Lines form in front of Cyprus banks as they re-open for the first time in two weeks. A deal was struck last week in which accounts with less than 100,000 euros were transferred to one bank, the Bank of Cyprus. All accounts with more than that amount were frozen. The frozen accounts were then being used to help bailout the Cyprus economy. How much money taken from these frozen accounts is unknown. However it is reported that an estimated 40% will be removed.
Around the world, many people of different countries view this as straight bank robbery of Cyprus citizens. At the same time, in the U.S., many Americans are facing tax increases and government sequestration. So now Americans face a question: If this can happen in Cyprus, can it not happen anywhere? Whats going on with the U.S. economy?
Lets look at what got us where we are now. First is the Bush era tax cuts. These cuts were suppose to create jobs. However, for whatever the reasons may be, they did not create the amount of jobs hoped for. Second, the wars in Afghanistan and Iraq. These wars cost the U.S. trillions of dollars. Third, is the big hitter -- the housing bubbling. The housing bubble was an economic smash caused by poor banking. While this was hardest felt in mortgage values, the overall effect trickled through the economy enough to push down the GDP.
The solution now, according to house republicans, is to cut entitlement programs such as medicare. There are two big problems with that solution though. The first is that entitlement programs were not the cause of the debt problem at all. The second problem is that many entitlement programs are what keep the U.S. from becoming a third world country type environment. Entitlements feed the poor, educate students and pay for disabled veterans benefits. These are not programs that should be cut.
At the same time, we have the Department of Homeland Security purchasing an excess amount of military grade ammunition( ~2 billion rounds) and an entire sector of the Defense Department spending an excess of money without Congressional oversight. In addition to this, instead of employing our military for our overseas operations, we are employing forces such as Xe (aka Blackwater Mercenaries). This of course, is all done in the name of National Security.
So yes, I agree with the notion that government spending should be cut. However, cutting entitlement programs? Squeeze the poor, raise the military? That seems like a horrible idea. As we move away from war, money should be funneling away from war assets back into the people, not visa versa.
However, lets look at another issue. This issue is how the government got us out of the housing bubble crisis. This was in the form of government funded bank bailouts. We increased our national debt to give failing banks another chance at success. Of course, this was in the hopes that mass layoffs and housing foreclosures would not happen. Was this a good idea? Well it did add a tremendous amount of debt to the national ticket. However, the goal did seem to work out. It did prevent layoffs and some foreclosures. At the same time, the GDP still fell quite a bit. Perhaps not as much as it would have otherwise.
The housing bubble also brings up another topic. One that economist Michael Hudson views as a "private debt crisis." The view is, that the problem with current U.S. economics is not with the public debt and deficit. The problem, he says, lies with private banks making poor decisions for Capital gains at the expense of the lower to middle class. This I completely agree with.
The U.S. government, after all, is not in any worry of defaulting on its debt. Not yet at least, and according to many economists, the point at which default could occur is very far down the road. The U.S. government, after all, has been going into and out of a deficit for the last two hundred years. In fact, some economists such as Paul Krugman believe that we should raise the debt ceiling, and take more debt to infuse the economy.
Indeed, the debt crisis was not started by the U.S. government creating debt. It originated in the housing bubble. The housing bubble was an effect of the private banking sector giving out sub-prime mortgages that they knew could not be paid back. There also has to be a reason why the Bush tax cuts didn't effectively create jobs. So lets look at this a little more.
Number One: Banks are giving out huge amounts of credit cards. They are giving them in excess regardless of the debtors ability to pay. Why are they doing this? There is not a real substantial loss from a debtor defaulting. The bank is insured. It collects its insurance and sells off the debt to collection firms such as CACH, LLC.
Number Two: Banks are making a killing off of cannibalizing the economy. Slowly, it seems as though our economy is moving from Industrial Capitalism to Financial Capitalism. What does that mean? Well at one time our economy was being pushed forward by goods and services. Banks would give out loans for companies to create industry. Now bank loans are going towards corporate raiding. In other words, banks are loaning money for corporations to buy out other corporations. These corporations then siphon off pensions, assets and reduce the work force.
This happened recently with Disney's acquisition of Lucas Arts. The first thing Disney did was monetize it's assets and layoff its employees. Now Disney can license making Star Wars games to other companies and make money off of the licensing regardless of whether the games are successful or not.
Disney is not the only company to do this and banks are heading up the profit frontier moving this trend forward. This was also the premise of the Occupy Wall Street movement. Banks are funding financial decisions designed to siphon off economic growth to pad the pockets of the 1%. What happens? Well the middle class disappears and industrial capitalism shrinks. This is exactly what is happening in the U.S. and you can find plenty of Disney corporate take over type situations as examples.
Okay, so we have this established. Private debt from banks is abusing the economy. What can we do about it? Can we fine the banks? Send them to jail? Well here's the problem, the banks themselves are insolvent. In other words, they have no actual money to be taken by the government. If the government shuts the bank down, it hurts the economy even more. If the government takes over the bank, according to Michael Hudson, that's called "socialism"
In the White House, we have two different views on the economy; liberal and conservative. The conservative view says that the market is over-regulated by the government. They prefer a laissez-faire approach toward private markets. The liberal view is that the market needs government oversight. These two views fight with each other until they have a solution.
What is that solution currently? It's called the Sequestration. A short term solution that causes more short term problems for a long term deficit and debt problem. I think Washington needs a new view.
M.
Sources:
VisualizingEconomics.com
Disney lays off LucasArts
Disclaimer: The articles in this blog fall under the "Fair Use" clause of the Copyright Act of 1976, 17 U.S.C. § 107 for news journalism.
Disney lays off LucasArts
Disclaimer: The articles in this blog fall under the "Fair Use" clause of the Copyright Act of 1976, 17 U.S.C. § 107 for news journalism.
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