What everyone should know about the “debt crisis” in the U.S

6 August 2011 by Mark Weisbrot


Since the U.S. “Debt Crisis” has been a big international story for the last few weeks, it is worth clarifying what is real and what is not. First, the U.S. government does not have a “debt crisis.” The U.S. government is paying net interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. of just 1.4 percent of GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
[http://www.cbo.gov/doc.cfm?index=12212] on its public debt – this is not much by any historical or international comparison. The relatively large annual deficit at present (9.3 percent of GDP) is overwhelmingly the result of the recession and weak recovery. The long-term deficit projections are driven by health care costs [http://www.cepr.net/calculators/hc/hc-calculator.html] in the private sector. These spill over into public spending because the U.S. government pays for almost half of health care spending, at a rate that is twice as high as other developed countries – and rising fast.

There was never any chance [http://www.cepr.net/index.php/op-eds-&-columns/op-eds-&-columns/will-the-us-credit-rating-be-downgraded-does-the-norwegian-lunatic-killer-like-americans] that the U.S. would actually default on its debt. The whole “crisis” was manufactured from the beginning, with Republicans in the House of Representatives using a technicality to win unpopular spending cuts that they could not win at the ballot box. It worked: they got an agreement that promises large spending cuts without any tax increases on America’s rich or super-rich, who have vastly increased their share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of the national income over the past three decades.

The right won because President Obama chose to collaborate with them, also seeking to take advantage of the manufactured “crisis” to implement cuts that offended and hurt the people who voted for him. Of course he also wanted to increase taxes on the rich, but because he had accepted the legitimacy of the Republicans’ extortion, he lost that too.

The worst damage from this “weapon of mass distraction” – and President Obama’s capitulation to it — is that the policy debate in the United States has been sharply altered. The phony “debt crisis” is seen as the main problem; and even more absurdly, a cause of the economy’s weakness. The U.S. economy barely grew in the first half of this year, and we have 25 million people unemployed [http://www.bls.gov/news.release/empsit.t15.htm], involuntarily working part time, or having dropped out of the labor force. We are more than one-third of the way into a “lost decade,” and the shift of the policy debate toward deficit reduction will increase the probability that we will experience the whole thing.

If President Obama loses both houses of Congress and/or the presidency in the next election, it will be the result of a weak economy and high unemployment, and because he let his opponents not only sabotage the economy – which they are all too happy to do – but also to redefine the economic debate so that the president and his party will get blamed for the mess.

So the next time someone complains that most of South America is governed by left-populist presidents who fight too much with their countries’ traditional elite, remember there are worse kinds of leadership: the kind that commit political suicide for the sake of “bipartisanship.”



- Mark Weisbrot is co-director of the Center for Economic and Policy Research http://www.cepr.net, in Washington, D.C He is also president of Just Foreign Policy [http://www.justforeignpolicy.org/].

(This article was published in Folha de São Paulo, Brazil’s largest circulation newspaper, on August 3, 2011. The Portuguese version is here [http://www.cepr.net/index.php/other-languages/portuguese-op-eds/a-verdade-sobre-a-qcrise-da-dividaq].)

Mark Weisbrot

est codirecteur du Center for Economic and Policy Research à Washington et président de Just Foreign Policy. Il est également l’auteur de « Failed : Ce que les “experts” n’ont pas compris au sujet de l’économie mondiale ».

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