In March, the United States Government will max out its national credit card and in order for the Treasury to borrow more money, Congress will be required to raise the debt ceiling. This is red meat for the incoming Tea Party Republicans, who ran against running up debt that will saddle our children, grandchildren and their kids, dogs, chickens and cats with unspeakable horrors.
In order to protect the progeny from a lifetime of service to the debt, the Tea Partiers are threatening to block this otherwise routine bill. Those who pass for responsible adults in both political parties are eyeing the insurgents nervously because they know that the dollar only exists in the form that we know it because it is valued by a continuous demand for dollar denominated debt issued by the United States Government and backed by its full faith and credit. Full faith and credit in this instance means ongoing tax revenues from us all, no matter how high they might go, no matter what those borrowed dollars might get spent on. Anyone who has traveled internationally knows that the dollar is a very special currency. It is not just our internal means of exchange, but is an economic universal solvent for all other currencies in a way that few others are.
The ability to print dollars backed by debt instruments is what allows the United States to finance the military enterprise consisting of almost 1,000 foreign bases, two and a half active military conflicts, and to provide a significant backstop to cover banksters’ gambling losses on the Wall Street casino.
No objective observers ever claimed that the populist anger stoked by billionaire financing of the various Tea Party operations was rational. Who can forget those “Keep your government hands off of my Social Security” signs held up by wheezing obese white seniors on Medicare financed oxygen tanks and scooters?
When that wild irrationality harmonizes with progressive radical goals, as in stopped clocks tell accurate time twice a day, then it is time for progressives to unite with the Tea Party on this issue and demand that the Congress refuse to raise the debt ceiling. Unlike the Tea Party, progressives should demand this because it will cut off the cash flow that threatens to condemn American workers to a lifetime of declining incomes in service of the Wall Street and military sectors so that the elites can continue to maintain the global south in low wage peonage and squalor.
The debt dollar is an economic armament created by keystrokes of bankers. These armaments are used to power a military that the United States’ economy otherwise could not afford. But those dollar weapons are also used in economic conflict. With the dollar universally accepted as valuable and the United States Government able to generate dollars at will through issuing debt, the dollar is used as the primary tool of United States economic domination over countries for various reasons.
We know that the military has been used to condemn hundreds of millions to lives of squalor amidst plenty as brutal dictators have acquiesced to the exportation of raw materials to the United States as bargain basement prices. We also know that asymmetrical (terrorist) attacks are often responses to that brutality which fuels the vicious military cycle known as the “War on Terror.” But the dollar has likewise been used to allow the United States to import more, less expensive goods not based on the value of our own product and exports, rather on the artificial valuation of our funny printed paper.
The dollars that the Treasury creates through floating debt are expensive dollars not just because of the interest paid to bond holders. When the government issues debt, when the Federal Reserve fabricates dollars out of thin air, they do not sell those dollars directly to investors or to in the case of the Fed to the Treasury. No, they sell those dollars at a discount to the “Primary Dealers,” the massive investment banks such as Goldman Sachs, Citigroup and JP Morgan, to name a few. These Primary Dealers turn around and sell those bonds for a premium to the final purchasers, taking a little off the top of a shitload.
When the United States Government can no longer foist that funny paper off on the rest of the world, either because of an evaporation of confidence in its value or because of a statutory limit on how much it can borrow, then the global south will be free from dollar economic hegemony and from the military intimidation and brutality that those dollars create out of thin air.
The artificially and high standard of living in the United States is unsustainable and must fall back to earth, because sustaining it based on subjugating the global south to unspeakable conditions is unconscionable. Global southerners, not to mention the emerging industrialized nations of Brazil, Russia, India and China are having no more of it. The end of the debt dollar means the end of dollar dominance of the global economy and the sprawling imperial military in service of the kind of un-American foreign policy revealed by Wikileaks, resulting in a load taken off of the back of the two billion poorest earthlings and American taxpayers alike.
That will leave us to fight the domestic economic fight where we contest the allocation of domestic dollars against the elites, those that are neither valued by that which we produce, not by speculators’ bets. There is much more political latitude in allocating how domestic dollars are deployed, with prices being determined by domestic supply and demand. The best path towards delivering on progressive values will be stripping the dollar of its global power so that it can serve our needs at home first.
Freed from the double duty of domestic currency and debt instigated global imperial universal economic solvent, the New Dollars can be made to work the will of the best interests of Americans rather than global investors. This means that wholly domestic programs like Social Security and Medicare, perhaps single payer health care, will become eminently feasible as they are in nations whose currencies are not based on the global reserve currency.
