As America’s Political Process is Upheaved, Our Institutions and World Governments will Share the Responsibility for Our Debt Restructuring

Certainly at any moment in time, if we examine a bell curve of society, we find a percentage of people who are unable to manage a budget or that have impulsive natures regarding credit and materialism, and together as a group, they find themselves over their heads regarding debt and consumption.

Ultimately, everyone is responsible for their own spending habits. No-one forces us to indebt ourselves or to reach beyond our means to purchase life’s comforts. However, just as a family bathing at the seashore can find them swept out to sea by a breaking riptide in which they are defenselessly broken by one of the world’s destructive forces, a family can also be swept away by the world’s financial forces when its monetary system rises in a feeding frenzy or violently contracts.

When these systemic accelerations and decelerations impact the world, the bell curve of personal budgets violently shifts, trapping not only this lagging tail of incapable and impulsive budget breakers but also a much larger swath of responsible citizens as well. In the most recent financial collapse, this budgetary bell curve was shifted and skewed dramatically by America’s generational monetary flaws, by America’s post-war demographics, by a shift in America’s fortunes, by our lack of institutional oversight, and by institutional entrapment of larger forces that self-servingly swept up Middle America. Together these forces led to a pervasive over consumption and overwhelming debt.

Generational Monetary Flaws – Our capitalistic monetary system, although arguably the best system for advancing societies, still has great flaws, the greatest being its reliance on capital providers and money lenders to create money that over time concentrates wealth back into their hands. This concentration builds to a breaking point about every third generation. Each generation shifts its philosophy from those of its parents, allowing the generational capitalism pattern to play out one generation after the next. After a financial collapse, the first generation is traumatized, the next generation legalistically rebuilds, and the third happens to branch out to become risk takers setting the stage for Ponzi excesses and collapse. Our recent collapse unfortunately happened as usual during our country’s latest risk taking generation.

Demographics – After WWII, our grandparents and parents set about to make up for the war and created a bulge in population, the baby boomers. This generation’s spending patterns were well known as they progressed from childhood into marriage, spending years, and into preparation for retirement. The entire world connected to this generation’s spending patterns and fed into its cycle which could be considered instinctual by nature. The build up to this monetary collapse came as the boomers were in their biggest spending and investing for retirement income period when they met with faced a world that was willing to help them foolishly part with their capital during their largest debt capacity years.

Shift in America’s Fortunes – America had been given the gift of excess wealth during the run-up to the Depression of 1871 from Europe’s banking system that manipulated a Ponzi housing scandal to extract Europe’s population’s wealth out of Europe for America’s rail expansion. Our capitalists came out of that depression with enough of Europe’s capital to “win” the world’s second great round of industrialization and to feed Europe with armaments during two great wars. America exited the two wars with most of the world’s gold and much of her industrial capacity.

We were now the world’s hegemonic power with an immense concentration of power. Our baby boomer leadership chose to spend our power and financial position on two competing motives that together squandered our fortunes. America chose to become the world’s first truly worldwide military superpower to defend ourselves against the next great war, spending more than double the rest of the entire world’s military budget. In addition, our boomer generation found that this war chest could be used to cure some of our societal issues that led to our being the world’s superpower.

America began its war on poverty and bigotry that together with our military expenditures sapped us of our newfound wealth and started us down a path of borrowing against our world reserve currency status to meet our lofty goals. The result of this two pronged philosophy was a national debt that as of this year surpassed our GDP.

Lack of Institutional oversight – America’s constitution was a work of genius in protecting our new nation from tyranny in its infancy. Our founders designed a grand web to catch tyranny from rising from any faction to thwart the progress of America. Yet we did not protect ourselves from our own debt.
So when America’s government began its war on communism, bigotry and poverty, it did so without a built-in constitutional predator to stop the spread of our governmental spending or to suppress the self serving monetary support for our spending folly from the international banking cartel that comprised our Federal Reserve.

For two centuries, our constitutional republic form of government had worked well in slowly advancing our society through dramatic societal shifts resulting in only one civil war, and had supported our laissez faire business growth during the nineteenth and twentieth centuries to make America the dominant economy of the world. Yet, our economy and position as the world’s reserve currency hid the dangers of a reckless Congress until its out of control spending surpassed our ability to enable it. Too late we have found that the Constitution has no protections against entitlement building and imperialistic spending.

The saying, “One’s greatest strength taken to extremes becomes one’s greatest weakness”, applies to our purposely weak federal government in the case of a rapidly advancing government directed capitalistic economy from the East. While our form of government has protected us fairly well from tyranny, it also has provided us with a fairly constrained federal government and 50 competing state governments to fend off the economic advances of China that has risen from two centuries of infighting to once again challenge the West’s hegemony.

