Dis­solv­ing the Union

That's our full faith and credit at work mak­ing the world safe for fi­nan­cial mar­kets. And for the elite of Wall Street.

The Pak Banker - - Editorial5 - Jeff Gates

For those who think the US is broke, think again. It's far more se­ri­ous than that. To re­new Bush-era tax cuts for our most well-to-do 2 per cent would re­duce US govern­ment rev­enues by $700 bil­lion over the decade. That short­fall will need to be bor­rowed. Or we could pro­vide col­lege schol­ar­ships to 14 mil­lion US high school stu­dents. Or tu­ition, room and board for about half of to­day's col­lege stu­dents.

Seven hun­dred bil­lion dol­lars is also the in­ter­est ex­pense on the $3 tril­lion that the US is pro­jected to bor­row to fund the long-term costs of wars in Iraq and Afghanistan. Of that in­ter­est paid to in­di­vid­u­als, care to guess what por­tion finds its way to the top­most 2 per cent? $700 bil­lion is also the amount au­tho­rised in Oc­to­ber 2008 to sta­bilise the fi­nan­cial sec­tor as part of the Trou­bled As­sets Re­lief Pro­gram. To boost liq­uid­ity, the Fed­eral Re­serve just an­nounced $600 bil­lion in "quan­ti­ta­tive eas­ing" over the next six months. That sum could be in­creased by an­other $300 bil­lion. A De­cem­ber 1st re­port brought news that, from March 2008 to May 2009, the Fed ex­tended nearly $ 9 tril­lion in short-term loans to 18 fi­nan­cial in­sti­tu­tions. That's our full faith and credit at work mak­ing the world safe for fi­nan­cial mar­kets. And for the elite of Wall Street. To show their grat­i­tude to the Amer­i­can pub­lic, the fi­nan­cial sec­tor just paid them­selves $144 bil­lion in year-end bonuses. Mean­while long-term un­em­ploy­ment is the worst since the Great De­pres­sion and fis­cal dis­or­der is now com­mon­place at the fed­eral, state and lo­cal level. States and mu­nic­i­pal­i­ties have around $2.8 tril­lion of out­stand­ing bonds. That debt is dwarfed by debts that are off the books, in­clud­ing as much as $3.5 tril­lion in pen­sion short­falls. The sit­u­a­tion re­sem­bles the run-up to the sub­prime mort­gage melt­down. Mean­while, the first of 78 mil­lion Baby Boomers born be­tween 1946 and 1964 reach age 65 in 2011. This de­mo­graphic bub­ble en­sures fis­cal strains un­like any­thing the US has ever ex­pe­ri­enced. The top­most few have fared well over the past three decades. Then there's ev­ery­one else.

In 1981, a $872 bil­lion tax cut and in­vest­ment stim­u­lus helped ex­pand na­tional net worth by $5 tril­lion from 1983 to 1989. 54 per cent was claimed by the half mil­lion fam­i­lies who make up the top one-half of one per cent of the US pop­u­la­tion. That works out to an av­er­age $5.4 mil­lion gain per al­ready-wealthy house­hold. That's a $65,000 in­crease in wealth per month or $90 per hour, 24 hours a day.

As with our wars, that surge in per­sonal wealth was fi­nanced with debt. While the pub­lic got the debt, the well-to-do got own­er­ship of the as­sets fi­nanced with that debt, along with the bulk of the in­ter­est. That boost to per­sonal wealth dates to when the stock mar­ket was a frac­tion of what it is to­day. Now the top 1 per cent have a com­bined net worth greater than the bot­tom 90 per cent. The top 1 per cent own 34 per cent of all pri­vate net worth; the bot­tom 90 per cent own 29 per cent. From 2002-2006, the top­most one per cent re­ceived two-thirds of the gains in na­tional in­come. That trend has re­mained steady over three decades. Dur­ing the 19771989 pe­riod, the top 1 per cent claimed 70 per cent of the in­crease in house­hold in­come. The US is now wit­ness­ing its widest ever dis­par­i­ties in wealth and in­come. Rea­gan-era "sup­ply­side" eco­nom­ics was mar­keted with cam­paign rhetoric re­mark­ably sim­i­lar to what we hear again to­day. Rea­gan poli­cies dou­bled the na­tional debt in just one year.

Over the past sev­eral decades, fi­nan­cial free­dom has emerged as a proxy for per­sonal free­dom and the pur­suit of fi­nan­cial re­turns as a proxy for the pur­suit of hap­pi­ness. The eco­nomic en­vi­ron­ment changed such that those val­ues not cal­cu­la­ble in money are, by de­sign, dis­placed. While that may not be what we want, that's what we were schooled to do.

The trends con­firm steadily in­creas­ing dis­par­i­ties in both wealth and in­come. Much as con­cen­trated wealth un­der­mines democ­ra­cies, con­cen­trated in­come un­der­mines mar­kets. Amer­i­cans do not yet grasp how this money-my­opic mind­set worked its way into ed­u­ca­tion and imbed­ded it­self in law. Yet our shared em­brace of a "con­sen­sus" mind­set in­duces us to freely em­brace the very forces that now jeop­ar­dise our free­dom. There are no win­ners in this model, only cred­i­tors and debtors. The trends are not even good for the fi­nan­cially well-to-do. Law­mak­ers are right to worry that civil dis­or­der is emerg­ing as a pos­si­bil­ity in re­ac­tion to grow­ing so­cial dis­con­tent. Lack­ing the po­lit­i­cal will to ad­dress this steady dis­so­lu­tion of civil so­ci­ety, the US faces in­creas­ing in­sta­bil­ity.

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