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TechnoratiUS Empire: An Orgy of Debt
NEW YORK -- The financial panic sweeping the globe is maddeningly complex, but the cause of the worst financial crisis since the 1930s Great Depression is clear.
America has reveled for two decades in an orgy of debt. The U.S. national debt is now twice its net worth. From Wall Street's "masters of the universe" financial powerhouses such as Goldman Sachs, Merrill Lynch, Lehman, and Morgan Stanley, to the humblest homeowners, America's national motto became "borrow to the hilt and bet."
The traditional regulated banking system was pushed aside by Wall Street's financial titans who created their own money in the form of complex securities and furiously traded these exotic instruments and borrowed recklessly against them with little government regulation or oversight.
As Kevin Phillips points out in his prophetic book, Bad Money, America's primary business became non-productive finance. Manufacturing fell to only 12% of GDP. Wall Street titans grew obscenely rich by simply passing around paper. Inflated or semi-worthless securities increased in bogus value at each stage of the trading process.
Wall Street was allowed to virtually print money and peddle toxic securities around the globe because the big financial houses and heads of hedge funds bought the politicians of both parties.
Equally important, the mammoth financial and housing bubble thus created was hailed by the Bush administration as proof positive of Republican free market philosophy and the true road to prosperity.
More cautious European and Canadian bankers were dismissed by Republican chest thumpers as financial sissies.
This Ponzi scheme worked so long as markets kept rising. When the music stopped - disaster.
It's uncertain how far damage from America's financial equivalent of Hurricane Katrina will spread. Hedge funds, money market funds and automakers could be next. Real estate losses may reach $636 billion by 2012.
All stock market gains of the past 10 years have been wiped out in the most dangerous crash since the 1930s.
The "free market" Republican administration has ended up nationalizing nearly $1 trillion worth of businesses, including the federal mortgage agencies Fannie Mae and Freddie Mac, Bear Stearns, and global insurer AIG. Welcome to Wall Street socialism.
One thing is now clear. When great empires run onto the financial rocks, their power quickly ebbs. France's Sun King, Louis XIV, ended his once glorious rein in near bankruptcy caused by his long, ruinous wars with the British and Dutch. Louis XVI's runaway borrowing to finance the American Revolution helped ignite the French Revolution. The Soviet Union's collapse was caused by spending half its national income on arms, and failure to modernize industry.
Over the past decade, the U.S. foreign debt doubled. Japan and China now hold 47% of the U.S. foreign debt and finance Washington's wars. The addition in recent days of at least $1 trillion in new debt will cause interest rates to rise and the dollar to weaken. Even the U.S. government's AAA credit rating now is in question.
Washington may no longer be able to spend half the globe's defence budgets.
The $12-13 billion a month wars in Iraq and Afghanistan will end up costing $750 billion by December 2008. There will be less cash in Washington's kitty to buy foreign dictators and prop up their regimes, as in the Mideast and Central Asia. Less cash to pay for little wars in Africa.
Less for exotic anti-missile systems and death rays.
America's enormous global power is based as much on its financial might as military muscle. Wall Street has been the vehicle and policeman of America's hegemony. It shaped the destiny of the globe and made many nations subservient to the demands of New York's titan bankers. Wall Street is essential to raising capital for business expansion, but often it resembled New York's ruthless loan sharks: Once you borrowed from them, you never got off the hook.
Americans will have to relearn the hard truth that you can't borrow your way to prosperity.
26 Comments so far
Show AllUnbelievable! Greed is rewarded and left to go unchecked and the foxes are left to guard the hen house. You would think that this is a fairy tale and that it should have a moral at the end of the story. But, instead all of the little worker ants who stored up goods for the bad times have watched their hard work and security be whisked away by the bad ogres. This is not a good bedtime story, it creates nightmares.
Off topic response to WTF: Obama doesn't mention the Keating 5 because McCain was the only Republican...the other four were Democrats.
While reduced defense spending may appear to be a silver lining, the mentality of the US electorate and their elected officials is such that military spending will remain the highest priority and will not decrease in relative terms. When Military spending drops 20%, spending on things like infrastructure will drop 40%.
What's missing here is a total... Not that I believe this figure completely covers it all, but a quick search of various sources including Wikipedia has the current total at over 9 trillion. That's federal debt, not corporate or consumer debt!
We've been ENRONIZED...
"As Kevin Phillips points out in his prophetic book, Bad Money, America's primary business became non-productive finance. Manufacturing fell to only 12% of GDP. Wall Street titans grew obscenely rich by simply passing around paper. Inflated or semi-worthless securities increased in bogus value at each stage of the trading process."
The greed you expect. It's the stupidity that is so baffling. Or is stupidity? Is Naomi Klein right? Is the destruction of our economy deliberate so that nearly everything can be privatized and the jackass in the street who has been voting Repimplican since 1968 can then be comfortably and leisurely fleeced with no fear of legal retribution?
In the 1980's I remember reading a story in one of the major newspapers written by an older Japanese businessman who warned that both the Soviet Union and the United States would be pulled beneath the worlds' economic waves by the weight of their arms industries. I believe he was right.
Sioux Rose
Although I like the silver lining (no military spending $ available) one wonders how the U.S. would neutralize this debt to foreign countries? Could it sell off its 700 plus bases worldwide? What if some of the debts were forgiven if the U.S. got rid of its surplus of missiles and bombs? Maybe China would settle for both Disneyworlds...
Sorry, military spending may subside, but it will continue. I like Disneyland....couldn't we give them Washington instead?
Omg, can anyone say fiasco? How much more money is the Bush junta going to funnel to its friends before it leaves town?
This whole bailout is an outrage. The amounts are truly staggering.
