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Neoliberalism bringing US to its knees

Written By: - Date published: 10:10 am, September 22nd, 2010 - 145 comments
Categories: class war, public services, tax - Tags:

EXiled Online put me on to an article from Canada’s MacLean’s magazine titled ‘Third World America’ which begins:

In February, the board of commissioners of Ohio’s Ashtabula County faced a scene familiar to local governments across America: a budget shortfall. They began to cut spending and reduced the sheriff’s budget by 20 per cent. A law enforcement agency staff that only a few years ago numbered 112, and had subsequently been pared down to 70, was cut again to 49 people and just one squad car for a county of 1,900 sq. km along the shore of Lake Erie. The sheriff’s department adapted. “We have no patrol units. There is no one on the streets. We respond to only crimes in progress. We don’t respond to property crimes,” deputy sheriff Ron Fenton told Maclean’s. The county once had a “very proactive” detective division in narcotics. Now, there is no detective division. “We are down to one evidence officer and he just runs the evidence room in case someone wants to claim property,” said Fenton. “People are getting property stolen, their houses broken into, and there is no one investigating. We are basically just writing up a report for the insurance company.”

How have things got this bad? How has the world’s superpower suddenly become so poor that its police forces are crumbling?

Well, it hasn’t. US GDP per capita was $45,600 in 2009, down from a peak of $46,900 in 2008. That 2.8% drop is breathtakingly sharp but it still leaves a country with enormous wealth (NZ’s comparable GDP per capita was $29,200 in 2008).

The real issue is where all that wealth is going to. Since the neo-liberal revolution, governments have cut tax on the wealthy again and again. In good times, surpluses are taken as a reason to cut taxes on the rich. In recession, the solution to economic woe is tax cuts for, you guessed it, the rich. The result is that more and more wealth is piling into fewer and fewer hands, and governments at all levels on a knife edge with chronic underfunding and ballooning debt.

The typical American worker’s wages are still where they were in the 1970s. To fund higher consumption they increased their debt, borrowing against the value of their houses, which was only a viable strategy until housing prices inevitably collapsed. Now, it is the American middleclass and the enourmous underclass who are suffering the job and wage cuts, and getting it in the back as governments slash the social wage (public services).

Meanwhile, the rich are sitting pretty, taking an ever larger slice of a shrinking cake.

New Zealand was fortunate enough to have nine years of a Labour-led government that arrested, and partially reversed, the neo-liberal agenda. But now the neo-libs are back in charge and implementing their same old failed agenda. The rich are getting huge tax cuts while public services are being cut. Government debt is rising and the Nats are making it worse by borrowing a billion dollars over the coming four years to fund tax cuts for the rich. In the end, that debt has to be repaid somehow. While the neolibs are in charge the solution will never be higher taxes, it’ll be service cuts, which are just the same as a tax hike for families who are forced to pay out of pocket for services that were publicly provided (or go without).

Some of the passages in the McLean’s article are so familiar you can just take out America and put in New Zealand in its place:

“We have been involved for three decades now in paring back public commitments and public spending, and that started with the Reagan revolution. We are living with the outcomes and consequences,”

“As we watch the middle class crumbling, for me this is a major indication that we are turning into a Third World country,”… “The distinguishing characteristic of the Third World country is you have the people at the top and the rest—you don’t have a thriving middle class”

“The American dream was already based on the idea you could work hard and do well and your children will do better. Now we are confronted with downward mobility across the board. You have the phenomenon of unprecedented numbers of college grads who can’t get jobs.” The current public sector cutbacks in education and infrastructure will only make things worse, Huffington says. “You are both hurting people in the present, and basically undercutting your economic growth and prosperity in the future.”

“the Chinese are building world-record trains and we’re taxing kids who go to school!” [ECE cuts anyone?]

“Class sizes are being increased and teachers are being laid off. School districts around the country are cutting the school day or the school week or the school year—effectively furloughing students.”

and if we insist on continuing down the neo-liberal path – the aim of which is to underfund government and cut spending to the point where the State can be ‘drowned in a bathtub’ – then we’ll have no-one to blame but ourselves when we face the same consequences as America:

“The city of Dallas is not picking up litter in public parks. Flint, Mich., laid off 23 of 88 firefighters and closed two fire stations. In some places it’s almost literally the dark ages: the city of Shelton in Washington state decided to follow the example of numerous other localities and last week turned off 114 of its 860 street lights. Others have axed bus service and cut back on library hours.”

“When we come out of this recession we’re going to see government functioning very differently,” says Byers. “We are seeing more public-private partnership than we ever had for things like recreation and parks. We are seeing some of them privatize libraries. They lease the library to a private corporation that employs the workers who don’t carry retirement or health benefits.” Or they could wind up like Hood River County, Ore., which in August closed its three libraries altogether.Some governments are looking for creative ways to replace plummeting property and sales tax revenues. Facing a US$1-billion budget shortfall, Montgomery County in Maryland appealed for corporate sponsors to step up and adopt porta-potties in its public parks. In the end, the privies were saved by a combination of park employees taking early retirement, a few private sponsorships, and a negotiated discount from the supplier, Don’s Johns. Meanwhile, Montgomery County’s school system, banking on its reputation for high standards and test scores, took the unusual step of selling its curriculum to a private textbook publisher, Pearson, for US$2.3 million and royalties of up to three per cent on sales. As part of the deal, county classrooms can be used as “showrooms”—which critics said effectively turns students and teachers into salesmen for a corporation. But the superintendent, Jerry Weast, told the Washington Post, “I tend to look at this from the perspective that we are broke.”

“Back to the Stone Age” is the name of a seminar organized in March by civil engineers at Indiana’s Purdue University for local county supervisors interested in saving money by breaking up paved roads and turning them back to gravel. … The state of Michigan had similar conversations. It has converted at least 50 miles of paved road to gravel in the last few years.

Despite its position as the world’s unrivalled superpower, international comparisons show the U.S. slipping on a number of fronts. On education, the United States has been falling behind, in everything from science and engineering to basic literacy. The U.S. once had the world’s highest proportion of young adults with post-secondary degrees; now it ranks 12th, according to the College Board, an association of education institutions. (Canada is now number one.) In 2001, the U.S. ranked fourth in the world in per capita broadband Internet use; it now ranks 15th out of 30 nations”

America has become a plutocracy again, where a tiny elite control the vast bulk of the wealth and the rest have to compete over less and less. Plutocracies are socially unstable (note the rise of reactionaries in the US) and they culminate in economic melt-down. Not to mention they’re just plain unjust.

Yesterday on Breakfast, some airhead neoliberal academic was on claiming a ‘tall-poppy’ syndrome was holding New Zealand back and we should be more like the US. The US where councils can’t afford to run street lights and education is being cut to the bone and the wealthy elite fiddle while the country burns around them? Yeah, excuse me if I don’t think we should follow that path any further than we have.

145 comments on “Neoliberalism bringing US to its knees ”

  1. Bunji 1

    Great work Marty.

  2. comedy 2

    Yawn if you think the solution to NZ’s woes is National or Labour or any of their petty tinkering around the edges you are a fool.

    We will continue to be a dwindling little backwater that’s almost earning a crust from tourism and exporting food all the while with a growing population that puts an increasing strain on public funding of the services we’ve come to enjoy and expect over the years and the infantilised population will still attempt to live the high life on the back of cheap credit while a large part of our youngest and brightest flee the country they love for better opportunities offshore.

    There’s a possible solution but it ain’t one that the pollies and public will want to go after.

    • Draco T Bastard 2.1

      And what solution would that be?

      • comedy 2.1.2


        • Draco T Bastard

          With whom and why?

          • comedy

            With Australia – I’m sure you can figure out the upsides and downsides.

            • Draco T Bastard

              There are no upsides but plenty of downsides one of which will be losing our sovereignty.

              • comedy

                Sovereignty ain’t worth much when your broke and living in huts made out of your own dung… besides from this side of the Tasman it appears that each of the states have their own personalities.

                You might even get closer to the utopia of self sufficiency you bang on about.

            • billy fish

              Sod merging with australia – revoke the statutes of Westminster, dissolve parliament and claim Colony status once again – What?!?!? I hear you cry…. ah but here is the clever bit – UK is a basket case but we now are part of Europe, free access to all markets, claim EU subsidies for infrastructure ( like Eire and Portugal – ok crap economy but good infrastructure) and then just get a devolved parliament like Scotland and Wales.
              Its a win win win as far as I can see

      • Loota 2.1.3

        Yeah man, credit as a public utility.

        Now you’re talking.

        As for “merging” as a solution – laughable.

        The UK is having tremendous difficulties finding a scale of operation which they can tackle economic and scientific development with. What the **** is merging with piddly Australia going to do for us? (Apart from giving them an excuse to take all our fresh water).

