Quantum Pranx


Can’t blame economic policy on Osama

with one comment

by Nomi Prins
Originally posted May 5, 2011

When William Shakespeare penned the words, “All the world’s a stage” in As You Like It, it was centuries before tense photos of tense leaders would show tense concern over tense military operations.

What transpired around the killing, or killing announcement, of Osama bin Laden has been astounding. Whether you believe that bin Laden was “taken out” by this NAVY Seal operation, after nearly a decade, two wars, an over 81% increase in the military budget, and thousands of deaths, following the tragic loss of life on 9/11, or whether you believe he was dead and iced years ago and strategically used as a sign of unflappable leadership, is irrelevant. The surrounding uproar was theatre of the extravagant, no matter how you slice it.

But, theatre was invented for distraction, in culture and in politics. So while all the Osama drama was unfolding, the Treasury Department issued another plea for raising the debt ceiling, aka supporting its pro-bank policy. It went something like this:  We need to borrow more to pay social security obligations and not default on our debt, so other countries won’t question our ability to manage an economy  (as if that hasn’t already happened) and we won’t have to pay more to borrow more. If we don’t – you know what’ll happen – yep, another financial crisis.

The actual quote was: “The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.”

Though technically correct, omitting the fact that our leaders chose to float the financial system on such an unprecedented scale with no obvious Main Street benefits – hence the massive and quick debt increase – continues to show an aversion to reality.

Flashback five years. George W. Bush’s second Treasury Secretary, John Snow, plead the same thing. (He wasn’t unique, of course, Congress has acted at Treasury Secretary request to raise the debt ceiling 78 times since 1960, 49 times under Republican presidents, 29 times under Democrats.) Snow threatened he was being forced to cut payments to civil servants, among other things, but didn’t mention the real reason for the debt hike requirement, like the Iraq war or the tax cuts that stifled revenue collection. He had used similar arguments at the end of 2004, at time when the debt ceiling was about half what it is today.

Raising debt ceilings is a bi-partisan institution. The show is always the same. The Treasury Secretary begs Congress. Congress debates than agrees. No one questions the real reasons we pursued the excess borrowing.

Since Snow made his plea, a number of things happened; a continued war, an extra war, a collapse of the financial system, a subsidization of the financial system, a decline in employment, home prices, average wages for most of the population, and an increase in foreclosures, executive bonuses, and personal bankruptcies.

Hitting the debt ceiling isn’t about spending gone haywire because the Social Security and Medicaid buckets are too small for the people that rely on these programs; it’s about the big-ticket items– like recently, bailouts.

Here are some terms and numbers, intentionally blurred by those that control them. Feel free to jump ahead:

The total US debt is a combination of two things: the public debt (the amount of securities the Treasury issues in order to borrow money from international or national investors) and intragovernmental holdings (the amount of borrowing done from funds like the Social Security trust fund.) Public debt is always higher.

As of April 30, 2011 – the public debt stood at $9.63 trillion dollars and intragovernmental debt at $4.6trillion (68% and 32% respectively of the total debt of $14.24 trillion vs. a debt ceiling, or cap, of $14.294 trillion.)

In April 2010, public debt was $8.41 trillion and intragovernmental was $4.48 trillion (65% and 35% respectively of the total debt.) In April 2009, public debt was $6.91 trillion and intragovernmental was $4.27 (62% and 38% of the total debt. The debt cap then, was $12.14 trillion.

In April 2008, just after federal subsidization of the sale (read: hostile takeover) of Bear Stearns to JPM Chase, and before the rest of the big bailout began, public debt was $5.22 trillion, intragovernmental was $4.08 trillion (56% and 44% of the total debt.) The debt cap then, was $9.815 trillion.

In April 2007, public debt was $4.97 trillion, intragovernmental was $3.78 trillion (57% and 43% of the total debt.) The debt cap was $8.965 trillion.

Basically, what all these numbers show is that; public debt has nearly doubled since before the big bailout, while intragovernmental debt has increased just 15%.  Some (like Geithner, Bernanke, etc.) may argue that this balloon in public debt was required to save our economy, though there’s little evidence of it doing anything but cheaply floating our financial system, not least because nearly half of the additional $4.4 trillion of public debt that was created it is stashed at the Fed as either excess reserves or QE2.

Now that the Osama drama has died down a bit, and Congress returns to economic discourse with Tim Geithner over not whether, but by how much, the debt ceiling will be raised, the partisan bickering will resume its thunderous levels of inanity.

No one on the Hill will question the true why behind the debt – because it would lead back to that mammoth fuchsia elephant – we, the elected and appointed, screwed the country to support the power banks, and we’d do it again, in fact, we already are.

With respect to bin Laden, conflicting stories will go on forever – when did he die? Who’s body is in the ocean? Why didn’t Obama release a photo? But with respect to the economy, it’s super clear – our debt ballooned and our economy deflated, to subsidize banks and their practices, period. We can’t blame that on Osama bin Laden.

One Response

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  1. Except for the bailout of the financial system part, a pretty darned good article.


    06/05/2011 at 1:38 am

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