Billionaires’ solution to US debt crisis: Stick it to the poor

 
In the following you will find our translation of another article from RIA Novosti with commentary by Vince Dhimos. I found a crude, completely unedited Google Translate rendition of this article on the internet, but could not bring myself to link to the atrocity.
 
America has long fallen off the cliff, using purely financial methods to cure economic ills. Somebody needs to tell the US elites that finance and economics are two separate animals. In a sense, Trump actually had the right idea when he focused on domestic oil and gas extraction as a way to make America stronger, though unfortunately, shale energy – which makes up the bulk of the US oil and gas industry – is an inherently unprofitable venture mostly because it requires an extravagantly expensive extraction method involving fracking and the well lives are so short that new wells must be drilled constantly, alas, before the previous well can provide substantial profits for the investors. Trump didn’t see fit to to due diligence and research the subject before foisting this economic solution on his country. So now the US is the biggest oil exporter in the world and offers more jobs than ever but the oil producers have nothing to show for it and are unlikely to keep investing.
 
As for the debt, that is an economic problem, but like the rest of the government and the Fed, Trump and the deep Establishment are using a purely financial tool, namely, devaluation of the dollar. And you think you are poor now? This solution is sort of like trying to repair an iPhone with a monkey wrench. It is very sad to watch the bunglers in government trying to solve problems with ideological means. After all, the notion that a broken economy can be fixed by bankers is nothing more than a fixed, immutable typically American ideology and, as wise people know, ideologies do not fix problems, they create them.
 
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The real US debt is 18 times more than everyone thought. What will happen now?
 
Sept 11, 2019
 
Ivan Danilov
 
The well-known American financial company AllianceBernstein conducted a study that revealed the true size of American public debt, and the results of this study shocked the relevant media. The US financial television channel CNBC has released special material on this subject under the heading "The real level of US debt can be 2,000% (of the size of the American. - Approx. Ed.) of the economy, the Wall Street report said."
 
The AllianceBernstein assessment attracts attention not only due to figures that the US media have called “shocking,” but also because this “debt diagnosis” was made by a very well-known financial institution. AllianceBernstein was founded by renowned economist and billionaire Zalman Haim Bernstein, and it now manages $586 billion of assets, which gives its forecasts serious extra weight.
 
Further, after a careful reading of the calculations and recommendations of these American financiers, it seems that the publication of this study is an element in preparing the public consciousness for the fact that “Bolivar can’t carry double” [see end of this paragraph for explanation] and that in order to save the American economy, it will be necessary to cut social support programs and other elements of a welfare society. Irony of Fate: Zalman Haim Bernstein himself spent several years of his life participating in the implementation of the Marshall Plan, a scheme of American investment in Western Europe to develop Western European economies and strengthen American influence in Europe in the context of competition with the USSR. But that was in the past, and today the company, founded by one of the participants in the Marshall Plan, is actively hinting that to save the American economy from debt gangrene, a scalpel or even a chainsaw will be needed, and it’s not the debt to the holders of American bonds that should be cut, but the American social guarantees. [The expression “Bolivar can’t carry double” comes from O’Henry’s short story “The Roads We Take.” Context: an attempt to mount 2 men on one horse named Bolivar]
 
CNBC reporters explain how AllianceBernstein calculated the real US government debt and why it is important: "AllianceBernstein developed a methodology for calculating (and received.  Ed.) the result, ie, 1832 percent (of GDP. Ed.), to be precise, -- including not only traditional levels of government debt, such as bonds, but also financial debt in all its diversity, as well as future obligations for so-called (social) payment programs, such as Social Security, Medicare and state pensions. After this all comes together, a frightening picture emerges, but this picture requires nuances to understand. It is very important to realize that not all debt obligations are “carved in stone,” and it is important to know where the space for freedom of manoeuvre is found, especially in government programmes, which may be changed either by law or by accounting. "
 
Usually, with regard to the level of US government debt, a figure of $22.5 trillion is quoted, which is equivalent to about 106 percent of GDP. Supporters of the opinion that there is no problem with the US sovereign debt and no crisis looms, go even further and emphasize that the debt obligations that the US Treasury has to other state agencies and funds should be subtracted from this amount, and then we can talk about a debt of only 16.7 trillion dollars, or 78 percent of US GDP. The problem is that this view proceeds from the bizarre assumption that the obligations of the US Treasury to state institutions that pay pensions or medical care or various benefits need not be met, and those government bonds that are on the balance sheet of these institutions, and thanks to which they financed, can simply be "written off" with a stroke of the pen without any consequences.
 
AllianceBernstein chief economist Philipp Carlsson-Szlezak does not make such exceptions and takes into account all US obligations as a state, regardless of their form, when calculating the total debt of the United States, and therefore the picture is much worse – the total public debt (in all forms) works out to an incredible 388 trillion dollars.
 
However, the author of the study immediately rushes to reassure readers. "Although the picture is terrible, such figures do not prove that we are doomed or that a debt crisis is inevitable," writes Philipp Carlsson-Szlezak. And immediately he offers a potent solution: "A default on US treasury bonds would be catastrophic for the global economy – while changes in (social - Ed.) policy (albeit painful for those whose future payments are reduced) would hardly register on the economic horizon." [Notice how the super rich protect themselves and each other in the long run. This tendency of the elites to save their own skins at the expense of the rest is one very important reason why the income gap between rich and poor has grown like a cancer for the last 30 years, as shown here.]
 
Thus, in order to save investors in American treasury bonds, it is proposed to sacrifice American citizens, their benefits and pensions, which would allow us to comply with formal decencies and not undermine the investment community's confidence in American government bonds.
 
It should be noted that from a practical standpoint, this proposal contains one rational and one irrational consideration. The rational one is that a default on US bonds would indeed be a disaster for the American and even global financial markets, not to mention the fact that in this scenario the foreign exchange reserves of many central banks, a significant part of which are invested in US government bonds (Treasuries), will turn to dust overnight. It is logical that representatives of the financial sector of the American, and indeed the world economy will strongly resist this scenario.
 
By the way, even if Washington chooses default, Russia will be among the few countries not to suffer direct financial damage, because the Russian treasury portfolio has been sold in advance because of sanctions risks, although this will not free us from indirect the consequences of a hypothetical American default, from which the entire world financial system will suffer. But the irrational part of the AllianceBernstein proposal lies in the implicit belief that the deprivation of funding for social programs will not lead to dire political and economic consequences. No American politician, regardless of party or ideological affiliation, will agree to such a suicidal decision. The question arises: what then to do with these hundreds of trillions of dollars of debt? The answer can be found in the statements of President Donald Trump, who even before the election victory said that the US economy is one big "financial bubble" that constantly requires a weakening dollar. [I wrote about this here].  If the dollar is devalued greatly, it will be possible to pay off debts very easily, and though will not save the world financial system from crisis, and the American economy from deep depression, it will be possible to pretend that "Uncle Sam" always fulfils his social obligations and uprightly pays his debts. Judging by how actively China and Russia are both buying gold, there are enough people in the world who want to insure themselves against the consequences of this particular method to solve the American debt problem.
 
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