        Pool our combined crash course in capitalism? How helpful that will be.

        • bbfloyd

          we could become another tasmania.. which would be about all that we could look forward to.

          second class aussies……. yea that’s what we need to be…. forget about the fact that NZ’s strength has historically been the innovative and ground breaking advances brought about by a society that continued to produce remarkable people. where are all the bright ones now? have we degenerated to the point where running to australia cap in hand is our best option.? and don’t assume it would be anything else but begging. (for the federal handouts every state gets).

          so we accept our inadequacies, and announce to the world that we are failures as people, and as a society.

          gonna get a lot of takers on that bet.

  3. Jeremy Harris 3

    The waste in America must be pretty monterous, they pay a cumulative amount of tax of 36%, only 1% less than us, yet we get a state run health service and subsidised university…

    I think one of the biggest problems in America is corporate money influencing government to pass laws favouring certain companies and industries, e.g. about 25 years ago the government put in place a 25% tariff on SUV’s so American manufacturers focussed on building (and convincing people they wanted) SUV’s… That has of course led to profiligate waste of oil and cars no one wants elsewhere (apart from China scarily enough), the Japanese are so efficient now they are starting to compete EVEN with the 25% handicap…

    A third party is really needed to re-introduce a fairer tax system… But ultimately I think America is in long term liquidation when you add up unfunded liabilities, federal debt, state debt, municipal debt and personal debt America is $102,000,000,000,000 in the red… That’s trillion with a capital T..!

  4. john 4

    Poor Americans who have lost their homes and jobs will still be ministered to by Oprah! She is a BILLIONAIRE twice over! Is there something wrong here? The Rogernomes and their current followers the Nact Government get their vile ideology from the failed society of the US.The neo-liberal US is a shell on the point of collapse: Once the dollar is no longer the World’s reserve and oil buying currency it will plummet and the US will be even poorer. The US is nothing more than the rich parasites at the top in their gated communities, A huge War Making Industry, Harvard,Princeton Yale which turns out the toffs who keep the wealth of the ponzi scheme flowing upwards, and of course that criminal association Wall Street conning their own and the World with garbage investments and who are in Bed with the White House. Corporations rob America(And have the politicians of the two headed one party state in their pocket paid for with campaign contributions) and their one and only imperative is PROFIT! Social considerations are communist. I think Paula’s over there at the moment could she stay there?Please! Mister Nice made a mint with the Merrill Lynch mob, no wonder he likes it over there with his house in Hawaii. Kiwis bought it now they got it! Poor American Schmucks screwed by the rich!

    • john 4.1

      Contrast the terminal American Funk with the impressive morale shown by China which intends to put a man on the Moon by 2025 refer link:

      • john 4.1.1

        Is China the New America: The Country with guts and commitment rather than how much can I accumulate( How much can I swindle from others and shaft the stupid working asses?)?! If so Taiwan will formally join to the mainland!

    • john 4.2

      Read how Wall Street aka US Government robbed the American people of 700 billion dollars!


      • freedom 4.2.1

        that is only the tip of the iceberg
        which is actually sitting on top of another iceberg

        The figure is reportedly closer to $2.3 Trillion, and can never physically be repaid,

        The debt owners ended up getting their banks back, and took ours as well,. Now they are writing regulations for themselves (again) to allow the dollar, et al, to be responsible to a non-sovereign credit note controlled by the U.N. This disturbingly transparent sleeping watchdog scenario translates to control actually being in the hands of the bankers who supply the IMF and the World Bank. Which for those who may have forgotten are private banks.

        This new global currency has already been used during the recent G20 and G8 summits to move vast sums of credit between debts traders and not a cent of it is controlled, owned by, or responsible to any nation on this Earth.

        Which iceberg are we sitting on? Neither, they are both on top of us

        and on a side note, it is almost the Centenary of the Federal Reserve, now there is a story of the little idea that could. Most well documented example yet of private bankers incrementally owning a country

    • john 4.3

      Good link here about what is neo-liberalism?
      Again I think its main plank is to dismantle the common good by privatising all publically owned assets and making them a sources of capital gain and income wealth for the increasingly rich:ordinary people eventually become economic serfs in their own countries as you have in many asian economies.

    • john 4.4

      America is caving in due to intractable corruption in the political and business spheres. Our two party system is a false choice with both parties working only for special interests and their own cowardly choices that preserve themselves. Our government has been hijacked by the power of the wealthy controlling the decisions that are undermining the American middle class. Meanwhile the middle class believes the lies and propaganda as they work harder to try and keep from falling behind faster than their neighbors. Our income inequality has grown to levels equivalent of the 1930s. It was an unworkable plutocracy then and the same thing is happening all over to a complacent population still looking for an easy way out while they watch American Idol soon to be American Idle.

      • john 4.4.1

        America is becoming a retiree home for the stinking rich who have huge and immense financial resources bringing in all that interest from an economy totally screwed because they have screwed the workers an obvious recipe for collapse obvious to anyone with an IQ of 50, resources tied up which might actually bring the country back to life! If they were taxed and deployed back to the willing serf working class. If that were done the screaming outrage would be heard all the way over here to NZ!

    • john 4.5


    • john 4.6

      A link showing how the rich have mega screwed America earning the contempt of the World for this shit hole of the rich.I just don’t want NZ to become the same with ordinary NZers serfs to the rich bastards, if that happens revolution will happen! New Zealand for New Zealanders not just rich bastards!


  5. randal 5

    after a century of the “wiseguys” winning the infrastructure contracts its no wonder the place is falling apart.

    • bbfloyd 5.1

      randal.. the mafia only moved into the construction industry on a large scale around the middle of last century. around the time they started getting involved with heroin trafficking. before that it was just true blue, patriotic thieves and gangsters. you can take your pick of nationalities to point at as far as corruption goes. pretty much every ethnic group apart from the native americans, and possibly the polish brought their own gangs with them.

      you could say that modern america has been founded on greed and corruption, and it would be hard to argue against.

      • comedy 5.1.1

        “you could say that modern america has been founded on greed and corruption, and it would be hard to argue against.”

        About as sensible a comment as saying the entire world was founded on greed and corruption.

  6. ianmac 6

    I guess the USA is a huge machine but with no one is able to control it. I suspect that even if there were a bunch of politicians who had the nouse and the will, they would be powerless to control the runaway. Look at the difficulties in getting a Public Health system underway but even then it still leaves out a huge chunk of people. Lobby groups. Party Donations. Oil.
    And here? Such a pity to not be able to have a reasonable dialogue with the far right.

  7. nzfp 7

    “New Zealand was fortunate enough to have nine years of a Labour-led government that arrested, and partially reversed, the neo-liberal agenda” introduced with the financial reforms by the 1984 Labour government of David Lange and then Minister of Finance Roger Douglas (Rogernomics).

    The Labour neo-liberal financial reforms which destroyed the welfare state of New Zealand and led to the largest rip-off of the New Zealand public with the privatisation of public assets were continued with the financial reforms introduced by the following National Government of Jim Bolger and then finance minister Ruth Richards (Ruthanasia).

    Seems to me the false dichotomy of LEFT-RED-LABOUR vs RIGHT-BLUE-NATIONAL is just that – false. Both Labour and National introduced neo-liberalism and both Labour and National have done nothing to remove or reverse the underlying cause of the curse. Patches to our economy are just that – patches.

    Until monetarism itself is removed and replaced with the 6,000 year old proven economic model of money as a public utility – this failed – provably failed – historically failed – Milton Friedman economic experiment called Monetarism as taught in the Chicago School of Economics and advocated by the Washington Consensus will continue to destroy our country.

    Vote Labour or National and you continue to vote for neo-liberalism and, as it is clearly articulated by Marty in this article, the future for New Zealand is laid out in the current conditions of the United States.

    Left vs Right – Labour vs National is a distraction to keep you voting for the same failed neo-liberal adventure and to keep you from thinking – instead – about Right (correct) vs Wrong.

    • Draco T Bastard 7.1

      Milton Friedman economic experiment called Monetarism as taught in the Chicago School of Economics…

      and taught as Gospel in NZ universities despite it being founded upon unrealistic assumptions that haven’t changed, or even been looked at and questioned, in 2 centuries.

      • nzfp 7.1.1

        Exactly – it’s like the old science of the Earth being the center of the Universe from Galileos day. You could get a PHD equivalent in that science, you could become the prfoessor of the university teaching that science – but despite all your credentials – the science is still false making all the professors – professors of nothing at all!!! Just like Monetarism.

    • bbfloyd 7.2

      nzfp you said it better than i could. i’ve been reduced to calling roger douglas a “cookoo in the nest”.

