Debt: Is America “Too Big To Fail”?

The discussion of America’s debt ceiling is the talk of the town in Washington and key international financial markets. If you still have the dubious privilege to have a credit card or a line of credit, it is likely that your respective financial institutions have considerably reduced your own “debt ceiling” since the 2008 crash. Worldwide there is less money made available to ordinary people, businesses and even countries. But this universal rule applying to most US citizens and some European countries such as Greece, Ireland and Portugal -with Italy and Spain soon to follow-doesn’t seem to apply to the United States federal government.

The declining empire’s debtors are legitimately getting increasingly worried about America’s appetite to print money, and ultimately the increasing chance the country has to default on its astronomical debt. When will China, Germany, Japan and Brazil, which currently are holding more than $4 trillions in US assets say: enough is enough and pull the plug on their US Treasury Bonds in a fire sale? The calculus of America’s political and financial class-one is interchangeable with the other- is to gamble that foreign debtors can’t use this kind of “financial weapons of mass destruction” as leverage on Washington because it would make their own economy collapse. So, the global financial insanity-with America in the lead- continues unchecked.

Four main factors can be identified as key components in the US ballooning debt: war costs, financial sector recklessness, the Bush-era tax cuts, and rising health care costs. The stock market crash of 2008 wiped out trillions in savings and put millions of Americans out of a job, yet three years later Wall Street is back up-in appearance stronger than ever- at the expense of Main Street. However, the “health” of the stock market is, as usual, built on quick sand and could head south at any time. In 2008 and 2009, the financial sector was deemed “Too Big To Fail” by both the Bush and the Obama administration. The American people were told that to prevent a complete collapse Wall Street needed hundreds of billions of federal dollars or else the rest of the economy would go down with it. The tax payers billions were sucked in by the parasites that are banks which as a pay back for the tax payers’ generosity promptly shut down access to money for ordinary Americans in order to line up the pockets of their top executives.

Some organizations such as the Roosevelt Institute have come up with practical solutions to both rein in Wall Street and also expand access to capital to ordinary Americans. What the institute is proposing is a “Too big to fail” tax on the big banks. Their “Budget for The Millennial America” proposes a 25 percent financial activities tax on financial institutions exceeding $200 billions in assets. This tax would affect the top 12 largest banks in the United States, forcing them to split up their activities into new companies. This would pose significantly less risk to the global financial system since they would no longer be deemed “Too big to fail”.

Is Half of Europe “Too Big To Fail”?

The global financial sector, the World Bank, and the IMF are using the same scare tactics in the EU as the ones used in the United States over the debt crisis. The debt crisis is painted as the ultimate scarecrow,”the end of the world as we know it”,while in reality it is only a threat to the financial leeches sucking the blood of all of us. After Greece, Portugal and Ireland, it is now the turn of Italy which has  $2.2 trillion of debt. Financial analysts are concerned that Italy, Europe’s third largest economy, will be the next domino to fall in the path of shock capitalism.

On Tuesday, Isabella Bufacchi, a journalist with the Italian newspaper “Il Sole 24 Ore” said:“We are too big to fail. But we must also remember that Italy has got a big GDP, it is a big country. However, there is a contagion now coming from Greece, Ireland, and Portugal, which are countries that were in a condition not to be able to repay their debt.” Isabella Bufacchi might be too optimistic when it comes to her own country. The question for the southern part of Europe with its debt crisis is how long Germany and France, the healthiest economies in the EU, will be willing or even able to pick up the tab and bail out the weakest countries in the union?

In a wider context than Europe’s debt crisis, how long  the strong economies worldwide, with China in the lead,will be willing to tolerate America’s inexorable race towards more debt? As in the United States, the solutions proposed by the slave masters of global capitalism for Italy and other nations are the same: More austerity for the people and greater productivity. In other words, work like a slave-as a country or an individual- to service the debt for the benefit of the “master of the universe” of the financial sector.

There is a little tale getting some traction in some political and financial circles.