It is time for progressives and radicals to move in for the kill, for us to put our money, as it were, where our mouths are, to take advantage of the suicide pact that the Tea Partiers’ contradictions have invited, to leverage their power to achieve our ends. Yes, this is going to hurt going in, but after a while, you get used to it and it begins to feel good.



38 Comments

You have no idea how much damage that will do to the world. Or if you do then I have to say that you are completely callous to the suffering of literally millions as the world economy collapses.
The last time this kind of thing happened it saw the rise of fascism as a viable political form. It is just as likely this time to do the same and with the wars and revolutions that were attendant. You really think that will advance progressive ideas? I do not.
You are playing with fire in a fireworks factory just because you don’t like the shape of the building. This plan of yours is nuts in my opinion.
What’s nuts is expecting for the dollar to keep on keeping on and not making plans for what happens afterwards.
This point delineates the demarcation between liberals on one hand and radicals/progressives on the other.
What is selfish is to put our own well being before any consideration of the bottom 2 billion who live in squalor in order to support our comfort and convenience.
What is delusional is ignoring the fact that the global economy is being held hostage by a toxic web of $500,000,000,000,000 in credit default swaps, and that unwinding those will take decades if not centuries of serfdom.
What we’re doing is telling the speed addict that s/he can no longer have access to methamphetamines not because abuse is killing the addict but because the addict’s conduct is a violent menace to the community. Yes the withdrawal period will be painful, but it will stop the violence of the addict in the long run.
The piling up of corpses in the global south by the Dollar Empire must stop now, we are required under international law to make that happen.
Americans are coddled and wusses. Liberals truly fear being subjected to anything approaching the same conditions upon which our relative luxury is predicated. At the end of the day, the dollar/military complex are toxic to the planet, and it is going to take some pain to work through that. Best to get started now.
-marc
There are problems as you say, but yours is a “baby out with the bathwater solution”. And calling people names is not going to help you convince anyone.
But more to the point, this cut the knot solution of your will do damage world wide. Nothing you say ameliorates that, and to advocate that level of pain and violence that will follow shows that no one should take this idea seriously. When you have more than “just take your medicine” maybe you can persuade someone that your idea has merit but until then is crazy.
The rest of the world could get over the evaporation of the dollar, just as China could easily take a bath on the dollars it holds in reserve if push came to shove.
US media is highlighting the unthinkability of this because their position depends on nothing changing.
You described my position or me as “nuts,” what names did I call you again?
We are seeing a slow motion application of pain, with Ireland’s mortgaging of their future with austerity and servitude to the banks as an example of what is in store for us all.
There is no evidence that the end of the debt dollar would do any more damage than the continuation of dollar hegemony.
It would be very difficult, although not impossible, to posit a situation where the demise of the dollar piles up more corpses than its continuation as economic armament.
Did I mention the environmental mortgage that the artificially high standard of living in the US due to dollar hegemony places upon us all, even those who do not benefit from our cake walk?
-marc
You should look back at past crisis and how they were handled to correctly understand the best way forward for our nation.
President Abraham Lincoln protected the nation by issuing fiat currency. America emerged from the Civil War financially intact, free to pursue it’s own future.
On the other hand, two years into the 1893 panic, President Grove Cleveland needlessly sold the nation to European banking interests which Morgan had organized into a syndicate. JP Morgan handled the exchange of European gold for US Bonds and basically turned himself into a king over the next decade.
Which type of President do you think Obama is? Cleveland or Lincoln? Based on his friendliness with the banking sector, I’d bet on Cleveland. So if we allow the bottom to fall out now, he’ll sell the nation off to foreign interests.
The solution which we need involves much greater taxation of Wallstreet and much greater government spending.
As for the massive web of credit default swaps, it’s a fraud in much the same way as AIG was a fraud. But the solution isn’t to get rid of them by allowing them to blow up the economy. The solution is to just get rid of them. Declare them to be null and void.
I don’t think that any other nation or bloc is going to be buying the US in its current deindustrialized, consumer economy state, partially because it is so large and because there are no buyers big enough to throw good money after bad.
I don’t think that the Democrats or Republicans are going to tax Wall Street or increase government spending in any way that addresses the crisis. Indeed, it appears that those interests thrive under crisis and wish for it continue, based on their policy choices.
Nor do I think that the USG is going to declare CDS illegal any more than they’re going to declare that mortgages are now worth fractions of the dollars lent.
The goal of this economic model is to suck as much money out of as many people for as long as possible. They’re not going to stop until they’re cut off. That’s not going to happen easily.
There is no free lunch, and as the perpetrator of such misery, the needs and concerns of the US and its residents are last on the list.
