The US is on the brink of defaulting on their debts, losing their triple A rating and sending the globe into GFC 2.0. Even if Barak Obama and congress can come resolve to raise the debt ceiling, which is likely, the US is still in dyer trouble. The interest payment on their current debt is $250 billion a year which is almost the size of the Australian governments total tax receipt. They could fund an entire wealthy nation’s welfare, education, and health care just on their interest payments.
The core of the American problem is the theft of the American dream by those with wealth. You must ask yourself who gets this $250 billion, where does all this interest go? The commonly held belief is it goes to China. Well a large amount of it does go to those frugal Chinese but the majority of the $250 billion per year goes to wealthy Americans, 60% of government bonds and securities are held by those few wealthy Americans who also received George Bush Jnrs tax cuts. What has happened post GFC is that the wealthy have moved from using interest, rents and profits to trickle money up from workers and consumers to using government taxation and interest on bonds to move money from the poor to the wealthy.
In the period of the housing bubble before 2008 Wall Street garnered huge sums from the poor in the form of interest payments, eventually the average American was bled dry and Wall Street panicked. They demanded another way to get at the money of the majority and the Federal Government complied. They gave them huge loans so they could go back to gambling and most Wall Street banks have repaid these loans by gambling on the same bonds that were issued to bail them out. Some people believe this is OK because the wealthy drive innovation and industry, but all they do is gamble. Look at employment figures over the last 10 years the growth has been in professionals and managers , the wealth didn’t trickle to real productive industries like manufacturing. A CDO (Collateralised Debt Obligation) is not an inventive use of capital. Now instead of using interest on loan payments and the associated risk to gain income from the populous they can are using Washington to tax the poor to pay the interest on the government bonds they hold.
A central government’s main purpose in a free market democracy is to temper the fundamental flaws of free markets. Those with more capital or purchasing power can distort markets with their disproportionate bargaining power taking advantage of the needy who must consume housing, food and basic services to survive. The government must lubricate markets by continually moving money from the oversized oligopolies to average consumers via tax and welfare. Even Milton Freidman the godfather of neoliberal economics realised this and advocated negative taxation (whereby the wealthy are taxed and at the middle level tax turns into a payment to give the poor income) to address the problem. The US has done the reverse the government has become the shovel of inequality, to paraphrase James Tobin they are throwing sand in the wheels of commerce by draining the consumers of the necessary funds to participate in real productive markets. The inevitable end to this is economic and social collapse. I of course suggest implementing the FSFP, but if Obama is scared of such positive change simply closing loop holes or raising the taxes on the wealthy should go some way to solving Americas woes.