I’m celebrating Easter and the Resurrection of Our Lord Jesus Christ by reading the Kevin Phillips’ new book American Theocracy: The Peril and Politics of Radical Religion, Oil and Borrowed MOney in the 21st Century.
Phillips posits that the Republican party has been hijacked by oil interests, radical religion and the ‘borrower-industrial complex’.
Preface
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.