-marc
I don’t think it’s a matter of there being a free lunch. It’s more a matter of having one that we can afford.
As for solutions, your solution is worse than the problem. You don’t understand what it is which they will buy up for a song. They will buy our transport and water systems. They’ll buy where ever they can collect monopoly revenues simply by erecting a tollbooth.
The idea’s which you are promoting would lead to a toll booth economy which is basically a return to feudal era economics. That’s pretty much the opposite of what the original Tea Party was all about and it’s certainly not progressive.
The game Republicans are playing with the debt ceiling should be called:
Economic Royalists use the Debt Ceiling to Revive Feudalism
Economic imperialists use the debt dollar to impose feudalism abroad. What you’re saying is that it is okay for us to impose it for certain elsewhere, but not okay for us to risk it here.
Defaulting on the debt dollar would instigate a crisis for us, and by definition the word crisis means that we don’t know what’s going to come next.
What kind of values are applied when the outcome of a choice is that we could not possibly suffer ourselves the conditions that our convenience and wasteful lifestyle imposes upon others who are poorer and browner than we are?
Americans are so entitled, as is evidenced by this line of argument and “keep yer guvmint hands off of my medicare” that they would not suffer a toll booth economy for very long.
-marc
This buying up of publicly owned land and infrastructure will happen regardless. The pain that is in store for the American public due to the unaccounted for and unpunished excesses of the Financial sector, will be passed onto generations. American youth will start emigrating out of this economic sinkhole, and the living standards will plumet.
I know not enough about economics, to offer a judgement here, but I am not at all certain that you see the whole picture either.
What marcos is suggesting, may not align with establishment economists, it is, however, not a viewpoint that doesn’t exist in the broader sphere of economic opinion outside the economic mainstream, and it certainly is not only a right wing viewpoint. It is contrarian for sure, but the real left is also contrarian, and being part of it I do not believe myself to be nuts.
So, I would suggest to marcos to help expand and perhaps ‘legitimize’ his view with addition of a few supportive links.
The MMT economists, do not see either approach as necessary, proposing their own get out of jail formula. Who is right? – I have no idea, but a conversation and informed dialogue cannot hurt.
Get Michael Hudson links into your entries, and we’ll all get more out of it!
I rec’d it, all the good that might do….thanks.
“What you’re saying is that it is okay for us to impose it for certain elsewhere, but not okay for us to risk it here.”
No, that’s your claim. It certainly isn’t what anyone else is saying. What is being said is that your solution is no good. In fact it’s a disaster from both a domestic and international perspective. No one is saying that there isn’t a problem or that the status quo isn’t in need of reform/overhaul.
“Defaulting on the debt dollar would instigate a crisis for us, and by definition the word crisis means that we don’t know what’s going to come next.”
No, we have a very good idea of what would happen. There would be a significant breakdown in trade. It’d be economic chaos on a global scale.
As for your comment regarding those who are “poorer and browner” than us, just realize that the economic chaos that you are promoting would hit them the hardest.
What we need is reform, not destructive deficit hawk mania.
No matter how it goes down, there will be pain in the US as our ability to command resources from the rest of the world at a discount diminishes.
But the only sources predicting global economic meltdown are domestic news outlets and establishment “experts” with an interest in preserving the debt dollar.
Here’s a link to google news’ compilation of stories:
http://news.google.com/news/search?aq=f&pz=1&cf=all&ned=us&hl=en&q=debt+limit
All I see are stories from Washington DC and the US.
I am by no means a deficit hawk, rather a Keynesian for lack of better alternative. But absent Keynesianism, all I see is a long, slow slog of debt peonage which is unacceptable.
At this point, had the system been allowed to go bankrupt two years ago, we’d be in better shape today than we are.
-marc
Thanks, I’m a Hudsonian, heavily influenced by Michael’s work, but this was an opinion piece, not a news story, hence no citations.
Opinion pieces, especially introductory ones, tend to benefit from citations, quotations, and links. The viewpoint you are propounding is an important one: The whole economics department of UM, Kansas City, Henry C K Lieu, Ha-Joon Chang, and others offer viewpoints that are out of the mainstream, and deserve to be brought in.
Iceland is already picking up speed, while we are awaiting the sovereign breakdown in the EU, which will put us next in line, and then all bets are off.
Invariably, the rich will prosper, and the poor will what?, be dying in the streets?
David Harvey, while not an economist, he’s a Marx scholar, offers some interesting views on this crisis, and the crisis of capitalism as a whole. If you haven’t had the opportunity, two vids are available at this start up blog, both at the bottom: http://mosquitocloud.net/147/
To the extent they are useful, Marxian analysis is good at shedding light on the mechanics of failure but notoriously poor at suggesting what the best way forward is.