  8. tsmithfield 8

    “How have things got this bad? How has the world’s superpower suddenly become so poor that its police forces are crumbling?”

    Not suddenly. If you do a bit of research you will find that the US has been running deficits for most of the period from the mid 70’s to the current date. That is why they are trillions in the red at the present point in time. So now they’re having to cut their cloth to fit. If you think undoing generations of waste is going to be painless you’re on the wrong planet.

    • The Voice of Reason 8.1

      Wow, that’s pretty leftist thinking there, TS. I hope your owners don’t find out that you consider forty years of diverting US taxpayers dollars into pointless foreign wars, the bank accounts of Texan oil barons and their Saudi mates, and the underserved enrichment of shyster bankers a waste. I’d hate to see you get fired for one moment of clarity.

      • tsmithfield 8.1.1

        I agree that the US has wasted a lot of public money on trying to solve the worlds problems.

        What that demonstrates to me is how untrustworthy and wasteful politicians can be with public money and why they should get their hands on as little of it as possible. The US is not exempt in stupid financial decisions. For instance, paying way over the top for a worn out rail company, buying far more expensive LAVs than what we need are both a good examples of how our politicians can piss public money against the wall.

        Whatever it is spent on though, be it war or welfare, countries can’t keep running deficits year after year without there being a price to pay eventually, as the US are now finding out.

        • The Voice of Reason

          Not to mention charitable donations to mates, sorry, investors, in SCF, the continued sponsorship of the liquor industry, the supershitty, tax cuts for the rich. Yep, you’re right, this government has a lot to answer for.

          • tsmithfield

            I don’t necessarily agree with all of those.

            However, you are just strengthening my argument. Why not give the Mo Fo’s as little as possible if they are just going to waste it anyway.

            • The Voice of Reason

              Nope, the point is to elect Governments that govern in the interests of the many, not the few. The USA’s biggest problem is that its democracy is entirely subservient to the interests of the rich. The Town hall meetings, votes for dog catcher and judge alike all present a sense of community involvement at some level, but really the business of America remains business. The two parties are, as Bill Andersen used to say, the evil of two lessers.

              Our problem here is lickspittles like Brash and English who want to have the same craven worship of Mammon here. Their problem is that Kiwi’s prefer a mixed economy, a strong state and all the good stuff that comes with real democracy, like education, health and a welfare state that is there cradle to grave when we need it.

        • freedom

          – I agree that the US has wasted a lot of public money on trying to manipulate the world’s problems.

          there you go . all fixed, think nothing of it, we all make little errors sometimes

        • Clarke

          Whatever it is spent on though, be it war or welfare, countries can’t keep running deficits year after year without there being a price to pay eventually, as the US are now finding out.

          All that statement demonstrates is your fundamental ignorance of how monetary theory actually works. Given that the US – like NZ – issues its own currency, how do you propose they are going to go broke, exactly? Are they going to suddenly wake up one morning and decide to stop issuing USDs and voluntarily put themselves into liquidation?

          • tsmithfield

            Not ignorant of these facts at all.

            They can inflate their debt away by printing more USD and thus devaluing their currency. However, that is a good way to end up like Zimbabwe if you think about it. As their currency deflates the cost of all the things they have to import like oil etc increase dramatically in price. So, they still end up losing. In short, theres no free lunch.

            • Clarke

              Just to set the record straight, Zimbabwe’s problem was the destruction of its resource base by driving farmers off the land, not the issuance of too much currency. Hyperinflation is caused by a sudden and catastrophic decline in the productive base of the economy, as both Zimbabwe and Weimar Germany demonstrate, not by printing money. You’re mistaking a symptom (currency devaluation) for the disease (resource/productive capacity destruction).

              And to point out the obvious, your last comment is a tour de force in monetary ignorance – clearly, if the Saudis are happy to accept payment for oil in USD, then the US government can continue to issue as much currency as they like to fund their oil purchases, with complete impunity.

              Besides, if your statement “as their currency deflates the cost of all the things they have to import like oil etc increase dramatically in price” were actually true, how come the price of oil has halved since its peak given that the US deficit has nearly doubled in the same period?

              • tsmithfield

                It just means it will take them longer to get there..But they will get there.

                The only reason the price of oil is not so high is because demand is not high at the moment. All things being equal, imported things cost more as a currency deflates. Its economic fact. Plus, the US is outsourcing a lot of its manufacturing to Asia now. So, as their currency deflates it will cost them more to buy their own products.

                • Clarke

                  All things being equal, imported things cost more as a currency deflates.

                  Here’s the essential qualifier you forgot to put in your sentence – it should read “all things being equal, imported things cost more as a currency deflates, assuming imports are denominated in a foreign currency“.

                  For exactly the commodity that you list – oil – the primary denominating currency is the one issued by the US Fed. So it’s safe to say that the US government can continue to issue the currency it needs to buy the oil it requires, and there is no reason – short of the Saudis deciding not to accept greenbacks – why they can’t do so indefinitely.

                  And to get back to the central point, it should be pretty clear by now that when the US government does create the money out of thin air to write a cheque for that oil (well, sends some zeroes and ones, anyway) this is not a “debt” that needs to be repaid. In the simplest accounting terms, the money has been exchanged for the oil and the books balance.

                  Deficits are not inherently evil, and in a modern economy that issues its own fiat currency they do not need to be “repaid”.

              • nzfp

                “Just to set the record straight, Zimbabwe’s problem was the destruction of its resource base by driving farmers off the land”

                Absolutely – another point in line with this is that “the destruction of its resource base” led to the destruction of the government. Without a stable government able to enforce law and credibility in the financial system the currency collapsed.

                Aristotle makes thae point in Ethics 1133 that

                Money exists not by nature but by law.
                Aristotle (Ethics, 1133)

                In the case of Zimbabwe it became a failed state with a tyranical Government, and, as clearly articulated by Aristotle money exists by law and without law the money system is destroyed.

          • Gosman

            They will go broke like Zimbabwe did. Their currency will eventually become worthless and they will be forced to use other countries money and rely on charity.

            • Gosman

              Snap tsmithfield.

              Zimbabwe is a good example of how uncontrolled government expenditure and money supply growth coupled with a lack of respect for private property rights and a desire to control the market destroys a country’s economy.

              However our leftist friends will probably argue it is all the IMF’s fault due to ESAP.

              • tsmithfield

                Yep. The US is screwed. I think there are going to be a lot more cuts in public services yet. A glowing example of government expenditure out of control.

                • Clarke

                  I think there are going to be a lot more cuts in public services yet.

                  I think you’re right, albeit for totally the wrong reasons. It’s ironic that the US is busy paving roads in Afghanistan whilst pulling up the paving on roads in America, but that’s a political decision, and one not at all dictated by their deficit levels.

                • Draco T Bastard

                  Can’t see the forest for the trees.

                  It’s not government expenditure that is out of control but how much the rich are stealing from the country.

                  • Clarke

                    Indeed – Paul Krugman makes the point in the NY Times:

                    Yet if you want to find real political rage — the kind of rage that makes people compare President Obama to Hitler, or accuse him of treason — you won’t find it among these suffering Americans. You’ll find it instead among the very privileged, people who don’t have to worry about losing their jobs, their homes, or their health insurance, but who are outraged, outraged, at the thought of paying modestly higher taxes.

                    • Lanthanide


                      “You know what they say — it takes money to avoid paying money. TechFlash reports that Microsoft CEO Steve Ballmer and Amazon.com CEO Jeff Bezos have contributed $100,000 each to an effort to defeat an income tax on individuals in Washington state making more than $200,000. The backers of Initiative 1098, which is set for the November ballot, include Bill Gates (Sr.), who has emerged as one of the most vocal proponents of the income tax. Under the proposal, which has drawn the ire of the Bezos and Ballmer-backed Defeat 1098, no tax would be due on the first $200K of income, 5% tax would be owed on income between $200K and $500K, and everything above $500K would be subject to a 9% tax (cutoffs are doubled for joint returns).””

                • Maynard J

                  “Yep. The US is screwed. I think there are going to be a lot more cuts in public services yet. A glowing example of government expenditure out of control.”

                  And yet they can’t maintain essential services? I don’t think you’re looking in the right place for the money…

              • Clarke

                No, actually your leftist friends will sigh, roll their eyes, and make the point that you appear not to understand any of the reasons for the Zimbabwe collapse.

              • bbfloyd

                no gosman… anyone who has followed that sorry saga could tell you it’s more to do with unbridled corruption and greed, coupled with mindless bigotry that has got zimbabwe where it is today.

          • freedom

            the US borrows every dollar in its economy. End of story.

            The US Treasury only prints what the Federal Reserve decides to loan to the American Government, and ultimately its people

        • prism

          The USA ‘has wasted a lot of public money on trying to solve the world’s problems’. Delve into that heap and probably the USA’s actions will be there forming the problem. Then they can play this game of being the philanthropist.

