It would be an understatement to
say that the US is having financial difficulties and an overstatement to say
that the end is nigh. The US government spends each day significantly more
money than it receives in taxes or other revenue. It plugs the gap with
borrowings which mostly take the form of bond auctions that are mostly bought
by the Chinese. The Americans pay interest on the bonds which is fixed, not by
contract, but by the market. In order to meet its interest bills the US sells
more debt, that is, it borrows more money.
Think of it like having a credit
card, not being able to pay the interest, but then getting another credit card
to pay the interest on the first credit card… The technical term for this is
‘bankruptcy’ or ‘insolvency’. Under Australian company law, a firm behaving
this way would be wound-up and the directors jailed for insolvent trading. On
the other hand if you are the world’s biggest economy with the world’s biggest
military you get to write your own rules – to a point. The point at which
people stop buying bonds is the point at which the US has to either provide
capital to itself (print money) or live within its means.
People are still buying bonds so at
the moment the US can continue to borrow from its children by pushing itself
into a debt spiral, plus printing money (quantitative easing), plus devaluing
its currency and hence the real value of its loans (a subtle form of default).
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If this guy was a company director in Australia he would be jailed for insolvent trading. |
Clearly this is unsustainable but
the good news is that the fiscal crisis is solvable. If a business cannot pay
its debts it sells off assets, cuts costs, and finds ways to increase revenue. There
is plenty for Congress to cut back on without increasing the number of homeless.
The US spends as much on Offence – ahem, I meant ‘Defence’ as all of the rest
of the planet combined. In addition there are vast black budgets for all manner
of vaguely security related projects that never see congressional review and
are rarely acknowledged. There are nine official security/intelligence agencies
– seriously – nine! Then there are the massive bail-outs to the people who
caused the GFC. Then there is the ‘global war on terror’, then there is the
domestic war on dissent – ahem, I meant ‘homeland security’. Then there are
domestic subsidies to uncompetitive industries; then there is vast rorting by
defence contractors of which
this link provides one example.
The US could halve all of these
budgets and still be armed to the teeth. It could then tax the rich, move
wealth down to the middle classes to encourage spending and investment, build
the economy and pay down debt. It might take 20 years of careful and painful
budget management but there is no fundamental reason for the US to go
insolvent….but it probably will in some form some-time soon.
The Americans may have put man on
the moon but we have health care, and we won the America’s Cup, and we actually
know how to do counter insurgency….
What lessons are we in Australia
learning from this? To be honest, Aussies tend to be a bit smug about these
sorts of things. The Americans may have put man on the moon but we have health care, and we won the
America’s Cup, and we actually know how to do counter insurgency…. but
we shouldn’t be too smug too soon.
If we dig a little, many of the
maladies affecting the US can be found in operation in Australia. Here is a
short list:
·
A breakdown in Parliamentary oversight and
ministerial accountability for – well – anything at all really.
·
An inefficient taxation system that punishes the
middle classes but subsidises the very wealthy.
·
An expensive, incompetent, and corrupt Defence
and intelligence bureaucracy.
·
Pointless subsidies to uncompetitive industries
(e.g. cars and coal).
·
Loss of productive industries through foreign
ownership or unfair foreign competition.
·
Loss of government revenue through
privatisation.
·
Excessive foreign ownership of the economy and
consequential capital flight.
·
A culture of outsourcing.
·
Failure to invest in education and R&D at
levels comparable with the OECD.
·
Blind faith in market mechanisms to solve
complex social, economic, and environmental problems, leading for example, to a
national housing crisis.
The good news is that we do have a
half sensible social security system, compulsory superannuation, affordable
health insurance, a better regulated financial system, and though we are highly
indebted we do not have a debt crisis.
…crisis is on the way
However crisis is on the way.
Treasury and health departments around the country have been warning for two decades
that we cannot afford our ageing population. The real economy is shrinking, the
tax base is shrinking, and our economy, from cars to call centres to higher
education, is being outsourced. The true impact of this has been camouflaged
somewhat by the mining boom but won’t be for ever. On the mining boom, for
every dollar of mineral wealth produced about 11 cents stays in the country.
Trans-national corporations pay five per cent tax. In real terms I pay fifty
per cent. Basically we are giving away the national wealth for ‘mirrors and
beads’. The message from academics and others is clear: our fiscal path is not
sustainable.
