09.23.08
US Empire: An Orgy of Debt
RG mail
http://www.commondreams.org/view/2008/09/21-4
by Eric Margolis
NEW YORK — The financial panic sweeping the globe is maddeningly
complex, but the cause of the worst financial crisis since the 1930s
Great Depression is clear.
America has reveled for two decades in an orgy of debt. The U.S.
national debt is now twice its net worth. From Wall Street’s “masters
of the universe” financial powerhouses such as Goldman Sachs, Merrill
Lynch, Lehman, and Morgan Stanley, to the humblest homeowners,
America’s national motto became “borrow to the hilt and bet.”
The traditional regulated banking system was pushed aside by Wall
Street’s financial titans who created their own money in the form of
complex securities and furiously traded these exotic instruments and
borrowed recklessly against them with little government regulation or
oversight.
As Kevin Phillips points out in his prophetic book, Bad Money,
America’s primary business became non-productive finance.
Manufacturing fell to only 12% of GDP. Wall Street titans grew
obscenely rich by simply passing around paper. Inflated or semi-
worthless securities increased in bogus value at each stage of the
trading process.
Wall Street was allowed to virtually print money and peddle toxic
securities around the globe because the big financial houses and heads
of hedge funds bought the politicians of both parties.
Equally important, the mammoth financial and housing bubble thus
created was hailed by the Bush administration as proof positive of
Republican free market philosophy and the true road to prosperity.
More cautious European and Canadian bankers were dismissed by
Republican chest thumpers as financial sissies.
This Ponzi scheme worked so long as markets kept rising. When the
music stopped – disaster.
It’s uncertain how far damage from America’s financial equivalent of
Hurricane Katrina will spread. Hedge funds, money market funds and
automakers could be next. Real estate losses may reach $636 billion by
2012.
All stock market gains of the past 10 years have been wiped out in the
most dangerous crash since the 1930s.
The “free market” Republican administration has ended up nationalizing
nearly $1 trillion worth of businesses, including the federal mortgage
agencies Fannie Mae and Freddie Mac, Bear Stearns, and global insurer
AIG. Welcome to Wall Street socialism.
One thing is now clear. When great empires run onto the financial
rocks, their power quickly ebbs. France’s Sun King, Louis XIV, ended
his once glorious rein in near bankruptcy caused by his long, ruinous
wars with the British and Dutch. Louis XVI’s runaway borrowing to
finance the American Revolution helped ignite the French Revolution.
The Soviet Union’s collapse was caused by spending half its national
income on arms, and failure to modernize industry.
Over the past decade, the U.S. foreign debt doubled. Japan and China
now hold 47% of the U.S. foreign debt and finance Washington’s wars.
The addition in recent days of at least $1 trillion in new debt will
cause interest rates to rise and the dollar to weaken. Even the U.S.
government’s AAA credit rating now is in question.
Washington may no longer be able to spend half the globe’s defence
budgets.
The $12-13 billion a month wars in Iraq and Afghanistan will end up
costing $750 billion by December 2008. There will be less cash in
Washington’s kitty to buy foreign dictators and prop up their regimes,
as in the Mideast and Central Asia. Less cash to pay for little wars
in Africa.
Less for exotic anti-missile systems and death rays.
America’s enormous global power is based as much on its financial
might as military muscle. Wall Street has been the vehicle and
policeman of America’s hegemony. It shaped the destiny of the globe
and made many nations subservient to the demands of New York’s titan
bankers. Wall Street is essential to raising capital for business
expansion, but often it resembled New York’s ruthless loan sharks:
Once you borrowed from them, you never got off the hook.
Americans will have to relearn the hard truth that you can’t borrow
your way to prosperity.