          They were so great helping Britain before the USA was forced off the fence in the Second World War. But they got payoff – some destroyers for a strategically placed island base Britain claimed etc. Though not everything is done for profit, I bet there is always some payback for USA public money spent/donated.

        • nzfp

          “the US has wasted a lot of public money on trying to solve the worlds problems” …

          Come on TS – don’t for one second ever suggest that the US is “trying to solve the worlds problems”.

          The truth of the matter is that the various regimes in control of the USA’s vast military financial complex are spending the wealth of the USA soley to increase the power of the few wealthy elites in charge of the military financial complex.

          The average American would prefer the US spend the trillions of dollars wasted on the wars in Afghanistan and Iraq at home on things like rebuilding the New Orleans Levy’s before they broke in Katrina (instead the US sends 3 to 15 Billion in aid annualy to Israel in so called aid).

          Afghan and Iraqi wars started so that American elites can profit from heroin, while destroying Israels greatest economic and cultural threat in the mid-east (Iraq) while at the same time attempting to steal the vast mineral resources of both countries.

          The US is not trying to solve the worlds problems or police the world, the regimes in control of the US are instead holding the world to ransom with 5,000 nuclear weapons and the worlds biggest military.

        • Vicky32

          “I agree that the US has wasted a lot of public money on trying to solve the worlds problems.”
          The Worlds’ problems? No! They have created problems for the world – starting with but not limited to their shooting wars and invasions. It’s well known that war is good for business. Tragically, the stupidest and poorest Americans* all favour these wars, as “patriotism” is all they have got left…
          * I am in email contact with some of them, purtroppo…

    • freedom 8.2

      The U.S. has been running deficits since it signed its currency over to the Federal Reserve almost One Hundred years ago.

      As soon as you have to pay interest on the money you are ‘creating’ you are in deficit

      • mrspollard 8.2.1

        Deficits in themselves are not bad, though monetarists would have you believe otherwise. Governments are not households.
        For a prescient explanation as to how it (the current state of the global economy) has come to pass, read this from economist Michael Hudson: “How Brazil Can Defend Itself from Financialization”. Insert NZ and it adds up the same…
        His website has been posted here before…

        • tsmithfield

          Deficits need not necessarily be bad. For instance, if a business goes into debt at 10% interest purchase equipment that will earn them 20% on the investment, then clearly they are better off.

          • nzfp

            Yes that is true,
            However a nation isn’t a business. A nation has the capacity to create money – a business cannot. A nation can create a public central bank and the treasury can borrow from the public central bank. However the debt to the public central bank owned by the public is ultimately public debt owed back to the public.

        • nzfp

          Hey mrspollard,
          If you like Michael Hudson here are a couple of interviews in podcast mp3 format you can listen to if you are interested (I’ll posting a couple more in the next couple of days).

          “Professor Michael Hudson”

          You may also enjoy listening to Stephen Zarlenga of the American Monetary Institute (AMI) also in mp3 podcast format (I’ll posting a couple more in the next couple of days).

          “Stephen Zarlenga”

          And for an alternative view to monetary reform try Ellen H. Brown, also in mp3 podcast format (I’ll posting a couple more in the next couple of days).

          “Ellen H. Brown”

    • Clarke 8.3

      If you actually do the research you’ll see that the US has been running deficits practically since they declared Independence, and that the largest deficits were during WWII, not the 1970s. Much of the government spending since the late 1700s fostered the development of the country and built it into the superpower we see today, so it’s a very long stretch to suddenly categorise it all as “generations of waste” unless you’re a blind ideologue.

      • tsmithfield 8.3.1

        Debt is OK if you can point to offsetting assets on the other side of the balance sheet. Especially if the assets have sound economic value. However, I think most would be challenged to do that with the trillions of debt they have at the moment.

  9. prism 9

    On a recent RadioNZ (evening Bryan Crump) discussion on the Humanities with a USA academic she said that when holding a debate on the death sentence, one man on the anti side had a bit of trouble getting his head around the position as he personally supported the death sentence. He had had no experience of thinking around a subject to understand the varying viewpoints. He found it a mentally enlarging experience preparing his case and making his argument against. The humanities with the teaching of Critical Thinking is however being seen as irrelevant by many leaders wanting to concentrate on business and finance management.

    I don’t think that our education so far has prepared the majority of us to see clearly how things are and might be and make intelligent and considerate policies in the light of our understanding of the facts. Knowing how to hypothesise and then judge its validity is not universal! This is light years away from the mass curricula and testing of the National Standards.

    We need to be able to understand and make decisions for viable provision for the present and future. Also to understand what we need in these times of lost stability and lack of commitment by businesses to financially support their investment home, country etc.

    Instead we get the mish-mash as in USA, a confused mass of people churning around opinions comprehending little, similar to the blinded people caught in the foyer of the hospital at the start of The Day of the Triffids. That was a frightening spectacle.

  10. Gosman 10

    This is like trying to blame the current situation in Greece, Spain, Portugal, or even Zimbabwe on ‘Neo-liberalism’.

    How about I get an article about the situation in North Korea or Cuba which highlights the problems in those countries as a counterpoint?

    • Draco T Bastard 10.1

      Another attempt at distraction from Gosman with the usual false dichotomy.

      • Gosman 10.1.1

        Nope, just pointing out the absurdities in the argument put forward by the poster once again.

        BTW don’t you think it strange that most of the developed world economies are turning to the right instead of the left during this ‘crisis of Capitalism’. I mean even that bastion of Social Democracy Sweden has turned its back on the party that nurtured the welfare state over there.

        • Bunji

          I don’t believe Marty said anything about Greece or Zimbabwe etc, you’re just misrepresenting his argument for your own ends… which is a ban-able offence, so tread carefully.

          wrt Sweden, this from the BBC might inform you:

          Does the decline of the Social Democrats mean the end of the Swedish welfare model – comprising high taxes and generous state spending – that they built?

          No, not at all. Perhaps the modernisation of it, but definitely not the end.

          The leading Moderate Party and the centre-right government has won many of voters’ hearts not by promising to change everything, but by vowing to protect the good parts.

          The fact that the Swedish voters re-elected the sitting government does not mean that they have abandoned the “Swedish model”. It only means that they think someone else is a better caretaker.

          And they’re still left with a hung parliament between 2 blocs (it’s all the rage these days). But they have a toxic far-right party in the middle that no-one will deal with, so there might have to be some bloc re-alignment…

          [lprent: Yeah, I’m keeping a bit of an eye on his comments at present after the splurge yesterday. This one appeared to be more of a diversionary tactic than anything substantive. Mind you it is hard to think of the last time we saw any actual content in the gossips comments (or posts) ]

  11. Gosman 11

    What I enjoyed reading recently was some leftist commentators trying to blame the problems of countries such as Greece on ‘Neo-liberal’ economic policies and ‘Evil banks’. It was plain that the root cause was the fact the Greek government was to blame by spending well over what it could afford on non productive areas of the economy such as Social Welfare and Pensions.

    What policies are the Greeks being forced to follow now? I’ll give you a clue it ain’t Socialism.

    • Clarke 11.1

      Greece’s problems stem largely from their decision to go into the EU and cede control of their currency to Bonn. Which is a pretty strong argument for never merging our currency with Australia.

    • Draco T Bastard 11.2

      Tragic Flaw: Graft Feeds Greek Crisis

      “Our basic problem is systemic corruption,” Greece’s Prime Minister George Papandreou said after he took office late last year, vowing to change a mentality that views the republic as a resource to plunder.

      So, who do you think could afford the biggest bribes to get the most out of the country?

      One thing is true though – it wasn’t socialism that caused Greeks pain.

  12. Pascal's bookie 12

    TS or Gos.

    care to explain why US inflation is where it is at the moment, and why there long term fed bond rate is likewise?

    The fed has been pumping like a Hamilton jet, and the deficits (both federal and state) are likewise huge. This has been going on for years now. Accordingly, you are saying we ought to be seeing runaway inflation and a bond market asking for a risk premium on their debt. c’ept we aint. That ‘aint’ is at this point a fact that on the face of it causes monetarists a few problems. Care to explain it?

    • Pascal's bookie 12.1

      Or you can just keep bleating that it will be just like zimbabwe, it must., it must and it will, because, because we think so, and damn the facts. I can haz tax cutz?

    • tsmithfield 12.2

      You’re right. In the US economy is certainly not “busting at the seams” at the moment.

