that may bear fruit after two decades, By Dr. Adel Samara
An American journalist recently wrote the following as proof of the existence and behavior of the dictatorship of capital in the United States:
“…A few days ago, The Washington Post published an article that I found fascinating, posted in the text of a WhatsApp chat. It was a conversation between very wealthy corporate people discussing the amount of money and support they would give to the mayor of New York, Adams, to get the police to intervene at Columbia University and NYU to suppress demonstrators around activities in solidarity with Gaza. Well, this is it. Young people know this, they may not know these details, but they understand that this confirms what they are beginning to understand. If you live in a system that produces great wealth in one aspect and a lot of people have difficulty getting by, you will breed in those people to use the money concentrated in their hands to do what they want. If these people are, for example, supportive very pro-Israel in this case, they want to stop these protests that support the Palestinians and Gaza and all that, so they give money and they’re listened to, the mayor answers the phone, these are the important donors, they’re talking about donating more money to him so he can get re-elected. “Money does what it does, it shows young people, we have the best government money can buy, but this is not the government they want, and now they are smart enough to understand that government does what it does in an unequal society and it always will, so you have to deal with that.”
This conspiratorial talk reveals the fact that corruption, bribery, and buying of receivables are essential components of any capitalist system, no matter how transparent it claims, and that Zionism is a fascist ideological engine located at the heart of this system and contributes greatly to its brutality locally and globally. This reveals the depth of the societal crisis in the United States and a tremendous intersection. It is tangible and consists of:
1- The impact of the massacre against the Palestinians in the Gaza Strip on the young generation in the most important American universities,
2- This generation, which is the son of major American capitalism, realizes that this is a monopolistic capitalist system.
The savage is rotting from within and needs to attack it deeper also from the periphery of the global capitalist system, now the beginning of which was on October 7, 2023. It is one world, one unit, and you cannot understand it by being confined to an isolated site of conflict because it is not isolated. Otherwise, how does the American giant see that it is in hostile contradiction with the Gaza Strip!
Therefore, October 7, 2023, intentionally or not, was the key to the interaction between the Zionist genocide led by the United States and the rot in its system itself and the inability of this system to regain its strength and its dynamism, which increases the conviction of young people to move towards a youth internationalism that is essentially against capital and against Zionism, directly or, more clearly, against the globalized alliance against humanity:
• Capital in the center,
• And the compradors in the periphery including the Arab comprador regimes.
This is a challenge to the Arab youth to interact with this huge global event, starting with recovering the Arab street from the fangs of subordinate regimes and from the terrorism of the forces of P R that foolishly aspire to lead it or color it with backward capitalism with its class structure, and by discriminating against women and suppressing any theory and ideology except P R dictatorship.
The Problem of U.S. Debt
Addressed by Bullying Domestically and Abroad
In contrast to what was discussed above, the current national debt of the United States is approximately $34.8 trillion. For perspective, the population of the United States is currently about 333 million people, which means the national debt per person exceeds $100,000. The concerning issue is the government’s inability to repay this debt and the reasons it fell into this predicament and continues in it. This takes us back to the above the three parties who causes and/or harmed by the deficit and ask for rights, shares and benefits:
1. Military expenditures and bases,
2. Corporate demands who did not pay due taxes,
3. Public demands where people pay but do not receive adequate services.
Let’s say it’s a crisis that cannot be solved but managed in the following way:
Due to the government’s need for more money, it sells what are known as government bonds. Investors lend their money to the U.S. Treasury, and the Treasury promises to repay these funds plus interest at a future date. Depending on the term or maturity date of the bond, the interest rate may be higher or lower. For example, currently, the yield on a ten-year U.S. bond is around 4.3%, an annual return rate. Not only individuals can buy these government bonds, but many companies and foreign countries, such as Japan, China, and the United Kingdom, are also major holders of U.S. government bonds. This means if the United States defaults on these loans, it would cause ripple effects worldwide.
Interestingly, the Federal Reserve, which serves as the U.S. central bank but is privately owned, can also purchase Treasury bonds. This is how the U.S. prints money and injects it into the economy. The Federal Reserve creates money out of thin air and then buys government bonds to put this new money in the government’s hands.
If the government spends $4 trillion but only earns $3 trillion, it needs to sell bonds worth $1 trillion to cover the gap. The trend still shows the gap between spending and income widening each year. This means that to balance the budget every year, the government needs to raise more money, i.e., it needs to sell more bonds and incur more debt.
In 2001, the U.S. national debt was about $10 trillion, but with increasing deficits, it has ballooned to $34.8 trillion in 23 years. This is a huge debt burden, but the worrying part is that the United States cannot slow it down or reduce it, and it may not want to.
Why? Because two of the deficit-causing parties benefit from it and can refuse to pay while not bearing the burden of repayment. They are parasites on the third party, the rest of the society that hasn’t yet organized politically and class-wise to revolt.
This explains the division of this year’s 2024 budget. For the current fiscal year, the U.S. has raised $3.29 trillion in income and spent $4.5 trillion, resulting in a deficit of about $1.2 trillion since October 2023. But let’s look at the distribution of revenues to clarify income and expenditure. Revenues are distributed as follows:
- 51.7% from individual taxes,
- 34.2% from Social Security and Medicare taxes,
- 9.4% from corporate taxes, and small amounts from consumption taxes, estate and gift taxes, and customs duties.
Expenditures are distributed as follows:
- 21% on Social Security,
- 14% on Medicare,
- 13% on interest payments on the debt,
- 13% on health,
- 13% on defense,
- 11% on homeland security.
