Phillips posits that the Republican party has been hijacked by oil interests, radical religion and the ‘borrower-industrial complex’.
3 biggest threats to the United States
- Reckless dependence on shrinking oil supplies
- Radicalized and influential religion and
- Reliance on borrowed money
Earlier American theocracies (Puritans, Mormon Utah) weren’t as influential and lacked power of Calvinm’s Gneva or the Spanish Inquisition
Criteria for our American theocracy:
- Leader who thinks he speaks for God
- Dominant political party mobilizing churches
- Beliefe that party direction should be ruled by religion
- Int’l and domestic agendas that are dr
- iven by religious or biblical beliefs
- Natural resources, religious excess, wars and detb have been prominent causes of the downfall of previous leading world economic powers.
Democrats have been clueless (that’s a shocker).
Part III Borrowed Prosperity
I’m skipping the oil and religion chapters of the book and going straight to the chapter on debt since it is the topic I have the least amount of undestanding
Chapter 8: Soaring Debt, Uncertain Politics, and the Financialization of the United States
FIRE sector = finance, insurance and real estate
2000, FIRE becomes 20% of GDP (manufacturing slips to 14.5%): “Moving money around has suprassed making things.” Encourages by 1980s deregulation. In 2004, $45.3 trillion sector.
Powered by American’s ‘loans that many took out to splurge on consumption or to restore income levels they could no longer attain from shrinking manufacturing or back-office wages.’
2003 – Credit card rates and fees seen equivalent to loan-sharking.
Debt was traditionally seen as a way to recover/reconstruct from war (Revolution, Civil War, WWI) – but shifted when used to recover from the Depression and post-WWII (prosperity expanded and made these recoveries possible).
1960s – LBJ racks up debt to finance Vietnam War, deficits climbed to $25 billion (2.9% of GDP).
1971 – US moves off gold standard, foreign lenders get skittish, deficits rise even more in the 1980s.
1986 – Deficit is $221 billion (5.1% of GDP)
As long as US dollar remained the world’s reserve currency, US could do whatever it wanted.
Debtmanship: “How big a deficit could the US get away with, and for how long?”
1980s – Reaganomics – ‘Could a bigger deficits be shrugged off if it enabled tax cuts?’
Hooking back into religious radicalism: Evangelical, fundamentalis, Pentacostal groups overshadowed debt (and personal fiscal responsbility) with salvation.
mid-1980s – Junk bond era, ‘paper entrepreneurs’ shuffled debt and replaced those who actually made goods.
‘I shop, therefore I am’ bumper stickers.
Debt is often useful for emerging nations (1780s US, early 17th cent Dutch, 1690s English, Hapsburg Spain) – not for mature global powers.
2001-2004 – The Fed pushes interest rates down as Americans make their monthly payments as big as they can manage.
2004 – $7.8 trillion dollar debt – largest ever.
2003-2004 credit driven recover was a mirage because of our dependence on ‘the bgigest fiscal and monetary stimulus in history.’
At the same time, foreign-owned debt reached $3.3 trillion (up from practically zero in 1987).
Corporations also re-financed their debt, leverage buyouts return in 2005.
Household debt ballooned – which made pushing through the 2005 federal bankruptcy laws crucial for the FIRE sector.
2004: Americans spent $1.04 for every $1 they had.
The only comparable period is back in the 1946-1950 period when ‘stores had little for sale.’
1997-2000 the stock market expansion moves into the housing market
2004 – economics Robert Marks posits that the size of the debt eclipses the Fed’s control. That the $23 trillion debt had eclipsed the $3 trillion money supply tundet the Fed’s control.
Five kinds of debt to track: national, international, financial, corpoate and household.
1960s forward created the environment for a post-1920s return to borrowing, booms and buying.
1933 Democrats introduce Keynes theory of spend-to-stimulation. 1970s inflation kills this idea.
1992 – debt as 5% of GPD, S & L bailout helped make H. Ross Perot a contender for the presidential election.
1980s-1990s – Japan takes over as international economic power.
1998-2000 – tech boom dismisses these fears as capital-gains taxes wash away federal deficits.
1998-2000 – Budget surpluses.
2001 – 9/11 and stock market crash/recession flips everything again.
‘Debt-swelling tax cuts’ benefit mostly rich Americans.
All five debts (nationa, int’l, corporate, financial and household) reach new records. Greenspan’s cuts + Bush’s cuts encourage Americans to borrow a lot and spend even more, increases housing prices, introduced low-cost financing. Thsi helps replace the growth lost in the 2000-2002 crash.
Dow Jones Industrial Average regains (Nasdar recovers one quarter of it’s 2000 growth).
$4 trillion of the the $7 trillion stock valuation shrinkage is regained and rising real estate makes up the difference.
Housing replaces stocks as source of US wealth creation.
This was a recovery dictated by one man – not Congress, not the President – the Fed chairman.
Remaining un-discussed: ‘rate-cut-driven post-2000 bailout of FIRE.’
‘Slapping large green liquidity Band-Aids on any financial wound that might get infected.’
Whew – I haven’t even cleared the first portion of the first chapter of the thrid part of the book! This is a dense book, to be sure, but it is giving some credence to my sneaking suspicions that our current economy is built on debt and bullshit.