The United States is out of money
Three times in one week, the world almost ended.
In California, an 89-year-old Bible enthusiast had predicted the Rapture for the day before. Afterwards, he said he was "flabbergasted" that this didn't happen. He's now rescheduled it for October.
And on the previous Monday, the United States reached the credit limit approved by Congress — the so-called "debt ceiling". Most politicians are now seriously worried that no one will continue to lend the US money. This would have serious consequences for the world economy.
America is now $14.294 trillion in debt — more than $46,000 for every man, woman and child — equivalent to 98 percent of annual GDP. The US is borrowing $2 million per minute, or 40 cents for every dollar it's spending.
Treasury Secretary Timothy Geithner says he can keep the creditors at bay until August 2. These include countries like China, Japan, and wealthy oil states, which in turn expect privileged access to the American market. America's collateral is its vast natural resources, the size of its workforce, its share (more than 20 percent) of world GDP (measured in dollars), and the accepted notion that the dollar is the world's currency and should therefore be worth something.
How did this happen?
Why is such a powerful country in debt at all? The simple answer is war. Wars cost money. The Revolution and the Civil War each took half a century to pay for. World War I and especially II left the US with a permanent debt. It didn't matter, though, because America's ability to manufacture and export most of the world's goods (then) was collateral enough.
(Deficit) military spending brought the US out of the Great Depression. So during a recession in 1980, Ronald Reagan tried this and it worked again. The problem was that he reduced revenue as well. Tariffs came off imported goods in the hope that US goods would be allowed into more markets abroad. Tax cuts to corporations and the wealthy reduced revenue even further.
Bill Clinton raised taxes a little and managed in the late 1990s to stop adding to the debt. It might have been possible to pay off the entire $4 trillion debt within a couple of decades. But George W. Bush took the budget surplus and gave it to the rich, then started two long, expensive wars. Barack Obama even agreed to extend the Bush tax cuts in an act of political horse trading. So now we're at $14 trillion and in a real pickle.
Most of the budget is sacrosanct. Sixty percent of it is for the "big four" things that private industry could not offer reliably: medical care to low-income citizens, medical care to senior citizens, social insurance to senior citizens, and military activity. Senior citizens are a powerful (and reliable) voting bloc that no one wants to upset. Also, reducing government programs would put people out of work.
So Congress's budget showdown in April led to cuts of only 1 percent. A few Republicans who will be candidates for president in 2012 have made various radical suggestions, none of which have widespread support. And no one is talking about raising taxes, which would be the logical thing to do.
Time for an Americathon
The 1979 film comedy Americathon offered solutions that are starting to seem more and more relevant. After selling off the White House and various national parks, the president (played brilliantly by John Ritter) gets a wealthy industrialist to lend the country $400 billion. When the industrialist wants his money back, however, Ritter's only option is to hold a month-long telethon. Americans send in their gold, and it's almost enough to prevent losing their country. The industrialist steps in at the last minute, however, and donates the rest. "I don't want this country," he says. "What would I do with it?"
Some politicians are suggesting that the US sell its gold reserve. At the moment, it's worth $392 billion — about enough for an Americathon, but not nearly as much as we need now.
*The Replay section of Spotlight Audio 6/2011 has more on this subject. Timothy Geithner and politicians from both major parties discuss the debt crisis. We explain the idioms they use. Subscribe to Spotlight Audio for as little as €13.10!