"In a time of universal deceit telling the truth is a revolutionary act." -George Orwell

Posts Tagged ‘U.S. Debt Default’

America In Decline

In Uncategorized on August 12, 2011 at 5:05 pm

  Oldspeak:” ‘American decline is in no small measure self-inflicted. The comic opera in Washington this summer, which disgusts the country and bewilders the world, may have no analogue in the annals of parliamentary democracy.  The spectacle is even coming to frighten the sponsors of the charade. Corporate power is now concerned that the extremists they helped put in office may in fact bring down the edifice on which their own wealth and privilege relies, the powerful nanny state that caters to their interests. By shredding the remnants of political democracy, the financial institutions lay the basis for carrying the lethal process forward – as long as their victims are willing to suffer in silence.’-Noam Chomsky. Quickest and least painful ways to eliminate U.S. debt that aren’t being discussed? Withdraw from foreign wars, slash the ‘defense budget, nationalize health care, cut subsidies for dirty energy (oil, natural gas, nuclear, coal) and invest heavily in clean energy (wind, solar, wave, geothermal, hydrogen, elecrtic) , end tax breaks for corporations and the top 1% and institute a financial transactions tax. Unfortunately none of these common sense solutions will be seriously explored with a government for the corporatocracy, by the corporatocracy.

By Noah Chomsky @ Truthout:

 

“It is a common theme” that the United States, which “only a few years ago was hailed to stride the world as a colossus with unparalleled power and unmatched appeal is in decline, ominously facing the prospect of its final decay,” Giacomo Chiozza writes in the current Political Science Quarterly.The theme is indeed widely believed. And with some reason, though a number of qualifications are in order. To start with, the decline has proceeded since the high point of U.S. power after World War II, and the remarkable triumphalism of the post-Gulf War ’90s was mostly self-delusion.

Another common theme, at least among those who are not willfully blind, is that American decline is in no small measure self-inflicted. The comic opera in Washington this summer, which disgusts the country and bewilders the world, may have no analogue in the annals of parliamentary democracy.

The spectacle is even coming to frighten the sponsors of the charade. Corporate power is now concerned that the extremists they helped put in office may in fact bring down the edifice on which their own wealth and privilege relies, the powerful nanny state that caters to their interests.

Corporate power’s ascendancy over politics and society – by now mostly financial – has reached the point that both political organizations, which at this stage barely resemble traditional parties, are far to the right of the population on the major issues under debate.

For the public, the primary domestic concern is unemployment. Under current circumstances, that crisis can be overcome only by a significant government stimulus, well beyond the recent one, which barely matched decline in state and local spending – though even that limited initiative probably saved millions of jobs.

For financial institutions the primary concern is the deficit. Therefore, only the deficit is under discussion. A large majority of the population favor addressing the deficit by taxing the very rich (72 percent, 27 percent opposed), reports a Washington Post-ABC News poll. Cutting health programs is opposed by overwhelming majorities (69 percent Medicaid, 78 percent Medicare). The likely outcome is therefore the opposite.

The Program on International Policy Attitudes surveyed how the public would eliminate the deficit. PIPA director Steven Kull writes, “Clearly both the administration and the Republican-led House (of Representatives) are out of step with the public’s values and priorities in regard to the budget.”

The survey illustrates the deep divide: “The biggest difference in spending is that the public favored deep cuts in defense spending, while the administration and the House propose modest increases. The public also favored more spending on job training, education and pollution control than did either the administration or the House.”

The final “compromise” – more accurately, capitulation to the far right – is the opposite throughout, and is almost certain to lead to slower growth and long-term harm to all but the rich and the corporations, which are enjoying record profits.

Not even discussed is that the deficit would be eliminated if, as economist Dean Baker has shown, the dysfunctional privatized health care system in the U.S. were replaced by one similar to other industrial societies’, which have half the per capita costs and health outcomes that are comparable or better.

The financial institutions and Big Pharma are far too powerful for such options even to be considered, though the thought seems hardly Utopian. Off the agenda for similar reasons are other economically sensible options, such as a small financial transactions tax.

Meanwhile new gifts are regularly lavished on Wall Street. The House Appropriations Committee cut the budget request for the Securities and Exchange Commission, the prime barrier against financial fraud. The Consumer Protection Agency is unlikely to survive intact.

Congress wields other weapons in its battle against future generations. Faced with Republican opposition to environmental protection, American Electric Power, a major utility, shelved “the nation’s most prominent effort to capture carbon dioxide from an existing coal-burning power plant, dealing a severe blow to efforts to rein in emissions responsible for global warming,” The New York Times reported.

The self-inflicted blows, while increasingly powerful, are not a recent innovation. They trace back to the 1970s, when the national political economy underwent major transformations, ending what is commonly called “the Golden Age” of (state) capitalism.

Two major elements were financialization (the shift of investor preference from industrial production to so-called FIRE: finance, insurance, real estate) and the offshoring of production. The ideological triumph of “free market doctrines,” highly selective as always, administered further blows, as they were translated into deregulation, rules of corporate governance linking huge CEO rewards to short-term profit, and other such policy decisions.

The resulting concentration of wealth yielded greater political power, accelerating a vicious cycle that has led to extraordinary wealth for a fraction of 1 percent of the population, mainly CEOs of major corporations, hedge fund managers and the like, while for the large majority real incomes have virtually stagnated.

In parallel, the cost of elections skyrocketed, driving both parties even deeper into corporate pockets. What remains of political democracy has been undermined further as both parties have turned to auctioning congressional leadership positions, as political economist Thomas Ferguson outlines in the Financial Times.

“The major political parties borrowed a practice from big box retailers like Walmart, Best Buy or Target,” Ferguson writes. “Uniquely among legislatures in the developed world, U.S. congressional parties now post prices for key slots in the lawmaking process.” The legislators who contribute the most funds to the party get the posts.

The result, according to Ferguson, is that debates “rely heavily on the endless repetition of a handful of slogans that have been battle-tested for their appeal to national investor blocs and interest groups that the leadership relies on for resources.” The country be damned.

Before the 2007 crash for which they were largely responsible, the new post-Golden Age financial institutions had gained startling economic power, more than tripling their share of corporate profits. After the crash, a number of economists began to inquire into their function in purely economic terms. Nobel laureate Robert Solow concludes that their general impact may be negative: “The successes probably add little or nothing to the efficiency of the real economy, while the disasters transfer wealth from taxpayers to financiers.”

By shredding the remnants of political democracy, the financial institutions lay the basis for carrying the lethal process forward – as long as their victims are willing to suffer in silence.

(Noam Chomsky’s most recent book is ”9-11: Tenth Anniversary.” Chomsky is emeritus professor of linguistics and philosophy at the Massachusetts Institute of Technology in Cambridge, Mass.)

© 2011 Noam Chomsky


The U.S. & The Five Stages Of Collapse

In Uncategorized on August 6, 2011 at 1:59 pm

Oldspeak: When I first read this 3 years ago, I could shrug it off. Today, in the wake of the first downgrading of U.S. debt EVER; it’s glaringly obvious that in the U.S. Stage 1. Financial collapse is very far along. Stages 2 and 3, Commercial and political collapse are in progress. Stages 4 and 5 social and cultural collapse are in progress in many parts of the U.S. At some point all the communitainment in the world won’t prevent us from acknowledging the actual reality happening around us.  We’ve seen this movie before in the 1920s-30s. Extreme inequality, oligarchy, rampant joblessness, austerity, deflationary policy, Acute consolidation of power and influence in the hands of a monied few. It’s unfortunate that the U.S. has not learned the lessons of its history. At some point we will have no choice but to heed the lessons from The U.S.S.R., Rome, The Maya, Mesopotamia, and other great empires the have risen and fallen in much the same way. U.S. Default is not a matter of if, but when. Printing money and raising the debt ceiling can only put off the inevitable for so long. We have to have serious discussion about what happens after. ”

By Dmitri Orlov @ Energy Bulletin:

Hello, everyone! The talk you are about to hear is the result of a lengthy process on my part. My specialty is in thinking about and, unfortunately, predicting collapse. My method is based on comparison: I watched the Soviet Union collapse, and, since I am also familiar with the details of the situation in the United States, I can make comparisons between these two failed superpowers.

