Whatever the outcome of the last minute, too late by several weeks, negotiations that are underway in Washington considerable damage has already been imposed on what is supposed to the leader of the free world. The biggest damage is the massive erosion in confidence about the political viability of the American system of government and its ability to govern effectively without gridlock and damaging log rolling. But not far behind is the regression in leading circles in both parties back to a form of financial orthodoxy that appears to show that many politicians have learned little or nothing from the catastrophic events of the great depression .Most of these are in the Republican party, particularly the extreme tea party wing that it must be said appears to be partly bankrolled by wealthy industrialists who have cynically helped create a frankly extreme right of centre movement that poses as defenders of the people.
One of things that should be carefully checked out in the coming weeks is who speculated in credit default swaps against American debt and what political links, if any, they might have.
But Republicans alone are not the sole culprits. On the Democratic side blame must be assigned to those Democrats who cynically believed that there was political advantage to be gained with independent voters by out manoeuvering the Republicans on fiscal ”responsibility” by foolishly embarking upon deficit reduction negotiations at a time when unemployment is still over 9 % and budgetary cuts or even talk of cuts in the near future are bound to cost jobs and prolong the pain. If you want to talk about balancing the budget, first lower unemployment to acceptable levels 5 % or below, repair all the damaged infrastructure and ensure people have access to health care and education and retraining and then but only then address the issues surrounding the medium and long term future of various ”entitlement” programs. Otherwise you risk what has happened and putting back the cause of social progress both in the U.S. and abroad for years to come.
There are certain statistical facts that also need to be publicized. In 1946 the Federal Reserve held 10.7 % of the American debt which was then in gross terms 121.7 % of the GDP or in net terms 98% of the GDP. In 2010 the Gross debt to GDP ratio was 93.2 % and the net debt 56.6 % and the Fed held 5.6 % of the debt. The perilous state of America’s debt situation has been grotesquely exaggerated. The Fed has plenty of additional room to help out, particularly in wartime, and contrary to the assertions of the Tea Party, once we strip out the effects of the OPEC cartel, despite the Fed’s increased holding of U.S. debt since 2008 there has been virtually no increase in prices. The economy remains far too weak for that to happen. Their assertions are simply wrong and totally driven by ideology. It is a great shame to see otherwise progressive Democrats embrace blindly some of their assertions in an effort to win votes.