      Someone may correct me, but I see there are several aspects to inflation. Firstly, assets like houses etc are deflating in value. So people are considerably worse off. On the other hand, organisations external to the US will want more and more US dollars for the goods they supply as the US dollar declines in value due to money printing. Hence the price for goods in US dollars should increase, making life a lot more expensive for the average American. The net effect of deflation on assets such as housing and the increase in imported goods may well balance each other out. However, the net effect is more pain for the average American.

      If the money that has been printed had been going into the hands of average Americans their pain might have been reduced somewhat. However, since it has mainly been going to banks who reinvest in the carry-trade rather than lend it out, the average American doesn’t really see much benefit.

      • Pascal's bookie 12.2.1

        What are you saying? I ask because none of that looks like sense. Never mind the ‘shoulds’ and the ‘maybes’ and what you thinks others will want.

        There has been massive deficit spending, and massive fed reserve pumping of the dollar. According to what you have said elsewhere in this thread, there should be concerns about runaway inflation (ZOMG Zimbaaaaabweeee!!1eleventyone!), and yet not only is inflation negligble, but the ten yr bond rate is also tiny. It would deem that the bond market isn’t pricing much risk on this dreaded debt monster, nor are they expecting runaway inflation.

        These are all facts. So either the markets have got it wrong as all hell, and there will be inflation, (though you will still need to explain why it isn’t it showing up now, given the monetary policy of the last 5 years or so) or your theory has been counter-exampled by reality.

        You can’t just wave your hands and say, ‘oh well housing is declining’ and pretend that that accounts for the lack of inflation. If there is no inflation, then there is no inflation. Whereas you predicted massive inflation, right here in this thread.

        Where is it?

        It’s not there.

        So it looks like the theory predicting the inflation is not so robust that we need pay it religious devotion. We should be careful about sacrificing to it. This would be a politically and philosophically conservative approach, a rejecting of dogmatic ideology in other words.

        • tsmithfield

          Look at it this way.

          If people are becoming poorer (no pay rises, working less hours, losing their jobs etc), but the price of goods is staying the same or increasing even slightly then the impact is the same as inflation, even if the overall balance (say reduced house prices v increased price of imports due to the falling dollar) stays constant, then it will feel like inflation to the poor suckers trying to pay their bills.

          This is somewhat different to deflation where the price of goods declines along with incomes. In the scenario above, it might be that the increasing cost of inputs means that businesses can’t drop their prices to match the declining incomes.This would mean that more businesses go under creating more unemployment resulting in a vicious downward spiral into poverty.

          In fact this scenario is worse than inflation because, with inflation, wages are rising along with prices. Probably the more accurate description of this scenario would be stagflation.

          • Draco T Bastard

            So, what you’re saying is that we presently have hyper-inflation in NZ. Prices are going up and wages are going down.

            • tsmithfield

              Don’t know. We could have a little of the sort of the stagflation effect possibly. However, we aren’t printing money hand over fist like the US. So I don’t see us getting into anything like the same situation as the US could deteriorate into.

              • Pascal's bookie

                But we do have inflation, unlike the US, your theory notwithstanding.

                If the US has stagflation, then what we have must be hyperinflation by the same measure.

                Facts about what is remember. Not coulds about what you reckon might have to become true in order for you to be not wrong.

          • Pascal's bookie

            No. Stagflation is no rise in income and slow gdp growth plus significant inflation. What we’ve got here is no inflation worth speaking of. That’s the point. The predicted inflation has not eventuated. I’m certainly not saying that everything is peachy. It’s not.

            When Obama started out on his poorly designed and arguably too small stimpak and the FedRes continued with it’s ‘ quantitative easing’, the complaint from the right was the one you made in this thread. ‘Oh noes, inflation, Zimbabweeee!!’. That has not happened. Pointing out that other things are bad, cannot save the zimbabwe thesis. 101.

            Whatever is wrong with the US economy at the present time it is not inflation, of which there is very little to speak of. This is in direct contradistinction to the predictions made by the GOP, Fox news, supply-siders, monetarists, goldbugs, classical liberals, Austrians, and in this thread, your good self and Gos.

            So either the world is wrong, or y’all are.

            There is an excluded middle that you are trying to sit in. You could include it by explaining why the inflation hasn’t appeared. You cannot do so by coming up with some other way of looking at it that says things are still bad even though inflation isn’t present, (which is what you just did).

            That things are bad even with the low inflation is not something I disagree with.

            It is something that disagrees with the idea that runaway zimbabwe style inflation is something we are living with however.

            So it seems to me, that arguments that we must do painful policy x because otherwise……. ZIMMMMBABWEEEEE! are fucknuckled to a very large extent by the failure of the predicted inflation to eventuate in reality as it actually exists, neo classical economics and hayek, and mises notwithstanding.

            As I said. I am taking a conservative position here, rejecting what looks to be simple dogmatic ideology that flies in the face of the facts.

            Zimbabwe, and vampires, are two things I’m not concerned about.

            • tsmithfield

              The inflation/deflation even stagflation debate has still not been settled in the US. Granted, at the moment there is not an imminent risk of inflation. However, when I first mentioned “Zimbabwe” I was talking about how America might end up if money printing continued unchecked, not about its current state (see The general consensus is that inflation is more of a long term concern than a short-term one.

              I was engaging in hyperbole by comparing the US with Zimbabwe. The US situation is very serious. However, I agree with nzfp etc that the US has not suffered the same hit to its productive capacity that lead to hyperinflation in Zimbabwe. That being said though, the US is outsourcing much of its productive capacity to low wage economies’ thus is much more vulnerable to price increases due to the devaluing of the dollar as money printing continues.

              • Pascal's bookie

                Once again, you fail to explain why there is no inflation now. If the theory can’t do that, then why should anyone pay particular mind to it’s further predictions of inflation? It is clearly incomplete, and that is literally the best you can say about it.

                Another question however, is raised, and it’s one I’ve again already touched on.

                If there is not an imminent risk of inflation, nor going by the ten year bond rates do the markets see much risk further out, then by what measure is the debate unsettled?

                How, in other words, do you explain the unsettledness of the debate? The link you provide is just more of the same. If the inflation concerns are legitimate in this crisis, then where is the inflation that we should be experiencing now given that the fears in that article are predicated on exactly the same thinking that predicted, falsely, inflation now.

                I suggest it’s unsettled insofar as some are not facing the fact that their theory has failed to predict what happened. Until they accept that, and modify their theory then they will continue to bleat, ‘Zimbabweee!!’ however hyperbollixxy , and the media will continue to give them space in the interest of balance.

                That would be one explanation for the unsettledness.

                But anyway, you’ve backed away considerably from your initial position, which was that inflation was inevitable as a result of the policy settings that have been in place for several years now, with the implication that inflation should be of major concern right now to policy setters in the US.

                That’s good.

                Given that inflation is, in your words, more of a long term concern than a short-term one , and that there is not an imminent risk of inflation then the question is how much weight should policy setters give to long term inflation concerns given the actual problems that are being faced right now.

                I think actual problems existing right now trump theoretical problems from the future, (this would be that conservatism and the rejecting of the dogmatic ideology again). Especially when the future theoretical problem is predicated on assumptions that predicted we would be facing that problem now, when, as you and I agree, we are not.

                • comedy

                  “I think actual problems existing right now trump theoretical problems from the future, (this would be that conservatism and the rejecting of the dogmatic ideology again). Especially when the future theoretical problem is predicated on assumptions that predicted we would be facing that problem now, when, as you and I agree, we are not.”

                  Oiiii Climate change ??????

                • tsmithfield

                  From my reading on the topic, the reason there is no inflation at the moment is that demand is low and there is plenty of productive capacity. Inflation tends to arise when demand is high and industry has plenty of capacity to meet the demand.

                  However, consider the scenario where America continues to outsource its production. World demand steps up considerably, oil and commodity prices ratchet up, and demand for products elsewhere in the world increases (even if the US is still in a depressed economic state), and the USD has devalued considerably further due to money printing.

                  American producers largely relocated outside the US will effectively become exporters back to the US. However, higher world pricing for goods, commodities etc, and the devalued USD will dictate what Americans will have to pay. Afterall, why export the items back to the US if better prices can be obtained elsewhere.

                  Thus, in this sort of scenario, inflation could become a fairly major issue for the US whether they are in a state to endure it or not.

                  • Pascal's bookie

                    From my reading on the topic, the reason there is no inflation at the moment is that demand is low and there is plenty of productive capacity. Inflation tends to arise when demand is high and industry has plenty of capacity to meet the demand

                    That’s what Krugman says too, as far as I can tell. And it’s a fair distance from the Zimbabwe thesis, which as far as I can tell, says that inflation is always and everywhere about the fed printing money.

                    The point being that invisible inflation is not something to be worried about now. And the now is what matters when you are really really sick. No?

                    • tsmithfield

                      Well, the Fed certainly agrees with you. Whether their methods will be effective or not is another matter.

