Empire Building, the Debt Ceiling, the Budget Deficit & the Samson Solution

“Who are the Beneficiaries of Raising the Debt Ceiling?”

U.S. and world political and economic leaders are faced with what they describe as a ‘systemic catastrophe’: the inability to pay global creditors, including domestic and foreign banks, investors and governments, who hold $16.7 trillion in US Treasury notes.

There is a related crisis: the government cannot secure passage of a budget to finance its military and civilian agencies and activities, including large-scale payments to military contractors, the financing of business, agriculture and banking operations and social programs. The raising of the debt-ceiling is central to the functioning of the financial ruling class as it extracts hundreds of billions of tax dollars in interest payments from the US Treasury. Raising the debt ceiling allows the State to keep borrowing and pay its billionaire creditors. In turn, as long as the US Treasury has liquidity, it remains a ‘safe haven’ for investors thus providing guaranteed profits. In addition, as long as the dollar remains the principle currency for global transactions, it allows the US Treasury to print money at will and to borrow at a lower cost - at the expense of its competitors and adversaries.

Financing the budget deficit requires borrowing, which involves the sale hundreds of billions of dollars worth of US government bonds through Wall Street - but at a cost to the taxpayer. The common denominator is that the entire edifice of finance capital and all of its support structures depend on debt financing by the State. By borrowing and then taxing its citizens the Treasury extracts wealth from the vast majority of Americans.

To understand the fight to raise the debt ceiling and to pass a deficit budget it is necessary to analyze the long-term, large-scale sources of State debt.

Imperial Wars, the Ascendancy of Finance Capital and the Debt Crisis

The ever-increasing debt and the constant raising of the debt ceiling is a result of long-term, large-scale military spending to build the US Empire. The imperial enterprise has generated a huge deficit: the cost/benefit ratio has been overwhelmingly negative. Contrary to militarist propaganda, the empire has not been ‘self-financing’: Wars and occupation in Iraq, Afghanistan and elsewhere have cost the US taxpayers trillions of dollars, not off-set by incoming imperial plunder or domestic economic expansion.

Parallel to the cost of wars and occupations, the rise of finance capital has largely resulted from the pillage of the US Treasury. Huge bailouts, low interest loans, large-scale interest payments on bonds, subsidies and tax exemptions have created a financial ruling class based on maintaining a debt-laden, interest-paying State, which meets its obligations to the creditors while it privatizes (and eliminates) social programs. The result is a ‘poor indebted State’ and a rich and prosperous Wall Street. Wall Street stands to gain trillions with the privatization of the multi-billion dollar health (Medicare) and retirement plans (Social Security): this will form an integral component of the “Grand Bargain” to raise the debt ceiling.

Who are the Beneficiaries of Raising the Debt Ceiling?

The principle and immediate beneficiaries of increasing the debt ceiling are the wealthy, bond-holders and the medium and long-term beneficiaries are the military-intelligence-empire-builders who can continue to secure over $700 billion in annual budget allocations. The principle strategic losers from raising the debt ceiling will be the hundreds of millions of beneficiaries of social programs like Social Security, Medicare and Medicaid and their family members. As part of the ‘Grand Bargain’ struck by the Democratic President and Republican Congress – between $1.3 trillion and $1.4 trillion in social cuts will take effect over the next ten years, according to the Congressional Budget Office. The cuts in Social Security will occur by raising the age of eligibility for full benefits to 70 years, resulting in a loss of $120 billion, as many older retired workers would be expected to die before drawing a single payment while millions of Americans will be forced to delay retirement and work an extra five years.

Secondly, the earliest age of eligibility for partial benefits will increase from 62 to 64 years – resulting in an additional loss of $144 billion dollars from workers.

Thirdly, the cost of living index would be reduced - a ten- year loss of $112 billion dollars.

