Tuesday, December 21, 2010

Why The Deficit Debate is Bogus



Obama's Deficit commission co-chairs: Alan Simpson (left) and Ernest Bowles. They propose a $3.9 trillion deficit reduction over 9 years - via draconian cuts, including to Social Security. This amount would easily have been saved had the recent Bush tax cut extension been killed.



The crescendo 'deficit no-no' drumbeat from pundits and squawking heads this morning on 'Morning Joe' was too much to bear, so I flipped to the NFL Channel. At least there I could watch some highlights of last night's Bears-Vikings game in peace, without a lot of biased jabber to blur reality. Football, once you grasp the rules - is beautiful in its brute simplicity after all. Alas, not so with American economics entailing taxes and deficits.

The topic of the squawkers on the MSNBC show was the "deficit" and how it is now exploding (duh....we knew that after the $858 billion tax increase was signed into law) and how the need grows ever greater to appease the "bond markets" else the nation will be faced with over 8% interest to pay off (increasing every year if nothing is done), meaning one trillion bucks a year just in interest which will likely double if we do nothing. By which they all meant - cut into "entitlements" like Social Security, Medicare etc.

In other words, rip away the final veneer of economic security most people in this country have left. And WHY?

That's the $64 million question. And when one examines the Neo-liberal, corporate-owned media's solutions, things do look totally biased - in favor of preserving the asses and hides of the wealthy, the speculators, the CEOs and other highly paid parasites (such as investment bankers like Ernest Bowles, a co-chair of Obama's 'Deficit commission') and others driving this noisome "discussion" like Peter G. Peterson (one time Nixon advisor and co-founder of the notorious Blackstone Group).

As the most recent issue of In These Times (January, 2011, p. 21) has observed:

"The deficit grand opera plays out as a variation on a discordant theme. The financial meltdown - viewed two years ago as a crisis of capitalism requiring massive state intervention - has somehow (and so conveniently) morphed into a crisis of government. The villain in this mainstream media fantasy is the welfare state. It is a crisis that demands sacrifice from average citizens. Underlying this blame-the -government meme is a drumbeat to unleash the rule of the market- in healthcare, in education, pensions and everything else. It is as if the collapse of 2008 taught no limits about the limitations of markets".

This is exactly spot-on, but perhaps we need to entice a precise recall here, just so we are clear. The pressure of the "markets" at the time dictated the repeal of a post-Depression law that prevented the activities of investment banks from extending into those of ordinary commercial and lending banks. The law, known as the Glass-Steagall Act was repealed - thereby allowing mergers to fire up the capitalist landscape.

The bond venturers (the same ones now calling for "austerity") also wanted mortgage lending spread more easily to people that couldn't afford home ownership - hence they created a "sub-prime market" to enable it. Their gig was simple: get enough millions to buy in then make bets (called credit default swaps) the borrowers wouldn't be able to pay up. It was a situation that enabled a win even if there was a loss (since the CDS bettors would reap billions on the side bets).

Two other contributory factors emerged: 1) The bond rating agencies (like AIG) were complicit in rating the packaged securities (based on assembling millions of such sub-prime loans) at much higher quality (usually AAA) then they really deserved, and hence enticed many unsuspecting investors (including ordinary banks, pension funds, etc.) to buy in and 2) a mathematical formula (David X. Li’s Gaussian copula formula ) provided the effective operational basis for the concatenation and intertwining of relatively innocuous securities (with deserved high bond ratings) to the toxic waste of the sub-prime mortgage securities- via credit derivatives.

(2) was especially bad as it sent the contamination all the way through the financial system, causing a near implosion.

In other words, the grandiose markets that the Neoliberal hacks now want to govern our healthcare, pensions and what not, totally broke down! They failed because the putative regulations that were originally in place to prevent the contamination were removed. Indeed, the former Fed Chief, Alan Greenspan, helped to feed the sub-prime frenzy an speculation by tirelessly plumping for the ARM or adjustable rate mortgages for people that he had to know couldn’t afford them. In one speech he gave in 2004 he aggressively promoted them.

At around the same time, in a House budget hearing, he elided the two subjects of Social Security and the federal budget deficits in a way that produced predictable scare headlines and chin-wagging editorials. The deficits must be dealt with promptly, he warned, because the Baby Boomers were about to retire. Then Social Security will be in trouble and so government must cut benefits now, before it's too late. "I am just basically saying that we are overcommitted at this stage," he explained. "You don't have the resources to do it all."

And yet, in 1983, HE was the ONE - at the behest of Ronald Reagan and a Social Security commission headed by Dan Moynihan, who proposed and got an increase in the FICA payroll tax to cover the predicted surge of Boomers! Talking out of two sides of one's face? Much?

The truth at the time (2004): Social Security was not in deficit, and would be not for at least the next forty years. The trust fund was to have a surplus in 2005 of $1.8 trillion. In 2011 when, Greenspan warned, the baby boomers would start retiring in large numbers, the surplus would be $3.2 trillion. These stored savings, plus future payroll-tax revenue, would be sufficient to pay all retirees the current level of benefits through 2042. Of course, the other truth has been that surplus didn't materialize because the government went in and borrowed trillions from S.S. to finance general revenues including for the pre-emptive invasion and subsequent Iraq fiasco and the never-ending Afghan adventure - also doomed to end like Vietnam did. (Oh, and let's not forget $1.2 trillion for the Bush tax cuts!)

