The Manufactured Debt Crisis

On July 25th a video was posted on The Real News Network. It was an interview with the creator of the website 'Naked Capitalism' and the author of the book Econned, Yves Smith. She brings up the idea that this entire 'debt crises' is being manufactured by President Obama and his cabinet to cut entitlement programs. It doesn't seem like this is a manufactured crisis, after all if a person with a credit card spends too much they cannot spend anymore, and the same principle would make sense with the National Debt. However, the National Debt and private debt are very different. The federal government has many tools in their belt to keep spending on programs that are necessary for people to survive. When this is taken into consideration, coupled with Obama's track record, it is plain to see that this really is a manufactured crisis meant to benefit financial institutions once again.

Obama's track record of being a Republican in Democratic clothing starts with the beginning of his presidency. His support of the $700 billion bailouts of financial institutions was so beneficial to banks that it is surprising that any real Democrat would ever listen to anything he had to say from that point on. A move to pay off banks because they are "too big to fail" is beyond Republican in nature, it is oligarchical. A free market Republican would have known better than to bail out a private business, because the market corrects itself. If a bank is making poor decisions it must deal with the consequences just like any other business. The banks had been lending money to people with low incomes, high incomes and bad credit scores, and even to some people with no income at all. These loans had contracts which gave the lender the power to increase the interest rates at a point in the future, sometimes by as much as 100%. If the borrower had no way of paying the loan at the beginning of the process, the lenders knew that any chance of seeing the money again from the borrower was nonexistent. However, they did know that they would see the money that was lent out because the government had bailed other businesses out which were also "too big to fail." The lenders also knew that they would scoop up the foreclosed houses in the process.

Obama, Bush, and characters like then secretary of the treasury, and former CEO of Goldman Sachs, Henry Paulson, got away with stealing from the poor and giving to the rich because the crisis was manufactured by Wall Street and the corrupt public administrators working for the financial sector. In this case manufactured means that the financial sector made a very big deal out of the crisis, which it was, but said that they must be bailed out or the economy will be devastated. Of course if the banks had failed at the government had done nothing the economy would suffer, however, there were many other options available to the president and his cabinet. This blatant lie told by finance sector executives and those public officials with their hands in the financial cookie jar is called extortion. There were other options to choose from during the subprime mortgage crisis, but none would have been so overwhelmingly beneficial to the financial sector. People's savings could have been saved even if the company went under, and other banks would shape up their lending practices in fear that it would happen to them. However, nobody ever discussed these other options, checks were immediately written.

We are now being told another lie.



Sec. of the Treasury Timothy Geithner

 The mainstream media, President, Federal Reserve Chairman, Secretary of the Treasury, members of the House and Senate, teachers at Stanford, Harvard, Princeton, Columbia and many many more sources are echoing words like reform, default, crisis and cutbacks because there is supposedly a national debt crisis. This is completely false. There are many things which could be done before August 3rd which would buy the country a few years to fix the cause of this problem. Instead Obama, his staff and the Federal Reserve boards are all calling for immediate decreases in deficits, and they make it sound like this is the only option the country has. This is of course false. The debt ceiling could be raised once more. The Federal Reserve has $1.6 trillion worth of US Treasury bonds right now. If the Fed is a part of the United States government, like we are told, there should be no debt held by it in the first place. Furthermore, if it is part of our government, the Fed should simply forgive the debt owed to them to give Congress time to come up with a proper solution. The mint also has the ability to make coins in any denomination. A $1.6 trillion coin could be minted and given to the Fed to pay off this portion of the debt.

The best option is of course to repeal, or at least amend the Federal Reserve Act to give the treasury the power to create money under congressional oversight once again. Any currency created by the treasury is debt free and could be released into the economy in a way which does not result in inflation. This would be the vital first step in monetary reform discussed in Debt Free Is The Way To Be.

It is not obvious how creating a crisis like this would benefit anyone, but with a close look and common sense motive can be seen. The debt crisis is being made into a doomsday scenario, where the only two options presented are to lower deficits by August 3rd or face drastic economic depression and government shutdown. There is a lot of pressure on Congress to get something put together by then. If a member of Congress does not vote to lower the deficit they face a scenario where they are not reelected. If the deficit is lowered it will take money directly out of the economy. For example, a cut in Social Security would mean less money in the hands of consumers over 65. This would force many seniors to borrow the money which would normally be given to them through the program. The more money that is borrowed, the more money banks make. Increased taxes would have the same result. Not only would banks benefit from a deficit reduction, but health insurance companies would too. Medicaid and Medicare reforms (cutbacks) would mean that many people would not be able to afford medical attention. Some people may want to just choose not to go to the doctors to avoid paying for insurance, however the patient protection and affordable care act may require them to purchase health insurance in the near future. Smaller federal deficits will mean greater profits for those in the financial services industries.

If one does not think that spending less and taxing more will not have drastic economic consequences, there have already been some European countries that have dealt with such consequences. Ireland faced default unless it accepted austerity measures, which is just a way to say spend less, increase taxes, or some combination of both. When the austerity measures were introduced in November of 2010, the unemployment rate was 14.4%. Hardly a time to cut spending, however they had far fewer options than the United States does now because they gave up there monetary sovereignty by going to the Euro. The same scenario recently took place in Greece. Faced with default, spending was cut and taxes increased when the unemployment rate was 15%. Any economist with common sense can tell you that these austerity measures were not the way to solve the debt problems.

Obama and other high ranking Democrats have good reason to appease the banking gods. Indeed every politician who wants to be elected has few remaining places to look for campaign contributions.