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Crumbling Under Debt
Corporate Accountability and WorkPlace:
How Wall Street Wrecked Your Retirement
Nicholas von Hoffman
Democracy and Elections:
Three States Accused of Illegally Purging Voter Lists
Steven Rosenfeld
DrugReporter:
U.S. Ranks #1 in Consumption of Pot, Cocaine, Smokes
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Election 2008:
McCain Doesn't Need a Fact-Checker; the Media Edit His Mistakes for Him
Brent Budowsky
Environment:
Living Without a Car: My New American Responsibility
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ForeignPolicy:
German Firms Eye Iraq Market
Health and Wellness:
Your Health Care May Decide the 2008 Election
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Hurricane Katrina:
From the Bayou to Baghdad: Mission Not Accomplished
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Immigration:
Immigration and the Right to Stay Home
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Media and Technology:
Shock Jock Savage Spews Hate at Autistic Kids; Are His Enablers Ready to Abandon Ship?
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Movie Mix:
Batman's Take on 9/11 Era Politics? Drop the Fearmongering
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Reproductive Justice and Gender:
Military Women Get Ready to Rock the Boat
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Rights and Liberties:
How Scores of Black Men Were Tortured Into Giving False Confessions by Chicago Police
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Sex and Relationships:
What Trans Erotica Gets Wrong
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War on Iraq:
Former Iraqi PM Allawi Testifies Before Congress, Blasts Maliki
Robert Dreyfuss
Water:
America's Got Water Problems, and No Plan to Fix Them
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Last month, for the third time during the presidency of George W. Bush, the U.S. Congress raised America's debt ceiling. By bumping up our own credit limit, the country's leaders allowed us to technically avoid defaulting on our loans, but the move raises disturbing questions about the resolve of our leaders to ever put the country on a sustainable borrowing path.
Economists and businesspeople have been warning for some time that sooner or later, America's binge of borrowing must come to an end, or we will all suffer drastic consequences. Despite widespread concern about America's increasing debt load, the issue lacks the sort of "sex appeal" that the media needs to go at the issue more aggressively. And without media attention, politicians feel little pressure to deal with the issue in a substantive way.
According to Peter G. Peterson, former secretary of commerce under President Nixon, and today chairman of The Blackstone Group, "There are very serious people that believe our current fiscal irresponsibility is heading this country towards a hard landing." A hard landing is a period that combines rising interest rates with rising inflation rates. That would hit Americans right where it hurts, in the pocketbook, by decreasing their purchasing power at a time when everything costs more.
Today, the average American's share of the national debt is $27,000 and rising. How much longer can this continue? While no one can predict the day of reckoning, this much is for sure: Every day we ignore the problem, we increase the chances that the problem will have severe, if not catastrophic, consequences.
"Sooner or later" is rapidly becoming sooner
In the last few weeks, we began to see signals that the consequences may come sooner than most Americans expect. According to Business Week, both the European Central Bank and the Bank of Japan have raised their interest rates -- which could signal that the days of foreign investors propping up the U. S. economy may soon be on the wane. Bottom line, this potentially will have serious consequences for all Americans, but especially for average Americans living on the edge of poverty.
The first consequence will be a rapid decline in Americans' standard of living. Fed Chairman Ben Bernanke insists the economy is strong, because many of the traditional measures of economic growth remain solid. Inventory levels, corporate profits and unemployment statistics all point towards continued growth. But what about the $3 billion a day that Americans cumulatively spend on interest payments? What about the estimated $834 billion that Americans have borrowed off their mortgages last year alone? Do average Americans have any kind of savings to use as a cushion in the event of a "hard landing?" Can an already-hard-working single mom just go back into the job market to make ends meet when serious inflation kicks in?
Second, should our debt levels continue to increase at unsustainable rates, we will soon reach a point where foreign investors demand an interest rate premium for lending to us. Or worse yet, they may simply decide to put their money in other financial instruments than U. S. Treasury bonds, which will suck the wind out of the U. S. economy very rapidly and likely lead to recession or a depression.
Third, weaknesses in the U. S. economy will cause the value dollar to weaken relative to foreign currencies. When this happens, as it inevitably must, everything Americans buy from abroad will cost more. And considering that America's manufacturing base has all but evaporated, we buy just about everything from abroad. With our dollar worth increasingly less, virtually every industry will start to feel inflationary pressures, leading to layoffs and a further downward cycle for the economy.
Fourth and most fundamentally, our debt crisis has serious implications for America's status as a world leader. When Britain was the world's most powerful country, it was the world's leading moneylender. But when England became a debtor nation, their stature in world affairs rapidly declined. The lessons of history are clear: A nation's borrowing from abroad is generally a precursor to decline. Harvard economics professor, Benjamin Friedman, says in the TIME-BOMB documentary, "Again and again it has always been the world's leading lending country that has been the premier country in terms of political influence, diplomatic influence and cultural influence. Today we are no longer the world's leading lending country. In fact we are now the world's biggest debtor country, and we are continuing to wield influence on the basis of military prowess alone."
How did we get in this mess?
The root causes and consequences of this situation are explored thoroughly in the TIME-BOMB documentary, and they go much deeper than simply movements in interest rates and capital flows.
Most pointedly, there has been a fundamental shift in political attitudes towards debt, leading towards fiscal irresponsibility by our leaders in Washington. Since taking office, the Bush administration has added $2.5 trillion to the national debt, from $5.662 trillion when Bush took office in January 2001 up to $8.170 trillion on New Year's Day 2006. This represents an astounding increase of 44 percent during a period when prior projections suggested a $4 billion surplus. Despite this alarming increase in the debt during Bush's presidency, no one in a position of power has seriously proposed any measures that would address the root causes of the problem.
John Ince wrote, directed and produced the documentary film, Time Bomb.
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