Fourthly, the calculation for initial benefits would discard the wage-based method for a so-called “price-index”, resulting in American workers losing another $137 billion dollars over 10 years. In sum, workers’ social security benefits would be reduced by more than half a trillion dollars – an enormous transfer of wealth to the billionaire creditors, investors and empire builders – all in the name of ‘debt reduction’.

The cuts in MEDICARE and MEDICAID would result in an even more retrograde class polarization. The ‘Grand Bargain’ could lead to additional losses of over $419 billion dollars.

The biggest cost to the workers will come in the form of an increase in their monthly premium for physician services (MEDICARE Part B) from the current 25% to 35%, resulting in a loss of $241 billion dollars. The second biggest loss to workers will result from raising the age of eligibility for MEDICARE from 65 to 67 years costing workers an additional S125 billion dollars. The third loss for workers will be a $53 billion hit from restricting the use of MEDIGAP insurance - supplementary policies that cover MEDICARE cost sharing requirements.

Further cuts of $187 billion in MEDICAID– the medical plan for the poor and disabled– would result when the federal government shifts its direct funding to block grants to the states that would severely cut services for the poor - a plan first proposed during the Clinton Administration with regard to welfare funding.

Once these reactionary cuts in basic social programs are in place, the beneficiaries, who are able, will be forced to buy alternative supplementary private medical insurance and private retirement plans, while the poor will go without. The running down of public social services by Wall Street has been a deliberate, cynical strategy to cause popular discontent paving the way for the gradual privatization of services: adding costs, eliminating options and limiting medical treatment, surgery and procedures, especially for the elderly. The privatization of Social Security, MEDICARE and MEDICAID, will maximize insecurity while minimizing services and lead to untreated and under-treated illness, greater suffering and economic distress. Bi-partisan Congressional –White House agreements via the “Great Bargain” to raise the debt ceiling will widen and deepen inequalities in the United States.

In sum, “the Grand Bargain” will cause American workers to lose over $1.119 trillion dollars over the next 10 years, leading to a sharp decline in life expectancy, access to health care, living standards and quality of life.

The Samson Solution

Given the harsh terms, which accompany the “Grand Bargain” to raise the debt ceiling, it would be better if no agreement were reached. The financial elite is counting on the ‘Grand Bargain’ to leverage their debt collection over the lives and welfare of hundreds of millions of Americans. It would be better to shake the pillars and pull down this Temple of Mammon (the ‘Samson Solution’) making them pay a price!

The ‘shock and awe’ induced by default would shake the very foundations of the financial pillage of the US Treasury and the taxpayers; default would seriously undermine the financial basis for imperial wars, spying, torture and death squads. The entire empire building project would crumble.

True, in the short-run, the workers and middle class would also suffer from a default. But the discredit of the ruling political parties, the political elite and Wall Street, could lead to a new political alignment, which would fund social programs by, in David Stockman’s phrase, “soaking the rich” – raising corporate taxes by 50%, imposing a financial transaction tax of 5%, uncapping the social security tax and collecting taxes on overseas US multi-nationals’ profits. Additional billions would be saved by ending imperial wars, closing bases and canceling military contracts. Tax reform, imperial dismantlement and increased domestic investment in productive activity would generate domestic growth leading to a budget surplus, extending MEDICARE to all Americans, reducing the age of retirement to 62 and providing a living wage for all workers!

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Professor James Petras, Boiling Frogs Post contributing analyst, is the author of more than 62 books published in 29 languages, and over 600 articles in professional journals, including the American Sociological Review, British Journal of Sociology, Social Research, and Journal of Peasant Studies. He has a long history of commitment to social justice, working in particular with the Brazilian Landless Workers Movement for 11 years. He writes a monthly column for the Mexican newspaper, La Jornada, and previously, for the Spanish daily, El Mundo. Dr. Petras received his B.A. from Boston University and Ph.D. from the University of California at Berkeley. You can visit his website here.