Our constitution protected us only “fairly well” because it too came under attack when in 1913, America’s decision to hold the House of Representatives at 435 representatives led to the ability of our financial elites to wrest financial control over both chambers of Congress and move our nation dangerously close to plutocracy. The result of this shift in power was to remove the government’s oversight of those that would harm America’s financial security and to instead refocus Congress’s attention on guarding our elite’s financial opportunities. This shift set the stage for institutional entrapment.

Institutional Entrapment – While visiting a maple syrup farm, I found myself hiding behind a big maple tree in the midst of a full on cattle stampede as bulls and cows stormed out of the maple forest toward a waiting wagon full of sweet sorghum laced feed provided by their manipulative farmers. These cattle had been programmed to rush headlong in a daily feeding frenzy toward these sugary delights that were fattening them for market.

Like cattle, people are also able to be programmed and manipulated into instinctively acting en masse to meet the needs and desires of manipulative institutions. America’s masses were caught in a rip tide of institutional forces that individually and together overwhelmed our budgetary bell curve and sent us into a frenzy of debt much as Europe was swept into the Long Depression of 1871.

In 1979, China determined to come out of 150 year slump that had been precipitated by the West’s gun boat diplomacy and to implement her strategy to rise to the position of 21st century hegemony. At only 1/8 of America’s GDP, China was determined to implement a decade’s long strategy to build her infrastructure and education to support a gold rush of investment by foreign powers. In 1979, China opened her doors to any companies that would bring intellectual capital with them to educate China to the world’s newest innovations.

40,000 U.S. corporations set up shop in China bringing with them their trade secrets that would have enhanced America’s economic future and bringing millions of jobs that would have employed America’s now 30 million underemployed. Together with international bankers, they lobbied our Congress to establish favorable trade policies so that China could flood America with low cost goods that put many domestic companies out of business, that thrust America’s wages downward, that removed both blue and white collar jobs from our shores, that reduced our GDP and GDP growth, that increased our trade deficits, that reduced our tax base, increased our federal debt, that gutted our shores of thousands of factories, that devastated our world commodity relationships, that harmed our reserve currency status, and that by virtue of these financial insecurities harmed our national security.

Faced with wage pressures, baby boomer expectations of a better life than their parents, and a mounting disparity between the upper quintile that benefited from globalization versus the bottom 80 percent of Americans who found their purchasing power diminished, America rushed to the mega-distribution and retail outlets like Walmart whose shelves were filled 90 percent with low priced, sweet sorghum laced, Chinese goods.

International bankers, intent on providing the capital to meet the needs of the modern gold rush, devised methods to extract capital from America. Beginning in 1980 immediately after China opened her doors, our retirement accounts were designed as 401ks to feed the stock exchanges with funds to funnel to China. Then three subsequent booms were orchestrated to extract more capital from our baby boomers. The last boom was our great housing debacle in which 100 % non-recourse, non income verification loans were offered to Americans during the greatest housing Ponzi ever known, and on top of this Ponzi, international bankers laid a credit default swap scandal that fed a speculative gambling four times the underlying assets that had already been speculatively pushed to 200 percent their underlying real asset values.

Americans, fell subject to a rising swell of asset values and loose credit that was instigated by our political forces, multinational corporations, and international bankers to feed the China gold rush. Our instinctual need to meet consumption desires in the midst of America’s masses’ falling purchasing parity was entrapped by globalization’s desire to feed China’s burgeoning industrial infrastructure through maximum extraction of America’s and the West’s capital by increasing our indebtedness to its utter limits.

So while America’s middle class is not without blame for taking on debt beyond its ability to pay, it must be remembered that its ability to pay was swept out to see with a collapsing economy, caused by multiple factions inside and out of America that were intent on bulging American family debts to meet the hegemonic aspirations of the East and the western institutions that self servingly supported their efforts. Now without isolating and limiting the impact of this massive American private and public debt, our economy will not recover from this financial riptide for twenty years. As we stagnate, China will triple her economy and dwarf ours. Our financial and national security will be threatened.

We cannot afford to allow this mountain of debt to hold America back from restructuring its economy to meet this national threat. We must now transition from a nation of consumers to one of producers. We must reverse our economy to meet the obligations and expectations of our society. We must also revert to a society that can meet its obligations and the expectations of the world’s creditors.

America’s people cannot be held fully responsible by our institutions and those of the world for the frenzied financial wave that overtook us. We cannot be held in servitude to pay for our banker’s and multinational corporations’ follies and for the foreign investment infrastructure that will raise China’s economy. Those that had the elite power to manipulate and entrap America must now join us in getting our house in order, in isolating and restructuring this debt to share in the pain of its disposal. This is a first and high priority for America.

Those culpable will need to share in the process. Our people will share some responsibility. In the end, after this political process is upheaved, the responsibility will be shared by all that participated in the rip tide of events that shaped our modern crisis.

