By Raul Ilargi Maijer on 2 August 2011 for the Automatic Earth -
Image above: Illustration of a castle dungeon. From (http://alphamom.com/parenting/baby/housing-crisis-staying-with-the-in-laws).
Even now the two Washington sides are close to inking a deal -though it could still fail, even be filibustered-, it won’t solve any real issues. If and when the deal causes America to be perceived as stronger and less risky than Europe, that will merely lead to a higher dollar vs the euro, and that in turn will kill US exports, which will lead to lower employment, lower tax revenues, lower consumption rates, and all that stuff.
On the real issues, nothing has changed since at least the demise of Bear Stearns and Lehman, and arguably way before that. There is too much debt in the system, way too much, perhaps as much as 10, 100 or even 1000 times too much. The rate of economic growth that would be required to flush out that debt is not only unrealistically high, it's downright physically impossible. And besides, Q1 US GDP was revised down to 0.4% last week, which takes it straight into the realm of mere marginal statistical errors.
So the only ways to pay the debt is through budget cuts and tax increases. In the foreseeable future, we’ll see lots of the former and none of the latter. So don't believe any of the talk about recovery; there isn't any today, there hasn't been any in the past 5 years, and there won't be none for a long time to come.
A government spending itself into colossal new debt levels can perhaps create the illusion of recovery for a limited period of time (check), but it will all end up just making things worse down the line. For the people, that is. Not for the politicians and financiers who make the decisions. And don’t believe that a last minute August 2nd debt ceiling agreement solves anything either, since why should anyone on Main Street be happy just because their government has just allowed itself to get even deeper into debt?
The picture has just simply been wrong from the start: a ceiling is too positive of an image: we should perhaps do better to be talking about a debt dungeon. That would convey the underlying reality much more accurately. Washington’s not raising a ceiling, it's digging an ever deeper, damp and darkened hole for US taxpayers and their children. Whatever comes out of the talks, and something will since no-one wants to take the blame of failure, will materialize as even more hardship for even more Americans. Watch what will happen to Social Security.
They're going to strip it to the bone, layer by layer. They'll do it slowly, so you won't even remember after a while what there used to be. Like many won't remember what is was like to own a home and be happy about it, what it was like to have a job that paid the bills and left some money on the side for fun things for the kids. The present deal on the table skirts the entitlement conundrums almost entirely: the one thing that has been pushed through is that Medicare providers would be hit if the soon to be erected Super Congress (how’s that for democracy?), a bipartisan committee that will formulate the next rounds of cuts, can't agree on those next rounds.
Here’s wondering why and how they would agree on anything, let alone anything that actually benefits their voters. We're on a road to nowhere, mostly because there's nowhere to go that we would like to go to. We don't like the options available, but they are the only options we have, even if we insist on denying it. All the options we have will lead us down the slope; there's no way up anymore.
What we could and arguably should do is to try and find ways to soften the blow, to improve the way we travel on the way down. To achieve that, we need to get rid of the people who now make the decisions. And that will be very hard. There are only two political parties in America, and they might as well be one. None represent the interests of the people. Not that it’s any different in Europe, mind you.
Once a society or country allows money to enter its politics, the outcome is inevitable: the money interests will come to rule that country. This is evident all over the western world, whether you look at the Greek, Irish and other EU bail-outs, or at the debt dungeon debate the US is presently digging its way into ever deeper, with the respective bills handed to the people and their children. As we speak, and as we watch the wall-sized media coverage of the debt dungeon chasm, municipalities and counties are on the cusp of bankruptcy. Services will be cut across the board. That is our future.
A future that won't involve growth, but which be all about austerity and cutting back and outright poverty for rapidly increasing numbers of people. Just not for the politicians and their puppeteers, not for those who get to decide who will hurt the most. That is the main issue today.
Who are you going to let decide how bad your future will be? If you opt for Washington, anyone in Washington, or Brussels if you're in Europe, your future will hurt something bad. When it comes to that future of yours and, of your offspring, the debt dungeon debate is the wrong focus. There's nothing beneficial for you in there.
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Ea O Ka Aina: Bring it on! 7/17/11 .