The debt ceiling debate drags on...and on....and on...and on... In all likelihood, there will be a deal before August 2nd. Obama has already offered over $200 billion in painful spending cuts, and Republicans will agree to raise taxes for roughly the top 1% of the American population - sacrificing fundamental rights for the American people like tax-breaks for corporate jets and ready-to-use offshore bank accounts where hard-earned blood money can be saved from the prying hands of the IRS. But these tax hikes won't go into effect until well after the 2012 election - when President Romney will (so they hope) completely repeal the tax hike. Yet it hasn't happened yet, because even these miniscule sacrifices are too much for the 60 members of the Tea Party Caucus. And if their demands are not met, they may well unseat our surprisingly practical Speaker of the House, John Boehner, with their more demagogic choice, Majority Leader Eric Cantor. But even if we raise the debt ceiling, the fact that we've come so close - yet again - to the brink of economic cataclysm tells us all we need to know about how quickly America has declined.
The equation is, unfortunately, as simple as this. If the debt ceiling is not raised, America stops paying its bills. If America stops paying its bills, the government defaults on its credit. If we default on our credit, the Standard & Poor and Moody Indexes demote us, instantly, to junk bond status. If America's credit has junk-bond status, America must pay 14.3 trillion dollars worth of debt in a flyspeck's worth of time. Until we do, it will be virtually impossible to borrow any money from any country, any bank, or any investor in the world. And even if we elect President Ron Paul along with Vice-President Dennis Kucinich, we will have to raise taxes well past Great Depression levels; all the while shrinking social programs to a size fit for a bathtub. The entire world would almost instantly be plunged into the catastrophic economic depression 2008 nearly was - with all the breadlines, Hoovervilles and political instabilities which that image should conjure.
How did we get here? In 1998 the Clinton White House balanced the budget for the first time since 1969 (and by 2000 created a $230 billion surplus). Whoever followed him in 2001 finally had the golden opportunity to pay off the US Government's $5 trillion debt, accrued mostly by the Reagan Administration. America would have been in sound financial shape, and therefore would become what Clinton called 'The World's Indispensible Nation' - able to judiciously use hard and soft power with the help of democratic allies to implement reforms to dictatorships and failed states all over the world. What happened?
Well...we all know what happened. The important question is not the what, but the how. Certainly, the Iraq war helped. But even the combined wars of Iraq and Afghanistan have thus far cost 'only' $1.2 trillion. There is still $13.1 trillion unaccounted. The real source of it is, of course, The Bush Tax Cuts. In concrete terms, the tax cuts eliminated $2.6 trillion from government funds. But that's in addition to the $5 trillion America already owed to its creditors. The remaining six trillion dollars can be accounted for by the accumulation of interest on loans, declines in revenues due to a recession (which was itself due to Republican insistence on deregulation), and the bailouts and stimulus packages which this recession necessitated.
If the Bush Tax Cuts can only account for $2.6 trillion of our current debt, how can they be said to have caused the debt? That question is answered all too simply - because rather than cutting taxes, Bush should have raised them. Deficits do not pay themselves. Bush's financial irresponsibility was spectacular. Similar tax cuts and deregulation were enacted by Warren Harding and Calvin Coolidge, and the end result was The Great Depression. If we've avoided a repeat, it's because we elected someone far closer in outlook to FDR than Herbert Hoover was. From the first year of World War II until the Johnson administration, the top income bracket was forced to pay no less than 82 cents for every dollar they made over $250,000 (and sometimes as much as 94 cents). But if the debt ceiling is not raised, our top income bracket may yet have to pay more than that if they'd rather not work in a failed state.
Contemporary Conservatives love to espouse the virtues of trickle-down economics. For the past three decades, Republicans fooled voters into believing that tax-cuts for the rich will result in more jobs created for the poor. The reason that this is the most dangerous lie perpetrated on the American people in our time is precisely because it has proven true: for Asia.
The 2.6 trillion dollars which the U.S. Government lost is now in the hands of China, India, South Korea, Vietnam and Bangladesh. All of them overpopulated countries in which labor laws are so antideluvian that workers take jobs that previously belonged to Americans by working for a small fraction of what Americans used to earn. These are (mostly) the same countries which hold the vast majority of American IOU’s. Until recently, the Chinese Yuan was so inextricably linked with the American Dollar that what nothing which affected one country could help but effect the other. At one point, 26% of Chinese currency was invested in the American dollar. That figure is now down to 21%, and continually shrinking. For the last twenty years, the world economy was built around American spending and Chinese saving. China increasingly can stand on its own, and can do so at a moment when America needs saving more than ever.
*Skin in the Game*, the new Nassim Taleb book
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