[Marxism] IMPORTANT: A debt culture gone awry

Walter Lippmann walterlx at earthlink.net
Sun Aug 19 16:29:08 MDT 2007

(The International Herald Tribune has the wonderful feature by you 
can listen to the report being read out loude from the web. 
This article's emphasis on the irresponsibile ways Washington has 
allowed its debts to escalate to mountainous levels makes sense.
No reference to Islamic teachings here, but lots to contemplate 
in this commentary. He's trying to explain that if Washington 
doesn't make vital reforms quickly, it will reap the whirlwind.)

A debt culture gone awry
By Hamid Varzi
Friday, August 17, 2007



The U.S. economy, once the envy of the world, is now viewed across
the globe with suspicion. America has become shackled by an immovable
mountain of debt that endangers its prosperity and threatens to bring
the rest of the world economy crashing down with it.

The ongoing sub-prime mortgage crisis, a result of irresponsible
lending policies designed to generate commissions for unscrupulous
brokers, presages far deeper problems in a U.S. economy that is
beginning to resemble a giant smoke-and-mirrors Ponzi scheme. And
this has not been lost on the rest of the world.

This new reality has had unfortunate side effects that go beyond
economics. As a banker working in the heart of the Muslim world, I
have been amazed by the depth and breadth of anti-Americanism, even
among U.S. allies, manifested in reactions ranging from fierce anger
to stoic fatalism. Muslims outside the United States interpret
America's policies in the Middle East not as an effort to spread
democracy but as a blatant neocolonialist attempt to solve its
economic problems by force. Arabs and Persians alike argue that
America's fiscal irresponsibility has forced the nation to seek
solutions through military aggression.

Many believe that America's misguided adventure in Iraq was a
desperate attempt to capture both a reliable source of cheap oil and
a major export market for the United States.

The United States borrows a whopping $2.5 billion daily from abroad
to service its burgeoning debt. In order to continue borrowing at
reasonable interest rates America needs to retain credibility with
its overseas creditors, especially Far Eastern nations running huge
trade surpluses. A cessation of foreign lending would force the Fed
to raise interest rates to attract money, precipitating a collapse of
the already weak housing market and pushing the economy into

This is why the Chinese, in particular, have threatened to retaliate
against proposed U.S. trade sanctions by reducing their $1.3 trillion
in dollar holdings.

The U.S. debt situation is so grave that the Chinese would not even
need to "dump dollars" to precipitate a meltdown but could simply
refuse to extend further credit: They could cease purchasing
additional Treasury Bonds and Treasury Bills, without selling any
excess inventory. China has the far stronger hand, because a run on
the dollar would merely reduce China's gigantic cash surplus while
increasing America's debt burden to astronomical levels.

U.S. debt affects all nations, but in surprisingly different ways:
Third world farmers suffer from the effects of gigantic U.S. farm
subsidies aimed at reducing the trade deficit, while Russia has
actually profited from America's lack of discipline.

Flush with funds generated from a decade of trade and account
surpluses, Russia views U.S. sensitivity to its expansionist energy
policy as a response to America's own failure to reduce energy waste
and exploit alternative energy sources when it had the opportunity to
do so. In sum, American economic decadence has become a source of
Russian strength.

America's supply-side economists argue that there is nothing wrong
with going into debt, but this is valid only as long as a nation and
its consumers are gaining something in return.

What have Americans gained from their nation's mountain of debt? A
crumbling infrastructure, a manufacturing base that has declined 60
percent since World War II, a rise in the wealth gap, the lowest
consumer-savings rate since the depths of the Great Depression, 50
million Americans without health insurance, an educational system in
decline and a shrinking dollar that makes foreign travel a luxury.

The best cars, the best bridges and highways, the fastest trains and
the tallest buildings are all to be found outside America's borders.
Supply-siders ignore the crucial distinction between, on the one
hand, debt employed as an investment vehicle to enhance
competitiveness and, on the other, debt used to pay off current
expenses and to create even more debt.

The bottom line is that America is awash in red ink and seeks the
wrong solutions to its debt problems. A return to fiscal
responsibility would make America far stronger, both domestically and
internationally, than would a continuation of current policies that
falsely project strength through idle protectionist threats and
failed military aggression.

Current tensions between the United States and the rest of the world
will continue as long as America's military bark is louder than its
economic bite.

A solution to the U.S. debt problem requires radical measures,
including: the elimination of corporate tax loopholes, a reversal of
tax breaks for the ultra-rich, a bipartisan campaign to eliminate
budget "pork," imposition of stringent limits on corporate debt and
speculative lending, a vast reduction in military expenditure and,
finally, an additional 50 cent per gallon gasoline tax that would
slash the federal deficit, curtail energy waste and spur
technological breakthroughs.

Let us hope America heeds the warnings, dispenses with junk-food
economics and embraces a crucial diet of fiscal discipline. It
remains to be seen, however, whether America's political leaders have
the courage to instigate such reforms, and whether Congress is
finally willing to do something for the future of ordinary,
hard-working Americans.

Hamid Varzi is an economist and banker based in Tehran.

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