                      Printing money hand over fist hasn’t solved the problem to date, so it is difficult to see why more of the same will make that much of a difference. Printing money doesn’t seem to be having that much effect other than devaluing the USD. That is OK to a point. However, it becomes problematic if the currency collapses.

                      From my reading, increasing debt eventually reaches a point where more debt has no extra effect on GDP. Many believe that the US is already very close to that point.

                      So whoever wins the inflation/deflation debate, the outlook is not very good for the US IMO.

                    • nzfp

                      Hey TS,
                      Bear in mind that the previous reserve currency was the Pound Sterling. Even though the Pound is no longer the world currency it is still a strong currency around the world.

                      Losing the status of the world reserve currency doesn’t necessarily mean the end of the world either for the nation that hosted the currency or the currency itself.

                    • Pascal's bookie

                      Printing money hand over fist hasn’t solved the problem to date, so it is difficult to see why more of the same will make that much of a difference.

                      Well the question is, what would it be like if the fed hadn’t been printing money, and if there hadn’t been fiscal stimulus. The answer is less demand, more unemployment (excess capacity), lower govt revenue etc. So nah, it’s not the case that the only thing it has done is ‘devalue the dollar’.

                      That’s just silly.

                    • nzfp

                      “Well the question is, what would it be like if the fed hadn’t been printing money”

                      Hold on Pascal – it also depends on how that money is put to use. If it is only used to speculate or to purchase T-Bills then it is effectively useless and as good as printing nothing at all. I make this argument because it is far more profitable and safe for banks to take 0.25% loans from the FED and then to buy 3% yielding T-Bills then it is to invest in SMB business and stimulate the economy. This is wrong – unfortunately that is how the FED has geared the US economy.

                    • Pascal's bookie

                      …it also depends on how that money is put to use.

                      True that. I was responding to the implication that fed policy or stimulus in general is an end in itself. ‘crank up debt!’ ‘print money!’ You could do either of those things to nil effect if you put your mind to it. I just don’t think the US policies have been of nil effect WRT to demand as ts implied…

              • Zaphod Beeblebrox

                Isn’t it called ‘The Japanese Disease’- quite a well recognised economic phenomemum that has aflicted Japan since the 1990s? Something to do with over-inflated property values and government unwilling to go into debt- sounds a bit like NZ at the moment.

  13. nzfp 13

    “Given that the US – like NZ – issues its own currency”

    Hey Clarke, that’s not entirely true – not entirely wrong either – let me explain my point.

    The US has privatised the right to issue currency to a cartel of private banks known as the Federal Reserve system.

    New Zealand on the other hand issues conis and notes from the public New Zealand Reserve Bank. The RBNZ issued coins and notes are spent into the economy as money free of interest and not lent into the economy as interest bearing debt.

    However both the US Federal Reserve system and the New Zealand Reserve Bank allow private banks in each country to create money as loans almost exclusively against mortgage debt.

    When a private bank creates a loan, the money is created by the bank against the assett (typically property) as interest bearing debt (creating . However neither the private banks nor the central bank (such as the Federal Reserve or the RBNZ) create enough money (or any money) to pay the interest on the debt.

    The result is that each economy is forced to grow in order to get the money needed to pay the interest on the old debt (public or private) which in turn creates more debt creating more interest creating more growth until debt saturation occurs.

    At the point of debt saturation, the economy can no longer support more debt – meaning that it can no longer grow meaning that it can no longer service the interest on the old debts which leads to debt deflation, recession and depression as the money supply is contracted as no new loans are taken out and all the money currently in the system is used to pay down the current debts (debt deflation) meaning there is less and less money circulating in the economy as it is all aggregated into the banks to pay bank debt.

    As more money is sucked out of the economy by banks coupled with the fact that banks are not making loans – which in the case of the USA is because money borrowed from the Fed at 0.25% is more prudently invested in US T-Bills at 3% (money for nothing) then in risky loans to SMB businesses in a depressed economy – the money supply is contracted which is the definition of a depression.

    So yes the USA can issue money directly – but it isn’t. The money create as loans against the US public by the FED must be paid back with interest and is only being supplied to Banks which are in turn using the money to buy more T-Bills to support the old debt int he US. This will not lead to inflation but rather to deflation.

    However NZ can issue money directly from the RBNZ and should. Not only that but all the local government bodies should make all of their borrowings from the RBNZ at zero interest. However these are not the policies of either LEFT-RED-LABOUR or RIGHT-BLUE-NATIONAL which means that Labour and National effectively have identical monetary and economic policy – making them effectively identical political parties.

    • Lanthanide 13.1

      “making them effectively identical political parties.”
      I quite enjoy specific social gains that Labour has made in the last decade that we were unlikely to have seen coming from the Nats, so I disagree.

      • nzfp 13.1.1

        Hey L,

        “I quite enjoy specific social gains that Labour has made in the last decade” of course and so do I and I’m not attacking that.

        The point I’m trying to make – which makes me mad – is that unless the root cause of the problems we are facing – which I believe are economic – are addressed then everything else is just robbing Peter to pay Paul – in this case it is robbing the middle class to pay the working class – creating class war.

        There is no need for class war, especially if all of the Government supplied products (infrastructure, electricity, water, money, etc…) and services (health, libraries, education, police, etc…) are funded entirely by the Government via the Reserve Bank. Instead all these services are funded through increasing taxes on labour (i.e. 99% of us) and foreign borrowing – which is a complete waste of time and money.

        I will continue to be critical of Labour and National and continue to see them as identical – two sides of the same coin – one RED-LEFT and one BLUE-RIGHT – until Labour and National address the issue of who creates our money and how our infrastructure (physical and human) is funded.

        See an earlier post a week ago here (September 2010 at 10:07 am) on why foreign borrowing is unnecessary.

    • Draco T Bastard 13.2

      However NZ can issue money directly from the RBNZ and should…

      You also need to point out that the government needs to ban private banks from creating/issuing currency.

      • nzfp 13.2.1

        “You also need to point out that the government needs to ban private banks from creating/issuing currency.”

        Yes – and it should be obvious now – the irony is that the Chicago School of economics proposed a plan that included this and it was endorsed by Milton Friedman – before the existence of the Washington consensus.

        See here for details of Friedmans support for banning banks creating credit.

        The young Milton Friedman was the best known advocate for the Chicago Plan in the postwar period, writing: “Henry Simons held the view…which I share – that the creation of fiat currency should be a government monopoly.”

        Which begs the question – what happened to Friedman?

  14. tsmithfield 14

    nzpf “The money create as loans against the US public by the FED must be paid back with interest and is only being supplied to Banks which are in turn using the money to buy more T-Bills to support the old debt int he US.”

    But the interest rate is virtually non-existant; which enables the carry trade.

  15. nzfp 15

    Hey TS “But the interest rate is virtually non-existant; which enables the carry trade” at the moment it is. However the Federal Reserve system has been in existence since 1913. There is an awful lot of debt still owed to the private Federal Reserve System that incurs interest debt much higher then 0.25%. During Volkers reign as Fed Chairman the FED set interest rates at 20%.

    That said you are correct and that is why I pointed out that “money borrowed from the Fed at 0.25% is more prudently invested in US T-Bills at 3% (money for nothing)”.

    • nzfp 15.1

      But the carry trade is a bad thing – the money should be invested in business and infrastructure. Investing in T-Bills is parasitic and extractive, investing in speculation is parasitic and extractive – neither of them result in development in the productive economy – consequently we get debt deflation and depression.

  16. Bored 16

    I thought that this subject had all the potential for the usual pill brained commentators to jump to the wrong conclusions in defense of their pet antisocial project aka neo liberalism. So rather than do the “Im right you are wrong” name calling mantra of tedious inanity exemplified by our two resident trolls I sought out a historic long term chart to draw a few conclusions from..found this:
    What it appears to show is that the “profligacy” of US government as a contributor to proportionate debt has diminished incredibly since 1945, whilst that paragon of efficiency (the market and in particular finance) has shown every sign of reckless profligacy. From which you might conclude that government is not the problem….

    • Draco T Bastard 16.1


      • Bored 16.1.1

        To right Draco, theres just so much evidence, its just amazing what fairy tales TS and Gos will invent to cover up that which is so obvious. What amazes me more is that the two trolls mentioned most likely dont even fit into the narrow litlle band of those with multiple amounts more than the rest of us, they probably dont get to benefit. Yet they will aspire to be like those who would probably spit on their heads as they (the two trolls) licked their boots. Its a strange variety of masochism.

      • tsmithfield 16.1.2

        Just because the private sector has been borrowing like topsy, this does nothing to diminish my earlier contention that the US public sector has been running cumulative deficits for a substantial period of its economic history.. I contended this had been happening from the mid 1970’s. However others have correctly pointed out, as this chart also displays, that the deficits have been running much longer than that.