I was born and grew up in Russia, and I traveled back to Russia repeatedly between the late 80s and mid-90s. This allowed me to gain a solid understanding of the dynamics of the collapse process as it unfolded there. By the mid-90s it was quite clear to me that the US was headed in the same general direction. But I couldn’t yet tell how long the process would take, so I sat back and watched.

I am an engineer, and so I naturally tended to look for physical explanations for this process, as opposed to economic, political, or cultural ones. It turns out that one could come up with a very good explanation for the Soviet collapse by following energy flows. What happened in the late 80s is that Russian oil production hit an all-time peak. This coincided with new oil provinces coming on stream in the West – the North Sea in the UK and Norway, and Prudhoe Bay in Alaska – and this suddenly made oil very cheap on the world markets. Soviet revenues plummeted, but their appetite for imported goods remained unchanged, and so they sank deeper and deeper into debt. What doomed them in the end was not even so much the level of debt, but their inability to take on further debt even faster. Once international lenders balked at making further loans, it was game over.

What is happening to the United States now is broadly similar, with certain polarities reversed. The US is an oil importer, burning up 25% of the world’s production, and importing over two-thirds of that. Back in mid-90s, when I first started trying to guess the timing of the US collapse, the arrival of the global peak in oil production was scheduled for around the turn of the century. It turned out that the estimate was off by almost a decade, but that is actually fairly accurate as far as such big predictions go. So here it is the high price of oil that is putting the brakes on further debt expansion. As higher oil prices trigger a recession, the economy starts shrinking, and a shrinking economy cannot sustain an ever-expanding level of debt. At some point the ability to finance oil imports will be lost, and that will be the tipping point, after which nothing will ever be the same.

This is not to say that I am a believer in some sort of energy determinism. If the US were to cut its energy consumption by an order of magnitude, it would still be consuming a staggeringly huge amount, but an energy crisis would be averted. But then this country, as we are used to thinking of it, would no longer exist. Oil is what powers this economy. In turn, it is this oil-based economy that makes it possible to maintain and expand an extravagant level of debt. So, a drastic cut in oil consumption would cause a financial collapse (as opposed to the other way around). A few more stages of collapse would follow, which we will discuss next. So, you could see this outlandish appetite for imported oil as a cultural failing, but it is not one that can be undone without causing a great deal of damage. If you like, you can call it “ontological determinism”: it has to be what it is, until it is no more.

I don’t mean to imply that every part of the country will suddenly undergo a spontaneous existence failure, reverting to an uninhabited wilderness. I agree with John-Michael Greer that the myth of the Apocalypse is not the least bit helpful in coming to terms with the situation. The Soviet experience is very helpful here, because it shows us not only that life goes on, but exactly how it goes on. But I am quite certain that no amount of cultural transformation will help us save various key aspects of this culture: car society, suburban living, big box stores, corporate-run government, global empire, or runaway finance.

On the other hand, I am quite convinced that nothing short of a profound cultural transformation will allow any significant number of us to keep roofs over our heads, and food on our tables. I also believe that the sooner we start letting go of our maladaptive cultural baggage, the more of a chance we will stand. A few years ago, my attitude was to just keep watching events unfold, and keep this collapse thing as some sort of macabre hobby. But the course of events is certainly speeding up, and now my feeling is that the worst we can do is pretend that everything will be fine and simply run out the clock on our current living arrangement, with nothing to replace it once it all starts shutting down.

Now, getting back to my own personal progress in working through these questions, in 2005 I wrote an article called “Post-Soviet Lessons for a Post-American Century”. Initially, I wanted to publish it on a web site run by Dale Alan Pfeiffer, but, to my surprise, it ended up on From The Wilderness, a much more popular site run by Michael Ruppert, and, to my further astonishment, Mike even paid me for it.

And ever since then, I’ve been asked the same question, repeatedly: “When? When is the collapse going to occur?” Being a little bit clever, I always decline to give a specific answer, because, you see, as soon as you get one specific prediction wrong, there goes your entire reputation. One reasonable way of thinking about the timing is to say that collapse can occur at different times for different people. You may never quite know that collapse has happened, but you will know that it has happened to you personally, or to your family, or to your town. The big picture may not come together until much later, thanks to the efforts of historians. Individually, we may never know what hit us, and, as a group, we may never agree on any one answer. Look at the collapse of the USSR: some people are still arguing over why exactly it happened.

But sometimes the picture is clearer than we would like. In January of 2008, I published an article on “The Five Stages of Collapse,” in which I defined the five stages, and then bravely stated that we are in the midst of a financial collapse. And ten months later it doesn’t seem that I went too far out on a limb this time. If the US government has to lend banks over 200 billion dollars a day just to keep the whole system from imploding, then the term “crisis” probably doesn’t do justice to the situation. To keep this game going, the US government has to be able to sell the debt it is taking on, and what do you think the chances are that the world at large will be snapping up trillions of dollars of new debt, knowing that it is being used to prop up a shrinking economy? And if the debt can’t be sold, then it has to be monetized, by printing money. And that will trigger hyperinflation. So, let’s not quibble, and let us call what’s happening what it looks like: “financial collapse”.

2.
So here are the five stages as I defined them almost a year ago. The little check-mark next to “financial collapse” is there to remind us that we are not here to quibble or equivocate, because Stage 1 is pretty far along. Stages 2 and 3 – commercial and political collapse, are driven by financial collapse, and will overlap each other. Right now, it is unclear which one is farther along. On the one hand, there are signs that global shipping is grinding to a halt, and that big box retailers are in for a very bad time, with many stores likely to close following a disastrous Christmas season. On the other hand, states are already experiencing massive budget shortfalls, laying off state workers, cutting back on programs, and are starting to beg the federal government for bail-out money.

Even though the various stages of collapse drive each other in a variety of ways, I think that it makes sense to keep them apart conceptually. This is because their effects on our daily life are quite different. Whatever constructive ways we may find of dodging these effects are also going to be different. Lastly, some stages of collapse seem unavoidable, while others may be avoided if we put up enough of a fight.

Financial collapse seems to be particularly painful if you happen to have a lot of money. On the other hand, I run across people all the time, who feel that “Nothing’s happened yet.” These are mostly younger, relatively successful people, who have little or no savings, and still have good paying jobs, or unemployment insurance that hasn’t run out yet. Their daily lives aren’t much affected by the turmoil on the financial markets, and they don’t believe that anything different is happening beyond the usual economic ups and downs.

Commercial collapse is much more obvious, and observing it doesn’t entail opening envelopes and examining columns of figures. It is painful to most people, and life-threatening to some. When store shelves are stripped bare of necessities and remain that way for weeks at a time, panic sets in. In most places, this requires some sort of emergency response, to make sure that people are not deprived of food, shelter, medicine, and that some measure of security and public order is maintained. People who know what’s coming can prepare to sit out the worst of it.

Political collapse is more painful yet, because it is directly life-threatening to many people. The breakdown of public order would be particularly dangerous in the US, because of the large number of social problems that have been swept under the carpet over the years. Americans, more than most other people, need to be defended from each other at all times. I think that I would prefer martial law over complete and utter mayhem and lawlessness, though I admit that both are very poor choices.

Social and cultural collapse seem to have already occurred in many parts of the country to a large extent. What social activity remains seems to be anchored to transitory activities like work, shopping, and sports. Religion is perhaps the largest exception, and many communities are organized around churches. But in places where society and culture remain intact, I believe that social and cultural collapse is avoidable, and that this is where we must really dig in our heels. Also, I think it is very important that we learn to see our surroundings for what they have become. In many places, it feels as if there just isn’t that much left that’s worth trying to save. If all the culture we see is commercial culture, and all the society we see is consumer society, then the best we can do is walk away from it, and look for other people who are ready to do the same.

3.
There is nothing particularly deep or magical about the five stages I chose, except that they seem convenient. They correspond to the commonly distinguished aspects of everyday reality. Each stage of collapse also corresponds to a certain set of beliefs in the status quo, that is about to go by the wayside.