I've said--here and elsewhere--that "they're going to get away with as much as they let them." What could be more true of the credit crisis--an event both thoroughly predicted and predictable?
Unless the people get together an oppose this giant giveaway, the Bush cabal is going to keep it up, draining our financial reserves--and even our very ability to borrow as a nation, our credit--to nothing.
Sucking in over a billion for our trade deficit and another billion plus for our massive and growing budget deficit, we've become a debtor nation. Just how long before the Chinese stop accept our debt? Would you lend to us?
When we can't borrow, our government will sell off our lands, our parks, our atmosphere, whatever they can, in order to continue the transfer to the wealthy through tax breaks and giveaways like this. Fight it or we shall suffer even more--before Bush leaves office. See more on this story at my blog, www.jbpeebles.blogspot.com
I have one word for what has happened to the US: ENRONIZED.
Is this the change Obama means - "Spare some loose change Guv?"
(Beggar on street)
"Washington may no longer be able to spend half the globe's defence budgets."
Hey, there is a silver-lining to this crisis!
If it turns out to be true, then it is a very big fat silver lining. I just HOPE that
the US will no longer be able to continue with the murder and destruction of people in
far away places that offered us no harm.
What our governments do in our name should probably not affect our personal state of
happiness, but in my case it did. God grant me the wisdom to ignore what I cannot
change. But unfortunately, what we did in Iraq weighed on my heart for years. Every
flag waved, every national anthem, every display of military or police force began
to piss me off. I have somehow lightened up now, but even if I lose my house and
am forced to sleep in the street, the day the US is forced to withdraw is a day
for celebration.
Amen.
There's nothing more frightening than a third world country that was once mighty and esteemed for its generosity and open arms... who has been rendered destitute and reduced to forcible global blackmail using its nuclear arsenal as a cruel cudgel.
People of all good standing will cry in bewilderment, "How did America become some North Korea wannabe?
I really wish the people would wake up and revolt, but they still believe in this dream. Even if it kills them in their sleep, they'll still believe in it.
Such a shame.
Leave it to a Canadian to tell us the truth!
"Japan and China now hold 47% of the US foreign debt and finance Washington's wars."
With our financial meltdown, one might think that ending immediately two illegal and discretionary wars in the Middle East would be a good place to save, like, at least thirteen billion dollars per month.
Has that not occurred to our great thinkers and planners in Washington?
Bill in Dubuque
Its a shrewd Bush ploy; bankrupt the economy, pass it to the Dumbocrats next year, and then blame the ensuing recession/depression on Dumbos.
Off-topic question: Why hasn't Obama reminded us about the shenanigans of the Keating 5?
Why, Indeed??
Time for a little history lesson
Please Foreclose on the Rogue
Please foreclose on the rogue
Debit masters
Please foreclose on the rogue
Please foreclose on the greed backed green
the fascist fad sure is running on lean
the plunder maverick is Johnny the mean
the celebrity one is Sarah the good
Double talk is so in vogue
you’d think the GOP was hosting change
so merge the madness with the chant
pick up the tempo of the rant
USA USA USA
It doesn’t take the KKK to be a mob
chanting slogans like talking tongues
merging madness with victims sons
doing the drill to the thrill
of the enduring chant
drill baby drill
bomb rebuild & feed
bomb rebuild & feed
Is empire what we need?
Please foreclose on the rogue
Debit masters
Please foreclose on the rogue
If "the taxpayers" knew the numbers, they'd be rioting in the streets.
Every $1 trillion "our" government "spends" to "save" their friends translates to $8000 per taxpayer (rounded up, based on 130 million taxpayers. Ignore the 'per citizen" numbers - non-taxpayers are not relevant.)
So far, just this year, "our" government has promised their friends over $3 trillion of taxpayer money (that we actually know of) in return for, what everyone from the NYT to the WSJ refers to as "toxic assets."
That's $24,000 per taxpayer, whose average income is $32,000/year - leaving the average taxpayer with a net-of-gross of $8000K for 08. Minus taxes at, say, a medium 25% (of $32K=$7000,) and, this year, the average taxpayer will take home an astounding $1000, or about 80 bucks a month. (And a handful of toxic assets!)
How many taxpayers voted to give AIG, Fannie, Fredie, and the rest basically their entire year's earnings as a thank you for robbing us blind?
Of course, add in another $8K for the Pentagon ($1 trillion budget,) another $8K for Iraq/Afghanistan ($1 trillion spent so far,) and another $24K to cover the $3 trillion 08 Fed budget...
And every taxpayer is on the hook - this year only, remember - for at least $64,000 apiece, or twice the average income.
Toss in each taxpayer's share of the National Debt, now approaching $10 trillion, or another $80,000 per tp... for a total of $144,000, or nearly 5 years worth of the average taxpayer's income.
These are the real, raw painful numbers that need to be shouted to every sucker - er, I mean taxpayer - in America RIGHT NOW. Maybe, just maybe, We The People will wake the f**k up and, you know, revolt or something...
Or not. Welcome to official serfdom.
(Please disseminate these numbers widely.)
Really excellent numbers, Frank!
Keep 'em comin'.
Facts first.
Excellent analysis Frank. We should print this up along with select quotes from Klein and Margolis and post them everywhere along with calls for a general strike and populist revolt.
The goal is spend the American taxpayer so far into debt that FDR's recovery from the Great Depression can NEVER come true again. Americans won't have a pot to piss in much to have a chicken in. This catastrophy was unavoidable after the Corporations declared themselves to be 'Citizens' and the Supreme Court went along with that insane tax grab more that a hundred years ago.
It's all good.
keep on whistling while passing the graveyard of empire...