Obama Our Saviour, the U.S. Debt Ceiling Deal
Politics / US Debt Aug 01, 2011 - 02:44 PM GMTBy: Submissions
Jonathan Davis writes:So, Obama and The Democratic leadership and The Republican leadership twisted loads of arms, tightened screws and got a deal. All over the media you hear $2.5Trns of cuts have been agreed. Rubbish!
First, this deal has to be approved by Congress. It will be.
Second, the deal involves only c $1Trn of cuts over 10 years, with the bulk at the tail-end (i.e. not on our watch Guv’nor). The other $1.5Trn is to be ‘decided’ by a non-partisan committee, which will likely reduce the number right down.
The Tea Party is condemned as seeking the closure of social security offices and the ending of health care to senior citizens. Condemned by the entire mainstream UK media. Did no-one in the UK media ask themselves could Obama instead have reduced, for example, the scale of his wars (Nobel peace prize winner…! L) or downscaled Homeland Security which is as much a reduction of civil liberties as we can see in the ‘free’ West?
Let’s get some perspective:
The ‘Proposals’ are now facts. So, does this look like it has moved in line with inflation? Clearly not, inflation fell dramatically during the 80s 90s and 2000s.
I can tell you the UK position is very similar to that of the US however it is distinctly more difficult to obtain such charts of our own democracy.
The US is c 5 times the size of our economy. Our Govt’s debts are c £5.5 Trns – accounting properly for expressed debt, PFI and unfunded pension promises. The Govt takes in c £550 Bns of revenue each year (while spending c £700Bns). So, our Govt owes c 10 x its (our!) income. For how long does anyone seriously believe that is going to be sustainable by the global banks, the lenders? Sure, in the short to intermediate terms they are perfectly happy. Until they retire and the new executives take over and suffer the consequences. In due course, however, the lenders will realise that there will be insufficient taxpayers’ money to be drained to pay them. I refer you to Greece, Ireland, Iceland, Portugal, Spain, Italy, Cyprus, Dubai. I still hear senior commentators proclaim that we are very different to Greece. We are. Our financial position is worse! But that’s not what those commentators mean.
Note, I included Iceland in the list above. Iceland is now growing strongly after having defaulted on its debts, made by reckless irresponsible bankers. Do you think there might be a lesson here? What about Chile or Argentina or Russia who did the same not so long ago? Of course there is? Do you hear it in the mainstream media? Not at all. It’s not convenient and busts the myths that default can be good – and would be for us, but not the bankers.
On top of the Govt’s debts are the vast debts held by families. Secured on property? Maybe (but highly debatable). However, families can take on no further debt, in aggregate. Thus, the household income to spending shortfall that was met by borrowing for years (shall we call it…er… Deficit?) will mean spending will fall. The consumer is no longer pushing the economy forward and will not for years, if not decades. The Govt can’t as it is nearly maxed out on debt.
And it’s the same in practically every country on Earth.
Yet, as a social democratic society we continue, as we have for decades, to vote for those political parties who promise us the most for the least cost. Not counting the extra debt they take on to give us what we voted for. We have the government we seek. That is our downfall. We are now at the end of the line. In the global economic headlines, expect Greece to be supplanted by UK after the next election.
You do have to wonder, with all those amazingly bright economists at or from universities, how come they can’t see it (can’t see the most obvious and huge thing right in front of their noses), and haven’t seen it? Of course, after it happens they will revise history to pretend they did.
The answer is they are paid by the state and/or businesses (banks and multinationals) which require them to support the perpetuation of the myths.
We will have either hyper inflation – preferred by Govts and banks – or default. Both will be followed by a massive bust, far bigger and longer duration than 2008. There is no alternative.
GDP = Consumer spending + Business Investment + Govt Spending + Net Trade.
What, there, can possibly rise sufficiently to grow our economy so that we go through without societal pain and lower standards of living?
What else?
I urge you to have a look at what Obama has been saying about the ‘need’ to raise the debt ceiling recently. Compare it to what he said as a 1st term Senator in 2006 – which was such a long time ago, wasn’t it?:
“The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said. “It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better.”
Sen. Barack Obama 2006
He will now win the next election – as, like Brown, he will buy 10s of millions of votes – and he will try to raise the debt ceiling to $20Trns in 2013. I suspect the markets – the banks – will say enough is enough.
(Brown didn’t win but he came close even though singularly unpopular and unmarketable.)
This next chart shows how labour participation in the US economy has fallen off the cliff and is back to pre-debt soaring levels. How does an economy grow if millions and millions are out of work?
We have been in an era of rising debt. We are now in an era of deleveraging. How does an economy get back to work if debt is falling? It doesn’t. Society will take much longer than it needs to realise this obvious fact because the bulk of commentators have a personal vested interest in perpetuating the system – even if it’s as interest little as they ‘need’ to preserve the value of their home. Well, that won’t even work over time.
The next chart of US unemployment durations is a real doozy!
I don’t think I need to comment?
I believe this next to be a fair depiction of where we’ve come from and to where we are headed:
Was anything sorted in 2009? You decide.
Long term view
Something did change with the deal last night. There is now a change in US politics which is about less spending and balancing books. It will take years to get there but the process has, FINALLY, started. This will help society long term to remain relatively free. However, The West will have a much lower standard of living (Ireland, Greece etc). But that was inevitable anyway.
I preferred (and prefer) the short-sharp-shock-to-the-system method of readjustment to reality. Voters and politicians can’t accept that. Thus, expect years or decades of adjustment.
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Jonathan Davis
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