It is always an impressive thing to observe when reality shifts. One moment, a certain idea is seen as preposterous, and the next moment it’s being treated as conventional wisdom. There seems to be a psychological mechanism involved, where nobody wants to be seen as the last fool to finally get the picture. Everybody starts pretending that they’ve thought that way all along, or at least for a little while, for fear of appearing foolish. It is always awkward to ask people what caused them to suddenly change their minds, because with the fear of looking foolish comes a certain loss of dignity.

The most compelling example of lots of minds suddenly going “snap” is, to my mind, the sudden demise of the USSR. It happened with Boris Yeltsin standing atop a tank, and being asked the question: “But what will become of the Soviet Union?” And his answer, pronounced with maximum gravitas was: “Henceforth I shall only refer to it as the FORMER Soviet Union.” And that was that. After that, whoever still believed in the Soviet Union appeared as not just foolish, but actually crazy. For a while, there were a lot of crazy old people parading around with portraits of Lenin and Stalin. Their minds were too old to go “snap”.

Here in the US, we are yet to experience any of the really major, earth-shattering realizations, the ones that look preposterous immediately before and completely obvious immediately after they occur. We have had minor tremors, mostly relating to financial assumptions. Is real estate a good investment. Will private retirement allow you to retire? Will the government bail us all out? All the major realizations are yet to come, or, as my die-hard Yuppie friends keep telling me, “Nothing’s happened yet.”

But by the time something does happen, it will have been too late for us to start planning for it happening. It doesn’t seem all that worthwhile for us to sit around waiting for the happy event of everybody else feeling foolish all at the same time. Arrogant though that may seem, we may be better off accepting their foolishness before they do, and keeping a safe distance ahead of the prevailing opinion.

Because if we do that, we may yet succeed in finding ways to cope. We may learn to dodge financial collapse by learning to live without needing much money. We may create alternative living arrangements and informal production and distribution networks for all the necessities before commercial collapse occurs. We may organize into self-governing communities that can provide for their own security during political collapse. And all of these steps put together may put us in a position to safeguard society and culture.

Or we can just wait until everyone starts agreeing with us, because we wouldn’t want them to look foolish.

4.
The important dynamic, when it comes to financial collapse, is obvious by now. It’s the collapse of credit pyramids, “the whole house of cards” as President Bush put it. The technical term is “deleveraging,” and the response is the bailout. The federal government will be bailing out the banks and the insurance companies, the auto companies, and state governments. Call it the bail-out treadmill: we are borrowing faster and faster just to keep from falling down. The treadmill is actually a good metaphor. Imagine what would happen if you went to a gym, got on a treadmill machine, and just kept punching up the speed, as high as it will go. What happens is you trip and fall, and find yourself flying backwards.

It is instructive to ask the question, Who are we borrowing this bail-out money from? People will tell you that we are borrowing it from “the taxpayer.” But it’s not as if federal tax receipts have automatically shot up by a few trillion over the past couple of months, and so this begs the question, Who is “the taxpayer” going to borrow this money from in the meantime? From other Americans? No, because our savings rate has been abysmally low for quite some time now, and what little we have saved is in housing equity, which is dwindling, and in stocks and bonds, through mutual funds and 401ks and such, which are down by a third or so. The value of these investments is crashing, and if we dumped these investments to raise the cash to fund this new debt, that would just make them crash even faster. In effect, we’d only be moving money from one pocket to another. So, really, the bailouts have to be financed by foreigners. And what if these foreigners decide not to trust us with any more of their savings? Then our only recourse is to “monetize” the debt: to print money.

And so the next question is, how much money would we have to print? The purpose of the bailouts is to provide liquidity to insolvent companies, to avoid deleveraging. To understand what that means, we have to understand that for every actual dollar within the economy, in the sense of it not being borrowed, there are over 13 dollars of borrowed money, which only exists while the debt can be rolled over. If our credit is maxed out while the economy is growing, that’s bad enough, but the US economy is shrinking because of the recent oil shock. A smaller economy cannot carry as much debt, and this is part of the reason why we have deleveraging. Once the process of debt going sour gets started, it is hard to stop, and if deleveraging were to run its course, we would be down over 1300%. To monetize that much debt would require over 1300% inflation. And once that gets started, it becomes very hard to stop.

And, that, believe it or not, is actually the good news. Because most of our debt is denominated in our own currency – the US dollar – the US will not have to declare sovereign default, like Russia was forced to do in the 1990s. Instead, we can inflate our way out of national bankruptcy, by printing a lot of dollars. We will repay our national debt, but we will do so in worthless paper money, bankrupting our international creditors in the process. There is sure to be plenty of pain for everyone, especially everyone who is used to having plenty of money, because their money will no longer make the world go around. Once the US has to start earning foreign currency in order to pay for imports, you can be sure that imports will become quite scarce.

5.
Here are before and after snapshots of the most salient characteristics of financial collapse, as they will affect the vast majority of the population. Here, I am assuming that commercial and political collapse are slower in arriving, and that government is still there to step in with emergency aid of various sorts, and that a market economy of some sort continues to function. It could come down to everyone walking around with their little food stamps debit cards, and the only place they can use them that’s within walking distance is McDonalds, but I am assuming some semi-stable period during which other adjustments can occur before other stages run their course.

The adjustments would have to do with major aspects of the living arrangement, from where we live to how we grow food to how we relate to each other. With money scarce and not particularly potent, other ways of winning the cooperation of others would need to be evolved in a hurry. The financial realm can be seen as a complex system of fences: your bank account is fenced off from my bank account. This arrangement allows you and me to not worry too much about each other, provided each of us has enough to live on. Though this is largely a fiction, we can fancy ourselves to be independent economic players on a level playing field. But once these conceptual fences become irrelevant, because there is nothing behind them, we become each others’ burden, in an immediate sort of way, that would come as a shock to most people. The indignity of such physical interdependence would be psychologically devastating to many people, raising the human toll from financial collapse beyond what you’d expect from a problem that really only exists on paper. This is going to be particularly hard for a nation brought up on the myth of rugged individualism.

6.
Commercial collapse, when it arrives, will again cause much more of a psychological crack-up than you’d expect from a purely organizational problem. The quantities of immediately available goods and services right before and right after the collapse would remain about the same, but because market psychology is so ingrained in the population, no other ways of coping would be considered. Hoarding would become widespread, with looting as the obvious antidote. There would be an instant, huge black market for all sorts of necessities, from shampoo to vials of insulin.

The market mechanism works well in some cases, but it doesn’t work at all when key commodities become scarce. It leads to profiteering, hoarding, looting, and other pernicious effects. There is usually a knee-jerk reaction to regulate the markets, by imposing price controls, or by introducing rationing. I found it quite funny that the recent clamoring for re-regulating the financial markets was greeted with cries of “Socialists!” Failing at capitalism doesn’t make you a socialist, any more than getting a divorce automatically make you gay.

If by the time commercial collapse is upon us, there is still enough of the political system left intact to implement rationing and price controls and emergency distribution schemes, then we should count these among our blessings. Such heavy-handed governance is certainly not a crowd-pleaser during times of plenty, when it’s also unnecessary, but it can be quite a life-saver during times of scarcity. The Soviet food distribution system, which was plagued with chronic underperformance during normal times, proved to be paradoxically resilient during collapse, allowing people to survive the transition.

7.
If prior to commercial collapse the challenge is finding enough money to afford the necessities, afterward the challenge is getting people to accept money as payment for these same necessities. Many of the would-be sellers will prefer to be paid in something more valuable than mere cash. Customer service comes to mean that customers must provide a service. Given that most people won’t have much to offer, other than their now worthless money, should they still have any, most purveyors of goods and services decide to take a holiday.

With the disappearance of the free and open market, even the items that still are available for sale come to be offered in a way that is neither free nor open, but only at certain times and to certain people. Whatever wealth still exists is hidden, because flaunting it or exposing it just increases the security risk, and the amount of effort required to guard it.