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Comments

  1. Thanks you for an interesting article.
    I think this article would be even better, if the offered solutions would list all those in the elite that would benefit from them (they don’t care about benefiting the people). For example reducing spending on Medicare will reduce revenues of the medical industry. Reducing Social Security will deprive, in passing the people, but in the end the retail and services. In the end, it is one faction of the rich stealing from another. Why don’t they (medical, retail and services) defend themselves? That would be even more interesting article.

    P.S. It is amazing how many people cannot distinguish between principle and principal (here you cannot count on your spelling checker :)).

  2. After offering tax breaks to move industry offshore while giving massive tax breaks to the wealthy, the government needs to continually game the system. There is no longer a legit tax base now that the middle class has been destroyed. Finding ways to fund the long war and police the growing dissent at home will take ever more creative bamboozlement.

  3. David Minnich says:

    What has allowed all this to take place? In my view it is in large part related to the elimination of dollar convertibility into gold that took place in 1971 in tandem with the Bretton Woods agreement of 1944 which required most industrialized nations to maintain a fixed exchange rate to the US Dollar with the US Dollar kept at a fixed price to gold. With the US dollar well established as a near gold equivalent in the decades following Bretton Woods, it became the de-facto reserve currency of the world, essentially replacing gold’s role in international trade.

    When Nixon was forced to unplug the Dollar from gold convertibility as nations became skeptical of the US expansion of money supply and debt during the Vietnam conflict, the dollar survived and actually grew in its reserve currency role. But now with not even a remote linkage to gold, the dollar was able to begin its exponential exansion in terms of both money supply and debt.

    And it is the debt component that has allowed the US to erode its real wealth in manufacturing without obvious symptoms of economic malaise. Debt of all natures – that of private citizens and enterprises, federal, state and local governments, has grown to offset the effects of declining manufacturing and resource development – in the form of continual trade deficits.

    No other nation could have experienced this kind of decline of real wealth without large and obvious effects on the lifestyles of its citizens. When the debt curtain is finally lifted and the real picture appears, for the first time, it will be a horrendous and catalyzing event with totally unpredictable outcomes.

  4. tonywicher says:

    Unless the people overwhelmingly demand an end to financial depredation by restoring Glass-Steagall, Wall Street which controls both parties will bring about this “Grand Bargain” that will complete the job of destroying the New Deal and turning the U.S. into a third-world de-industrialized hellhole. We stopped the invasion of Syria. Now stop Wall Street. Call your representatives early and often. No “grand bargains”! We must have Glass-Steagall.

  5. Hi tonywicher,

    I agree that we need a new Glass-Steagall Act. I also like the transaction tax idea to soak the super-rich.

    I have heard certain people say that we shouldn’t build public government institutions, because the psychopaths will gravitate toward them and ultimately control them. They fail to mention that the same psychopaths would do the same with private governmental institutions, large and small. Our objective should be to make these institutions as public and transparent as possible, and call out the false paradigm of government vs. individual, which is a delusional and divisive psychological instrument devised by the psychopaths themselves, to distract and devolve the resistance to their tyranny.

    I also hear, from various places, that We The People affected the decision not to escalate our attack on Syria at this time. While I would like public opinion to be that powerful, and think it could, once there is a somewhat deeper understanding of the ANCAPs behind government, who are driving us into a police state and the world into destabilization.

    Currently, I continue to think that the PTB do not give a damn about public opinion, because they continue to have a trusty remote control (of our remote controls), which they can use at any time they need to improve public approval. I imagine that public opinion was allowed to get to such a state regarding Syria, because it was useful to have as a lubricant in their communication to the public about their change of plans.

    The same goes for the government shut-down, which allows a more open view of controlled opposition. There are a few more people satisfied with Obamacare and even less control of future debt ceiling increases. Those are results of the shut-down theater.

    Unfortunately, I don’t see public opinion as any kind of threat to the PTB, until we start seeing a public with opinions about arresting and convicting the PTB of war crimes and treason.

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