The 6 Biggest Lies About the U.S. Debt
Editor's Note: This article has been corrected to reflect more accurate calculations.
There is one simple truth about the discussion of the looming U.S. debt crisis: it is largely a compendium of half-truths, distortions, myths and outright lies.
For example, is it true that the U.S. debt is unsustainable, which is spurring the budget-cutting fever? Far from it. While U.S. debt is at one of its highest levels ever in terms of gross domestic product, the estimated interest payments for all of 2011 on the $14.3 trillion public debt will be a mere $430 billion. This is only 18 percent more than the $364 billion paid way back in 1998, while the U.S. economy has grown nearly 30 percent since then. Rock-bottom interest rates on U.S. government debt account for the low payments today, but the practical effect is that servicing the debt as a percentage of GDP is near the lowest it’s been in decades.
Or what about hysterical headlines like “U.S. Debt Default Looms” (courtesy of NPR) unless Democrats and Republicans agree to raise the debt ceiling? They are completely untrue. Richard Wolff, professor of economics emeritus at the University of Massachusetts, Amherst, says, if there is no agreement by Aug. 2 to allow the U.S. Treasury to borrow more funds, then “the government instead would choose among cutbacks on various expenditures such as state and local aid, medical aid, for war, for infrastructure. It would extraordinarily unusual for a government in such a situation to attack its creditors.”
If no deal on the debt ceiling is reached this sucks for the rest of us, such as the millions depending on their portion of the $23 billion in Social Security payments scheduled for Aug. 3. A short delay would do no serious harm, but a longer delay, perhaps just a week or two, would be devastating.
For one, removing income support payments would have a major ripple effect in our consumer-based economy. Spending would drop precipitously on items like food, medicine, transportation, clothing and household goods. Peter Bratsis, a professor of Political Theory at the University of Salaford in England and a Greek-American, says his home country is a cautionary tale. Speaking from Greece, Bratsis said since the debt crisis hit last summer many people’s income have dropped up to 25 percent as wages, pensions and social welfare have been sacrificed to please the banks. As a result “Greece is in an economic depression. In Athens, on every block, you have shuttered bakeries, cafes, shoe stores, plumbers and other small businesses that are closed because either people don’t have the money to spend or are afraid to spend.”
Second, says Wolff, “The U.S. Government is one of the largest buyers, if not the largest purchaser of commodities in the world of oil, of computers, of weapons. In an already shaky global economy, the biggest buyer of goods would be making cutbacks. This would be stupefyingly dumb.” He adds that by playing chicken with the national debt, Washington has already irreparably wounded the economy. “The world depends on the U.S. economy running smoothly. A default would lead governments and companies to rethink their relation to the United States, and this has already happened.”
The point is while the dangers are rife in a delay in raising the debt ceiling the doomsday scenario of a government default on debt is not going to occur. The creditors will be kept happy and there will be no default because that is how government works in a capitalist economy. And even if the impasse dragged on, the Fed could dip into its $550 billion in reserves, including more than $400 billion in gold at current prices, to keep making debt payments.
One blatant lie is that Republicans and Democrats, the Congress and the White House are serious about reining in budget deficits to reduce the long-term debt. They are not. The Congressional Budget Office calculates that the deficit from 2011 to 2013 will be $3.5 trillion. Over the decade it will be $8.5 trillion. Now, lots of numbers are being thrown about on spending cuts over a 10-year period, but they keep dropping – the Senate Democrats are proposing $2.2 trillion in cuts and costs savings while the Republicans weigh in at $915 billion.
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