In an economy where the vast majority of manufactured items is imported, and designed with planned obsolescence in mind, it will be difficult to keep things running as imports dry up, especially imports of spare parts for foreign-made machinery. The pool of available equipment will shrink over time, as more and more pieces of equipment become used as “organ donors.” In an effort to keep things running, entire cottage industries devoted to refurbishing old stuff might suddenly come together.

8.
It is sometimes hard to discern political collapse, because politicians tend to be quite good at maintaining the pretense of power and authority even as it dwindles. But there are some telltale signs of political collapse. One is when politicians start moonlighting because their day job is no longer sufficiently gainful. Another is when regional politicians start to openly defy orders from the political center. Russia experienced plenty of each of these symptoms.

One thing that makes political collapse particularly hard to spot is that the worse things get, the more noise the politicians emit. The substance to noise ratio in political discourse is pretty low even in good times, making it hard to spot the transition when it actually drops to zero. The variable that’s easier to monitor is the level of political embarrassment. For instance, when Mr. Nazdratenko, the governor of the far-east Russian region of Primorye, stole large amounts of coal, made strides in the direction of establishing an independent foreign policy toward China, and yet Moscow could do nothing to reign him in, you could be sure that Russia’s political system was pretty much defunct.

Another telltale sign of political collapse is actual disintegration, where regions declare independence. In Russia, that was the case with Chechnya, and it led to a prolonged bloody conflict. Here, we might have a “Reconquista” where former Mexican territories become ever more Mexican, the South might rise again. New England, California, and the Pacific Northwest might decide to go their separate ways. Once the interstate highway system is no longer viable and the remaining domestic airlines are extinct, there is not much to keep the two coasts together. What once united the country was the construction of the continental railroad, but railroads have been too neglected to hold it together now. A country consisting of two halves tied together via Panama Canal is de facto at least two countries.

Yet another thing to watch for is foreign incursions into domestic politics. When foreign political consultants start stage-managing elections, as happened with Yeltsin’s reelection campaign, you can be sure that the country is no longer in charge of its own political system. In the US, there is a gradual surrender of sovereignty, as sovereign wealth funds buy up more and more US assets. That sort of thing used to be considered akin to an act of war, but these are desperate times, and they are allowed to do so without so much as a nasty comment. Eventually, they may start making political demands, to extract the most value out of their investments. For instance, they could start vetting candidates for public office, to make sure that we remain friendly to their interests.

Lastly, the power vacuum created by the collapse of legitimate authority tends to be more or less automatically filled by criminal syndicates. These often try to commandeer the political establishment by getting their heads elected or appointed to political offices. Examples include Russian oligarchs, such as Boris Berezovsky, who got himself elected to Duma, the Russian parliament, and Mikhail Khodorkovsky, who thought he could use his oil wealth to buy his way into the political establishment. Luckily for Russia, Berezovsky is in exile in England, and Khodorkovsky is in jail.

9.
A great many people in the US insist that they do not need government help, and that they would do just fine if only the government would leave them alone. But this is really just a pose; there is a great deal that that government does to make their lives possible. In the United States, the federal government keeps many people alive through programs such as Medicaid, Social Security, and food stamps. Local governments provide for trash removal and water and sewer line maintenance, road and bridge repair, and so on. Police departments try to defend people from each other.

When all of that starts to unravel, it is likely to do so from the bottom, not from the top. Local officials are more accessible than remote Washington bureaucrats, and so they will be the first to be overwhelmed by the anger and confusion of their constituents, while Washington remains unresponsive. One likely exception may have to do with the use of federal troops. It seems almost a given that troops repatriated from the more than 1000 foreign military bases will see action right here at home. They will be reassigned to domestic peacekeeping duties.

10.
Aside from the big government programs, there is little available in the US to help those in need. Again, Americans make a big show of their philanthropy, but, compared to other developed countries, they are in fact quite stingy when it comes to helping those in need. There is even a streak of political sadism, which, for example, shows up in people’s attitudes toward welfare recipients. This sadism can be seen in the so-called welfare reform, which has forced single mothers to work jobs that barely cover the cost of daycare, which is often substandard.

Aside from the government, there are charities, many of which are church-based, and so they have the ulterior motive of recruiting people to their cause. But even when a charity does not make any specific demands, its real purpose is to reinforce the superiority of those who are charitable, at the expense of those who are the recipients. There is a flow of forced gratitude from the beneficiary to the benefactor. The greater the need, the more humiliating is the transaction to the beneficiary, and the more satisfying it is to the benefactor. There is no motivation for the benefactor to provide more charity in response to greater need, except in special circumstances, such as immediately following a natural disaster. Where the need is large, constant, and growing, we should expect charities to matter very little when it comes to satisfying it.

Since neither government largesse nor charity is likely to provide for those who cannot provide for themselves, we should look for other options. One promising direction is a revival of mutual help societies, which take membership contributions and then use them to help those in need. At least in theory, such organizations are vastly better than either government aid or charities. Those who are helped by them do not have to surrender their dignity, and can survive difficult times without being stigmatized.

To make it intact through times of great need, the only reasonable approach, it seems to me, is to form communities that are strong and cohesive enough to provide for the well-being of all of their members, that are large enough to be resourceful, yet small enough so that people can relate to each other directly, and to take direct responsibility for each other’s well-being.

11.
If this effort fails, then the outlook becomes dire indeed. I would like to emphasize, once again, that we must do all we can to avoid this stage of collapse. We can allow the financial system, and the commercial sector, and most of the government institutions to collapse, but not this.

What makes this particularly challenging is that the existence of finance and credit, of consumer society, and of government-imposed law and order has allowed society, in the sense of direct, mutual help and of freely accepting responsibility for each others’ welfare, to atrophy. This process of social decay may be less advanced in groups that have survived recent adversity: immigrant and minority groups, or people who served together in the armed forces. The instincts that underlie this behavior are strong, and they are what helped us survive as a species, but they need to be reactivated in time to create groups that are cohesive enough to be viable.

12.
Culture can mean a great many things to people, but what I mean here is a specific very important element of culture: how people relate to each other face to face. Take honesty, for instance: do people demand it of themselves and others, or do they feel that it is acceptable to lie to get what you want? Do they take pride in how much they have or in how much they can give? I took this list of virtues from Colin Turnbull, who wrote a book about a tribe in which most of these virtues were almost entirely missing. Turnbull’s point was that these personal virtues are also all but destroyed in Western society, but that for the time being their absence is being masked by the impersonal institutions of finance, commerce, and government.

I believe that Turnbull has a point. Ours is a cold world, in which the citizens are theoretically expected to fend for themselves, but in reality can only survive thanks to the impersonal services of finance, commerce, and government. It only allows us to practice these warm virtues among family and friends. But that is a start, and from there we can expand this circle of warmth to encompass more and more of the people who matter to us and we to them.

13.
In his amazing book about the legacy of European colonialism, Exterminate all the Brutes, Sven Lindqvist makes the stunning observation that violence renders one unrecognizable. The aggressor, whether active or passive, becomes a stranger.

The violence does not have to be physical. One subtle type of mental violence that abounds in our world is the act of refusing to acknowledge someone’s existence. We may believe that it makes us safer to walk past people without making eye contact. That is certainly true if our look is blank and indifferent, and it is then better to avert one’s gaze than to look, and in effect to say: “I do not recognize you.” That definitely does not make you any safer. But if your look says “I see you, you are OK,” or even “I recognize you,” then the effect is quite the opposite. Dogs understand this principle perfectly well, and so should people.

14.
When I was doing a radio tour to promote my book, a lot of the AM radio motor-mouths who interviewed me would sum up the interview with something like “So this is all doom and gloom, isn’t it.” And then I would have maybe 15 seconds for a rebuttal. So here is my standard 15 second rebuttal: “No, my message is actually quite hopeful. I want to let people know that they can find ways to lead happy, fulfilling lives even as this doomed system crumbles all around them.” Here, I can give you a longer answer.

I believe that the financial pyramid scheme and globalized consumerism are done. But I think that having no government at all is not an option. Forget entitlements, forget military bases on foreign soil, forget the three-ring circus that passes for representative democracy here, but we will still need agencies to print passports, to control the nuclear stockpile, as well as many other mundane but essential services that only a central government can provide. For most other needs, local self-government may be the best we can do, but that may not be bad at all.