Not a Marxist because it is more important to me to try to change the world rather than describe it.
What I am suggesting is not raising the debt ceiling as a means of triggering a revolution.
Can you link even one economist solidly to the left of the neoliberal status quo who is calling for a sudden forced end to the dollar reserve system simply by freezing the debt ceiling? Even just one?
That’s certainly not what the MMT crowd is proposing. They have no plans to stop spending, they just propose spending without issuing debt.
As for Michael Hudson, he’s opposed to what Bernanke’s FED is doing. But I haven’t heard him call for a freeze on the debt ceiling and he’s certainly not a deficit hawk. In general, he says that austerity does not lead to prosperity.
http://michael-hudson.com/2010/06/austerity-for-prosperity/
Here’s Hudson on deficit hawks:
http://michael-hudson.com/2010/12/deficit-hawks-one-two-punch/
There’s James Galbraith stating that deficit concerns are overstated:
http://crooksandliars.com/susie-madrak/james-galbraith-zero-danger-posed-def
Dean Baker on deficit hawks:
http://www.guardian.co.uk/commentisfree/cifamerica/2010/dec/06/economy-useconomicgrowth
Who are the economists on the left that support marcos position?
marcos January 9th, 2011 at 10:05 pm
Oh, no – he’s not that kind of Marxist, and as you rightly point out, it’s the critique of capitalism that makes Marxian thought so valuable. No, Harvey is a social theorist, a geographer and a huge proponent of The Right to the City.
captjjyossarian January 9th, 2011 at 10:08 pm
perhaps not a one, because it would without doubt cause immense pain. The part that may be causing vacillation, is the burden of responsibility, and the sliver of doubt as to the outcome of the current strategy. There is, after all safety form responsibility within the action of the herd. We’re witnessing this with the pronouncement by the economists that ‘nobody could have known about the upcoming crash’, and those that did, Dean Baker would understandably rather cure what ails us by other means. The problem is that those other means are not on offer. Higher taxes on the upper 10% and, growing the tax base with policies encouraging job creation are not being seriously pursued by either party. So, we are reduced to holding our collective breath, and those that hold no public positions, (zerohedge) have little to loose voicing their support of freezing the debt ceiling.
So, we’ll have to wait and see whether Tyler Durden, will be the next Taleb, Roubini, or Baker.
What we likely can agree on, is that we have a long slog ahead, that 10% unemployment and all that flows from that will turn us into a wage frozen bababa republic, offering up public property in fire sales.
missling January 9th, 2011 at 10:45 pm
After punching submit, I realized that there is another tack one coud take. The plan is to raise the debt ceiling by $900Billion.
I have not heard a peep from anyone about weening ourselves off Empire. There: a cool Trillion saved. So as a Leftie, I’d say don’t raise it. Instead, stop the damn Wars, cut Pentagon’s budget, Tax the Banks, but don’t lay it all on the working stiffs, don’t make us and our children bear the burden of your sociopathic hubris.
No doubt that our establishment is trying to use the issue as a mechanism to push a public austerity solution so the parasite can continue to feed.
But that’s beside the point. I seriously doubt that other nations expect us to default.
One historical example of a financial center defaulting would be London’s gold default in the 1930′s. Back then London was the worlds financial center, world trade did indeed freeze up when they left the gold standard.
I agree that the long, slow slog of debt peonage is unacceptable. I just don’t think a breakdown as suggested is a fix. There are no shortage of better solutions but as you point out, we seem to be quite powerless to implement them at this point in time.
But while we seem powerless, the same cannot be said of other nations. South America seems headed in it’s own direction. And China and Russia aren’t on board with US plans. I honestly think that will bring the issue to a point where the US realizes that reform compromises are required.
How ever feeble our power, I think we just need to push back as hard as we are able with good solutions. There are much better solutions than national default. For example, bring back glass steagall. Protect the commercial banks but allow the speculative side to crater. And incorporate a tobin tax on financial transactions to temper the excesses of finance.
Yeah it’s a slog.
But the “new normal” isn’t any kind of stable status quo. The root problems haven’t been addressed which means more disaster in the not too distant future.
Our 20% unemployment is also unsustainable. A lot of folks are currently surviving on savings and that’s going to run out. We really don’t have the type of safety nets required to deal with what lies ahead.
20%, a most important correction, thanks!
Again, I am not a deficit hawk, I am a Keynesian for lack of any better articulated option.
If the ruling class wants to take us down to the level of peon, then my solution is to bring them as far down with us as is possible.