Notice that the total revenue from individual taxes and Social Security and Medicare taxes equals 85.9% of total revenues, while spending on these sectors and health is only 48%, with the difference going to other sectors like defense and debt interest. Meanwhile, corporate taxes, which are the wealthiest, only account for 9.4% of revenues. Some may argue that the public benefits from homeland security spending, which is relatively true, but defense spending does not benefit the public and actually harms them by exposing soldiers as aggressors to death in American war zones. The defense budget is essentially an aggression budget.
To solve the deficit problem, the U.S. needs to either increase income or reduce spending, or both, and all these options are neither available nor popular.
This deterioration in the deficit over time is expected to raise the debt-to-GDP ratio from 99% this year to 122% in 2034, according to U.S. estimates.
The U.S. also faces another challenge it hasn’t felt for over two decades, which is raising interest rates. This is done by the central bank called the Federal Reserve in America, and while it works with the government, it is independent as noted above it is not a state-owned central bank. Its main function is to raise and lower interest rates to maintain economic and dollar stability. However, the problem is that in the wake of all this inflation seen over the past few years, the Federal Reserve has now raised interest rates from zero to about 5.5%. What is the sensitivity and importance, even the danger, of this manipulation of the interest rate?
Because government debt, like any debt, has a maturity date, and once the bonds reach maturity, the U.S. repays the bondholders. In the case of a deficit, when these debts become due, the U.S. doesn’t have the money to pay its debts, so it instead rolls over the debt by selling more bonds to pay off the old debts. But this is a problem under current circumstances because the previous debt was sold at very low-interest rates, while the new debt needs to be refinanced at much higher interest rates. This means that as more and more debt is rolled over, the amount of interest the U.S. needs to pay each year increases, raising its annual expenditures and increasing the deficit as seen earlier. Raising the interest rate is to entice or attract creditors. Usually, the U.S. finds holders of “lazy money,” meaning large sums of accumulated money that investors prefer lending to the U.S. rather than risking it in production investments.
With increasing mandatory costs, this significantly reduces the discretionary spending the government can implement, naturally leading to tougher times, higher taxes, or bearing more debt to cover increased interest payments. This is what people talk about when they mention a debt spiral: the idea that rising interest rates lead to higher interest payments on rolled-over government debt, meaning the government simply borrows more money to cover it, which in turn leads to accumulating more debt at higher interest rates.
But inflating government debt falls on individuals. When people say the government can inflate the debt, it means the government can amass a huge pile of debt but then let inflation reduce the value of its currency so that in the future, the government pays off all this fixed debt with money worth less than its previous value. To achieve this, we need to notice the trick of printing money by the Federal Reserve and what is called quantitative easing.
The Federal Reserve prints a lot of money and buys some government bonds, increasing the amount of U.S. dollars in existence and giving the government new funds to spend. This allows it to invest these funds in job creation, infrastructure building, or other programs aimed at increasing U.S. productivity. This is good because if productivity rises, companies and workers earn more, leading to higher income and increased tax revenues. Lower borrowing costs also mean more investments, leading to higher asset prices. Generally, inflation rates will also rise. If this scenario continues over the years, the acceleration of the U.S. economy, the increase in GDP, and continuous inflation in all matters will eventually make previous debts seem smaller and smaller compared to how the average house price and average salary in 1970 now seem small by today’s standards. This is the general theory for getting rid of debt through inflation. It’s great in theory but not that simple in practice because there are always consequences in the economy.
The main problem with this theory is actually one America faces today: when you apply these stimulative measures to start encouraging inflation, you get inflation. If left unchecked, history shows it can quickly get out of control, leading to economic instability and social unrest. In extreme cases, it can lead to the collapse or abandonment of the currency, as well-documented in reality.
In recent years, inflation rates seen in America and most of the Western world have been too high to bear. Therefore, while it may help alleviate the burden of U.S. government debt, the Federal Reserve had no choice but to intervene and raise interest rates to try and slow inflation because inflation was happening so rapidly that it was actually a problem. Raising interest rates puts brakes on the economy and slows it down for a while, which is what’s happening now. So, while the theory of getting rid of debt through inflation may seem beautiful in reality, it comes with downsides and must be carefully monitored. This is why the Federal Reserve targets a 2% inflation rate instead of zero, as it keeps pushing the economy forward, gradually raising prices over time, gradually raising wages over time, and encouraging spending sooner, which grows the economy. The long-term major benefit from a debt perspective is that slowly but steadily devaluing the currency makes debt repayment easier year after year. So generally, this is the process through which the government and the central bank can work together to reduce the debt burden over time.
But the primary way to keep control over the debt situation in the U.S. is through smart fiscal policy and a specific focus on reducing the deficit. Ultimately, the most sustainable approach to managing national debt is not eliminating it through inflation but having a country with a good financial status based on good productivity, which this country can no longer achieve.
In other words, inflating debt is an overt form of bullying, even more brazen than theft, looting, or fraud, a situation where the creditor cannot prevent it. The normal and sound situation is for the economy to be more productive with austerity policies and a change in imperialist aggressive global approach.
However, the U.S. is moving away from a productive approach towards monetarism to the extent that it can no longer compete with China or the G7 against BRICS, whether due to the vitality of BRICS or lower labor costs. Austerity, which has recently been proposed in the U.S. as an alternative or heir to the failure of neoliberalism, is a difficult equation in a society accustomed to voracious consumption. In fact, consumerism has been tied to nationalism, as Dick Cheney told the public after 9/11: “To prove an American’s patriotism, they need to consume more!”
Not to mention the impact of austerity on the U.S.’s position as the so-called “The economy of the last resort ” for its exporting followers. The tougher policy would be abandoning the imperialist aggressive approach because changing it means the U.S. would no longer be what it is today!
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The opinions and views expressed in this article are the author’s own and do not necessarily reflect the opinion of Kana’an’s Editorial Board.