Without Economic Security, America Has No National Security

A corporation’s mission is to provide profit to their shareholders. Other stakeholders must be satisfied so that they support the corporation, yet America has no law against maximizing profit to the detriment of other stakeholders.

When China opened its doors after 150 years and created special economic zones in which American companies could set up shop as long as they brought their trade secrets and intellectual capital, 40,000 did just that without reprisal from the United States. It certainly was not illegal to do so, and of course, the American consumer was rewarded with somewhat lower prices.

Another stakeholder, Congress, got enormous campaign contributions by China bound corporations, and there certainly isn’t a law against that. In fact, America turns a blind eye to average senate races costing 10 million dollars that have been paid for by our corporations and banks, more than 90 percent of campaign donations. We do not fault our Congress for passing laws to help their corporate constituents nor do we fault our Supreme Court, whose recent ruling on Citizens United gave corporations the unique status of having citizen rights without citizen responsibilities.

By paying the $150 dollar fee to become a corporation, businesses gain property rights that are sacrosanct in America. Corporations can sell property even if it harms others, in most cases. In a very few, such as that is being raised with GE, when a corporation attempts to sell a trade secret or intellectual property that could put our fighting men and women in harm’s way, we stop the sale in the interests of national security. But when 40,000 companies took their intellectual property to China, America did not claim national security.

And why would we have when the China gold rush began in 1979? Our industrial belt had been rusted by international competition and we were told that globalization would bring millions of jobs to America. It did but it took tens of millions more away. We were also told that imported goods would be cheaper than American ones and they are. But the cost of lost jobs, lost wages, less taxes, fewer factories, transferred intellectual property, future GDP growth, trade imbalances, and greater interest on trillions of borrowed debt was way costlier than the savings from Chinese trinkets.

By moving millions of jobs off shore, we gutted regions of collaborating industries like Detroit, Youngstown and Pittsburgh, whose workers, engineers, scientists, and businessmen intermingled to create next generation developments that would grow America’s future prosperity. But can we fault our corporations just because their collective actions cost America millions of future jobs and GDP? No, we cannot for our laws do not even suggest that American corporations should consider our citizenry as stakeholders. And in 2011, America has not yet even considered that our economic security is directly tied to our national security.

Without yet considering how we will support a future war of attrition without domestic factories, our nation has not yet debated our financial security. America now has bulged her budget to 3.4 trillion dollar budget yet collects only 2.2 trillion in federal taxes. We are forced to borrow from the Chinese the very dollars we give them for their trinkets, while keeping 30 million of our citizens underemployed. Our credit rating has finally been lowered because of this folly, and now our Congress is faced with making deep cuts to our budget which may include substantially reducing our military capability.

We have not connected our past decisions to allow our corporations to give millions of intellectual properties to the Chinese in trade for access to their markets and to their cheap labor to our national security. Yet these decisions have in fact lessened our national security, because without economic security, we have no national security.

America Must Force Her Politicians to Acknowledge that American Factories are Better than Free Trade

China now commands a majority of all the hegemonic commodity relationships of the Earth, processing the following within her shores:
… 53% of the world’s cement
… 48% of the world’s iron ore
… 47% of the world’s coal
… And the majority of just about every major commodity.

In 2010, China produced 11 times more steel than the United States and set a new world record by manufacturing and selling over 18 million vehicles in 2010. These are not the statistics of a country on the heels of the United States, or even more naively, on the wane. They are the statistics of the greatest industrial strength of the world.

To prepare for this phenomenal level of production, China installed supporting infrastructure, taking on debt. Some experts have suggested that China’s governmental debt obligation now exceeds 150 percent of her GDP, much higher than the United States’ total governmental debt ratio at 122 percent and slightly higher than Greece’s 140 percent debt ratio. Since Greece is the whipping boy of the world right now, causing its government to incite riots as it attempts to curtail its governmental spending, why is it that the world’s credit rating agencies are not downgrading China’s credit rating when her debt ratio is worse?

Why is it that a week before S&P came out to disparage America’s credit rating, she was egged on by Dagong, China’s premier rating agency? A week before S&P gave Fonda like cover for China’s government to chastise America for our government’s debt, Dagong bypassed her own government’s sizable debt issue and downgraded the United States’ credit rating for having a debt that is 30 percent lower as a percentage of GDP than Dagong’s own country’s debt. The question is, did S&P get it right?

The answer may be better understood by looking at the reason for each country’s debt. During a business upswing, the debt a country takes on may be indicative of their future financial strength and not their financial straits. In the case of China, that has been experiencing three decades of meteoric rise in productive capacity, her government has been increasing debt to place infrastructure ahead of production. While China has played the edge of keeping her business cycle from turning down while greatly investing in infrastructure investment that at times significantly precedes production, China’s ability to eventually pay her debt is much greater than the United States, whose productive capacity has not been keeping up with our government’s spending for decades.