A Chinese man, a Frenchman, an Indian and an American were shipwrecked on an island. To survive everyone was given his own job. The Chinese man had to catch a fish, the Indian had to collect vegetables and fruits, the Frenchman had to cook the meal, and the American had only to eat as much as he could leaving only some crumbs and fish heads to the other three.

The American said he had the most important job of all, because if he didn’t eat that much the Chinese man, the Indian and the Frenchman wouldn’t have to,respectively, fish, gather and cook and would be unemployed. They went along with it until one of them had an epiphany. They kicked the American off the island and discovered that suddenly they had ten times as much to eat, and only had to work half as hard. Of course the villain in this story is not an ordinary American but an American banker.

 

 

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13 Responses to Debt: Is America “Too Big To Fail”?

  1. Pingback:

    -1 Vote -1 Vote +1Aaron Rzadczynski

  2. +1 Vote -1 Vote +1Thomas DeKorte
    July 14, 2011 at 2:52 pm

    Interesting story at the end there. So true.

  3. +1 Vote -1 Vote +1Preet
    July 14, 2011 at 4:31 pm

    I think you are forgetting bigger factors in the ballooning US debt such as the cost of Social Security, and Defense Spending

    • Gilbert Mercier
      +1 Vote -1 Vote +1Gilbert Mercier
      July 15, 2011 at 8:47 am

      The key factor in the ballooning US debt is, as you noted, defense spending which I called “war costs” in the article. The overall real cost of the wars in Iraq, Afghanistan, Pakistan and maintaining troops on all the US bases worldwide (including in Germany, Japan and South Korea) is slightly more than $1 trillion a year.

      This is the eight hundred pounds gorilla in the room of the budget crisis in comparison to the costs of health care and social security. For decades, the financial decisions in Washington have been made by people coming from Wall Street’s revolving door. Former Treasury Secretary Paulson, in the Bush administration, was a Goldman Sachs ex-CEO. The current Treasury Secretary Geithner is also a Wall Street insider.

      Unless this revolving door between Wall Street and Washington is permanently shut close-it won’t happen any time soon-the US political class will keep representing the interests of the banks and not the ones of ordinary Americans.

  4. +1 Vote -1 Vote +1BB
    July 14, 2011 at 9:12 pm

    Nice work, Gilbert – light on rhetoric, heavy on ideas.

  5. Vote -1 Vote +1Abigail
    July 14, 2011 at 9:44 pm

    Were the Roman and Persia empires too big to fail?

  6. +1 Vote -1 Vote +1Eric
    July 14, 2011 at 11:10 pm

    Were the Roman and Persia empires too big to fail?

  7. +1 Vote -1 Vote +1Glen
    July 14, 2011 at 11:11 pm

    All great empires fall, and within our lifetimes we’ll likely see the same happen to America. This crisis may be averted, but 14 trillion dollars in debt isn’t going away, it will just continue to grow increasingly difficult to manage, until America can’t even make the interest payments anymore.

  8. +1 Vote -1 Vote +1Kyle
    July 14, 2011 at 11:11 pm

    Research shows we’re at the point now where our debt is ticking about 1% off of our GDP growth. So you’re correct: it is an impact, but manageable. The risk risk comes with things most people don’t even grasp or understand: credit rating downgrades and failed Treasury auctions. This could make the cost of old debt skyrocket and the whole thing go out of control. It’s only a few years away at our current pace.

  9. +2 Vote -1 Vote +1Kevin
    July 14, 2011 at 11:12 pm

    Dude, America is NOT in financial trouble. We could simply sell Alaska pay off ALL DEBTS with tons of cash left over. Considering we bought it not long ago from Russia, I think it’s worth considering 🙂 …And as a bonus, Putin and Palin could finally be together.

  10. Pingback:

    Vote -1 Vote +1Aaron Rzadczynski

  11. Pingback:

    Vote -1 Vote +1Graphics

  12. Pingback:

    Vote -1 Vote +1Metodo Gabriel

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