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The politics of debt have changed extraordinarily over the last century. In the 1930s, when the new national industrial economies collapsed in unison, the unorthodox idea of deficit spending to counter the collapse emerged. In the US, the New Deal Coalition adopted the practice to counter the Depression’s deflation. A new orthodoxy developed.
In the 1970s, with the first Oil Shock, inflation, growing deindustrialization, and rising unemployment, deficit spending and the resulting growth in national debt were fingered as the great cause of economic distress, promoting the election of Ronald Reagan to the presidency. In his Inaugural Address, the Gipper stated,
"For decades, we have piled deficit upon deficit, mortgaging our future and our children's future for the temporary convenience of the present.... You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we are not bound by that same limitation?”
No one would ever accuse old Ron of being a deep thinker, while America's money class always tried, wrongly, to convince the peoples that a nation’s debt was the same as a household’s, but it’s not. However, while not bound by the same limitation, a nation’s debt has limits, at least if you want some sort of functioning currency. From the beginning, Reagan's lip service to cutting the debt proved complete horseshit, instantly revealed by journalist William Greider's excellent piece on Reagan’s young Budget Director David Stockman. Instead of cutting debt, the Reagan Revolution fully embraced it, not just for the Federal government, but for Wall Street, leviathan corporations, and the little peoples.
“Between 1980 and 1990, the debt more than tripled as the government borrowed money to fund military build-ups and many elaborate new policies, such as "the war on drugs." Americans began relying more and more on credit cards and jumbo mortgages, and being "in debt" became a new way of life in America.”
In the 1990s, the Boomers, both Democratic and Republican, comically and quite accurately represented by Mr. Bill and the lizard Newt, took power. Badly educated in Econ 101, 201, or god help us all, Econ 600, they continued mouthing debt mattered, at least government debt. With smoke and mirrors, they even proudly claimed to have balanced the budget one year. Simultaneously, across the board, private debt from household to mega-corporations continued exponentially expanding.
As political decline continued, junior Bush ascended to the White House, still far and away the worst administration in American history. In the words of its great draft dodging perpetual warrior Vice-President Dick Cheney, “Reagan proved deficits don't matter.”
The last year of the Bush administration saw the collapse of the massive private debt bubble inflated the previous decades. The reaction was to reflate the debt with even greater national debt, a policy embraced almost universally by the political class and even more strenuously by Wall Street and America’s mega-corporations, both at this point dependent on perpetual debt refinancing.
Any concern about debt was then cast to the political fringes, useful only for a handful of Congress people to stoke excitement from some of their badly university educated Boomer constituents, particularly those with a few bucks in the stock market, all failing to understand their stock values are not just dependent on present debt, but ever greater future debt.
These days, the financial press only occasionally runs an article about debt. So it was interesting to see quite a good one by Gillian Tett at the Financial Times, “We should all be worried about the ‘financialisation’ of our world” (understand financialization as debt). Ok, you might say it’s three or four decades late, but Gillian is the financial establishment personified.
“Shut your eyes and try to visualise $160tn. It might seem impossible. Those zeroes in $160,000,000,000,000 — which almost take up a line by themselves — are enough to make anyone dizzy. …since 2000, the world’s stock of paper wealth (the speculative, unrealised price of all its financial assets) has jumped by some $160tn. Yes, really.”
Better to take physicist Richard Feynman's advise, don't spend much time trying to visualize such a number. It is impossible. Feynman was talking about the numbers of the quantum world and those representing values of the universe’s vastness. With financialization and imperatively with the use of computers, we've moved such numbers into the economy.
Tett only goes back twenty years, but to really understand the process of contemporary financialization/debt you need to go back at least forty. She writes,
“For every dollar of global investment made since 2000, some $1.90 of debt has been added. During the 2020 and 2021 period, this “accelerated to $3.40 for each $1.00 in net investment”, McKinsey says. This was the fastest rate in 50 years.”
“That has raised the putative value of all global assets, relative to gross domestic product, from about 470 per cent of global GDP in 2000 to more than 600 per cent today, with real estate and equity markets booming faster than the “real” economy to a truly remarkable ($160tn) degree.”
She points out, “Most of the time, this pattern is rarely discussed.” The growth of private debt, such as MBS and private equity, is key here. All accomplished with the complete support of government regulatory processes and most critically the Fed. “A key factor behind it is that interest rates have been on a decades-long downward trend, making debt cheap. However, last year, rates jumped up, wiping some $8tn, equivalent to a third of the US economy, from household assets in 2022 alone.”
She concludes by speculating what eventually will happen, “a wave of balance sheet restructurings and recessions that reduces the excess debt.” Place your bets on when and hope you're on the Fed's welfare rolls.
She offers an alternative, taking the most un-financial course of digging back into history, not just decades, but millennia! She unearths some recent thinking from what's left of the Left on the ancient Middle East practice of jubilee, a general forgiveness of debt weighing down an ancient society. It’s important to understand there's a great difference between the agrarian monarchies of ancient Sumer and our present financial/industrial/information tech oligarchy. A Mesopotamian jubilee was accomplished by a simple accounting shift with little baring on the power structure and maybe more importantly for today, no need for a change in the daily activities of the debt manumitted farmers.
That ain't the case today. Established debt integrally defines the power structure and just as vitally all Americans’ daily activities. Nonetheless, there is an ever growing, increasingly desperate need for a neo-jubilee — a coordinated mass debt destruction, done equitably and nonviolently requires both a radical restructuring of established power and daily life by reviving, reforming, and evolving democracy in America.