So what to do? Well, the State has
been doing plenty but hasn’t told you what or why. In the short term there have
been nasty cuts to higher education, science, and single parents – stuff that
Australia’s lumpen proletariat don’t really care about. The longer term stuff
is about social engineering….. which is why if you want to stay at home to
parent your kids in this country you get really screwed.
My wife isn’t eligible for the
Superannuation co-contribution (government subsidy to low income superannuation
accounts) because she is not waged. While there is a small tax rebate for
families, there is no income splitting for married couples so the tax policy is
systemically anti-marriage. The new government will institute a generous paid
parental leave scheme – for working women only. Parents who work are eligible
for subsidised child care. Parents who save the State this burden and care for
their children at home get nothing. When my wife met our (then) local senator
to point this out she was told that it was government policy to “encourage”
women into the workforce to help the economy. Not for any other reason. When it
was suggested that the economy is supposed to be there to support families
rather than the other way around she got a look which suggested that two
planets had just made contact.
I once attended a briefing by
Treasury officials in which the need to increase productivity was explained in
these terms: a birth rate of 2.3 per couple is necessary to maintain a stable
population. Australia’s birth rate is 1.7. That is not enough productive people
to pay for everyone’s retirement so in addition to micro economic reform (aka
making it easier to do business within the country), we need to get all the
women into the workforce.
At this point I suggested that if
women were supported at home to have their babies instead of being forced into
the workforce the birth rate might increase. This was followed by a tense
silence, like I had farted during a eulogy, and the Treasury official resumed
talking as if I wasn’t there.
The other aspect of social
engineering is immigration. During the war Australia’s population was seven
million. Now it is 23 million, a 300 per cent increase in 60 years. Rudd wanted
to increase to 30 million and this has been advocated by business interests.
It’s not so much ‘populate or perish’ as ‘grow the economy or perish’. Bottom
line: it’s cheaper to import skilled migrants than to support Australian women
to be mothers and train their off-spring. Australia’s mothers can work; we’ll
put the kids in childcare, and import more workers. I doubt whether those in
the Left who spruik multiculturalism as a moral value actually realise that
they are serving a neo con business agenda…..but back to tax.
Australians like the good life but
we expect fiscal conservatism from our leaders – and we punish those we
perceive as borrowing too much. In Australia a borrower like Obama would simply
not have got elected; so how to plug the fiscal gap? Australia is a vastly
wealthy country but most of it heads off-shore to line the pockets of the
already vastly wealthy. The answer touted by business via various think tanks
and research institutes is to increase GST (Goods and Services Tax currently
ten per cent) by half as much again and become a high taxing nation – but only
for those in the middle. Heaven forbid we keep our national wealth at home.
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New models of 'family' may better serve the economy of the future |
The traditional, some would say
God given, model of family is now at odds with our socially engineered economic
model.
All this tax is of course
inflationary and puts further pressure on families. One solution is to re-model
the family to better serve the economy. A
strong traditional family unit in which economic interests are subordinate to
moral and social interests is potentially more resistant to economic control.
Better to have isolated units of production and consumption – a largely
androgynous society, in which sex is entertainment, relationships are
disposable, and children are raised by the next ‘significant care giver.’ There
is increasing tension and incompatibility between the traditional, some would
say God given, model of family and our socially engineered economic model.
Enter gay marriage.
Now for the first time in the
history of Western Civilisation we are being conditioned to believe that
‘mother’ ‘father’ ‘man’ and ‘woman’ are redundant concepts and any ‘significant
other’ will do as parent, even if the ‘significant other’ is
fairly transitory. In this context gay marriage –
something that a minority within a minority group of
two per cent of the population want - suddenly becomes important. That’s not because it’s
a social justice issue.
The
marginalisation of GLBT people has always been a social justice issue with
multiple complex facets. Rather the “marriage equality” issue is a wedge that
can drive a broader social agenda to tear down traditional models.
Australia weathered the previous
GFC pretty well – but our Keynesian response cost us our national savings. We
are now poorly position to weather another global storm. Should the US debt
debacle result in a melt-down in the near future expect more radical
‘solutions’ from the business think tanks – but don’t expect them to look out
for your family.
Tag line: US financial crisis, debt crisis, Tea Party debt, Obama Debt, marriage equality, Goods and Services Tax increase, US treasuries, US bonds, Abbott paid parental leave scheme, FEMA, martial law in US