Commercial collapse need not be final. It is quite possible that a new economy will arise spontaneously, one without all the frills and the waste, but able to provide for most of the basic needs. In the places that are socially and culturally intact, this is almost inevitable, as people take charge and start doing what’s necessary without waiting for official sanction.

As far as social and cultural collapse, as I already mentioned, to some extent they have already happened, but this is being masked, for the time being, by the availability of finance, commerce, and government. But they can be undone, not everywhere, of course, but in quite a few places, because the instincts are there, and a dire common predicament can be the catalyst that changes society, bringing it closer to the human norm.

15.
Knowing what to expect can provide us with peace of mind, even in the midst of collapse. Wallowing in nostalgia over the good old days, or denying that sweeping changes are before us — these responses are definitely unhealthy.

If we know what’s coming, we can start ignoring the things that we will not be able to rely on. If we do enough of this, we may find ourselves in a different world, quite possibly a better one, rather quickly. Here is a personal example. Some years ago, I decided to give up the car, finding it quite impractical, and started bicycling instead. It wasn’t that easy at first, but once I got used to it, a strange thing happened to my perception: I started seeing cars quite differently. On the way to work in the morning, I would ride along a stretch of highway, which was always packed with cars. When you are driver, you see it as normal, because you are part of this herd of mechanized insects. But what I saw was sheet metal boxes with people imprisoned inside them, strapped down to a chair inside a tiny padded cell, and most of these poor crazies were just pictures of misery: an angry, desperate, lonely mob, condemned to move about in circles. And then I would happily pedal away, through a park and around a pond, and leave that horrible, dying world behind.

And so it is with a great many things. We can wait until the lifestyle that is killing the planet and is making us crazy and sick is no longer physically possible, or we can opt out of it ahead of time. And what we replace it with can be difficult at first, but quite a lot better for us in the end.

16.
So let us summarize our findings. Financial collapse is already quite far along, and is guaranteed to run its course. Bailouts can make insolvent institutions look solvent for a time by providing liquidity, but one thing they cannot provide is solvency. For instance, no matter how much we bail out the auto companies, making any more cars will still be a bad idea. Similarly, no matter how much money we give to banks, their loan portfolios, loaded down with houses built in places that are inaccessible except by car, will still end up being worthless. By continuously nationalizing bad debt, the country will make itself into a bad credit risk, and foreign lenders will walk away. Hyperinflation and loss of imports will follow.

17.
Commercial collapse is likewise guaranteed to happen. One key import is oil, and here the loss of imports will cause much of the economy to shut down, because in this country nothing moves without oil. But it should be possible to come up with new, far less energy-intensive ways to provide for the basic needs.

18.
Political collapse is guaranteed as well. As tax receipts dwindle, municipalities and states will no longer be able to meet the minimal maintenance requirements for existing infrastructure: roads, bridges, water and sewer mains, and so forth. Municipal services, including police, fire departments, snow removal and garbage collection, will also be curtailed or eliminated. The better-organized communities may be able to find ways to compensate, but many communities will become impassable and uninhabitable, generating a flood of internal refugees.

Currently, the political class couldn’t be farther from understanding what is about to happen. I listened in on one of the recent presidential debates (I don’t have a television set, but I caught a chunk of it on NPR). It struck me that the two candidates spent most of the time arguing over ways of spending money that they don’t have. For me, listening to them was a waste of time that I didn’t have. I suspect that my book, would sell better if McCain got elected; nevertheless, I choose to remain selflessly apolitical. National politics is a distraction and a waste of time.

Actually, I should be gratified. A while ago I proposed a whimsical Collapse Party. The Collapse Party platform featured planks such as the freeing of prisoners to whittle down the prison population before a general amnesty becomes necessary due to lack of funds, a jubilee – forgiveness of all debts – to wipe the slate clean of all these bad loans, and a few others. Elsewhere, I proposed that it is a good idea to stop making new cars – just run down the ones we already have, and we’ll run out of cars just as we run out of gas. I am happy to report that this has been banner year for the Collapse Party. Without fielding a single candidate, we managed to push through much of our agenda: many states are releasing prisoners due to the fiscal crisis, the federal government is now involved in avoiding foreclosures, a huge credit card debt write-off is in the works (not quite a jubilee, but still…) and now automakers are ready to consolidate or declare bankruptcy. Next year, perhaps we will repatriate troops and shut down overseas military bases, also in line with the Collapse Party platform.

19.
Continuing with our recap, I see social collapse as avoidable, but not in all places. In many places, the task is to reconstitute society before the first three stages run their course, and it may already be too late. But this is where we need to make a stand, if only to be remembered for something more than the sum total of our mistakes.

20.
Lastly, cultural collapse is something that’s almost too horrible to contemplate, except that in some places it seems to have already happened, and is being masked by the various institutions that still exist, for the time being. But I believe that a lot of people will come around and remember their humanity, the better parts of their natures, when dire circumstances force them to rise to the occasion.

Also, there are some intact pockets of culture here and there that can be used as a sort of cultural seed stock. These are communities and groups that have seen some adversity in recent times, and have some social cohesion left over from the experience. They may also be those who made certain conscious decisions, to simplify their living arrangements in order to lead saner, more fulfilling lives. We must do all we can to avert this final stage of collapse, because what is at stake is nothing less than our humanity.

21.
I hope that, if you have been following along, by this point this slide is self-explanatory. Collapse is not one monolithic thing. Each kind of collapse requires a response, be it jumping clear ahead of time, sitting it out, or opposing it with all you got. At this point, if anyone in this room got up and tried to tell us what to do to avoid financial collapse, we would probably find that quite funny. On the other hand, if we stand by and let social and cultural collapse unfold, then what’s the point of any of this?

That’s all. Thank you for listening.

Editorial Notes

This article is a talk that was originally given by Dmitry Orlov at the Community Solutions Conference in Michigan in November 2008.

Thanks to SO and KS for the formatting. This was an especially difficult job.

-BA

After Months Of Partisan Wrangling, Wall Street & Pentagon Emerge Victorious On Debt Deal

In Uncategorized on August 3, 2011 at 2:00 pm

Oldspeak:“Fun fact #1: For every dollar spent by the U.S. Government, 56 cents goes to The Pentagon. And since there were no significant cuts to its funding in this “debt deal” that percentage will likely grow. Fun Fact #2: ‘The debt ceiling was put in in 1917 during World War I, and the idea was to prevent President Wilson from committing even more American troops and money to war. The whole purpose was to limit a government’s ability to run into debt for war, because that was the only reason that governments ran into debt. Almost all governments, for hundreds of years, have been in balance in their domestic spending. War is what pushes up debt, as it has done in the United States‘ –Michael Hudson. Rather ironic then that so much fuss has been raised over  non- military government spending  and “entitlement programs” for sick old and poor people have been held up as drivers of U.S. debt, when in reality, the biggest entitlement program of all, Defense Spending is one of the primary drivers of inevitable U.S. Default, and is the only fucking reason there’s a debt ceiling to begin with! So the only logical and truthful way to connect deficit reduction and the debt ceiling is THE PENTAGON. Unfortunately for the American people, since Wall Street profits handsomely from the death destruction and wars of The Pentagon, there is no substantive discussion of this in dominant media. Meanwhile the U.S. is waging 6 wars hastening its imminent collapse. “War is Peace”

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By Amy Goodman @ Democracy Now:

After months of a bitterly partisan stalemate, the U.S. House of Representatives has voted 269 to 161 in favor of raising the federal borrowing limit and avoiding a default on the national debt. The final count showed 174 Republican ayes, with Democrats split evenly—95 on each side. The vote came just hours before a Department of Treasury deadline that potentially would have seen the United States run out of cash and default for the first time in its history. The bill is expected to be approved by the Senate and signed into law by President Obama today. The deal includes no new tax revenue from wealthy Americans, provides no additional stimulus for the lagging economy, and will cut more than $2.1 trillion in government spending over 10 years, while extending the borrowing authority of the Treasury Department. The debt deal was a victory of sorts for the Pentagon. Rather than cutting $400 billion in defense spending through 2023, as President Barack Obama had proposed in April, it trims just $350 billion through 2024, effectively giving the Pentagon $50 billion more than it had been expecting over the next decade. We speak with William Hartung, director of the Arms and Security Project at the Center for International Policy, and Michael Hudson, professor of economics at the University of Missouri, Kansas City

William Hartung, director of the Arms and Security Project at the Center for International Policy. He is the author of the book Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex.
Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, and author of Super Imperialism: The Economic Strategy of American Empire

AMY GOODMAN: After months of a bitterly partisan stalemate, the U.S. House of Representatives has voted in favor of raising the federal borrowing limit and avoiding a default on the national debt. The final count showed 174 Republican ayes and 66 Republican nays, with Democrats split evenly, 95 on each side. The vote came just hours before a Treasury deadline that potentially would have seen the U.S. run out of cash and default for the first time in its history. The bill is expected to be approved by the Senate and signed into law by President Obama today.