But getting back to the precursor of the 2008 financial meltdown, it was also Greenspan, the erstwhile disciple of Libertarian guru Ayn Rand, who insisted that “good speculation will cut the top off the market peak” (Financial Times, August 11, 2008). Later, Greenspan came clean and apologized for his own role in the financial meltdown fiasco – since he created the original bubble by lowering interest rates to ridiculous, deflationary levels making money cheap as dirt. Much the same as Fed Chair Bernanke is doing now with his "quantitative easing part 2".

And by the way, is anyone even remotely aware that Bernanke's quantitative easing AND the recent $858 billion tax cut package represent a SHIFT of nearly $1.5 trillion of private debt TO public debt? Anyone?

Amidst all this events are now poised, in conjunction with Obama's recent yielding to Repukes on the extension of Bush tax cuts to the wealthiest, to hold the rest of the nation hostage again - this time by March 4, 2011. This is because the mammoth government operation bill - to enable it to continue sending out VA benefits checks, Social Security checks, running the Afghan occupation, post office etc. has only been extended to that date. This according to today's lead Financial Times' story 'US Heads for Budget Showdown'). According to the piece, "Republicans in the U.S. congress have set up a showdown over fiscal and budgetary policy" to approve government funding only until March.

The new Tea Party controlled Reeps by then, will certainly demand at least $100 billion in spending cuts the party promised during its midterm campaign. The article goes on to state:

"Some scope for compromise with Republicans is seen in areas such as social security and tax reform, particularly on the corporate side".

In other words, the robber-baron enabling Repukes will demand cuts to Social security and also lowered corporate tax rates (never mind that the U.S. has amongst the lowest in the industrial world right now when offshore 'no-tax' business havens are reckoned in, about which nada has been done, while simultaneously going after individual offshore accounts) in return for voting for a new spending bill that enables the government to continue its operations.

But as the In These Times article (op. cit.) notes:

"Social Security does not, and by law, cannot - contribute to the deficit"

All except for one tiny tidbit the authors didn't reckon in because the piece was written before the "bipartisan" extension package for the Bushian tax cuts was passed: the 2% cut in payroll tax funding as part of the tax package which will lead to an immediate $112 billion shortfall next year in Social Security funding. Hence, that money (to make up the loss) will have to come from general revenues - and hence this ill-advised payroll tax "holiday" will at least indirectly contribute to the deficit.

According to a recent TIME magazine article (December 13, p. 57): "nearly two-thirds of Americans now depend on Social Security for more than half their income.


What would be truly sad, as well as irresponsible, is if these people are held hostage for monstrous cuts in their benefits by the Repukes, in order to fund the government.

Does Obama have the stones to prevent this? Is he willing to go the whole hog and dare or defy the Repukes to shut down the government, as Clinton did with Newt Gingrich and his 'Contract on America' gangsters in 1994? Or will he yield at the first Repuke bark, harangue or threats, as he did with this horrific tax cut deal -which spared 2 million the loss of their unemployment benefits (for at least 13 months) when more than 4 million (including the "99ers") really needed it and meanwhile more than 2 million wealthy will collect $140 billion extra they don't need (and won't spend - except on diamonds and other personal luxuries) over the next 2 years?

Who knows? What we do know is the squawking heads in the corporate media won't relent on how ordinary people - who've already lost homes, jobs and even marriages - now have to lose on their pensions and social security too. Why? Because the fabulous "free market" (the god of the Neoliberal elites) will do a better job, and besides, we can't be coddling older people or the vulnerable any more, thereby encouraging "a culture of dependency" that will "corrode our national character" in the words of Teabagger stalwart Paul Ryan (who I'm ashamed to say hails from my original home state of Wisconsin. Milwaukee's last Socialist Mayor, Frank Zeidler, must be turning over in his grave at the words of this capitalist miscreant.)

At least Greenspan, bless his soul, was honest back in 2004 as he noted in his House testimony that monies from Social Security don't enter the economy via productive labor. The elderly receive their checks merely by existing and breathing day to day, and having paid into the system with FICA deductions. Worse, the Social Security COLAs increase these non-productive payments each year. Oh no, can't have that! Can't have little old ladies maintaining a shred of dignity so they don't have to work at Walmart until they're 100 years old (as in the recent case of a woman in Milwaukee who was trampled by an over- exuberant shopper hustling for bargains) or raid dumpsters for used cans of cat food, Kibbles or tuna.

All so some rich turd can lounge around on his new yacht - purchased with one year's tax cut receipts.

Or, so the vaunted market can direct us to a more noble, efficient and purposeful American grand future. And how very very convenient the failed market zombie is suddenly resurrected as our salvation, just as the oldest baby boomers are set to start collecting Social Security next year! Coincidence? Well, maybe if you also believe in human virgin births, and that pigs can fly, you can accept that. I don't!

But in any case, to cite Paul Ryan, the market is the way out! Yeah, right! Like it was with the sub-prime market confection and the 2008 meltdown!

Is this country congenitally stupid, or what? Maybe just basically anti-intellectual by nature - or to be more generous: forgetful of recent events, or mayhap it just has a case of national Alzheimer's.

Stay tuned!

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