But to continue with the 'average' American, any individual catastrophe, with the average American having a negative saving rate, can tip any particular individual into poverty: a work disability, or a medical emergency can quickly destroy a family. On a broader scale, if interest rates are allowed to increase too much, and the over-extended mortgages and huge credit card debts become too much to manage, and with the no-escape bankruptcy laws now in effect, broad swaths of the middle and working class could quickly become impoverished.
Americans have used the increased value of their homes, artificially inflated to keep the economy rolling, withdrawing over $600 billion to pay off credit card debt and for personal spending.[7] As the housing market flattens out, with the bubble burst now well under way, and as wages continue to stay flat, the economic house of cards becomes less and less stable. It is not just the consumer at fault as corporate America has financed itself as well largely through debt.
The highly volatile money markets, stock markets, and corporate financings, the deregulation that has allowed all kinds of new and complex financial structures to develop is a second major factor in the frailty of the U.S. economy. Trillions of dollars have been placed into "such opaque standards as credit derivatives, credit derivative futures, and collateralized debt obligations."[8] Those are terms that I have yet been able to understand clearly, along with others, "even more opaque, such as split capital trusts, collateralized debt obligations, and market credit default swaps."[9] These wonderful new enterprises in the jargon of economics – with some degree of intention – keep it a mystery except to a few acolytes who profess to actually understand it, although along the way I have come across those much more immersed in economics than myself, who were intelligent enough to admit they could not truly fathom what the terms meant either. At any rate, they appear to be high-risk management items of various kinds for buying and selling other peoples debt – to the amount of "a whopping $17.3 trillion, enough to sink the entire economy if the market takes a nosedive."[10] These debt structures of course are all inter-twined, with personal debt beholden to the corporations, and the corporation beholden to each other and various governments, the whole structure riding along comfortably so long as no ill wind blows. "Banks simply do not understand the chain of exposure and who owns what. Senior financial regulators and bankers now admit as much."[11]
An aspect of debt that is readily understood is the national debt – at least readily understood for its definition, but again using numbers with place values well beyond the visualizing ken of most everyone, including, I would argue, most economists who bandy the amount around with great pride in their use of truly large but objectively meaningless large numbers. The understood part is that the nation owes a ton of money to other nations from whom they have borrowed money to finance their ongoing consumption, and the other nations so far are willing to carry the debt. However, if they decide they no longer want to carry that debt, if they stop purchasing the bonds and debentures (the latter being unsecured bonds relying on the goodwill of the government to repay them, if no way else other than to print more money, or raise more taxes, and it is obvious what the American government prefers), then the value and goodwill of the dollar will collapse.
The majority of this debt is owned by international central banks in China, Japan, Taiwan and South Korea who have their own motives for "purchasing short-term Treasuries [bonds and debentures] with negative real returns, their obvious motivation was to keep lucrative export markets open."[12] In common terms, they are trading off investment losses in order to sustain their profit making exports to the over-consuming Americans, who no longer manufacture many of the products they want to buy.
There is a fourth aspect to debt, that of the current account deficit, simply defined as "money transactions with the rest of the world."[13] It is "the broadest measurement of how much more Americans buy...than they sell."[14] The current account problem is tied in with the national debt. The amount borrowed is staggering, as "the US has to borrow from foreign lenders (mostly Japan and China) $900 billion annually or nearly $2.5 billion every single day to finance the gap between payments and receipts from the rest of the world"[15] My simplest definition, economics for dummies, arrives at this: Americans buy more than they sell in a year (current account); year over year, Americans have to borrow money to continue that buying spree (national debt).
