Time: You Are What You Owe - Why power built on debt is no power at all

[Barry]

[Here's a real good introduction to the dangers of the US being deep in debt. It's serious! - Barry]


https://www.time.com/time/nation/art...067967,00.html

Americans are forever grumbling about government gridlock. But the whole game changes when a credit-rating agency begins to echo them. On April 18, Standard & Poor's, one of those mysteriously powerful firms that grade the financial strength of bond issuers, announced that it was starting to wonder whether the mighty U.S. government could be counted on to repay its creditors. It was a big moment: the first time in seven decades of monitoring Uncle Sam that S&P had sounded such a warning. "The sign of political gridlock was a key determinant in our outlook change," explained an S&P executive. "Twilight in Washington," read a Financial Times caption.

While there were certainly analysts who regarded the timing of the downgrade as somewhat political (S&P itself has recently been under pressure from the government for its part in the financial crisis), few questioned its fundamental merit. The Congressional Budget Office projects that within 12 years, federal debt could reach 100% of GDP, putting the U.S. deeper in the hole than bankrupt Ireland or Portugal; the bond raters from S&P have good reason to be worried. America's largest creditor, China, which has been wagging its finger about the state of U.S. finances for the past three years, took the opportunity recently to urge the U.S. to adopt more "responsible measures" to protect investors. This came on the back of a hand slap from the International Monetary Fund (IMF) just a few weeks prior. The IMF had rebuked the U.S. for its lack of a "credible strategy" to stabilize its debt — an indignity once reserved for poor countries.

Having survived the melodrama of the threatened government shutdown, Americans are waking up to the fact that the real budget battles lie ahead. The shutdown derby produced a budget that will supposedly cut $38 billion from this year's federal spending. But the real cuts will be far smaller and will scarcely dent the national debt of $14.2 trillion. Republican budget hawks in Congress, championed by the House Budget Committee chairman, Representative Paul Ryan of Wisconsin, are now demanding cuts measured in the trillions — and threatening to not raise the permitted federal-debt ceiling unless they get them. That would force the Treasury to cease borrowing once the ceiling is reached this summer, causing chaos in government programs and a renewed recession.

Even assuming that Ryan and his followers don't resort to this nuclear option, the questions that worry the credit raters at S&P will remain ominously unanswered. How will the U.S. get a grip on its vast debt, which makes it the world's largest debtor after Japan? Do the nation's leaders have the courage to cut health entitlements or Social Security? Will they close popular tax loopholes like the mortgage-interest deduction? Relative to the grand issues of statecraft — war and peace, the battles against AIDS and climate change — these bean-counting problems may sound mundane. But they nonetheless present a defining challenge for today's generation, with far-reaching consequences for the U.S.'s standing in the world. Indeed, history speaks unnervingly on this matter: power that is built on debt is often power that will crumble.

Consider a pair of cautionary tales from Egypt. A century and a half ago, Egypt was a New World wonder. The U.S. Civil War had destroyed cotton exports from the American South, causing an eightfold jump in prices that greatly enriched Egyptian growers. The country's ruler, the khedive Ismail Pasha, splurged so enthusiastically on railways that Egypt, which then encompassed modern Sudan as well as parts of Libya and Eritrea, boasted more miles of track per habitable acre than any other country. In 1869, Egyptians celebrated the opening of the Suez Canal, an engineering marvel that sliced through the right shoulder of Africa. Notables from as far afield as London and St. Petersburg flocked to witness a ceremonial procession of ships down the canal led by Empress Eugénie in the French imperial yacht. The festivities stretched over three weeks, in a sort of 19th century cross between the schmooze fests of Davos and the bacchanalia of the Rio Carnaval.

But even before the French Empress sailed through the canal, the Confederate surrender at Appomattox was bursting Egypt's bubble. With the end of the Civil War, cotton prices began to fall, and the khedive's ostentation could be sustained only by promiscuous borrowing. From 1867 to 1875, Egypt's national debt skyrocketed from £3 million to £100 million; meanwhile, cotton prices kept falling to pre–Civil War levels. The debt became unrepayable. What followed was a lesson in how quickly debt can compromise a nation's sovereignty. In 1875 the cash-strapped khedive sold Egypt's stake in the Suez company to the British, who acquired the financial and geopolitical crown jewel at the distressed price of £4 million. The following year, Egypt defaulted on its debt, and in 1878 it was forced to accept a government whose main function was to keep foreign creditors happy — the Finance Minister himself was British. In 1882 a British military intervention sealed Egypt's fate as a colony in all but name. In the language of imperial statecraft, it became a "veiled protectorate."

Thus ended the first installment of the lesson taught by Suez. To nervous Americans today, the second installment is more subtle but also more chilling. By the middle of the 20th century, Britain, the superpower that had seized the advantage in Egypt's debt crisis, was suffering one of its own, brought on by unsustainable borrowing to fight two world wars. Its leaders still believed they bestrode the world. But their power was illusory. After World War II, Britain was deeply in debt to the U.S., an advantage President Eisenhower used to exact various political concessions, including the surrender of the Suez Canal back to Egypt. (He wanted to keep Egypt's new leader Colonel Gamal Abdel Nasser happy and avoid pushing him into the Soviet camp.) The dollar replaced the pound as the global reserve currency. And the U.S. replaced Britain as the pre-eminent global power.

The Suez humiliation marked the end of Britain's imperial pretensions. As the historian Niall Ferguson has written, "It was at the Bank of England that the Empire was effectively lost." Harold Macmillan, then British Chancellor of the Exchequer, confessed that Suez had been "the last gasp of a declining power," adding that "perhaps in 200 years the United States would know how we felt."

This article continues here.

[Barry]

.... The huge US deficit is just a symptom of an underlying cause. Cutting (and blaming) “entitlements,” Social Security benefits, public employee unions (and unions, period) -- and even military spending -- will not -- whether enacted piecemeal or all together -- fix the US economic crisis. The fix, if and when it happens, will take 15-20 years. At best.

/mhqc/

So what to you see as the underlying cause and what's the fix?

[Karl Frederick]

True colors showing early in the article . . . "Do the nation's leaders have the courage to cut health entitlements or Social Security?"
Puts a new slant on "courage," doesn't it?

[Here's a real good introduction to the dangers of the US being deep in debt. It's serious! - Barry]


https://www.time.com/time/nation/art...067967,00.html

Americans are forever grumbling about government gridlock.

This article continues here.

[iaim2xl]

As this article clearly points out, and what all of us are beginning to understand, is that the mighty U.S. is rapidly becoming a second-rate power.

We can talk all we want about cutting major programs, and they do need to be on the table, like everything else. But what I'm not hearing enough talk about, however, is when the hell are we going to start cutting military spending? How long are we going to continue footing the bill for every war and power struggle elsewhere in the world, and the subsequent 'nation building' that goes along with it?

We need to do some nation building right here at home! If we started redirecting some of the military spending into education, infrastructure and effective youth development programs, the deficit would begin to dissolve. At the same time, this investment would help us regain the stature of a nation that others would want to emulate. We wouldn't need as much force out there, since others would be attracted to our ways based on the results.

But here we are, putting our money behind ideals that are effectively bankrupting us instead of practical approaches that will lead to a sustainable future.

When do you and I say "Enough! We will not tolerate continued spending on wars and building other nations when we cannot sustain our own." At what point do we, the people, take over and tell our elected officials to change course? Do we wait until we literally can't feed or care for many of our vulnerable citizens, young and old?

How do we get a non-partisan movement to gain traction so Democrats and Republicans alike get the message and put this nation's REAL interests first?

Got any ideas?

[The A Team]