China’s surge of infrastructure and productive capacity has preceded government revenues, but will ultimately be covered by her rising private economy, even if inefficiently. However, in America’s stagnant economy that is not rising as fast as its government’s debt obligations, our rising government debt will ultimately choke off private business growth and cause an even greater debt ratio to occur.

China’s debt has been used for infrastructure to support productivity increases. However, the United States’ federal debt has been overwhelmed by military and entitlement payments, which ultimately takes from productive business growth. Our consumer debt is worse. Instead of investing in domestic long term efficient assets, our excessive consumer debt has left us with huge piles of plastic landfill rubbish and large tracks of unused, foreclosed, and obsolescing housing. However, some consumer debt, including home equity debt, was used to funnel money into the stock market, much of which found its way to China as equity for Chinese foreign direct investments.

China’s private economy is strapped with high debt that is susceptible to economic downturn. Variability of cash flow during the peaks and troughs of business cycles have historically set the amount of equity needed to sustain businesses in different industries. However, at the zenith of financial bubbles like we experienced, historical debt/equity ratios are thrown out in favor of getting the deal done. Many China deals were highly leveraged, 100 percent debt, non-recourse loans.

At the coming trough of this exaggerated business cycle, China may have factories that cannot pay their debt payments, tens of thousands that cannot be lifted off their foundations and returned to the equity investors. If this cycle, trends hugely negative, lenders will be forced to restructure loans causing Western equity investors not to receive the returns they had hoped and evaporating trillions of equity from the New York Stock Exchange, equity that was provided from the West.

Unlike equity in normal business cycles, this equity came from millions of Westerners hawking their home equity collateral for loans that were then reinvested as equity in China deals. If the business cycle makes an excessive swing, the debt acquired by Americans and other westerners to provide the equity for China’s deals will go into default and creditors will foreclose on the collateral of those assets to cover losses. In this world economic monetary retraction, all suffer but China has the best of the bad outcomes.

While China positioned herself to transition through this potentially worst upcoming economic retraction in history in much better condition than the West, this does not mean that the United States should sit idly by and waste whatever pre-trough time we have left. It is critical for America’s national security that we bring a few jobs back to America’s shores. America has the largest military power ever assembled. Yet China has the ability to re-supply her military at an alarmingly faster rate than we can re-supply ours. This made the difference in WWII as in most large wars of attrition, and America has left her manufacturing flank grossly unprotected.

So a critical factor for our national security and economy is to help businesses that employ the American workforce to improve competiveness. Ultimately, the differential cost of operating in America versus overseas, weighted for risks, has to be driven to zero to assist those companies that wish to remain in America to stay competitive and to survive. Yet businesses are continuing to leave America for China and other emerging countries, suggesting that in some cases the cost burden asked of our businesses is too high.

For the 40,000 factories that have left America for China, they have been driven by financial choices: (1) the cost of supplying America is less in China even including transportation back to the U.S. (2) the cost of supplying both the U.S. and China is reduced by building larger capacity in China to supply both countries or (3) the cost of not building in China is too great, because China will not give access to her market unless factories to supply it are built in China.

To stave off further loss of businesses to overseas locations and to entice others back to America, for the choices above (1) costs of factories to supply our domestic markets must be driven down to match leading edge international costs. For (2) if the market is greater in China (a huge advantage for her) the cost of building capacity in America large enough to also supply China, with the corresponding scale efficiencies, must overcome the much greater transportation costs of moving many more goods to China than the fewer goods consumed in America. For (3) the costs of building in the U.S. must now also overcome lost opportunity costs of losing China’s market.

Certainly (1) driving down costs to match international costs is fraught with political traps such as minimum wages that must be managed to succeed. (1) However, building capacity to fulfill local demand is much easier than (3) overcoming opportunity costs of being closed out of China’s markets. Yet, if we accept premise (3), we are accepting an unlevel playing field imposed by China.

Corporations understand China’s imposition and do not react as if it as unlevel. MNCs do not have loyalty to build in any one country and therefore do not see building in China to gain access to Chinese market as a detriment per se. MNCs see the opportunity to build mega factories to supply both China and the U.S. as an economic boon. However, that is because China’s building impositions have thus far not caused other countries to respond negatively with tariffs and other retributions. (Why?)

No, the detriment is to the government of the United States and to our working class. Our government’s politicians, who have not yet taken actions in favor of America’s working class, must finally be forced to acknowledge that America’s middle class and the American government that is supported by their taxes has different motives than the multinational corporations that fly our flag. We should do everything in our power to see that our government’s and corporations’ interests align but when they do not, we can no longer feign ignorance.