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Debt Ceilings and Other Money Fantasies
Nothing better shows, well OK really there's plenty, the bankruptcy of American politics than the once again empty threat of fiscal rebels in DC to quit paying the bills. Oxymoronically, the US Treasury writes the debt ceiling or debt limit “allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.” The limit is no limit, just the opposite, its an indulgence for further spending. Don't worry, it gets better.
The Treasury panically writes,
“Failing to increase the debt limit would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.”
The Treasury than documents the truly empty political theater this all is,
“Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents. Congressional leaders in both parties have recognized that this is necessary.”
The last debt crisis, everything's a crisis these days in America, was in 2011, though I might be missing one or two. Once again, the Reps had taken over the House mid-term with a Dem in the White House. The then President, a master of empty rhetoric, stated the compromise solution was an "important first step to ensuring that as a nation we live within our means." Upon signing, US debt was $14.3 trillion, today, a dozen years later, it’s just south of $32 trillion, seems those means were infinitely flexible.
In 1960, the year the Treasury arbitrarily uses as a debt limit starting date, total US Federal Government debt was less than quarter billion dollars. In the last fifteen years alone, the total debt has tripled. Debt ceiling? You might as well argue about Santa Claus or the size of Kim Kardashian's booty at least that's sort of real.
So, pay no mind as the political class and corporate media conspire to create another attention diverting crisis. At this point, the best thing might very well be to empty the DC money troughs. It certainly seems the only way to throw a wrench in the gears of the American war-machine, unobstructed militarism far more destructive to the nation and the world than any act of insolvency.
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French historian Fernand Braudel's excellent Out of Italy concerns the two-hundred years where Renaissance Italy and the Italians extraordinary impact on the rest of Europe. This era developed the roots of modern banking. The Italian Genoese helped create these new institutions.
During this time, Europe still considered money as shiny specie of minted gold and silver. The discovery of the Americas and its deposits of the two metals, put Spain, Hapsburg Spain* more accurately, in the European monetary catbird seat. For over a century, galleys loaded with seemingly endless amounts of gold and silver crossed the Atlantic. Most interestingly, Braudel writes records in Seville show a total of only 160 tons of gold came from the Americas to Spain from 1500 to 1650.
Much of this metal was then carted across Spain to Genoa, where it was distributed across Europe and further. Along with the metals, the bankers of Genoa pushed paper debt, which also came to be used as currency. While this might be considered the first bank-debt money, paper debt used as currency goes back at least as far as the Roman republic, though banks in Ancient Rome were just individual patricians.
As all good monarchs are inclined, even with the literal boat loads of gold and silver, the Spanish royalty’s expenses far exceeded receipts, especially with the endless wars conducted against the rising Atlantic powers of Britain and the Netherlands. By the beginning of the 17th century, both nations were ascending above Spain’s naval and merchant power, resulting in ever greater money trouble for Spain. Braudel writes of Spain and her Genoese bankers,
“Having triumphed in 1575 both over their enemies and over the King of Spain himself (since he was unable to manage without them) the Genoese also survived the subsequent Spanish bankruptcies of 1595, 1607, 1627, and 1647. In practice, the Spanish state never went bankrupt without the full knowledge and indeed complicity of the financiers, who did not lose as badly as it might seem. And there were ways of surmounting these troubles. When the king ran out of money, and needed advances from bankers, he now paid in promises, mostly juros, bonds on the fiscal receipts of the Crown. To call this fool's gold would be going to far, but such bonds had a way of depreciating very fast. The financier, however, had the right to pay his own creditors in the same detested currency with which he had himself been paid, and did so regularly. For him it was one way of covering or compensating for his losses, of extricating himself from a tricky position without undue pain. As a result, we can conclude that it was merchants back home in Genoa, or the merchants and investors of other Italian cities, who bore the real burden of the Spanish bankruptcies, that of 1595 for instance, which led to colossal losses in Venice. Other victims were unsuspecting investors, sometimes very small savers in Milan, Venice, or Florence, who speculated, or who were drawn into speculating “on the Besancon exchange.”
Everything old is new again, especially the culpability of the banks in the various follies of the state and the little peoples always left holding the bag.
Today, money's no longer metal, it's paper or simple quantitative entries on banks’ electronic spreadsheets. In the modern world, call it progress, there is never a shortage of a state generated currency, insolvency only brought about by purposely not paying the bills. Certainly, while not limited in quantity, a sovereign currency can devalue to worthlessness, especially in reaction to shifting economic currents undermining established economic power, and too often, by excessive costs of continual and ever expanding foolish militarism. Braudel concludes about this key element to Spanish decline,
“For Spain was embroiled in the Netherlands in one of those remote wars, as costly as they were uncertain, by which any ailing imperialism is regularly tied down in its weaker zones; in this case, distance favored the other side.”
Over the last half-century, the massive growth of debt, and by no means just government debt, is the foundation of a lot of power. An actual restructuring of debt, call it insolvency, would simultaneously require a restructuring of the power it represents. So over the coming months, do yourself a favor, anytime chattering ensues about debt ceilings or debt limits ignore it. We couldn't get that lucky.
*A dozen years ago I wrote a more in-depth piece on 17th century Spain’s money problems and inability to reform. I put it up here.