        At least with private debt, individuals enter into debt arrangements through their own free volition. The problem with government debt is that the decisions to indebt taxpayers are made by politicians on behalf of taxpayers.

        • Pascal's bookie

          The word you are looking for is ‘voters’.

        • nzfp

          Is there a difference between the Private Sector (Goldman Sachs, JP Morgan Chase, Bank of America, Federal Reserve Bank of New York, Citibank) and Government (Robert Rubin – Citibank, Tim Geithner – Federal Reserve Bank of New York, Hank Paulson – Goldman Sachs … etc …)

          Kinda both look the same to me…

        • Clarke

          You’re entirely correct that the US government has been running deficits for about as long as there’s been a US government, but since the abandonment of the gold standard and a move to a fiat currency, that doesn’t matter in the slightest. The key difference between private debt and government debt is that private debt needs to be repaid, while government debt (when issued in its own currency) does not. If this was not true, then the US would have gone broke a long time ago.

          • nzfp

            Hey Clarke,
            How do you reconcile public debt owed to a private institution (USA/Federal Reserve System) vs public debt owed to a public bank (NZ/RBNZ)?

            Are you saying public debt owed to a Private bank doesn’t need to be repaid or are you saying that public debt owed to a private bank can be paid by borrowing more? What about the interest on the debt to the private bank?

            ? (I may not have articulated the question correctly so I leave it to you to)

        • Draco T Bastard

          As I’ve said before and NZFP says around about as well – there is never any reason for the government to go into debt. All it needs to do is print the money and then tax enough so that the amount of money in the economy remains reasonably stable in relation to it’s productive capacity to counter any inflationary trend.

          The government going into debt is a result of the rich, over many centuries, persuading governments that the money needs to be loaned at interest which leads us back to what I said above.

          The problem with government debt is that the decisions to indebt taxpayers are made by politicians on behalf of taxpayers.

          That is what happens in a representative democracy – especially one that’s controlled by the corporates such as the US and NZ and so won’t take the logical route and stop borrowing money at interest. The rich really are stealing from the taxpayers/voters.

  17. tsmithfield 17

    Thanks nzpf.

    Do you agree with the point I am trying to make to Pascal above about the possibility of chronic stagflation in the American economy.

    • Clarke 17.1

      Because the US dollar tends to be the world’s reserve currency, there’s very little evidence that running persistent deficits is going to make a blind bit of difference to their economic outlook. While the rest of the world is happy to take USDs as payment, the Americans can continue to exchange money that they print on demand for actual physical goods that create wealth in their country (or plasma TVs – take your pick).

      However your comment does tend to underline the basic problem of neoliberal economic theory – that it appears to have absolutely no predictive power. According to classical neoliberalism, the high US deficits should be resulting in domestic inflation, a devaluing currency and increasing interest rates on US government debt – yet none of these things are happening. As it stands, the US is suffering from domestic deflation, declining asset values, the US dollar is near historical highs and government bond rates are near historical lows – the complete opposite of what the Chicago School predicts.

      So based on the evidence, neoliberalism is about as useful as hypothesizing that the sun goes around the earth.

      • tsmithfield 17.1.1

        Clarke, you should replace the phrase “Because the US dollar tends to be…” with “So long as the US dollar remains…”. There are a lot of people out there who would love to replace the USD with some other form of reserve currency.

        See my last comment to Pascal ( There isn’t inflation in the US….yet. My initial comments in this respect were about where the US could end up, not its current situation. Many commentators believe that inflation will become a major issue in the future for the US.

        • nzfp

          Hey TS,
          I agree there isn’t inflation in the US yet – however I would suggest that there isn’t likely to be inflation in the US for a long time. The Debt graph supplied by “Bored” demonstrates the level of Debt the US has currently entered. If you look at the graph you can see the levels of national borrowing and private borrowing and that gives you an indication of what is meant by debt saturation.

          Consider Clarkes arguments about National borrowing and consider the difference between a Nation and a citizen and you can see that a Nation can borrow as much as it likes – from itself (if the monjey is spent on the right things), but a citizen doesn’t have that priveledge, and it is for these reasons that many on this forum argue that the US will experience debt deflation (depression) instead of hyper-inflation.

          Considering the manner in which you state your arguments, I think you would enjoy taking a couple of hours to listen to a well developed argument on Debt Deflation in a couple of interviews with Australian economist Steve Keen. You can find his seven-part podcast “The Debtwatch Report with Steve Keen”. It’s worth a listen, informative and enjoyable.

          B.T.W I’m not taking the mic out of you – I honestly think you would enjoy listening to Steve Keens argument.

          • tsmithfield

            Thanks for that. I will have a look if I get some time. I agree that there is no inflation risk in the US at the moment. The general consensus over there seems to be that they are not slipping back into a double dip though.

            What do you think of my proposition to Pascal any inflation risk to the US is more likely to be from outside the US rather than from inside it.

            • nzfp

              Hey TS,

              RE: Steve Keen just do one a day bro – at least the first one – then you’ll be hooked 😉

              I have to be honest I don’t think there is an infaltionary risk to the US from either outside or internal.

              Remember that the Basel II accords which implemented “mark-to-market accounting” (Richard Epstein: Weathering the Financial Storm) for US banks along with the collapse of Bear Sterns in 2007 and Lehman Bros in 2008 (incidentally Sep 11 2008) signaled the shadow banking market to pull out of the US property market and the US banking system.

              The loss of the shadow bankers (Hedge Funds, Pension Funds etc…) coupled with the Basel II accords left a gigantic hole in the US banking system. The gigantic hole is much larger then the amount the US has so far supplied in the bailouts and guarantees. In a Washington Times article titled “Banks Still Standing Amid Credit Rubble,” Patrice Hill wrote:

              Before last fall’s financial crisis, banks provided only $8 trillion of the roughly $25 trillion in loans outstanding in the United States, while traditional bond markets provided another $7 trillion, according to the Federal Reserve. The largest share of the borrowed funds – $10 trillion – came from securitized loan markets that barely existed two decades ago. . . .

              I think Ellen H. Brown best describes why deflation instead of inflation in her article “THE RETREAT OF THE SHADOW LENDERS: WHY DEFLATION, NOT INFLATION, IS THE ORDER OF THE DAY”

              The retreat of the shadow lenders has created a credit freeze globally; and when credit shrinks, the money supply shrinks with it. That means there is insufficient money to buy goods, so workers get laid off and factories get shut down, perpetuating a vicious spiral of economic collapse and depression. To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the Fed needs to step in and start “monetizing” debt.

              • Colonial Viper

                Brown’s quote still represents madness:

                To reverse that cycle, credit needs to be restored; and when the banks can’t do it, the Fed needs to step in and start “monetizing” debt

                “Restoring credit” = pushing more debt on to individuals in order to make it look like they can afford to spend again. But individuals have smartened up now – they are focussing on paying off debt not getting in deeper.

                • nzfp

                  Hey CV,
                  “Restoring credit” = pushing more debt on to individuals” but if you read her book you’ll get the background of what she fully intends. Brown advocates for the nationalisation of the FED. Her statement then means the creation of public credit free of debt and spent into the economy on infrastructure products.

                  I don’t agree with everything she suggests but her book is very well written and clearly articulates the problem along with ideal and intermediary soluions.

                  Have a read of her book “Web of Debt” and have a look at the following video which she is featured in:

                  “The Secret of Oz”

        • Clarke

          Many commentators believe that inflation will become a major issue in the future for the US.

          Yes, but they’ve been saying that for years, despite all the evidence that this theoretical inflation will not materialise – particularly when the greatest issue for the US economy is deflation due to the destruction of asset values and the contraction of both business and consumer spending. I mean, at what point do you give up on neoliberalism because the theory no longer fits reality? Frankly, neoliberal economic theory has all the credibility of Marxism at this point.

        • Clarke

          Clarke, you should replace the phrase “Because the US dollar tends to be…” with “So long as the US dollar remains…”. There are a lot of people out there who would love to replace the USD with some other form of reserve currency.

          I completely agree – part (but only part) of the stability of the US economy does depend on the USD remaining as the de facto reserve currency. And while there have been some moves away from it, recent experience would suggest that there are no real alternatives on the horizon in the near future.

          To paraphrase Churchill, the US dollar is probably the worst reserve currency imaginable – except for all the alternatives.

          • Draco T Bastard

            Theoretically, in a free-market with floating currencies, there shouldn’t be a reserve currency as each currency can be exchanged for every other currency at the market rate.

