FacebookTwitterGoogle+RedditEmail

America On Top Again

by DON MONKERUD

The typical American family is buried in debt. According to the Federal Reserve Fund, household debt equals almost 25 percent of net household worth, or 136 percent of disposable income. After wages fell behind inflation for a decade, Americans mortgaged their homes and ran up their credit cards to cover living expenses.

In 2005, Americans spent $42 billion more than they earned, and the most recent report from the Commerce Department found savings rates at a negative one percent, the lowest since the Great Depression, and down from 11 percent after WWII. Only four times have savings rates fallen so low: The other two were during the Great Depression when a quarter of the workforce was unemployed and Americans spent their savings for essentials such as food and rent.

Today’s debtors are taking advantage of the lowest interest rates in 40 years by borrowing money from their houses and against their paychecks to buy new cars and make home improvements. They also pay over $1.4 trillion in debt service, or 10 percent of the gross domestic product. The credit card industry alone generates over $30 billion in annual profits.

As long as business in the US continues to grow, even at a slow pace, and consumers feel they will have money in the future for monthly payments, there is little concern, despite some pessimism by contrarian economists. The same is true of the massive foreign debt.

On the national level, each citizen owes almost $29,000 for a collective total of $8,700,769,194,975, roughly $9 trillion. Interest on the federal deficit is now the fastest-growing part of federal spending, consuming $220 billion in 2006 and $270 billion by 2008. For the first time since WWI, the US now pays more to foreign creditors than it receives in investments from abroad.

Paying this interest leaves less money for domestic programs, but free-market economists claim the debt is only a small percentage of the gross national product-6 percent in 2005-and the federal government can write checks at any time, risking only a little inflation, so the national debt is not worrisome.

The flow of funds into US financial markets depresses US interest rates and allows the US to run huge trade imbalances and a high national debt because there is nowhere else countries can invest safely for the returns they receive from US markets. As long as the US continues to import cheap goods from China and India, interest rates in other countries remain low, oil prices don’t shoot up, and there are no serious disruptions, most economist predict that the economy will probably stay on track and be able to absorb shocks such as Hurricane Katrina and the huge expenditures of the Iraq occupation.

If the US could no longer borrow as it has been doing, interests rates would skyrocket, home values would plummet, people would lose their jobs, and government services would have to be cut drastically.

A study by the Brookings Institute on sustained US budget deficits said, “Failing to act sooner rather than later, though, only makes the problem more difficult to address without considerable instability, raises the probability of fiscal and financial disarray at some point in the future, and runs the risks of further constraining policy flexibility in the future.”

An even greater danger cited by many economists is the long-term debt created by Social Security and Medicare deficits. Federal Reserve Chairman Ben Bernanke warned Congress in January that the longer we wait to address funding these programs, “the more severe, the more draconian, the more difficult the adjustment is going to be.”

The Congressional Budget Office found that Social Security and Medicare will rise from 8.5 percent of annual economic output to 10.5 percent by 2015 and to 15 percent by 2030. This increase would mean that the ratio of publicly held federal debt would rise from 35 percent today to 100 percent by 2030. Bernanke warned that such high debt would slow economic growth, reduce private investment, and lead to low confidence among consumers, businesses and investors.

The press of debt and higher interest rates could lead to a serious recession that could drastically curtail domestic consumption and lead to massive unemployment. Coupled with impending weather disasters caused by global warming, vast areas of the country could be without power, food and shelter for long periods.

Loss of status in the world or terrorism within the US could negatively impact the American psyche, leading to an even greater reliance on military power, permanent warfare, and draconian curtailment of civil liberties.

On the other hand, the US economy could roll along as it is, with the rich getting richer, the poor getting poorer, and the middle class pushed down into a lower socioeconomic class, fostering resentment and squabbles over ever scarcer public resources. Shantytowns could spring up, making America look more like Haiti and South America.

