inc. did not deviate from its larger imperialistic course. But Reagan did set a different tone for the nation and the rhetoric of its leadership. When Reagan left office, the US was popularly seen to have won the Cold War, the economy was bouncing back from a stock market crash and the country had avoided additional major military entanglements.
Reagan’s vice president, George Bush, a former CIA chief, was a much different individual than Reagan. Bush utilized Reagan-style rhetoric, but once in office he pursued a major war with Iraq and went back on a pledge to raise taxes. He served only one term and lost a re-election campaign to a young, charismatic former-governor named Bill Clinton.
Clinton was a Democrat and he and his wife Hillary believed in activist government. Many of his more ambitious plans, such as the nationalization of health care, were stymied by a Republican congress that imposed a level of fiscal discipline upon the administration that it would not have achieved on its own. Despite the obvious intentions of Clinton and his wife to run a very activist regime, his actual achievements in moving the United States towards increased socialism were modest. His later term was marked by personal problems and a sex scandal.
Bill Clinton was succeeded by George Bush’s son, George W. Bush. With a republican congress and a nation that still seemed sympathetic to Reagan’s rhetoric of smaller government and a robust private sector, Bush was aptly positioned to build on the Reagan Revolution by cutting government, reducing federal expenditures and generally minimizing the role of the federal bureaucracy in the lives of working Americans.
It was not to be, however. George Bush proved that “compassionate conservatism” meant using the great power of the federal government to generate new rules and new programs at a national level. Unlike Reagan, Bush believed in the effectiveness of a US public school system run from the top down, and he even tried to involve the government directly in religious (church) affairs through a program that would have directly funded religious activities aimed at community outreach.
9/11 was a turning point for George Bush and America. The US lashed out at what the American political and military establishment maintained were the perpetrators and soon America was embroiled in wars in both Afghanistan and Iraq. Paying for these wars began to drain America’s coffers and Bush’s lack of follow-through in trimming the size and scope of the American government meant that US deficits mounted considerably.
Bush’s last major initiative was an attempt to open the door to millions of “illegal” aliens from Mexico, via legislation he backed that would have essentially have made Mexicans guest workers in the US and provided them with ways to gain citizenship. At the same time, the Bush regime had worked hard to erect an authoritarian system of state security that spied on citizens in the name of security and had the effect of diminishing the privacy and constitutional freedoms of every American.
Bush was very unpopular by the end of his term and this opened the door for the Democrats. The Dems won back both Congress and the presidency by running against Bush, the militarism of his foreign adventure, the erosion of personal freedoms under his regime and most importantly the economic crisis that had exploded toward the end of his final term.
The new president, Barack Obama, promised hope and change for a nation still reeling from 9/11 and an imploding economy. But Obama’s initial moves in office seemed to continue the path set by President Bush. He expanded the Afghanistan war and pursued activist federal government policies on a variety of fronts. Most recently his administration pushed forward with a further nationalization of health care and his economic policies have feature relentless money printing and discussions of additional taxes, including most recently a VAT (value added tax).
Rather than cut the federal budget, Obama has relentlessly added to the amount of money that the federal government spends every year. Ongoing militarism, economic pump-priming and a generally activist posture when it comes to government have meant that the federal government spends and borrows more andmore each year. In the near future, it seems that the Obama administration wants to impose new rules of the nation’s financial sector and also wants to pursue Bush’s vision of “open boarders” between Mexico and the US.
It is fairly obvious from the above summary that the free-market sentiments and rhetoric of Ronald Reagan have not been substantially realized over the past 25 years. Today, America has higher taxes and disastrous deficits and debts. The war continues in Afghanistan and the country is in a posture of confrontation with Iran as well. The economic crisis has been partially ameliorated by having the Federal Reserve print trillions of dollars, which have been provided directly to America’s largest financial entities to prop them up – but soon America may face the prospect of renewed inflation or even hyperinflation.
Meanwhile, the Obama administration, having further nationalized health care, is moving to do the same with Wall Street. The administration, with a shaky dominance in Congress, is rushing to pass further legislation that will rein in Wall Street and next up on the agenda is immigrant reform.
Ronald Reagan preached (though did not deliver on) the virtues of minimal government and a resurgence of the private sector. He was critical of government, which he said never provided solutions but only further problems. Today, Barack Obama presides over a government that has expanded a great deal in all aspects of its functions – seemingly in contravention of the rhetoric of a most popular and respected president.
From tax collection, to public schools, to health care, and many other areas as well, the federal government is increasingly invasive. Sixteen or so separate spy agencies increasingly monitor the activities of US citizens at home and abroad and a complex spider-web of taxes and regulations has been devised to monitor and control many aspects of citizens’ lives.
From a corporatist perspective, the Federal Reserve’s relentless printing of money has funded US government activism at home and abroad, and has propped up America’s sagging financial industry. But the real economy is still distorted in both America and Europe and the monetary reinflation presages further problems down the road. The country has become more militaristic, more debt ridden, less entrepreneurial, more oppressive to its own citizens and increasingly the federal government is involved in both Main Street and Wall Street businesses, not only from a regulatory aspect but from a decision-making aspect as well. There is no doubt that the merger of the fedgov and America’s private sector continues apace.
Here at the Daily Bell, we analyze dominant social themes – the fear campaigns launched by the power elite to capture increased wealth and generate increased control over society. When one looks at the arc of the American sociopolitical experience over the past 25 years, it seems fairly clear that the American federal government has become more authoritarian and more militaristic. There are competing trends of course, thanks especially the Internet, which has given rise to an American Tea Party movement that is determined to roll back federal activism. At the same time, one can question – it seems to us – whether the political process in the US is somehow divorced from the reality of what citizens want.
Given the espousal of free-market rhetoric only 25 years ago under Ronald Reagan, it is startling to see how far America has moved in the direction of increased government activism. In almost every area of governance, foreign affairs and general economic polity, America has moved in the wrong direction from a free-market standpoint. Is this coincidence?
We would argue that there is a power elite both in the US and Europe that in fact may be seeking to undermine foundational elements of civil society in order to further merge nation-states in pursuit of world government. The amount of damage that has been done to the West in the past decades – especially America – hardly seems coincidental. Serendipity cannot explain it, in our opinion. However, the Internet has proved to be a countervailing force, especially in America, when it comes to these trends – and that is an optimistic sign.
From both an investment and quality-of-life standpoint, the next decade of the 2000s should be an especially important and interesting one. The two driving forces of the modern West, in our view, are elite programs to further centralize Western governance and the Internet, which provides a platform for those that support a decentralization of power and the resurgence of private markets. No one can say for sure how this titanic battle will turn out. But it has surely been joined, and never in recent history have the dividing lines been so obvious or defined. Investors – and Western citizens in general – ignore the reality of this massive, and partially subterranean conflict at their own peril.
Written by aurick
28/04/2010 at 10:15 am