THE US, THE DEBT SUPERPOWER
By Fred Schmid
[This article published in: ISW – Institute for Social-Ecological Economic Research, July 15, 2011 is translated from the German on the Internet, http://www.isw-muenchen.de/download/schulden-supermacht-fs-20110715.pdf.]
A few days ago the US celebrated its 235th anniversary of independence. However the country and its citizens were never as dependent as on that Independency Day. They are financially in the hands of banks, financial funds, the financially wealthy and Japanese and Chinese central banks. The greatest economic and financial power of the world is bankrupt. On August 2, 2011 it will hit the legally fixed debt ceiling of .29 trillion – nearly 100% (97.0%) of the GDP of the US. If Congress does not agree to an increase of the debt limit, the state will be insolvent. Then it will not be able to pay any bills. any salaries for public servants, place any state contracts or service its debts any more. Every day the debt burden of the state grows .38 billion. Every day the US government must receive 5 billion of fresh money from the financial markets. The rating agencies Moody and Standard & Poor’s have already put in question the US state and the triple A top rating because of deficient creditworthiness. A downgrading and an increase of interest for US government bonds would mean billions upon billions of additional spending.
,290 billion represents a debt burden per US citizen – whether child or senior – of ,000. The share per family was announced by the debt clock in New York: 1,853 at the beginning of July. Every American owes its largest creditor China ,000, altogether .2 trillion. The loans of the quasi-state financiers Freddie Mac and Fannie Mae from China are not even counted.
The state bailout of these gigantic real estate institutes, banks and insurances and the huge economic package to get the crisis-weakened economy on its feet again is one of the essential causes of the present debt crisis. The immediate state bailout actions for the banking system alone amounted to .1 trillion. The economic package cost 3 billion.
.5 TRILLION FOR THE MILITARY AND WEAPONS
The horrific expenditures for the military, armaments and war are the carcinoma of US state finances. Since 2001 when President George W. Bush declared “war on terror” on the world, the US government up to 2010 had pulverized .5 trillion for the military and weapons (according to SIPRI). In 2011 military spending rose to 0 billion and is almost twice as high as ten years ago (9 billion in 2001). 45% of world military spending falls to the US with four percent of the world’s population. No wonder the state indebtedness doubled within eight years.
All the costs of the US wars are not included in the defense budget. The Independent Institute estimates the US war costs for the Iraq war and the war against Afghanistan from 2002 to 2011 at .33 trillion. Nobel Prize winner Joseph Stiglitz, former chief economist of the World Bank and economic analyst Linda Bilmes calculated much higher amounts. The war in Afghanistan costs the US two billion dollars every week. The “sole superpower” (Brzezinski) no longer has the money for that. It is the victim of its “imperial overstretch,” the imperialist overreach of its power. 750 mammoth bases around the globe, cruise ships bristling with weapons in all the oceans and a dozen wars in the past twenty years have bled white the financial and economic power of the US.
However cutting military and armament spending is not a theme in the conflict of democrats and republicans around savings and raising the debt ceiling. Rather President Obama increased arms spending billion in the new US budget. The tax cuts for the rich put through by Bush are untouched, another reason for the gigantic deficit in the US budget. Raising corporate taxes as originally demanded by democrats also remains taboo. Radical spending cuts are expected in social security and especially with the state health insurances Medicaid (health insurance for the needy) and Medicare (for pensioners) developed by Obama. The republicans want to save .4 trillion to raise the debt limit correspondingly. Obama has already agreed to .5 trillion. The expected budget- and debt-“compromise” between government and the opposition will further drive the social divisions of the country.
RAISING THE STATE DEBT LIMIT WOULD ONLY BE A DELAY
Raising the debt ceiling and the anti-social budget savings only bring a delay in the US debt crisis – to the next election. The problem will press again in an intensified way in a few months since an economic upswing is not in sight and the economy will persist in its anemic state. Given the economic infirmity, a series of economists expect a double dip, a new plunge into a recession coupled with another financial crisis in connection with the Euro crisis for example. Unlike past financial- and worldwide economic crises, a state economic policy with Keynesian measures is hardly conceivable. Deficit spending with economic and bailout packages as in the 2007-2009 crisis is exhausted. Keynesianism says goodbye with a last “Hurrah!” It temporarily pulled capitalist industrial countries out of crisis at the price of a total debt overload. A new state intervention of global extent is only possible at the cost of a hyper-inflation along with the dispossession of small savers, pensioners and others who cannot flee into tangible assets and stocks.
The state debts are not the only huge debt mountain of the country. A whole chain of mountains opens up. Private households have piled up nearly the same staggering amount of debts. In the first quarter of 2011, it was .97 trillion (,970.4 billion). US consumers owed a lot of money, consumer- and mortgage credits. Two million US citizens endure the forced sales of their homes; four million are more than two months in arrears with the service charges on their mortgages. Consumer bankruptcies also rapidly increase with the continually high unemployment (9.3% officially – 15% unofficially).
If the state debts and private debts are combined, every US citizen owes ,000, an enormous mortgage for future generations. No impulse for the world economy starts from US consumers.
THE TREASURIES OF THE RICH FACE THE DEBT TOWERS
The debts of firms are mostly charged in some form to the general public – through prices or lows wages for the workforce. According to data of the European Central Bank, these debts of businesses (without the financial sector) amounted to 75% of the US GDP, trillion (,000 billion) at that time. Altogether a debt burden of trillion (,000 billion) hangs around the neck of the US economy, 2.7 times the whole economic output (GDP) of the US. Assuming an interest rate of five percent, the US society must fork out annually two trillion (50 billion) in interests, 13 percent of the whole GDP. These interests flow quasi as a tribute of the whole society to the money aristocracy of this society.
The economy of the US also consists of gigantic treasuries and not only of debt towers. The treasure vaults are the counterpart to these debts. They result in that others must become heavily indebted. Therefore nothing in the US outside of debts grows as quickly as money wealth. For example, assets under management (financial assets over 0,000 according to the Boston Consulting Group) in North America in 2010 climbed 10.4% to .2 trillion… The number of these households rose over eight percent in 2010. Investment funds in the US manage assets of ,600 billion, more than the rest of the world combined (,200 billion).
The division of US society in poor and rich is abysmal. Alongside the interest revenues, the profits of corporations are another propellant for financial assets. While the aggregate economy is paralyzed, the largest 500 corporations quoted on the stock exchange earn more than ever. According to Thomas Reuters, these corporations realized an overall growth of 14% compared to the strong quarter a year ago. America only grows for the rich.
Schmid, Fred, “Debts and a New Beginning,” July 2011
Problems don't disappear when they are ignored. Through deregulation, the law of profit maximization and government failure, the financial sector was expanded and made independent of the real economy. The state bailed out banks and banks made money lending back to the state. Harry Hopkins and FDR created 4 million jobs in 2 months. 14 million jobs could be created with the Internet.
2009 Report of the Stiglitz Commission on the Financial and Economic Crisis
Stiglitz, Joseph and Jean-Paul, Fitoussi, “Ways out of the Crisis.” March 2009