The deal includes no new tax revenue from wealthy Americans and will provide no additional stimulus for the lagging economy. It will cut more than $2.1 trillion in government spending over 10 years while extending the borrowing authority of the Treasury Department. The deal will also create a new joint congressional committee to recommend broad changes in spending to reduce the deficit.

The compromise deeply angered right-wing Republicans and progressive Democrats alike. Republicans were upset the bill did not further curtail government spending. Meanwhile, both the Progressive Caucus and the Black Caucus rejected the deal for placing the burden of deficit reduction on poor people. Democratic Congress Member Jim McGovern of Massachusetts said, quote, “I did not come to Washington to force more people into poverty.” Congressional Black Caucus chair Emanuel Cleaver blasted the final debt deal on his Twitter account, writing, quote, “This deal is a sugar-coated Satan sandwich. If you lift the bun, you will not like what you see.”

Several other senators said they were struggling with how to vote but suggested if it became a matter of their yes vote or default, they would back the measure. The White House dispatched Vice President Biden to lobby congressional liberals, and House Minority Leader Nancy Pelosi also urged her colleagues to come off the fence.

REP. NANCY PELOSI: It’s hard to believe that we are putting our best foot forward with the legislation that comes before us today. I’m not happy with it, but I’m proud of some of the accomplishments contained in it, and that’s why I am voting for it. Please think of what could happen if we defaulted. Please, please, please come down in favor of, again, preventing the collateral damage from reaching our seniors and our veterans.

AMY GOODMAN: Enough Democrats and Republicans reluctantly joined forces to see the proposed legislation through by a vote of 269 to 161 last night.

In a stunning emotional moment during the extended roll call, Democratic Congress Member Gabrielle Giffords of Arizona received a standing ovation as she voted yes on the bill, her first vote since a near-fatal shooting in Tucson, Arizona, in January.

REP. NANCY PELOSI: Her presence here in the chamber, as well as her service throughout her entire service in Congress, brings honor to this chamber. We are all privileged to call her colleague, some of us very privileged to call her friend. Throughout America, there isn’t a name that stirs more love, more admiration, more respect, more wishing for our daughters to be like her, than name of Congresswoman Gabby Giffords. Thank you, Gabby, for joining us today.

AMY GOODMAN: Congress Member Gabrielle Giffords was among the 95 Democrats who voted for the bill.

White House spokesman Jay Carney called the deal “a victory for the American people.” The debt deal was also a victory of sorts for the Pentagon. Rather than cutting $400 billion in defense spending through 2023, as President Barack Obama had proposed in April, the current debt proposal trims only $350 billion through 2024, effectively giving the Pentagon $50 billion more than it had expected over the next decade. Speaker John Boehner had met earlier with the House Armed Services Committee to assuage alarm about the potential spending cuts from the Pentagon.

For more, we’re joined in studio by William Hartung, director of the Arms and Security Initiative at the New America Foundation, author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex.

We’re also joined by Michael Hudson, president of the Institute for the Study of Long-Term Economic Trends, Distinguished Research Professor of Economics at the University of Missouri, Kansas City, author of Super Imperialism: The Economic Strategy of American Empire.

We welcome you both to Democracy Now! Michael Hudson, what about this vote? What does it mean?

MICHAEL HUDSON: Well, it’s an anti-stimulus package, primarily. The feeling among the Democrats that I’ve spoken to, I’ve never seen them so depressed. And what depresses them so much is that the irony is it could probably only be passed under a Democratic administration. Yves Smith has called it a “Nixon goes to China moment in reverse.” And that’s because only a Republican could have made an opening to a communist country and not be accused of communism. Only a Democratic president could have drawn along a Democratic Congress in supporting a law that is going to essentially ad tax deflation to the debt deflation we already have in the economy.

AMY GOODMAN: What does that mean, “tax deflation to the debt deflation”?

MICHAEL HUDSON: That means that the government is going to be sucking money out of the economy. Normally, government is supposed to provide the economy with money, provide it with purchasing power. By government running a deficit, this is what, traditionally, for 5,000 years, in every country, has supplied money. And now the government isn’t going to do it. There’s a kind of junk economic belief that governments shouldn’t run a deficit, and yet it’s by running a deficit that an economy expands. That’s what injects the purchasing power in it. That’s why a few years ago Mr. Obama had the $700 billion stimulus package. The idea was government spending will stimulate employment and make it more than it otherwise would have been, and you stop the unemployment.

Right now, the economy is shrinking. It needs some kind of spending to overcome the shrinking. And since the government can’t supply the credit, that means that the economy is going to have to rely on commercial banks. And they’re going to charge interest. And it means that all of the growth that does occur in the economy is basically going to be paid to Wall Street, not to the people who produce the wealth, not to industry or its employees. The economy is going to shrink. Industrial corporations will shrink. Real estate will shrink. And the government isn’t doing anything to prevent this shrinkage into a deeper and deeper recession.

AMY GOODMAN: So, why did Obama go this route? What were his alternatives?

MICHAEL HUDSON: He had many—

AMY GOODMAN: And what about the relationship that was touted between Obama and Boehner, ultimately people saying it was the Tea Party that broke with Boehner, and so he just couldn’t follow through for Obama?

MICHAEL HUDSON: It wasn’t the Tea Party. Suppose that a Republican were president, or George Bush. If George Bush would have been president, or another Republican, McCain, and would have proposed this, you would have had the whole Democratic Congress voting against it. And you would have a lot of progressive Republicans voting against it. They’re not going to vote against a Democratic president. And in fact, that’s why it was called a “Nixon goes to China in reverse.” Only a Democrat could have imposed so deflationary, so negative, regressive a policy. And that’s why the Democrats felt so frustrated when they were split, as you pointed out, 95 to 95. They felt that they had to support the government.

The reason that they’re disappointed is there were many alternatives. All last week, while all of this fight was building up, you didn’t have a squiggle in the bond market. Wall Street was not at all worried that there was going to be any problem at all. So, as far as the real monetary economy is concerned, there wasn’t a problem. Obama could have invoked the 14th Amendment, saying that the government is going to always pay the debts, it can’t be questioned. He could have issued a $1 trillion platinum coin, worth maybe $50, to the Federal Reserve and retired the government debt. There were all sorts of technicalities that he could have done. He didn’t do any of them. And that’s because, as he explained to the people last week in his speech, he really believes in running a budget surplus. He believes that that’s good for the economy. And that’s the tragedy of all this, that it’s not good.

AMY GOODMAN: I want to turn to Obama. Unveiling the deal on Sunday night, he said the agreement was borne out of a need to compromise.

PRESIDENT BARACK OBAMA: Now, is this the deal I would have preferred? No. I believe that we could have made the tough choices required, on entitlement reform and tax reform, right now, rather than through a special congressional committee process. But this compromise does make a serious down payment on the deficit reduction we need and gives each party a strong incentive to get a balanced plan done before the end of the year. Most importantly, it will allow us to avoid default and end the crisis that Washington imposed on the rest of America.

