Intransigent Republican extremists are toying with US default, blowing up the economy, devaluing the dollar, devaluing the T-Bond, inflating US debt service obligations, and threatening the international acceptance of the dollar as world reserve currency. Potential fallout defies the imagination. Today Boehner
blinked. But if this six-week extension goes through then the Republicans will simply extort the government again in late November.
This is new in American politics. Extorting the economy for its own extreme ideological purposes was, until about 2010, the exclusive domain of the Wall Street stooges on the Federal Reserve Board.
Underneath all of this hysteria is a legitimate problem with U.S. debt. Presently, the US owes about $12 trillion dollars to various parties: your parents’ retirement fund, China, the Social Security Administration, anyone who has purchased a Treasury Bond or other US investment paper. This debt has about doubled since 2008. With tax revenue of only about $3 trillion dollars, you can see that the federal budget is out of whack.
This scenario is problematic, but not cause for hysteria. US debt is not like a credit card. Treasuries pay between 2-4%, depending on the market and term. Credit cards pay the banks in usury--up to 75%. Total federal debt service, i.e. the interest payments it must make on its loans, comes to about$400 billion every year.
To put this into perspective, the government spends about the half as much on debt service as it does on free money to Too Big To Fail banks via “Quantitative Easing.” And Treasury simply prints the QE gravy train.
Focusing on the raw $12 trillion number is also a mistake. These debts are not designed to be paid off in their entirety. Like at a bank, leveraged lending is a revenue device. Take Bank of America. If BoA’s books are to be believed—and they are not—it has a leverage ratio ratio of 5%. This means it would have to sell itself five times over to pay its debts. With this in mind, the problem with the federal debt is not Obamacare or food stamps. The problem is funding a government like a bank.
Still, Republican brinksmanship is less about fixing budget and debt policy and more about anti-government zealotry. Elizabeth Warren is spot on when she described the party as anarchist. With visions of Regan’s “welfare queens” squirming in their minds, the party is obsessed with dismantling anything resembling a social safety net by any means necessary and without regard to consequences.
Government borrowing and the debt limit are, fundamentally, about the policies endorsed by federal revenue and spending. Eliminating Obamacare and Medicare (~$550B) would certainly give the Republicans room to slow borrowing and eliminate taxes for their constituency (wealth). But, as the fallout from the GOP Shutdown demonstrates, halting social programs causes widespread collateral damage.
Like Obamacare, social programs are law. They are a legacy of generations of democratic heritage and a reflection of the kind of society we chose to create. Yet, driven by Ayn Rand fever dreams, a tiny sliver of the legislature declared themselves above the constitutional lawmaking process. Their ideology, heavily propagandized, divides us producers and parasites. Saving one from the other is the Tea Party’s raison d'etre.
Back in the real world, the key to unraveling the US debt problem is not defaulting on our obligations or jamming the beltway with trucks. Suggestions of “living within our means” or “tightening our belts” are similarly useless. The key is democratic: widespread education about the debt’s moving parts, their relative amounts, and how they work together. Citizens informed thusly can resist propaganda and assert positive pressure on lawmakers.