The Debt Apocalypse Hasn’t Happened Yet, Has It?
There is too much money at stake. It’s never going to happen.
I can remember that old saw from conservatives. Remember the prediction that public debt was going to crowd out private borrowing? That interest rates would shoot through the roof and it would be 1979 all over again?
In recent years, interest rates have been at all-time lows. Interest rates are still near historical lows. Yet, the federal debt now towers over the federal debt in 1979. Even with a debt equal to nearly 100% of GDP now, interest rates are still very low. So what happened?
Foreign money. China, Japan, and other Asian countries have stepped in to buy that debt. They buy it to float the dollar higher so that a thorny and sticky trade imbalance remains. It’s not like we want it, either. Entrenched interests would prefer to see jobs go overseas than to have them here. God knows how much more money they would have to pay in labor if manufacturing were brought home.
To me, this seems like the perfect combination of public policy that I like to think of as “keep away” — a game to keep capital from accumulating in the middle class. A nice strong dollar makes foreign manufacturing profitable. A high debt load on the federal government gives foreign countries a way to prop up the dollar and shift the balance of trade. To ensure that debt remains high, taxes are kept artificially low on the people who profit the most from this convenient arrangement.
Given the profits arising from the sale of government debt, both directly and indirectly, I find it hard to believe that Republicans are truly serious about reducing budget deficits and federal debt.
Let’s try a thought experiment. Let’s say it actually happens, that the budget deficits go away, and that the public debt is actually paid off, never to return. Other countries would have very little leverage on the dollar at that point. Buying Treasury bonds for dollars to prop up the value of the dollar would no longer be there. Maybe they would find other levers, but buying public debt is easy and convenient.
The other way is to buy actual dollars, and take them out of circulation, which would increase the value of the dollar in other ways, but the money would no longer be working for them. People make money from money when it circulates, not when it sits in a room.
Once the federal debt is paid off, an enormous lever for manipulating the value of the currency is removed. Where are the wealthy governments and people going to put their money safely? Maybe they will find other safe places for it, but that drives home the next point. If the public debt were so dangerous, so risky, why would anyone even buy treasury bonds? Why does China own $1.6 trillion of treasury bonds? And just look at all the fun Republicans are having while they argue about a “debt ceiling” while their friends get rich!
No, this whole debate over the debt is a ruse. The elite wants no debt reduction. If they did, they could have had it long ago. Don’t believe me? How did we get here again? Who has the power to set up the trade imbalance? The people running what Larry Lessig calls, Lesterland, the 0.05% of the population who are paying 60% or more of the campaign costs nationwide. That’s who.
Oh, by the way, if trade were even between the US and the world, that would bring home at least 7 million jobs. That’s a desirable result, but then that means manufacturers would have to pay US workers real US wages. That might even resuscitate the middle class, and that would put the middle class closer to the upper class. Heck, we might even see the resurgence of unions.
No, that won’t happen anytime soon. If that happened, the upper class would have to actually work to stay ahead. So the federal debt is here to stay as long as the elite want to keep it around.
Originally published on October 22, 2013, on my blog, The Digital Firehouse. Revised for grammar, small new ideas, and improvements.