AMY GOODMAN: Your assessment of what President Obama said and how this could have been averted? I mean, there was a person, a journalist at a press conference in December, when he went along with the Bush tax cuts for the wealthy, saying, why didn’t you attach this, a guarantee of a debt ceiling, if you were going to do that at the time? And Obama said he wasn’t afraid.

MICHAEL HUDSON: Well, the real question is the reverse. How did these tax issues get attached to a debt ceiling issue? Since 1963, the debt ceiling has been raised every eight months, on the average. It’s just automatically been raised. Nobody in any of these 83 times has ever tried to attach a policy rider to the debt ceiling. It’s always been like an accountant just signing off on everything. This is the first time that a debt ceiling has ever been linked to tax policy. That’s never been done before. So there didn’t have to be a compromise. Mr. Obama could have simply said, “Tax policy is tax policy. If you want to argue over that, spend a year in doing that. But a debt ceiling is something all by itself.”

AMY GOODMAN: But clearly, people already saw that this might be an issue, because the Tea Party Republican activists were already talking about it.

MICHAEL HUDSON: Yeah. I think that Mr. Obama actually didn’t anticipate that it would be made an issue. He was thinking like a lawyer and thinking this is how it’s normally done, there’s no connection. What he could have done is gone to the people and explained why he believed that. He could have said, “Look, I didn’t anticipate it, because this is outrageous. This has never been done, and I’m not going to do it. I’m not going to let the Republicans link. I don’t have to compromise, because this isn’t the point to compromise.” Compromise is when the Senate and the House debate a tax law, but this isn’t the time for debate. This is the time to approve what the Congress has already agreed to spend.

AMY GOODMAN: We’re going to go to break, then come back. Michael Hudson is with us, author of Super Imperialism: The Economic Strategy of American Empire, a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. We’ll also be speaking with Bill Hartung of the New America Foundation. Stay with us.

[break]

AMY GOODMAN: Our guests are Bill Hartung of the Center for International Policy and Michael Hudson of the University of Missouri, Kansas City, an economist. I want to turn to who won and who lost. Now, let’s be clear on what this commission is and what’s going to happen to Medicare, Medicaid, Social Security. Michael Hudson?

MICHAEL HUDSON: The commission is going to be composed of three people, suggested by the House leader, Republican and Democratic leaders each, and the Senate Republican and Democratic leaders. The Republican—six Republican appointees to the commission are already pledged no taxes, and especially no closing of loopholes, nothing that will increase the money paid by their campaign contributors to the Republican Party. We don’t know who the Democratic appointees are going to be. But in the last commission that Mr. Obama appointed, the deficit reduction commission, they were all Democrats who were in favor of cutting Social Security. They were Wall Street Democrats, or what used to be called the Democratic Leadership Council. So the worry is that the Democrats are going to push their own tax cutters and that really there’s not going to be very much difference between the Democrats and the Republicans in what they propose for Social Security and Medicare. Mr. Obama had threatened that there wouldn’t be enough money to send out Social Security checks, and that simply isn’t true. The Social Security Administration has its own holdings of Treasury bills, just like an individual would hold their own savings. Of course they could have cashed in the Treasury bills.

AMY GOODMAN: What about the credit agencies, the rating agencies?

MICHAEL HUDSON: They have played a very bad role in this. Here’s what happened. Under the Frank—the bank reform—

AMY GOODMAN: With Congress Member Frank.

MICHAEL HUDSON: —the credit rating agencies were changed. The government was very angry at them for giving AAA ratings on junk, and their defense in courts saying, “Well, yes, we gave AAA ratings on junk mortgages, but they’re legally only opinions.” So the Dodd-Frank bill said, “You rating agencies are liable for your opinions.” Well, that—the rating agencies said, “We want to make money on selling our opinions, and we don’t want to have to take any responsibility for them, so we’re going to get you. We’re going to threaten to downgrade the U.S. government, until you say, ‘OK, we don’t want to hear your risk assessments anymore, because you’re hurting us.’”

But the proper response is to say, look, the rating agencies are just out to make money selling their opinions that are up for sale. The rating agencies are trying to get brownie points with Wall Street for opposing Social Security, for essentially yelling fire when there isn’t any fire. And at the same time, they want to weaken the Dodd-Frank bill so that they don’t have to ever be liable for making a warning about a country and they can continue to go back to giving AAA ratings for junk, which is how they make their money.

AMY GOODMAN: Bill Hartung of the Center for International Policy, what happened to the Pentagon in this? They were actually surprised in the other direction, that they did so well.

WILLIAM HARTUNG: They did reasonably well. President Obama, as you mentioned, had talked about $400 billion in cuts over about a decade. That would have allowed the Pentagon to still grow with inflation, so that wasn’t even a real cut. So this is less than that, at $350 billion, and it counts other things. They can cut veterans’ benefits. They can cut the Department of Energy. They can cut international affairs. They can cut Homeland Security. So even down at $350 billion, the Pentagon will not bear all of it. And that was John Boehner’s contribution to the package, was to protect the Pentagon and that larger basket of agencies.

AMY GOODMAN: How powerful were the military contractors, the lobbyists, in what has taken place, in the final deal?

WILLIAM HARTUNG: Well, they weren’t too vocal about it, because they didn’t want to look like special interests, but they worked on the inside. They had Boehner on their side. They had Buck McKeon, the head of the House Armed Services Committee, whose biggest contributor is Lockheed Martin, who’s got big military facilities in his district. They had people like Randy Forbes, whose district is near the Newport News Shipbuilding complex, which builds attack submarines and aircraft carriers. So they used their influence to get people on the inside, their allies in the House, to push their agenda.

AMY GOODMAN: Let me ask you, Michael Hudson, how the debt ceiling was put into place to begin with? In fact, it was linked to the military, right?

MICHAEL HUDSON: It was put in in 1917 during World War I, and the idea was to prevent President Wilson from committing even more American troops and money to war. In every country of Europe—England, France—the parliamentary control over the budget was introduced to stop ambitious kings or rulers from waging wars. So the whole purpose was to limit a government’s ability to run into debt for war, because that was the only reason that governments ran into debt. Almost all governments, for hundreds of years, have been in balance in their domestic spending. War is what pushes up debt, as it has done in the United States.

Now, the irony of all this is that three weeks ago you had Dennis Kucinich and Ron Paul trying to stop the Libyan—

AMY GOODMAN: Democrat and Republican.

MICHAEL HUDSON: —the Libyan war by introducing a rule to deny Mr. Obama the funding to continue to wage war on Libya and to enforce the War Powers Act to the president, to say, look, the president can’t go to war for more than three months without getting congressional approval. Mr. Obama said we’re not at a war. When we bomb people, that’s not a war; only if our people are killed while we’re bombing them are we at war. And none of our people are getting killed. Bombing people is not war. And then you had, all of a sudden, this fortuitous budget deficit issue coming up, and that untracked the whole discussion of limiting the budget from the discussion about war, where Mr. Kucinich and his Republican colleague had tried to prevent the American military expansion in the Near East. That worries them, and it worries a lot of the Congresspeople, too, but somehow, despite the fact that war is always the main cause of budget deficits, that wasn’t an issue in this time around.

AMY GOODMAN: Bill Hartung, your response to that, and also, the whole issue of how—the kind of lobbying power the Pentagon itself has, not just the military contractors, and when there are cuts, where those cuts go, who is hurt most?

WILLIAM HARTUNG: Well, first of all, I think on the issue of war spending driving the debt, that’s absolutely true. If you look at Korea, you look at Vietnam, you look at the Bush administration, along with the tax cuts, that’s been the huge driver of the deficit. So it’s ironic now we’re dealing with that deficit without touching the Pentagon, essentially.

In terms of the distribution of cuts, if you’re giving more money to Lockheed Martin and Northrop Grumman, it’s going to come from feeding programs, from housing programs, from administration of justice, from environmental protection. The whole rest of the budget, other than Social Security and a few entitlement programs, is discretionary. The Pentagon gets 56 cents on the dollar out of that already. And if they suffer almost no cuts, they’ll be a bigger part of the discretionary budget when this is all over.

