July 21, 2011

The Upside of the Downside, Revisited

I think I should first make clear that I don't consider the current financial predicament of the United States my personal fault. I've done what I could, but it was obviously insufficient. I think, rather, that the proximate cause of the current troubles (employing that term in the vague way it is used in legal parlance) was the 8 years of catastrophic misrule by the Bush/Cheney cabal, from which we're not likely ever to recover, at least not in the proximate future. Bush's decision to reduce the top tax rate from 39.6% to 35%, thus granting relief to the taxpayers (high earners) who primarily finance the income tax side of national government, while substantially increasing defense spending both as a baseline and with all the huge supplemental appropriations for the unnecessary, profiteer-motivated wars in Afghanistan and Iraq, operated as the coup de grace.

None of this has anything to do with Barack Obama. Bush ran deficits, measured in the only real way, as the increase in the national debt year over year, of about 1/2 trillion per year for a period of 8 years. The red ink flowed at exactly the wrong time, while the Baby Boom generation was nearing retirement (78 million strong), and while the endless series of "free trade" agreements and federal enabling of big companies that wanted to move jobs offshore were in full cry. Bush & Cheney wore flag lapel pins, but Cheney reportedly kept about 69% of his vast fortune (acquired through his connections to corporations with strong federal contracting, such as Halliburton) in foreign currency denominated assets. So while Bush & Cheney were ostentatious in their "display" of patriotism, they were not patriots in the sense I think of the word. They were using the United States, and the fear they could instill in the populace through their absurd exaggeration of the terrorist threat, to make a bundle, although certainly this was more Cheney than Bush, since Ol' W couldn't figure out how to get really rich even when the fix was totally in. As the great Phillip Roth wrote about Bush, he was a man who "lacked the acumen to run a hardware store," and we put him in charge of the most complicated political/economic organization on Earth.

This is a failure of democracy, pure and simple, although certainly in 2000 it was not the fault of the popular vote. Whatever, Bush performed true to all indicators in his past, which is to say, he ran this country into the freaking ground. Because the attention span of the average American observer is approximately that of a six-week old kitten juiced on methamphetamine, most members of the American electorate, dazzled and confused by the carnival barking of the Mass Media, can't remember how we got here - on the brink of default. But that is, in fact, where we are. The cable TV news shows (which I am now privileged to see again, having hooked up the satellite and changed my habits from watching only Netflix streams of old "Twilight Zone" and "Alfred Hitchcock" episodes) naturally turn the current dilemma into a Red/Blue, Dem/Repub morality play, with some justification, but this drama does not actually produce any money for the country. Nor is it productive, as I hear Ed Schultz say tonight, to constantly repeat that the "Social Security trust fund is solvent through 2037," because this is a talking point with about as much content as the trust fund itself.

The only salient fact is that the United States does not really have very much money. The Treasury has some billions in its operating account at the Federal Reserve. You can look it up online, if you like. This is the one area of federal governance of reasonable transparency. Beyond those billions (certainly less than $50 billion), the United States does not have any cash. To speak of one part of the government owing another part money (as the game is played with the entitlement trust funds) is a form of denial bordering on delusion. We say such things because, at bottom, we're afraid to come to terms with what is real here. Any money that we raise through some mechanism other than printing must come from either taxes or from borrowing through Treasury auctions. Taxes (inclusive of income taxes and FICA) come to about $2 trillion annually, net of trust fund games. The outgoes are on the order of $3.7 trillion. If we don't raise the debt ceiling and resume borrowing more, we're stuck trying to match the insufficient income to the overwhelming expenses.

I don't know which way this thing ought to go, to tell you the truth, and thus the title of the post. It is not that I sympathize with the Tea Party, because I think they're mostly lunatics. They are dangerous True Believers who sign away their independence to loyalty oaths and pledges, and these are always the mark of the Fascist Right. The Nazis were not great political theorists, they simply achieved their aims through iron discipline (enforced implacably and increasingly through violence as the years went by). The Tea Party cadres love the feeling of solidarity they get from the Movement, of signing the pledge never to raise taxes, no matter what, even if the country must have additional income. These are the stigmata of the extremist.

Yet if the whole system goes down because of the implacable resistance of the Right Wing, as it possibly could, then I think the Right Wing will go down with the whole system. Like Samson, they will bring the temple down on their own heads. If the federal government is an "insurance company with an army," as it appears increasingly to be, given its extreme budgetary limitation, what happens, at the state level, if the central government lacks the money even to perform these two functions, that is, it cannot fund both the entitlements and the trillion dollar defense budget?

An interesting conundrum. If the entitlements are the only things that survive (and Social Security, Medicare/Medicaid and debt service on existing Treasuries is all that $2 trillion will pay for), then why have a federal government? Would the states encourage their citizens to send money to Washington, D.C. just so D.C. could send it back, minus its "administrative costs?" Wouldn't the states be more likely to begin thinking, "it sure would be nice to keep that money right here where we can put it to use right now" ? If, on the other hand, defense keeps its trillion dollar share, perhaps by what amounts to a military coup (and here's where Barack Obama would be particularly useless, standing up to the Pentagon), thus requiring drastic cuts in the entitlements (but leaving room for the $300 billion or so in interest payments to avoid default), wouldn't the citizenry then cry foul! at this betrayal of government promises, leading to the same result of dissolution?

What's very interesting to me at this point is that I am not describing some sci-fi potboiler plot (it wouldn't be as good as Rod Serling's anyway). The situation I'm describing is the pretty pass to which the United States has been brought. I am describing the actual financial condition of the United States of America. Raising the debt ceiling is the actual fantasy, because given the intransigence over taxes, the future holds only an ever-deepening hole. The American economy is not recovering, employment is not getting better (stagnant, except for the bubble years, for well over a decade), and we are talking only about taking on The Bridge Loan to Nowhere.

A curse, I suppose, to live in such interesting times. We may be on the precipice of (a) default and dissolution, (b) a printing-press fired Weimar hyperinflation (if the Treasury decides to print its way out of bankruptcy), or (c) all three of these things. It's a Mad Tea Party, alright.

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