  18. Roger 18

    Excellent post Marty, this is an excellent example of how class war works. The wealthy in the US are so ridiculously absorbed in their own material gain that their country is crumbling around them an they don’t give a toss. The removal of power that the institution of government has to maintain standards of order require them to outsource their operation to the group of people that are directly undermining them. I am also thankful for Labour’s nine years but I wish it was more. History suggests that as an institution or a group becomes so powerful that they are no longer accountable for their influence and actions they are brought down through revolution or other similar action. This probably resonates with Marxian views on the final frontiers of capitalism. Eventually this plutocracy will end either when the wealthy and the rest are so radicalised from eachother that things will change the hard way or succession of left leaning governments are elected repeatedly to chip away at the class that wants to destroy democracy and the power of government by the people and bring change the easy way.

  19. randal 19

    up against the wall motherf*ckers.

  20. Gazza 20

    Even though America and its economy was slowly crumbling it was the 2 Bush regimes that pushed it over the edge, especially the junior Wya with his group of war mongers.
    To believe that a war would create wealth for the wealthy was just plain crazy as it allowed the rich Companies the become richer by stealing off the taxpayers with their supplies and services to the Iraq war machine.

  21. john 21

    Great article about the the neo-liberal disaster of the US:Gross and cruel Inequality is celebrated Fortune 500: the US’s biggest Corporations are making record profits while on the same page Poverty in the US spikes. Useless labour costs have been discarded and our obscene privatised wealth
    is bursting our bank accounts,Why? because a transfer from one class to another has taken place! Read the comments! Americans themselves recognise the cruel obscenity of this system and want to do something about it. Our Nact however continue to believe this is the way to go they are dinosaurs unsuited to a changed reality:They support profit before people.


    Here is one comment from an American:
    “These rich greedy bastards need to be taxed on their ill gained wealth. We need to raise the tax rates for the millionaires back to the 91% they were in the golden days of capitalism. Thomas Jefferson said, “To lessen the inequality of wealth, we should exempt from taxation below a certain point and tax the wealthy in geometric progression as the wealth increases.”

  22. john 22

    Our current Neo liberal Government looks back to Adam Smith’s free hand of the market with blinkered self serving adulation.
    Today we have monopoly capitalism Throughout history we find the wreckage of the “vile maxim of the masters of mankind….All for ourselves and nothing for other people….unless government takes pains to prevent” this outcome. No invisible hand works in manipulated markets where governments sanction Smith’s “vile maxim,” and the greater good is nowhere in sight. Under neoliberal rules, capital wins, people lose, and consumerism makes a society obsessed with greed and gratification at the expense of beneficial social change.

    Good link showing the greed of America’s masters who cut services via tax cuts first then cry poverty, though they have given away that money to the already super rich!
    The Nact Gov is up to the same tricks by borrowing money for tax cuts which go to richer people and have to be paid back with interest to other rich people!From the public purse which entity they actually don’t recognise as it entails the concept of the common good! plus cutting tax intake and privatization of social assets so that they become profit makers. Basically they detest being servants to their own people they are servants to wealth and privilege and business rather! Meaning we don’t have a real democracy but the ignorance and complacency of people lulled by consumerism must be largely to blame as no challenge comes to these Politicians!


    My advice for Oprah if she really cares about her fellow Americans in dire straits is she should return to the people at least 1.9 of the 2 BILLION DOLLARS she has managed to take! Americans need real reform not more BS from the corporate media who provide the masses with their operating paradigm.

  23. john 23

    “Taxes are what we pay for civilized society”.
    Neo Liberal Greed is dismantling civilised society in the US:

  24. john 24

    Neoliberalism, as defined in A Brief History of Neoliberalism, is the motive of recent (since Reagan/Thatcher/Pinochet) economic policy around the world by which wealth is distributed to favored sectors of the economy (primarily the financial sector) often at the expense of others (like manufacturing). The author shows that its stated economic objectives (deregulation, free flow of capital) are only followed when said objectives further the interests of the financial class. He talks about the capture of the state apparatus by these interests, something hard to dispute here in the U.S. given the recent massive and almost no strings attached bailout of the financial sector.

    Just to be clear, this is not some sort of tract against the Evil Jew Bankers and their sinister cohorts. Instead it shows how the supposedly free market has been reorganized by a self-interested coalition of allied interests to create a situation where the average ignorant financial worker can make huge profits from making foolish loans to unreliable customers (or suckers, as they used to say in Vegas) and then get a government subsidy when the shitpile of financial malfeasance finally blows, while the average ignorant manufacturing worker obsesses about things like guns laws, abortion, and immigrants thinking somehow that it’s going to stop ‘them’ from shipping their job overseas. Never mind the ‘them’ is really just ‘us’ under a different job title and maybe zip code. (less)

    neoliberalism gained favor among the ruling classes during the economic crises of the 1970s. Simply put, the social contract agreed upon in a post WWII world worked for elites as long as the economy kept expanding. In the 1970s, the global crisis in capitalism kept economic growth stagnant. In other words, they were fine with a fixed percentage of the economic pie as long as the pie kept getting bigger. Once the pie stopped expanding, the elites wanted a bigger piece.

    To increase their wealth, the elites needed a new program to accumulate. They did this through what Harvey calls “accumulation through disposession.” This includes dispossessing people of their land and political rights (largely in the developing world), and dispossessing citizens of the Western world of their political rights and economic entitlements through the destruction of unions and other vehicles of social solidarity.

    He also has an interesting theme about the conception of rights and freedom, and how the neoliberals have cast these terms in the narrowest and most ineffectual ways. He sees movements and opinions based on identity politics and postmodernism as results of a general embrace of neoliberal conceptions of rights and freedoms, even by those considered to be on the left.

    neoliberalism is supposed to be about restoring capitalist profitability by removing barriers to accumulation. But increasingly this takes the form of accumulation by dispossession–privatization, destruction of the commons, and the commodification of everything.

    What’s really scary is how the elites mask their reconstruction of class power through words familiar to us all: freedom, democracy, liberty, choice, etc…and we buy into it. When’s the last time you heard any mention of CLASS in a newspaper or on TV??

  25. john 25

    Another article about the US’s disintegrating infrastructure illustrating US neo liberal decline:

    This is what 40 years of Republican, starve the beast, trickle down Reaganomics gets you. Anyone that votes Republican can look in the mirror if they want someone to blame.

    I am 32 and will be cursing the cheapskates of my parents and grandparents generation long after they are gone for having to pay additional taxes to replace crap that was not maintained, poorly built, poorly planned, etc. Thank god for patch and pray!

    America’s idea of infrastructure is to build another football or baseball stadium for a bunch of dumbass jocks that make way too much money. Europe and Asia put us to shame. You can forget about ever having the Olympics here again in your lifetime.

    Meanwhile in this country, the best and brightest work making cruise missles and derivatives. Why would anyone here want to be an architect or engineer when you will be unemployed for 2 years and not make jack when you do have a job?

    Oh wait, my bad! It was the Marxist! They always skimp on public works projects! I think the gulags were actually FDR’s new deal! AHAHAHA! what a joke.

    America is in the trash bin of history. There is no future as jobs are outsourced and people pouring in over the border making more demands on infrastructure, utilities, water, etc. I’m now a retiree, and quit voting 25 years ago (scandals, etc) and see no hope, it will only get worse.

    • john 25.1

      Infrastructure is a public good-shared by rich and poor and those in the middle.NeoLiberalism doesn’t recognise the PublicGood hence the incentive not to waste money on maintenance but rather do some more tax cuts! Oprah’s 2 BILLION DOLLARS OF Personal Wealth all for her alone could be taxed at 98% to help the restoration of some of those decaying bridges, roads and sewerage systems!

      Oh My God! You could imagine the howls of outrage that would happen! She’d still have 40,000,000 bucks to survive on and continuing media income.

  26. prism 26

    Great backgrounding John. I think you said something about Buddhist philosophy helps keep one calm in an earlier post. I’ll try to follow that as I read them. Startling, unsettling stuff.

  27. prism 27

    The real issue is where all that wealth is going to. Since the neo-liberal revolution, governments have cut tax on the wealthy again and again. In good times, surpluses are taken as a reason to cut taxes on the rich. In recession, the solution to economic woe is tax cuts for, you guessed it, the rich. The result is that more and more wealth is piling into fewer and fewer hands, and governments at all levels on a knife edge with chronic underfunding and ballooning debt.
    The typical American worker’s wages are still where they were in the 1970s. To fund higher consumption they increased their debt, borrowing against the value of their houses, which was only a viable strategy until housing prices inevitably collapsed.

    The question is, in a democracy, why the majority (poor to getting by) can’t assert themselves against the minority (comfortably off, wealthy and fabulously rich). And in NZ we have followed the same path, the decline in our prosperity was hidden by the borrowings we could make at very affordable interest!

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