USA’s entry into the austerity phase:
The sequence of US social and political crises for the next ten years
- Excerpt GEAB N°47 (September 16, 2010) -
From November 2010, the elections will enable a start to be made in measuring the magnitude of change underway. For our team it will result in two events directly interacting: the paralysis of federal power regarding the economy and social affairs and a growing fixation with the debate on the country's deficits. This is dangerous because it will exacerbate both the awareness of a huge problem which has been ignored for too long (the issue of deficits) while preventing any significant action to resolve it (institutional paralysis).
It is this deeply political nature of US deficits, which creates this strange « front of anger » where one can find very close in their analyses « tea-parties » ultra-liberals, anti-tax and anti -Washington activists, on the one hand, and anti-capitalist activists who want a tax increase and the funding of a European style welfare state, on the other. For example, both groups can be found in their opposition to Obama’s healthcare reform (too much for some, too little for others), in their "hatred" of Wall Street (socializing losses for some, preventing socialization of profits for others), in their rejection of military adventures (waste of money for both)... From « lower-middle class whites » to minorities left to fend for themselves, these two groups can only continue to strengthen at the pace of the socio-economic carnage hitting the US middle classes (5).
Unlike the opportunities of three or four years ago, it now appears unlikely to our team that external military adventures would be adopted as a means of ending the crisis. Entry into the austerity phase is indeed not conducive to new costly adventures that would only exacerbate internal tensions while generating fierce external opposition... in the knowledge that the United States had become extremely dependent on the economic and financial goodwill of the rest of the world.
Willingly or not, the United States will now have to face immense contradictions and imbalances accumulated over five decades. And that will, of course, greatly increase their « country risk » profile and uncertainties about their growth, their taxation, their attractiveness, their ability to repay their debt...
Notes:
(1) Credit card use is collapsing. Source: BusinessWeek, 09/08/2010
(2) As the Guardian wrote in this article of 08/15/2010, knowing that the end of a dream can quickly turn into a nightmare.
(3) In effect, changes in attitude are quick, numerous and fundamental: from cities that decide to remove the asphalt from the roads because they cannot pay for their repair and which once again become trails of the Far West, via the end of the passion for golf that leading to bankrupt courses, the withdrawal of toilet paper in some public services, the abandonment of pleasure boats the length of the U.S. coast, the end of public finance providing help for the disabled, for education, for the retired in many states and cities, the end of the car for 16 year old teenagers, universities on the brink of bankruptcy,... even the birth rate is falling. Sources:USAToday; 08/03/2010; CNNMoney, 07/23/2010; USAToday, 08/26/2010; LJWorld, 09/08/2010; USAToday, 06/08/2010; USAToday, 07/28/2010; New York Times, 08/14/2010; Wall Street Journal, 07/17/2010; USAToday, 08/27/2010
(4) Source: Washington Post, 08/12/2010
(5) It is what LEAP/E2020 had anticipated from February 2009 in the GEAB N°32.
MAP2-Winter 2011 - Content - 23/03/2011
Friday, 29 April 2011
As previously mentioned, entry of the United States into the austerity phase is caused by two sets of factors: some internal, specific to the United States, others linked to rapidly changing international conditions. Regarding internal factors, it is clear that the deficit issue becomes one of the central themes of US political debate after being studiously ignored for decades. The Keynesian Democrats may well expose Republican monetarist manipulation but that does not change the fact that this topic is emerging as one of central concern to voters. In economics as in politics, psychology plays a fundamental role and the current crisis has changed the attitude of a growing number of Americans in relation to the concept of debt: their own as well as that of their country’s. What was considered as evidence of modernity and « real American » behavior is being transformed into the opposite: outdated and anti-American behavior (1). The link between public debate and individual behavior is made against the backdrop of the credit crisis and impoverishment of the middle classes. According to LEAP/E2020 it will shape US public debate for the next decade and generate a succession of social and political shocks because it is a matter of a genuine intellectual revolution compared to the norm of the last fifty years. And one can even consider this as an even more profound change because it marks the end of the myth of an America of unlimited riches (2) and a consequently bright future (3).
Progress of long-term US unemployment (1990-2010) (overall unemployment figures in blue) - Source: BLS, 08/2010
Only from the November 2012 elections (so actually from 2013) will it be possible for Washington, according to LEAP/E2020, to start taking some difficult internal decisions. And yet this is the most optimistic option that assumes rational debate prevails, not questioning the foundations of the political, social and economic system of the country too much. But for our team at this stage, it is not the most likely option (4). Indeed, behind the issue of US deficits hides, in fact, the maintaining in place or replacement of the groups who control the US political system: the richest families and the military-industrial complex, combined with their financial intermediaries, the banks, are indeed at the heart of huge deficits accumulated by the United States. The first group pay hardly any tax, the second « treat » themselves to wars at will and an oversized army, and the third manage it all and profit from the deficits that generate a manna of all kinds of financial activities.
USA: Comparative annual development of nominal GDP (green), federal deficit (blue) and real GDP (red) (1995-2010) - Sources: US Treasury / Market Ticker, 08/2010
But imagining that the holders of US power (the favored classes, bankers, the large industrial and military complex) offer themselves meekly for an exercise in deficit reduction that would result in a sudden loss of their power and wealth would be totally naïve. For this reason the most likely development, according to our team, will be in the direction of a succession of social and political crises during the next decade. The crisis, its duration and its systemic nature prevents the current group of leaders to be able to continue exercising their power as they have done in the past, but the groups that want to change the US political system don’t have the means to force change. It is, then, a situation of imbalances that will prevail resulting in the inevitable rise of mass « structural » - as economists say - unemployment, requiring either the establishment of broader-based social insurance coverage, or a sharp increase in the country’s internal security forces (to protect the ruling groups). This population « left to fend for itself » will increasingly fuel the social, religious or political (and secessionist) « crusades » that are beginning to throw up the demagogues and aspiring political leaders of all kinds. Within the US elite, the debate will intensify from 2011 on how best to « hold the country » without the wealth or its substitute, i.e. the easy credit of recent decades.
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Jeudi 28 Avril 2011
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