All these debts added up are more than staggering, and they defy all the precepts about fiscal prudence that has ever been preached to the average working layperson, yet it is okay for the government to encourage this debt policy. Taken all in total, "All Uncle Sam's debt, including private household consumer credit-card, mortgage etc debt of about $10 trillion, plus corporate and financial, with options, derivatives and the like, and state and local government debt comes to an unvisualizable, indeed unimaginable, $37 trillion, which is nearly four times Uncle Sam's GDP [gross domestic product – emphasis added]"[16]
Perhaps it is just all numbers and the economy can once again go percolating along as the economists juggle their statistics and print more money and everyone believes that the financial house is stronger than a house of cards. In my daily transactions, the run of the mill ordinary life I lead, which in itself is a blessing compared to the majority of the rest of the world upon whose labour this wealth has been built, these thoughts rest unquietly not so far in the back of my mind anymore. War and nuclear devastation are one thing, economic collapse, while not as disastrous for the environment and the third world (I imagine Cuba and Venezuela might actually weather the financial storm, being financially isolated as they are anyway – how ironic) would certainly affect my life and those of millions of other working people. The poor would not see much change; they have next to nothing anyway. The truly wealthy might not be quite so wealthy, but they always seem to hang onto their ill-gotten gains, or conversely, perhaps go on a buying spree of now cheap enterprises within which they could employ dirt-cheap labour. It is the hundreds of millions in the middle who would be affected most. The end result might just be the military application of nuclear weapons on a chosen target, as the wounded economic beast strikes out at its media created imaginary foes, blaming the rest of the world for their own stupid culpability.
That, of course, is sensationalist paranoid conjecture. Only time will tell, but in the meantime, hopefully some solutions, some soft landings, will avail themselves in order that the economic puzzle of huge debts – the house of cards - resolves itself rather than collapsing into its empty basement.
The American empire is based on this house of cards, the borrowing of huge sums of money to keep the consumptive engines burning up as many commodities as can be created. The disasters of the IMF and the World Bank and the many free trade negotiations and agreements, instruments of the empire along with the military that I have previously examined, have negatively affected hundreds of millions of people globally. Something as apparently simple as a change from American petrodollars to the Euro petrodollar (one of the reasons, not stated, that the U.S. invaded Iraq, with one of its first actions being to restore Iraqi oil to the dollar base from the euro) or the hint to the central banks that China is disposing of its American reserves, or a drastic increase and sustaining of oil prices resulting in high inflation, could pull a keystone card out of the imperial arch. Ironically it was a homebuilt housing mortgage market that seems to have triggered the stock market collapse.
If it were simply a housing market collapse, with the rest of the economy still relatively strong, it might be a short-term milder recession. The efforts of the administration to help the situation do nothing but aggravate it. The 145 billion being returned to the taxpayer has to be borrowed from foreign sources, simply adding to that debt. The spending that the Americans will do with their magnificent $800 rebate is also money that is being spent on foreign goods. Consider that "According to reports, 70% of the goods on Wal-Mart shelves are made in China." In reference to the number of manufactured goods being produced in the U.S. it is also important to note, "In 2007, prior to the onset of the 2008 recession, 217,000 manufacturing jobs were lost. The US now has fewer manufacturing jobs than it had in 1950 when the population was half the current size." [17]
In an economy defined as "military keynesianism", Chalmers Johnson writes of the necessity of "liquidating the global empire" and bringing the defence budget into line with actual need, much less than the 55 per cent of global military expenditures that it now spends. Otherwise: "If we do these things we have a chance of squeaking by. If we don't, we face probable national insolvency and a long depression." [18]
With the enormous debt at all levels, intertwined throughout various corporations and governments, with a senseless war for strategic oil control costing billions of dollars daily and creating overwhelming negative response to the American way, the world could be in for a long haul where major restructuring of the global markets might take decades to work out. Pessimistic? For sure, but the market collapse has been foreseen as a possible/probable event by alternate media for some time, while all the local financial advisors still run the tired and true mantra of "holding on" and "riding it out". Be prepared for a long ride.
[1] Levy, David M. and Peart, Sandra J. "The Secret History of the Dismal Science: Economics, Religion and Race in the 19th Century." The Library of Economics and Liberty. http://www.econlib.org/LIBRARY/Columns/LevyPeartdismal.html
[2] Phillips, Kevin. American Theocracy – The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century. Viking, Penguin, N.Y. 2006. p. 266.
[3] Ibid, p. 268.
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