I don’t need permission from Dr. Hudson to call the question on the debt dollar, thanks.
Nor do I need permission from a liberal like Dean Baker. I am not a liberal, thanks.
Since when am I not allowed to make a modest proposal without professional economists, for what that’s worth, having my back?
But none of this is going to happen, so we’ve gotta quit whining and protesting and come up with Plan B.
The Tea Party is going to make an issue of this as March approaches. Not raising the debt ceiling scares the living bejesus out of everyone with a stake in the long slog towards peonage, and to my mind, that is the best indication of a desirable path forward.
-marc
I protected our mortgage and saved my meager retirement investments from salvage prior to the crash and I am no financial wizard.
Slicing through the layers of denial requires the will to unflinchingly assess reality instead of being drawn along by the propaganda.
Dream, the impossible dream.
That was a response to Missling on a position taken by Missling. It has nothing to do with what you are or are not allowed to do.
From Missling:
“it certainly is not only a right wing viewpoint”
I honestly have not seen viewpoints from the left which support Misslings claim. But if they exist, I’d like to see them.
What you do/don’t need seems entirely beside the point.
I watch the heat being turned up on the simmering frog in the bath, and am alarmed, – have been since Clinton. But, Huckleberry Graham is already negotiating behind the coulisse with the Obama administration about backing of from not raising the debt ceiling in exchange for more give on Social Security.
Since the left on this blog is not a radical left (backed off from universal coverage, Bill, above, represents much of their mindset) without a peep, the remedy you propose, and I tend to second, is not for this place. Getting them in gear to start making much noise about alternative solutions now, before it’s too late, is about all that can be hoped for here.
Other sites, new sites, for the radical left to get together and raise their voice is the only thing we can hope for and/or create (a lonely, and initially ungratifying task). Here, the most we can hope to accomplish is to bang our pots and pens alerting them to the other alternatives in which they are stock holders.
Do keep on posting your views though, and if I may – I’d be happy to see you cross post at my newbie site – it’s pining for content.
Sure thing. I don’t really know that 20% is the correct number. It’s just a lot closer to the truth than the establishments 9.4% which includes virtual/fictional workers and at the same time discounts a great number of real people who cannot find a job.
The problem with the Tea Party is that it isn’t coherent on most issues.
For example, the folks that id more along the lines of Ron Paul tend to be strongly opposed to war, empire and military spending. But the same cannot be said of the Tea Party in general. It just varies from local to local. Some Tea Party groups are strongly opposed to military cuts.
Ron Paul’s crowd has a platform. The Tea Party does not.
If Ron Paul was cutting spending, I’d expect bank bailouts and military spending to be the first up on the chopping block. But if it’s the Tea Pary then who knows… it could be Social Security and Medicare that get the axe.
The difference between radical and progressive often has more to do with methods than goals. For example: from what I’ve seen, the folks at FDL do want universal single payer healthcare. But they’re willing to take an incremental path to get there.
Related to this diary, one topic which might engage FDL readers would be the status of the US Dollar as the world reserve currency. For the benefit of all, does that world reserve status need to be altered?
I totally agree, hence the stopped clock metaphor. But the Tea Party clings to religion and guns as well as its Social Security and Medicare. It is the Paulistas who would chuck SS and M.
Any time that our opponents are divided, we should take steps to exacerbate that division and sew divisiveness within their ranks.
Any time that our opponents suggest a course of action that has greater upsides to us than them and fewer downsides for us than them, we should be jumping on that and calling the question before they come to their senses.
Y’all need to read Sun Tzu “The Art of War.”
-marc
I’m a radical, not a leftist but certainly not a right winger either. We (non libertarian, non capitalist) anarchists like to think of ourselves as not existing along the left right axis at all.
Progressives in general are open to a radical critique, liberals are not. Radical critiques do not accept conventional wisdom as a given and are open to reading the situation and adapting one’s held positions to new information.
we may need a powow elsewhere…
this thread will do for now, but not for long.
We disagree on the “fewer downsides for us” bit.
But you’ve really only got the protestations of those who want to pretend that if the infinite credit card ever runs out, then the world will end. What that really means is that the economic crack cocaine will run out and the junkie will need to go cold turkey.
No, the end of the debt dollar will likely result in the falling down to earth of the currency and its reconstitution not as a global commodity rather as a domestic currency that is convertible but not the global reserve currency.
The cost of imports will rise, as it should under any just, progressive, ethical analysis. But the domestic economy will not suffer that much. Social Security and Medicare payments are not predicated upon foreign exchange, rather the domestic productive economy.