Wednesday, 27 July 2011

America is fucked

As you probably know, the USA is teetering on the brink of bringing down the global economy. This is because the US government has, for many, many years, been spending more than it brings in in taxes. However, the US has something called a debt ceiling and no government is allowed to increase the national debt beyond the debt ceiling without getting the approval of Congress. So, in order for the US government to keep on borrowing the money it needs to pay its bills and creditors, Congress needs to vote to raise the debt ceiling.

Now here's where the problem starts. Congress is controlled by the "fiscally conservative" Republicans who are running scared of the fanatical Tea Party movement. But the President is a Democrat.

Now, in order for the debt ceiling to be raised, all sides are insisting on a deficit reduction strategy. The basic problem is that the Republicans are refusing to raise the debt ceiling unless the defence budget is protected from cuts, taxes are kept low and there are cuts to welfare programmes. And they're only willing to raise the debt ceiling enough for the government to function for the next six months - meaning that the whole issue will blow up again at the same time that Obama is facing the presidential election.

Now the problem is that a deficit reduction strategy based purely on cuts with not tax rises is impossible. The US has tax rates which amount to just over 15% of GDP whilst pretty much every other developed country in the world has taxes at 40% of GDP or more. And this tax rate is also somehow meant to pay for the largest and most bloated defence budget in the world, two foreign wars and all the other expenses at the same time as paying off the deficit. It's simply not possible.


That picture above comes from the New York Times. The reason I've put it in here is because it illustrates one of the biggest problems with the American financial situation. Back when Bush was president he introduced massive tax cuts for the wealthiest individuals and corporations which took taxation on them to the lowest for sixty years. These tax cuts were meant to stimulate growth and trickle down distribution of the new wealth generated. In practice none of this happened and the US was saddled with a debt from those tax cuts alone which amounts to more than all the borrowing Obama has done so far put together.

It's pretty basic. You can't maintain a level of spending as high as the US and keep on lowering taxes at the same time. Something has to give.

However, despite that, Obama agreed to a deal where there will be no tax rises and where the deficit will be reduced entirely through cuts to spending. So what's the problem? Well, the problem is that the Republicans don't think this is good enough. In addition to reducing the deficit entirely through cuts, they also want to make sure that none of the cuts fall on the defence budget (which, as I've already mentioned, is the largest and most bloated in the world) and that there are additional cuts to welfare - something which would completely undo all of what Obama feels he has achieved since becoming President.

So now we have a Mexican stand off. Both sides are playing the blame game whilst the US comes ever closer to the deadline where it will either have to default on its debt (something which would quite literally bring down the entire global economy) or shut down the federal government, something which would mean real hardship for millions of Americans.

To my mind, the Republicans really are to blame here. It is not possible for the US to pay of its debt without raising taxes even slightly. If it were any other country in the world, the markets would have downgraded America's credit rating already, effectively pulling the plug on their economy and turning them into another Greece. The only reason this hasn't happened yet is because the markets know that if they did so then they would crash the global economy.

But with the Republicans playing their game of brinkmanship it is highly likely that that could happen. And if it does then it doesn't matter who scores the political points because the entire financial system would utterly collapse, bringing a swift end not only to American hegemony, but also to the entire world as we know it.

And even if some eleventh hour compromise is reached it does not change the fact that America's political system and media will ensure that this problem keeps on emerging again and again and again. The US is hopelessly divided on partisan lines and not only does each side view the other as the ultimate enemy, each side also lives in a different reality to the other. As far as I can see it is the Republicans who are living in an economically illiterate fantasy land but that doesn't matter a jot because they have the political and media clout to have just as much of a say over decision making as the sane people.

So, to put it bluntly, America is fucked.

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7 comments:

  1. Yip, sums it up perfectly - good explanation of the issues - and that graphic is pretty telling.

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  2. If only the US had a strong third party. Then Democrats and Republicans might fear being punished for this brinkmanship.