AMY GOODMAN: And then, in terms of overall what someone wants their nation to be, when you are a first-rate military power—and there’s no question that the U.S. is the most powerful military on earth—but other parts of your country—the economy, the health levels of the people, all of the different aspects that make a country great—are much lower, are second-rate, isn’t this a problem, when it comes to how you approach problems, the first—your first point of attack will be to attack, because it’s your strongest way to deal, Michael Hudson and Bill?

MICHAEL HUDSON: This is what the whole fight of classical economics in the 18th and 19th century was all about. Parliamentary reform was intended to stop the power of the kings and the aristocracy from going to war, and to refocus the economy on developing national industrial power, national power. For hundreds of years, this was the essence of economics. And all of a sudden, this is no longer being discussed now. The war is—ever since the Vietnam War, the military spending has been deindustrializing the American economy. If you have a Pentagon contract—a Pentagon contract is cost-plus. The higher they spend on airplanes, on armaments, the more money they get. So you have them engineering not to cut costs, but to maximize costs, because that’s how they make their profit. So you have a warping of American engineering, American technology, towards the military, and that’s why the industrial core has been shifting to Asia, because they don’t have this military. The economy is being sacrificed to the military. And that’s somehow evaded discussion here. And yet, in Europe, for hundreds of years, this is what economics was all about.

WILLIAM HARTUNG: Well, it’s interesting.

AMY GOODMAN: Bill Hartung?

WILLIAM HARTUNG: This year is the 50th anniversary of Eisenhower’s military-industrial complex speech. He talked about the need for a balanced economy, for a healthy population. Essentially, he’s to the left of Barack Obama on these issues. And—

AMY GOODMAN: The general turned president.

WILLIAM HARTUNG: Yes.

AMY GOODMAN: Of course, a Republican, Dwight Eisenhower.

WILLIAM HARTUNG: And we’re spending twice as much on the military as we did when Eisenhower gave that speech. So, we’ve got a huge imbalance in our budget. You can’t really defend your country if people are sick, people aren’t healthy, people aren’t educated. So it’s kind of undermining the roots of the ability to defend the country, going forward, to throw money at weapons makers, to throw money at this huge military base infrastructure that isn’t needed for defense proper of the country. So, it’s completely out of balance, and we’re going to pay a price for that if we don’t turn that around.

AMY GOODMAN: Well, I want to thank you both for being with us. Bill Hartung, author of Prophets of War: Lockheed Martin and the Making of the Military-Industrial Complex, now at the Center for International Policy. And also, Michael Hudson, professor of economics at the University of Missouri, Kansas City. His website Michael-Hudson.com.

Who Owns America’s Debt? Hint: It’s Not China.

In Uncategorized on July 25, 2011 at 10:02 am

Oldspeak:”Howsabout them apples. Turns out foreign nations don’t own the majority of U.S. debt, Americans do. ‘America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.’ –Thomas Mucha. With the largest amount owed to…Wait for ittttt….. the Social Security Trust Fund! Yes, the big bad scary drain on the U.S. economy that according to politricians needs to be cut and privatized owns 19 percent of U.S. debt. Curious then isn’t it that Politricians want to cut payments to the entitlement program for elderly and disabled people the U.S. Government owes the most money to.  Puts the U.S. ‘Debt Talks’ Charade in a little different perspective don’t it? No mention of this in Corporate Media. O_0

By Thomas Mucha @ Global Post:
Truth is elusive.  But it’s a good thing we have math.

Our friends at Business Insider know this, and put those two principles to work today in this excellent and highly informative little slideshow, made even more timely by the ongoing talks in Washington, D.C. aimed at staving off a U.S. debt default.

Here’s the big idea:

Many people — politicians and pundits alike — prattle on that China and, to a lesser extent Japan, own most of America’s $14.3 trillion in government debt.

But there’s one little problem with that conventional wisdom: it’s just not true. While the Chinese, Japanese and plenty of other foreigners own substantial amounts, it’s really Americans who hold most of America’s debt.

Here’s a quick and fascinating breakdown by total amount held and percentage of total U.S. debt, according to Business Insider:

  • The U.S. Treasury / Federal Reserve: $1.63 trillion (11.3 percent)
  • Hong Kong: $121.9 billion (0.9 percent)
  • Caribbean banking centers: $148.3 (1 percent)
  • Taiwan: $153.4 billion (1.1 percent)
  • Brazil: $211.4 billion (1.5 percent)
  • Oil exporting countries: $229.8 billion (1.6 percent)
  • Mutual funds: $300.5 billion (2 percent)
  • Commercial banks: $301.8 billion (2.1 percent)
  • State, local and federal retirement funds: $320.9 billion (2.2 percent)
  • Money market mutual funds: $337.7 billion (2.4 percent)
  • United Kingdom: $346.5 billion (2.4 percent)
  • Private pension funds: $504.7 billion (3.5 percent)
  • State and local governments: $506.1 billion (3.5 percent)
  • Japan: $912.4 billion (6.4 percent)
  • U.S. households: $959.4 billion (6.6 percent)
  • China: $1.16 trillion (8 percent)
  • Social Security trust fund: $2.67 trillion (19 percent)

So America owes foreigners about $4.5 trillion in debt. But America owes America $9.8 trillion.

For a smart take on how President Obama and House Republicans should end gridlock over debt and deficits, see our new GlobalPost series The Negotiator, which features Wharton’s negotiation guru Stuart Diamond.

And to bone up on China’s debt — another potentially big global economic headache — check out this interview with brainy-yet-coherent Northwestern University economist Victor Shih, who spoke with GlobalPost’s David Case.

U.S. Debt Political Theater Diverts Attention While Americans’ Wealth Is Stolen

In Uncategorized on July 15, 2011 at 11:47 am

Oldspeak:“There is a massive transfer of wealth from the American people to the hands of a few and it’s going on right now as America’s eyes are misdirected to the political theater of these histrionic debt negotiations, threats to shut down the government, and willingness to make the most vulnerable Americans pay dearly for debts they did not create”-Dennis Kucinich

By Dennis Kucinich @ Common Dreams:

The rancorous debate over the debt belies a fundamental truth of our economy — that it is run for the few at the expense of the many, that our entire government has been turned into a machine which takes the wealth of a mass of Americans and accelerates it into the hands of the few. Let me give you some examples.

Take war. War takes the money from the American people and puts it into the hands of arms manufacturers, war profiteers, and private armies. The war in Iraq, based on lies: $3 trillion will be the cost of that war. The war in Afghanistan; based on a misreading of history; half a trillion dollars in expenses already. The war against Libya will be $1 billion by September.

Fifty percent of our discretionary spending goes for the Pentagon. A massive transfer of wealth into the hands of a few while the American people lack sufficient jobs, health care, housing, retirement security.

Our energy policies take the wealth from the American people and put it into the hands of the oil companies. We could be looking at $150 a barrel for oil in the near future.

Our environmental policy takes the wealth of the people — clean air, clean water — and puts it in the hands of the polluters. It’s a transfer of wealth, not only from the present but from future generations as our environment is ruined.

Insurance companies, what do they do? They take the wealth from the American people in terms of what they charge people for health insurance and they put it into the hands of the few.

We have to realize what this country’s economy has become. Our monetary policy, through the Federal Reserve Act of 1913, privatized the money supply, gathers the wealth, puts it in the hands of the few while the Federal Reserve can create money out of nothing, give it to banks to park at the Fed while our small businesses are starving for capital.

Mark my words — Wall Street cashes in whether we have a default or not. And the same type of thinking that created billions in bailouts for Wall Street and more than $1 trillion in giveaways by the Federal Reserve today leaves 26 million Americans either underemployed or unemployed. And nine out of ten Americans over the age of 65 are facing cuts in their Social Security in order to pay for a debt which grew from tax cuts for the rich and for endless wars.

There is a massive transfer of wealth from the American people to the hands of a few and it’s going on right now as America’s eyes are misdirected to the political theater of these histrionic debt negotiations, threats to shut down the government, and willingness to make the most Americans pay dearly for debts they did not create.

These are symptoms of a government which has lost its way, and they are a challenge to the legitimacy of the two-party system.

Dennis Kucinich is US Congressman from Ohio and a former presidential candidate in the United States.