Not the hopeful scenario Americans like to assume but considering the volatility of our time, a stable economy cannot be assured. Today’s worldwide economy is so complex, inter-related and global that no one can predict what will happen.

DON MONKERUD is an California-based writer who follows cultural, social and political issues. He can be reached at monkerud@cruzio.com.

 

More articles by:

CounterPunch Magazine

minimag-edit

Weekend Edition
August 26, 2016
Friday - Sunday
Paul Buhle
In the Shadow of the CIA: Liberalism’s Big Embarrassing Moment
Andrew Levine
How Donald Trump Can Still be a Hero: Force the Guardians of the Duopoly to Open Up the Debates
Rob Urie
Crisis and Opportunity
Louisa Willcox
The Unbearable Killing of Yellowstone’s Grizzlies: 2015 Shatters Records for Bear Deaths
Charles Pierson
Wedding Crashers Who Kill
Richard Moser
What is the Inside/Outside Strategy?
Dirk Bezemer – Michael Hudson
Finance is Not the Economy
Jeffrey St. Clair
Roaming Charges: Bernie’s Used Cars
Margaret Kimberley
Hillary and Colin: the War Criminal Charade
Patrick Cockburn
Turkey’s Foray into Syria: a Gamble in a Very Dangerous Game
Ishmael Reed
Birther Tries to Flim Flam Blacks  
Brian Terrell
What Makes a Hate Group?
Howard Lisnoff
Trouble in Political Paradise
Terry Tempest Williams
Will Our National Parks Survive the Next 100 Years?
Ben Debney
The Swimsuit that Overthrew the State
Ashley Smith
Anti-imperialism and the Syrian Revolution
Andrew Stewart
Did Gore Throw the 2000 Election?
Vincent Navarro
Is the Nation State and Its Welfare State Dead? a Critique of Varoufakis
John Wight
Syria’s Kurds and the Wages of Treachery
Lawrence Davidson
The New Anti-Semitism: the Case of Joy Karega
Mateo Pimentel
The Affordable Care Act: A Litmus Test for American Capitalism?
Roger Annis
In Northern Syria, Turkey Opens New Front in its War Against the Kurds
David Swanson
ABC Shifts Blame from US Wars to Doctors Without Borders
Norman Pollack
American Exceptionalism: A Pernicious Doctrine
Ralph Nader
Readers Think, Thinkers Read
Julia Morris
The Mythologies of the Nauruan Refugee Nation
George Wuerthner
Caving to Ranchers: the Misguided Decision to Kill the Profanity Wolf Pack
Ann Garrison
Unworthy Victims: Houthis and Hutus
Julian Vigo
Britain’s Slavery Legacy
John Stanton
Brzezinski Vision for a Power Sharing World Stymied by Ignorant Americans Leaders, Citizens
Philip Doe
Colorado: 300 Days of Sunshine Annually, Yet There’s No Sunny Side of the Street
Joseph White
Homage to EP Thompson
Dan Bacher
The Big Corporate Money Behind Jerry Brown
Kollibri terre Sonnenblume
DNC Playing Dirty Tricks on WikiLeaks
Ron Jacobs
Education for Liberation
Jim Smith
Socialism Revived: In Spite of Bernie, Donald and Hillary
David Macaray
Organized Labor’s Inferiority Complex
David Cortright
Alternatives to Military Intervention in Syria
Binoy Kampmark
The Terrors of Free Speech: Australia’s Racial Discrimination Act
Cesar Chelala
Guantánamo’s Quagmire
Nyla Ali Khan
Hoping Against Hope in Kashmir
William Hughes
From Sam Spade to the Red Scare: Dashiell Hammett’s War Against Rightwing Creeps
Raouf Halaby
Dear Barack Obama, Please Keep it at 3 for 3
Charles R. Larson
Review: Paulina Chiziane’s “The First Wife: a Tale of Polygamy”
David Yearsley
The Widow Bach: Anna Magdalena Rediscovered
FacebookTwitterGoogle+RedditEmail