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What's real and what's not about the 'debt crisis'

COMMENTARY | August 04, 2011

Mark Weisbrot separates fact from fiction regarding the extent of the debt, the origin of the deficit, and the chances that the U.S. would actually default.

By Mark Weisbrot

Now that the "Debt Crisis " story is behind us, 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 of just1.4 percent of GDP 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 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 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 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 wehave 25 million people unemployed, 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.

Adapted from an op-ed published in the Folha de Sao Paulo (Brazil). Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He is also president of Just Foreign Policy.

Bemused Citizen
Posted by Harvey Chess
08/07/2011, 10:08 AM

Well put, reasonable and sickening. It's instructive that this piece is derived from an op-ed first published in Brazil. Seems to confirm the role of the corporate media in continuing to gin up this phony distraction rather than confronting it with some measure of journalistic integrity. Also confirms the need for this site to stay the course. I'm sharing the article on Facebook, for what that's worth.

Is that all there is?
Posted by Don Greenwood
08/09/2011, 02:05 PM

I would have expected a more in depth look at the current mess we're now in. Is the recent 1000+ point loss in the stock market a mirage? Why is Mr. Weisbrot of the opinion that there was never any chance that the US would default on at least part of its obligations? The "Young Guns" and their freshman Republican posse were doing a good imitation of lemmings leading the entire nation off of a cliff.

The debt obligations to senior citizens in the form of Medicare and Medicaid, which are increasing borne by a smaller proportion of working Americans, many of whom, by Mr. Weisbrot's own admission, are not fully employed, is definitely something to worry about.

I fully expect the GOP to put President Obama's health care act in the cross hairs as its next victim of partisan brinkmanship.

Wage earner
Posted by James M Wallrabenstein
08/11/2011, 12:16 AM

Follow the money...
Public workers, retirees on Social Security and Medicare, and the working poor getting Medicaid are not the fundamental causes of these deficits and the debt. The roughly $9 trillion run-up in the deficits-debt over the past decade is attributable to the following causes:
• escalating defense and war spending
• the Bush tax cuts
• collapse and slow growth of tax revenues due to recession and poor chronic job growth
• tax avoidance and tax fraud by wealthy investors and multinational corporations
• the bailouts of banks and corporations associated with the recent economic crisis
• and runaway health care costs' impact on Medicare-Medicaid
More than $2 trillion in revenue surplus has been generated the past 25 years by the payroll tax that finances social security. Unfortunately, that entire $2 trillion surplus has been diverted from the social security trust fund by Congress and presidents since Reagan and used every year to offset the growing federal budget deficits. The offsetting of U. S. budget deficits has enabled Congress in turn to pass massive tax cuts for the wealthy and corporations. In other words, what amounts to $2 trillion of worker’s deferred wages paid into social security has been transferred to the wealthy and corporations. Going forward these funds must be restored. In my mind, this money needs to come from the pockets of the wealthy and corporations...not from the pockets of wage earners who, along with their employers, paid it into social security in good faith.

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