    Yet again FPTP causes bad government.

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  3. Let me just clear this up before I say my bit, I am NOT a conspiracist! Is it not becoming more and more apparent that the government whether it be republican or democrat or not actually pulling the strings here? The American people need to realize the severity of what will happen when the money runs out, unfortunately they wont because of their biased media putting spin on the facts for the sake of scoring points at the other parties expense. Americans pay too little for their fuel and have done for years, the tax system is a joke and people need to start paying more tax and the rich need to be punished and put on higher taxation. Huge spending cuts need to be implemented aswell. This won't happen though of course, simply because this whole economic problem is being manipulated by those who will benefit from the current state of the economy, namely the elitist greedy bastards who run the federal bank. Americans are the victims of the biggest attack by elitist bankers ever witnessed. The whole war on terrorism aka steal their oil scenario, insane defense budget, patriots act, false flag operations such as 9/11 etc are all pieces of the puzzle and when the last piece is put in place will see the collapse of the mighty USA as you know it and the introduction of a military controlled state.

    Good luck to the American people, they're gonna need it!

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  4. you cannot solve the prolblem's that America has by electing and endless 'revolving' door of left/right political candidates. That just perpetuates the system. End the Fed, like NOW, take to the streets in PEACEFUL protest(for now) in numbers such as you never have had before, and get ALL the corrupt politicians up on trial. Nothing else will serve. Or you can choose to continue what you are doing now, which is pretty much nothing.

    Peace and love

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  5. I'm sorry we are fighting something too far gone. Good luck voting, it doesn't matter america is already fucked and there is no way out what so ever

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  6. I couldn't fathom how ignorant the republicans actually are over there until I established a LiveLeak account!

    It seems these people are preventing the evolution of America, and subsequently themselves.

    America needs to change in the eyes of the rest of the world and it is ignorant to ignore this fact. Imagine how much the rest of us will hate you if you impact our lifestyles too, actually I'll rephrase; Imagine what will happen when the rest of the world finally realize exactly the impact you have on our lives. You're not going to be left with too many international supporters, and the global population will scream bloody murder!

    I agree - the republicans in America are going to be the demise of the rest of us and it's a scary prospect to wonder what response you will see, especially from the other 2 or 3 imposing world powers if you destroy their livelihoods too. No defense budget will save you from multiple, simultaneous attacks from other nations who then judge America as a whole "a bad tooth".

    This is why the responsibility relies upon the general public of America to stand up against such closed minds, and make a more revolutionary move towards looking upon things with a less sheltered view and more opened mindedness. You see, it all starts with education about the facts, and if everybody could manage to educate and persuade at least one closed minded individual, then there goes most of your problem.

    It's time for change America - in a big way - and it all starts with you - The Individual

    The rest of the world is keeping a very keen eye on you all and be it said that the nation of America will be judged as a whole, not just the republicans, should the world see an epic global financial disaster which is why you have a responsibility as an American Individual, to preserve the "good view" the rest of us have about America and not ignore the situation or the views of the world and work for a change!

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  7. What you have to know, is that we did not get here by accident!

    We have been brought to the brink by those who believe they can profit from our demise, by becoming our lords and masters.

    The 'media' is a tool of these people as are most of the politicians.

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I'm indebted to Birkdale Focus for the following choice of words:

I am happy to address most contributions, even the drunken ones if they are coherent, but I am not going to engage with negative sniping from those who do not have the guts to add their names or a consistent on-line identity to their comments. Such postings will not be published.

Anonymous comments with a constructive contribution to make to the discussion, even if it is critical will continue to be posted. Libellous comments or remarks I think may be libellous will not be published.

I will also not tolerate personation so please do not add comments in the name of real people unless you are that person. If you do not like these rules then start your own blog.

Oh, and if you persist in repeating yourself despite the fact I have addressed your point I may get bored and reject your comment.

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