The 6 Biggest Lies About the U.S. Debt
Continued from previous page
We can then move on to the recovery phase, which means getting our economic house in order by reducing the debt, a lie told by Serious People whether pundits, politicians or experts. We are being led to think the wisest course is repeating the major mistake of the Great Depression – enforcing austerity in a deep economic funk. When the New York Times backs huge cuts to social spending, you can be sure the rest of the media assumes squeezing the poor and middle class harder is the tonic for economic health. Sure, the Times may sniffle that Obama’s stunning offer to hack $650 billion from Medicare, Medicaid and Social Security was “ overly generous” to Republicans but that is just code for “we in the liberal penthouse support it with mild reservations.” On the other side of the media aisle, the Wall Street Journal endorsed the Republican sadism, saying that none of the critics on the right offer “anything nearly as fiscally or politically beneficial as Mr. Boehner’s plan.”
This is what passes for the range of opinion in the two most esteemed newspapers in the country. That’s because we are still in thrall of the biggest lie of all – market fundamentalism. An eternity ago, in 2009, Newsweek declared, “ We Are All Socialists Now.” They were right, but only in the way America has always been socialists: we socialize the rich when they lose money, and then we socialize their ability to profit. (The esteemed economic historian Karl Polanyi argued “laissez-faire was planned.” By that, he meant profit-making depends on government regulation of land, labor, finance and the environment. On top of that, there are outright transfers of wealth that occur during wars, infrastructure building and as part of social reforms, such as the railways, the Cold War, Medicare, the internet, and the bank bailouts.)
Thus, the debate is about differing Democratic and Republican visions on which parts of the welfare state should be sent to the glue factory. “We all must sacrifice,” is the mantra. Never mind that the effect on the national debt will be laughably small. Slashing $650 billion from entitlements – Obama’s burnt offering – will nick a miniscule 3 percent off the national debt by 2020, while the suffering will be enormous. But we must do it to appease the markets.
Pleasing the markets means pleasing the credit rating agencies – Standard & Poor’s, Moody’s and Fitch – an example of cult-like devotion in which the elite command us to drink the Kool-Aid. Like a death watch, the media turn anxiously to the rating agencies to ask the condition of U.S. government debt. Are they going to downgrade it, which would mean higher interest rates and an even bigger debt problem? This is one more big lie as Japan’s huge debt – more than twice the size of U.S. debt as a percentage of GDP – was downgraded in January and “ there was no negative impact at all,” according to one analyst.
But first let’s go to the tape and review how the big three credit rating agencies inflated the mortgage bubble. The bubble was driven by the banking industry’s insatiable appetite for debt, the repackaging of dicey mortgages into profitable securities. The agencies, especially Moody’s and S&P, gave investment-grade ratings to almost any sack of residential mortgage backed securities (RMBS) and collateralized debt obligations (CDO) that passed across their desks. By law, banks, pension funds, insurance companies and other institutional investors need investment-grade ratings on these securities to hold them. Since the rating agencies were paid by the issuers, they were raking in the cash by gold-plating shit. Moody’s revenue on these securities quadrupled from over $61 million in 2002 to over $260 million by 2006. For S&P, it went from $64 million to $265 million for CDOs in the same four years and from $184 million in 2002 to $561 million in 2007 for RMBSs.