Standard & Poor’s downgrading of US debt means. Yet, it matters
little that the two other giant rating agencies did not downgrade US
debt as S&P did. It is likewise unimportant that all those agencies
deserve the bad
reputations won when their overrating of securities burst in the
collapse of 2007 and took an already unbalanced economy into deep
recession. Nor does the downgrade impose major cash costs anytime soon.
S&P downgrade is important because it clarifies and underscores two
key dimensions of today’s economic reality that most commentators have
ignored or downplayed. The first dimension concerns exactly why the US
national debt is rising fast. There are three major reasons for this:
first, major tax cuts especially on corporations and the rich since the
1970s, and especially since 2000, have reduced revenues flowing into
Washington; second, costly global wars especially since 2000 have
increased government spending dramatically; and third, costly bailouts
of dysfunctional banks, insurance companies, large corporations and the
economic system generally since 2007 have likewise sharply expanded
government spending. With less tax revenue coming in from corporations
and the rich and more spending on defence/wars and bailouts, the
government had to borrow the difference. Duh!
The second dimension
“deal” just agreed between President Obama and the Republicans in Congress. That deal
promises further major increases in the national debt in the years
ahead. That is because it does not alter any of the three major debt
causes listed above. The political theatrics of the two parties reflect
the money/power of the corporations and the rich, keeping their tax
cuts, subsidies and main government orders untouched. Instead, the two
parties pretend concern about the debt, debate only how much to cut
government spending on the people, and focus on the 2012 election.
downgraded the US national debt because these economic and political
dimensions of the US today guarantee a worsening of the nation’s debt.
Thus, a basically political problem is looming for those lenders who
purchased and now own the debt obligations of the US (that is, Treasury
securities). The political problem is this: how long will the mass of
Americans accept not only an economic crisis bringing unemployment, home
foreclosures, reduced real wages and job benefits, but now also
cutbacks in government supports? When will the political backlash
explode and how badly may it impact the creditors of the US?
might that backlash demand that the people’s taxes stop going to pay off
creditors (corporations, the rich and foreigners) and be used instead
for public services that the people need? Exactly that political danger
for creditors prompted the rating downgrades for the debts of Greece,
Portugal, etc. The same danger has now reached our shores and confronts
our nation’s creditors.
S&P decided – for reasons good and
bad, noble and venal – to say what any reasonable observer knows (given
that such backlashes hurting creditors have often happened in recent
history). Creditors need to worry about the combination of economic
crisis, growing inequalities of wealth, income and power, and political
dysfunction that now defines the US. The risks of backlash against
creditors rise with the national debt. Not to worry is irrational and
dangerous for them. And for us?
• This article was originally
published on Richard
Wolff’s blog and is crossposted by permission